NextPlat Corp 10-K

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. 40 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 Leveraging the e-commerce experience of the Company’s management team and the Company’s existing e-commerce platforms, the Company has embarked upon the rollout of a state-of-the-art e-commerce platform to collaborate with businesses to optimize their ability to sell their goods online, domestically, and internationally, and enabling customers and partners to optimize their e-commerce presence and revenue, which we expect will become the focus of the Company’s business in the future. Historically, the business of NextPlat has been the provision of a comprehensive array of Satellite Industry communication services, and related equipment sales. As detailed in Online Storefronts and E-Commerce Platforms below, the Company operates two main e-commerce websites as well as 25 third-party e-commerce storefronts such as Alibaba, Amazon and Walmart. These e-commerce venues form an effective global network serving thousands of consumers, enterprises, and governments. NextPlat has announced its intention to broaden its e-commerce platform and is implementing comprehensive systems upgrade to support this initiative. The Company has also begun the design and development of a next generation platform for digital assets built for Web3 (an internet service built using decentralized blockchains). This new platform (“NextPlat Digital”) is currently in the design and development phase and will enable the use of a range of digital assets, such as non-fungible tokens (“NFTs”), in e-commerce and in community-building activities. Recent Events Expanding beyond our current global network of online storefronts serving thousands of consumers, enterprises, and governments, the Company has embarked upon the rollout of a state-of-the-art e-commerce platform to collaborate with businesses to optimize their ability to sell their goods online, domestically, and internationally, and enabling customers and partners to optimize their e-commerce presence and revenue. We intend to develop a next generation platform for digital assets built for Web3, an internet service built using decentralized blockchains. Our new platform (“NextPlat Digital”), which is currently in the design and development phase in collaboration with consultants and contracted developers, will initially enable the use of non-fungible tokens (“NFTs”), in e-commerce and in community-building activities. NextPlat Digital may in the future also enable the posting and use of other digital or “crypto” assets once applicable legal and regulatory requirements are addressed. As currently contemplated, NextPlat Digital may facilitate the creation/minting, purchase and sale of a broad range of non-yield-generating and non-fractionalized NFT products, including, but not limited to, art, music, collectables, digital real estate, video games, game items and certificates of authenticity. We also anticipated developing and deploying NFTs for use in tokenizing data for use in brand loyalty programs. 41 NextPlat Digital, as currently planned, will be used by us to create both (a) public marketplaces, for us and third-parties, where anyone with a crypto wallet or credit card can buy an NFT from an authorized user, or, if authorized, sell their own NFTs, and (b) private market places that only allow a particular company or entity to sell their own NFTs within a branded market (such as for the promotion of a particular brand or product). We do not currently intend to undertake or participate in “initial coin offerings”, the minting of “coins” or the mining of cryptocurrencies. The legal status of NFTs under a myriad of state and federal laws and regulatory regimes (including securities, banking, and commodities laws) is highly uncertain and unresolved, and the applicability of various of those regimes to any NFTs that we may propose to post on our platform is also unresolved. Our creation and operation of NextPlat Digital will present a number of new regulatory and legal compliance obligations for the Company. As an initial matter we will need to make a determination whether a particular NFT could reasonably be considered a security for federal and state law purposes, and if so we would be required to comply with the applicable securities registration requirements or obtain comfort that our activities would fall within applicable exemptions from registration. To the extent that we determine that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or securities laws, we intend to obtain contractual comfort from licensed broker-dealer authorized to act as a trading system for those digital assets that such broker-dealer will comply with the applicable “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), administered and enforced by the U.S. Treasury Financial Crimes and Enforcement Network discussed below, among others. We may have legal exposure for any alleged failures on the part of such licensed broker-dealer to fulfill its obligations under its contracts with us. With respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk-based assessments and are not a legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes. Irrespective of a particular NFT’s status as a security, we will need to assess whether we needed to comply with other applicable regulations and laws (including but not limited to AML and CFT regulations). If we are deemed to be involved in the exchange or transmission of value that substitutes for currency, or fall under other evolving requirements, we may be deemed to be a “money transmitter” and will be subject to AML and CFT regulations. Depending on the attributes of an NFT, the manner in which it is marketed, and the nature of the clientele, we could be subject to other legal and regulatory regimes as well. We will endeavor to comply with all applicable laws in connection with our NextPlat Digital business, but the uncertain application of those laws to our proposed business may create a substantial risk to the Company. When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. Crypto wallets protect the identity of the owner of the wallet, store the owner’s private keys, secure and provide access by the owner to the cryptocurrency owned by it and allow the owner to send, receive, and transact business with cryptocurrencies. Such wallets by their nature obfuscate the identity of the owner of the wallet and limit access to the transaction history of that wallet and its owner. Consequently, crypto wallets and cryptocurrencies may be used by persons seeking to avoid legal oversight and to violate the law. For example, they can be used to launder money and to promote terrorism. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. If, on the other hand, we facilitate the distribution of free promotional corporate collectable NFTs that are not deemed to be securities, our compliance requirements will be significantly less. In either event there can be no assurance that our efforts to fully comply with applicable law will be successful. 42 In determining to engage in transactions in an NFT, we will attempt to comply with all applicable laws. However, given the substantial legal uncertainties that may be presented by those laws and given the informational constraints presented by crypto wallets we may not be successful in our efforts. Consequently, we may be exposed to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach is inadequate or inappropriate, as well as to claims asserting civil liability. Moreover, governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable and may seek sanctions relating to our alleged failure to comply with those laws. December 2022 Private Placement of Common Stock On December 9, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors for the sale by the Company in a private placement of 4,575,429 units, each unit comprising (i) one share of the Company’s common stock, and (ii) one warrant to purchase one share of common stock. The offering price of the units was $1.75 per unit. The warrants included in the units are exercisable at a price of $1.75 per share and expire three years from the date of issuance. The offering closed on December 14, 2022, and the Company received gross proceeds of approximately $8.0 million for the units. The Company intends to use the proceeds from the offering for working capital needs, potential acquisitions, joint ventures, and ongoing business transition activities. In connection with the offering, the Company entered into a registration rights agreement, pursuant to which, among other things, the Company will prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement to register for resale the shares of Common Stock sold in the offering and the shares of Common Stock underlying the Warrants, within 15 calendar days and to use its best efforts to have the registration statement declared effective as promptly as practical thereafter. The securities 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 securities 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. Investment in Progressive Care Inc. On August 30, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, Inc. (OTCQB: RXMD) (“Progressive”), which subsequently closed on September 2, 2022. We purchased a non-controlling interest with a view to enhancing our product and services offerings. Progressive is a Florida health services organization and provider of Third-Party Administration (TPA), data management, COVID-19 related diagnostics and vaccinations, 340B contracted pharmacy services, prescription pharmaceuticals, compounded medications, provider of tele-pharmacy services, the sale of anti-retroviral medications, medication therapy management (MTM), the supply of prescription medications to long-term care facilities, and health practice risk management. Our Chairman, Charles Fernandez, was appointed as the Chief Executive Officer of Progressive in November 2022 along with our Board member, Mr. Rodney Barreto, who was appointed to serve as Vice Chairman of Progressive’s board of directors. Our holdings in Progressive include preferred stock, common stock, warrants and convertible debt, and we currently account for it using the equity method. In addition, we have extended an equity line of credit to Progressive. Through conversion of our convertible debt and warrants as well as via securities issuances that would result from utilization of the equity line of credit, we are able to own more than 50% of the voting equity securities of Progressive should we choose to do so. We have determined to use our ownership of the above securities to assert control over Progressive; and we are in the process of assessing whether we should take steps to obtain further control of Progressive and/or integrate Progressive’s business with our own; or whether we should maintain it as a separate business. 43 The September 2, 2022, transaction with Progressive included the purchase of 3,000 newly issued units of securities from Progressive at a price per Unit of $2,000 for an aggregate purchase price of $6 million (the “Unit Purchase”). Each Unit consists of one share of Series B Convertible Preferred Stock of Progressive (“Series B Preferred Stock”) and one warrant to purchase a share of Series B Preferred Stock (“RXMD Warrants”). Each share of Series B Preferred Stock votes as a class with the common stock of Progressive Care and has 500 votes per share. Likewise, each share of Series B Preferred Stock is convertible into 500 shares of Progressive common stock. In addition, the Series B Preferred Stock has a liquidation and dividend preference. The RXMD Warrants have a five-year term, and are immediately exercisable, in whole or in part, and contain cashless exercise provisions. Each Warrant is exercisable at $4.00 per share of Series B Preferred Stock. Following the consummation of the Unit Purchase, our Chairman and Chief Executive Officer, Charles M. Fernandez, and our board member, Rodney Barreto, were appointed to Progressive’s Board of Directors, with Mr. Fernandez appointed to serve as Chairman of Progressive’s Board of Directors and Mr. Barreto appointed to serve as a Vice Chairman of Progressive’s Board of Directors. On November 11, 2022, the Progressive Board of Directors elected Mr. Fernandez to serve as the Chief Executive Officer of Progressive Care. In addition, on September 2, 2022, NextPlat, Charles Fernandez, Rodney Barreto and certain other purchasers purchased from Iliad Research and Trading, L.P. (“Iliad”) a Secured Convertible Promissory Note, dated March 6, 2019, made by Progressive to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.79 million. The aggregate purchase price paid to Iliad for the Note was $2.3 Million of which NextPlat contributed $1.0 million and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”). In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with Progressive Care. Pursuant to the Debt Modification Agreement, the interest rate under the Note was reduced from 10% to 5% per annum and the maturity date was extended to May 31, 2027. In addition, the conversion price under the note was changed to $0.02 per share of Common Stock. Pursuant to the Debt Modification Agreement, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note have the right, exercisable at any time, to redeem all or any portion of the Note. The Debt Modification Agreement also provides that the Note will automatically convert upon the later to occur of: (a) the completion by Progressive of a reverse stock split, and (b) the listing of Progressive’s common stock on a national exchange. In consideration of the concessions in the Debt Modification Agreement, Progressive issued 105,000 shares of its common stock to the purchasers of the Note, of which NextPlat, Charles Fernandez and Rodney Barreto, received 45,653, 18,261, and 18,261 shares, respectively, in each case after giving effect to a 1-for-200 reverse stock split enacted by Progressive Care on December 30, 2022. On November 16, 2022, NextPlat Corp (NASDAQ: NXPL, NXPLW) (the “Company” or “NextPlat”) entered into a Securities Purchase Agreement (the “SPA”) with Progressive (OTCQB: RXMD), pursuant to which the Company has agreed to purchase, from time to time during the three year term of the SPA, up to an aggregate of $10.0 million of secured convertible debentures from Progressive (the “Debentures”). Pursuant to the SPA, all purchases of the Debentures will be made at the Company’s sole election and the proceeds from each purchase will be used by Progressive only as approved by the Company’s Board of Directors. Until used, the proceeds from each purchase of Debentures will be deposited in a controlled account. If and when the Company elects to purchase Debentures under the SPA, the minimum principal amount that can be purchased at any time is $1.0 million. In addition, at the closing of each purchase under the SPA, the Company and Progressive will enter into a Registration Rights Agreement (each, a “Registration Rights Agreement”) pursuant to which Progressive will agree to register the shares of Progressive common stock issuable upon conversion in full of the Debentures purchased by the Company at such closing. In accordance with the form of Debenture to be used for each purchase under the SPA, each Debenture will be convertible at any time, upon the Company’s election, to shares of Progressive’s common stock at a conversion price of $6.0 per share (on a post-split bases and may be further adjusted from time to time for share dividends, share splits, reverse share splits, etc.). In addition, each Debenture will mature on the third anniversary of its issuance and bear interest at 5.0% per annum, payable quarterly. At the Company’s election, interest can be paid in cash, shares of Progressive’s common stock, or some combination thereof. Progressive has the right to prepay the Debenture at any time provided that it gives the Company seven (7) business days advance written notice, during which time the Company could elect to convert the Debenture to Progressive common stock. Upon the prepayment of a Debenture, Progressive will pay the Company an amount equal to the sum of: (i) all outstanding principal under such Debenture, plus (ii) all accrued and unpaid interest under such Debenture through the prepayment date, multiplied by (iii) 110%. While amounts are outstanding under a Debenture, Progressive will be subject to certain restrictive covenants, including with respect to the incurrence of indebtedness, the imposition of liens on Progressive’s assets, changes to the Progressive’s organization documents, etc. 44 In connection with the SPA, on November 16, 2022, the Company entered into a Security Agreement (the “Security Agreement”) with Progressive and its subsidiaries, Touchpoint RX, LLC, a Florida limited liability company (“Touchpoint”), Family Physicians RX, Inc., a Florida corporation (“FPRX”), and ClearMetrX Inc., a Florida corporation (“ClearMetrX” and collectively with Progressive, Touchpoint and FPRX, the “Borrower Parties”). Pursuant to the Security Agreement, the Borrower Parties granted the Company a security interest in all of their respective assets to secure Progressive’s obligations under the Debentures. 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. 45 Enterprise Resource Planning System (ERP) On April 1, 2022, the Company commenced its implementation of an enterprise resource planning “ERP” system, to replace our legacy business applications. The new ERP platform provides better support for our changing business needs and plans for future global growth. The project includes software, external implementation assistance, testing, training, and support. For the year ended December 31, 2022, 19.2% or approximately $86,000 of the cost was expensed in the period incurred to SG&A and 80.8% or approximately $362,000 was capitalized and depreciated over its useful life. On January 1, 2023, the Company completed its implementation process. On June 22, 2022, the Company formed NextPlat B.V., a Netherlands limited liability company, as a wholly-owned subsidiary. At present, NextPlat B.V., has no active operations. 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 a year-to-year basis. 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. 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 the following: Revenue Recognition and Unearned Revenue The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred. The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition. 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. 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 ADU expands the scope of ASC 718, Compensation - Stock Compensation, which currently only includes share-based payments issued to employees, 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 will be effective for the financial statements issues by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period presented. 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. 46 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, and common stock and options issued for services, receivables, the useful lives of property and equipment, and intangible assets, the estimate of the fair value of the lease liability and related right of use assets and the estimates of the valuation allowance on deferred tax assets. 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, 2022, closing rate at 1 . 2098 US$: GBP, yearly average rate at 1.2369 US$: GBP for the year ended December 31, 2021, closing rate at 1 . 3534 US$: GBP, yearly average rate at 1.3750 US$: GBP For the year ended December 31, 2022, GTC represents 72.5% 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 1.2369 to 1.3751. Had the yearly average rate remained, sales would have been higher by approximately $953,000. GTC comparable sales in GBP, its home currency, increased 77.9% or approximately £3.0 million, from approximately £3.9 million to approximately £6.9 million for the year ended December 31, 2022, as compared to December 31, 2021. 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 1.2866 to 1.3750. Had the yearly average rate remained, sales would have been lower by approximately $459,000. GTC comparable sales in GBP, its home currency, increased 34.0% or £984,000, from £2.9 million to £3.9 million for the year ended December 31, 2021, as compared to December 31, 2020. Results of Operations Net Revenue. For the years ended December 31, 2022, and 2021, revenues generated were approximately $11.7 million and approximately $7.7 million, an increase of approximately $4.0 million or 51.3%. 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 to approximately $3.2 million from approximately $2.4 million or an increase of approximately $825,000 or 34.2%. Comparable sales for GTC increased to approximately $8.5 million from approximately $5.3 million, or an increase of approximately $3.2 million or approximately 60.1%. The overall sales increase is attributable to increased sales through Amazon storefronts and product selections, which constituted 54.3% and 63.6% of our total sales for the years ended December 31, 2022, and 2021, respectively. 47 Approximately 54.3% 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, 2022, and 2021, cost of sales increased to approximately $9.2 million compared to approximately $5.9 million for the year ended December 31, 2021, an increase of approximately $3.3 million or 56.8%. We expect our cost of revenues to increase during fiscal 2023 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, 2022, and 2021 were 21.2% and 24.0%, respectively. The decrease in margin was attributable due to significant increases in the cost of inventory and freight, an increase in sales to distributors which attract lower percentage profits, as well as, selling some items at a discounted rate to charities for use in Ukraine. Operating Expenses. Total operating expenses for the year ended December 31, 2022 were approximately $9.7 million, an increase of approximately $1.2 million, or 14.7%, from total operating expenses for the year ended December 31, 2021, of approximately $8.5 million. Factors contributing to the increase are described below. Selling, general and administrative expenses were approximately $5.1 million for both years ended December 31, 2022 and 2021, respectively. Stock based compensation decreased approximately $785,000 which was offset by increases in information technology expense, insurance, rent, marketing, travel and variable expenses which increase with sales. Salaries, wages and payroll taxes were approximately $2.6 million and $1.8 million for the years ended December 31, 2022, and 2021, respectively, representing an increase of approximately $726,000, or 39.5%. The increase is a result of executive management additions and an increase in personnel. Professional fees were approximately $1.6 million and $1.2 million for the years ended December 31, 2022, and 2021, respectively, representing an increase of approximately $354,000 or 29.6%. The increase in professional fees were primarily due to an increase in legal, accounting and public company expenses of approximately $479,000, an increase in director fees of approximately $99,000, associated with the two additional independent directors offset by a reduction to the current director fee structure, decrease in other professional fees of approximately $224,000, related to capital raising efforts. Depreciation and amortization expenses were approximately $490,000 and $317,000 for the years ended December 31, 2022 and 2021, respectively, representing an increase of approximately $173,000, or 54.5%. The increase was attributable to fixed asset additions. We expect our expenses in each of these areas to continue to increase during fiscal 2023 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. Total Other (Income) Expense. Our total other expenses were approximately $132,000 and $1.5 million during the years ended December 31, 2022, and 2021, respectively, representing a decrease of approximately $1.4 million or 91.1%. The decrease was attributable to the Company’s decrease in interest expense of approximately $1.4 million related to convertible notes payable. 48 Net Loss Before Income Tax & Equity of Affiliate . We recorded a net loss before income tax and equity net loss of affiliate of approximately $7.3 million and $8.1 million for the years ended December 31, 2022 and 2021, respectively. 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, 2022, and 2021, the Company recorded income tax expense of $87,000 and $0, respectively. Equity in Net Losses of Affiliate. We recorded a net loss in equity of affiliate of approximately $1.7 million for the year ended December 31, 2022. See Note 7 – Equity Method Investment in Progressive Care Inc. and Subsidiaries. For the year ended December 31, 2021, there were no losses or income. Net Loss . We recorded net loss of approximately $9.2 million and $8.1 million, for the years ended December 31, 2022 and 2021, respectively. The increase is a result of the factors as described above. Comprehensive Loss . We recorded a (loss) gain for foreign currency translation adjustments for the year ended December 31, 2022, and 2021 of approximately ($44,000) and $46,000, respectively. The fluctuations of the increase/decrease are primarily attributable to exchange rate variances. Comprehensive loss for the year ended December 31, 2022 and 2021, was approximately $9.2 million and $8.1 million, respectively. 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 2021 Offering of approximately $16.6 million, January 2022 Offering of approximately $7.2 million and December 2022 Offering of approximately $8.0 million provide 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, 2022, we had a cash balance of approximately $18.9 million and working capital is approximately $19.2 million. We reported a net increase in cash for the year ended December 31, 2022, as compared to December 31, 2021, of approximately $1.6 million primarily as a result of net cash proceeds received from the January 2022 and December 2022 Offering, and offset by the investment in Progressive Care, Inc. during the third quarter of 2022. 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. Our current assets on December 31, 2022, increased 9.3% to approximately $21.2 million, from approximately $19.4 million or an increase of approximately $1.8 million, from December 31, 2021. The increases included cash of approximately $1.6 million, net accounts receivable of approximately $34,000, inventory of approximately $267,000, unbilled revenue of $41,000, offset by decreases in VAT receivable of approximately $59,000, prepaid expenses current portion of approximately $51,000, and other current assets of approximately $49,000. Our current liabilities on December 31, 2022, decreased to approximately $2.1 million from $2.8 million for a decrease of approximately $722,000, or 26.0% from December 31, 2021. The decrease is primarily related to the stock subscription payable of approximately $1.4 million, applied towards the January 5, 2022, private placement of common stock, of approximately $7.2 million. 49 Operating Activities Net cash flows used in operating activities for the year ended December 31, 2022 amounted to approximately $3.6 million and were attributable to our net loss of approximately $9.2 million, offset by depreciation expense of approximately $465,000, amortization of intangible asset of approximately $25,000, right of use asset of approximately $106,000, write-off of website development costs of approximately $43,000, share of loss from equity method investment of approximately $1.7 million, stock-based compensation related to the fair value of options granted of approximately $823,000, and stock-based compensation related to issuance of restricted stock awards of approximately $2.2 million. Changes in operating assets and liabilities were reflected by increases in accounts receivable of approximately $34,000, unbilled revenue of approximately $41,000, inventory of approximately $267,000, lease liabilities of approximately $101,000, contract liabilities of $350, and offset by increases in prepaid and other current assets of approximately $101,000, VAT receivable of approximately $59,000, provision for income taxes of approximately $37,000, and accounts payable and accrued expenses of approximately $455,000. Net cash flows used in operating activities for the year ended December 31, 2021 amounted to approximately $4.1 million and were attributable to our net loss of approximately $8.1 million and gain from debt extinguishment of approximately $21,000, offset by depreciation and amortization expense of approximately $317,000, right of use asset of approximately $33,000, amortization of intangible asset of approximately $25,000, amortization of debt discount of convertible debt of approximately $1,4 million, stock-based compensation related to the fair value of options granted of approximately $1.3 million and stock-based compensation related to issuance of restricted stock awards of approximately $2.5 million. Changes in operating assets and liabilities were reflected by increases in accounts receivable of approximately $173,000, unbilled revenue of approximately $25,000, inventory of approximately $658,000, prepaid and other current assets of approximately $166,000, VAT receivable of approximately $491,000, and lease liabilities of approximately $33,000, and offset by increases in accounts payable and accrued expenses of approximately $11,000, provision for income taxes of approximately $38,000, and contract liabilities of $61. Investing Activities Net cash flows used in investing activities were approximately $7.7 million and $229,000 for the years ended December 31, 2022, and 2021, respectively. For the year ended December 31, 2022, we purchased equipment, capitalized software and website development for approximately $716,000. On September 2, 2022, we purchased an equity method investment of $7,000,000, see Note 7. For the year ended December 31, 2021, we purchased equipment, capitalized software and website development for approximately $229,000. Financing Activities Net cash flows provided by financing activities were approximately $13.0 million and $20.8 million for the years ended December 31, 2022, and 2021, respectively. During the year ended December 31, 2022, we had net proceeds from the January 2022 Offering of approximately $5.6 million, and the December 2022 Offering of approximately $7.5 million, which was offset by repayments from; coronavirus loan of approximately $60,000 and repayments to related party payable of approximately $7,000. During the year ended December 31, 2021, we had proceeds from convertible notes payable of $350,000, the June 2021 Offering of approximately $14.1 million, warrant exercise of approximately $4.6 million, and over-allotments of common stock and warrants of approximately $2.0 million, proceeds from options exercise of $5,000, which was offset by repayments from notes payable for approximately $122,000, coronavirus loan of approximately $28,000 and repayments to related party payable of approximately $67,000. Recent Financing Activities 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. 50 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. December 2022 Private Placement of Common Stock On December 9, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors for the sale by the Company in a private placement of 4,575,429 units, each unit comprising (i) one share of the Company’s common stock, and (ii) one warrant to purchase one share of common stock. The offering price of the units was $1.75 per unit. The warrants included in the units are exercisable at a price of $1.75 per share and expire three years from the date of issuance. The offering closed on December 14, 2022, and the Company received gross proceeds of approximately $8.0 million for the units. The Company intends to use the proceeds from the offering for working capital needs, potential acquisitions, joint ventures, and ongoing business transition activities. In connection with the offering, the Company entered into a registration rights agreement, pursuant to which, among other things, the Company will prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement to register for resale the shares of Common Stock sold in the offering and the shares of Common Stock underlying the Warrants, within 15 calendar days and to use its best efforts to have the registration statement declared effective as promptly as practical thereafter. The securities 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 securities 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. Investment in Progressive Care Inc. On September 2, 2022, we closed a transaction with Progressive, pursuant to which we purchased 3,000 newly issued units of securities from Progressive (the “Units”) at a price per Unit of $2,000 for an aggregate purchase price of $6.0 million (the “Unit Purchase”). Each Unit consists of one share of Series B Convertible Preferred Stock of Progressive (“Series B Preferred Stock”) and one warrant to purchase a share of Series B Preferred Stock (“RXMD Warrants”). 51 Each share of Series B Preferred Stock votes as a class with the common stock of Progressive and has 500 votes per share. Likewise, each share of Series B Preferred Stock is convertible into 500 shares of Progressive common stock. In addition, the Series B Preferred Stock has a liquidation and dividend preference. The RXMD Warrants have a five-year term, and are immediately exercisable, in whole or in part, and contain cashless exercise provisions. Each Warrant is exercisable at $2,000 per share of Series B Preferred Stock. Following the consummation of the Unit Purchase, our Chairman and Chief Executive Officer, Charles M. Fernandez, and our board member, Rodney Barreto, were appointed to Progressive’s Board of Directors, with Mr. Fernandez appointed to serve as Chairman of Progressive’s Board of Directors and Mr. Barreto appointed to serve as a Vice Chairman of Progressive’s Board of Directors. On November 11, 2022, the Progressive Board of Directors elected Mr. Fernandez to serve as the Progressive’s Chief Executive Officer. In addition, on September 2, 2022, NextPlat, Charles Fernandez, Rodney Barreto and certain other purchasers purchased from Iliad Research and Trading, L.P. (“Iliad”) a Secured Convertible Promissory Note, dated March 6, 2019, made by Progressive to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.79 million. The aggregate purchase price paid to Iliad for the Note was $2.3 Million of which NextPlat contributed $1.0 million and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”). In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with Progressive. Pursuant to the Debt Modification Agreement, the interest rate under the Note was reduced from 10% to 5% per annum and the maturity date was extended to May 31, 2027. In addition, the conversion price under the note was changed to $0.02 per share of Common Stock. Pursuant to the Debt Modification Agreement, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note have the right, exercisable at any time, to redeem all or any portion of the Note. The Debt Modification Agreement also provides that the Note will automatically convert upon the later to occur of: (a) the completion by Progressive Care of a reverse stock split, and (b) the listing of Progressive’s common stock on a national exchange. In consideration of the concessions in the Debt Modification Agreement, Progressive issued 105,000 shares of its common stock to the purchasers of the Note, of which NextPlat, Charles Fernandez and Rodney Barreto, received 45,653, 18,261, and 18,261 shares, respectively, in each case after giving effect to a 1-for-200 reverse stock split enacted by Progressive Care on December 30, 2022. 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.