NextPlat Corp 10-Q

Item 1. Financial Statements The unaudited condensed consolidated financial statements of NextPlat Corp, (“NextPlat,” the “Company,” “we,” or “our”), for the three months ended March 31, 2023 and for comparable periods in the prior year are included below. The financial statements should be read in conjunction with the notes to financial statements that follow. NEXTPLAT CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS 2023 2022 March 31, December 31, 2023 2022 (Unaudited) (Audited) ASSETS Current Assets Cash $ 16,719,968 $ 18,891,232 Accounts receivable 956,098 383,786 Inventory 2,163,521 1,286,612 Unbilled revenue - 141,702 VAT receivable 509,538 432,769 Prepaid expenses – current portion 77,688 45,679 Total Current Assets 20,426,813 21,181,780 Property and equipment, net 1,159,041 1,245,802 Right of use assets, net 806,249 854,862 Intangible assets, net 43,750 50,001 Equity method investment 5,228,361 5,260,525 Prepaid expenses – long term portion 49,226 49,078 Total Other Assets 6,127,586 6,214,466 Total Assets $ 27,713,440 $ 28,642,048 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses $ 1,795,298 $ 1,518,095 Contract liabilities 33,820 36,415 Note payable Coronavirus loans– current portion 61,840 60,490 Due to related party 26,548 28,467 Operating lease liabilities - current 207,733 208,660 Income taxes payable 96,347 94,244 Liabilities from discontinued operations 112,397 112,397 Total Current Liabilities 2,333,983 2,058,768 Long Term Liabilities: Notes payable Coronavirus – long term 144,293 156,266 Operating lease liabilities – long term 607,720 649,895 Total Liabilities 3,085,996 2,864,929 Commitments and Contingencies - - Stockholders’ Equity Preferred stock ($ 0.0001 par value; 3,333,333 shares authorized) - - Common stock ($ 0.0001 par value; 50,000,000 shares authorized, 14,441,025 and 14,402,025 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively) 1,444 1,440 Additional paid-in capital 57,023,736 56,963,200 Accumulated deficit ( 32,334,034 ) ( 31,146,804 ) Accumulated other comprehensive loss ( 63,702 ) ( 40,717 ) Total Stockholders’ Equity 24,627,444 25,777,119 Total Liabilities and Stockholders’ Equity $ 27,713,440 $ 28,642,048 See accompanying notes to condensed consolidated financial statements. 2 NEXTPLAT CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Three Months Three Months Ended Ended March 31, 2023 (Unaudited) March 31, 2022 (Unaudited) Net sales $ 2,876,153 $ 3,577,778 Cost of sales 2,255,339 2,776,685 Gross profit 620,814 801,093 Operating expenses: Selling, general and administrative 788,633 574,350 Salaries, wages and payroll taxes 588,119 635,576 Professional fees 320,930 326,213 Depreciation and amortization 161,594 99,569 Total operating expenses 1,859,276 1,635,708 Loss before other (income) expense ( 1,238,462 ) ( 834,615 ) Interest expense 5,139 3,243 Interest earned ( 10,127 ) ( 4,956 ) Other income ( 50,000 ) - Foreign currency exchange rate variance ( 28,408 ) 17,181 Total other (income) expense ( 83,396 ) 15,468 Loss before equity method investment ( 1,155,066 ) ( 850,083 ) Equity in net loss of affiliate ( 32,164 ) - Net loss $ ( 1,187,230 ) $ ( 850,083 ) Comprehensive loss: Net loss $ ( 1,187,230 ) $ ( 850,083 ) Foreign currency translation adjustments ( 22,985 ) ( 15,330 ) Comprehensive loss $ ( 1,210,215 ) $ ( 865,413 ) NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS Weighted number of common shares outstanding – basic & diluted 14,415,458 9,166,877 Basic and diluted net loss per share $ ( 0.08 ) $ ( 0.09 ) See the accompanying notes to condensed consolidated financial statements. 3 NEXTPLAT CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Three Months Ended March 31, 2023 (Unaudited) Shares Amount Capital Deficit Common Stock Additional $0.0001 Par Value Paid in Accumulated Shares Amount Capital Deficit Balance, December 31, 2022 14,402,025 $ 1,440 56,963,200 $ ( 31,146,804 ) Issuance of common stock related to restricted stock award 39,000 4 60,536 - Comprehensive loss - - - - Net loss - - - ( 1,187,230 ) Balance, March 31, 2023 14,441,025 $ 1,444 $ 57,023,736 $ ( 32,334,034 ) For the Three Months Ended March 31, 2022 (Unaudited) Common Stock Additional $0.0001 Par Value Paid in Accumulated Shares Amount Capital Deficit Balance, December 31, 2021 7,053,146 $ 705 $ 39,513,093 $ ( 21,986,215 ) Balance 7,053,146 $ 705 $ 39,513,093 $ ( 21,986,215 ) Issuance of common stock related to offering 2,229,950 223 7,004,815 Issuance of common stock related to restricted stock award 10,000 1 34,799 - Comprehensive loss - - - - Net loss - - - ( 850,083 ) Balance, March 31, 2022 9,293,096 $ 929 $ 46,552,707 $ ( 22,836,298 ) Balance 9,293,096 $ 929 $ 46,552,707 $ ( 22,836,298 ) See accompanying notes to condensed consolidated financial statements. 4 NEXTPLAT CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY For the Three Months Ended March 31, 2023 (Unaudited) Comprehensive Stockholders’ Loss Equity Balance, December 31, 2022 $ ( 40,717 ) $ 25,777,119 Issuance of common stock related to restricted stock award - 60,540 Comprehensive loss ( 22,985 ) ( 22,985 ) Net loss - ( 1,187,230 ) Balance, March 31, 2023 $ ( 63,702 ) $ 24,627,444 For the Three Months Ended March 31, 2022 (Unaudited) Comprehensive Stockholders’ Income (Loss) Equity Balance, December 31, 2021 $ 3,236 $ 17,530,819 Balance $ 3,236 $ 17,530,819 Issuance of common stock related to offering - 7,005,038 Issuance of common stock related to restricted stock award - 34,800 Comprehensive loss ( 15,330 ) ( 15,330 ) Net loss - ( 850,083 ) Balance, March 31, 2022 $ ( 12,094 ) $ 23,705,244 Balance $ ( 12,094 ) $ 23,705,244 See accompanying notes to condensed consolidated financial statements. 5 NEXTPLAT CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED March 31, 2023 (Unaudited) March 31, 2022 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 1,187,230 ) $ ( 850,083 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 155,344 93,319 Amortization of intangible asset 6,250 6,250 Amortization of right of use assets 48,613 8,803 Share of loss from equity method investment 32,164 - Stock-based compensation 243,285 34,800 Change in operating assets and liabilities: Accounts receivable ( 572,312 ) ( 70,307 ) Inventory ( 876,909 ) ( 453,496 ) Unbilled revenue 141,702 8,278 Prepaid expense ( 32,009 ) ( 26,232 ) Other current assets - 48,539 VAT receivable ( 76,769 ) 33,044 Accounts payable and accrued expenses 94,458 352,201 Lease liabilities ( 43,102 ) ( 8,718 ) Income taxes payable 2,103 ( 38,555 ) Contract liabilities ( 2,595 ) ( 6,401 ) Net cash used in operating activities ( 2,067,007 ) ( 868,558 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 68,582 ) ( 67,997 ) Net cash used in investing activities ( 68,582 ) ( 67,997 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayments to) note payable, related party, net ( 1,919 ) 19,737 Proceeds from common stock offering - 5,605,038 Repayments to note payable Coronavirus loans ( 10,623 ) ( 16,422 ) Net cash (used in) provided by financing activities ( 12,542 ) 5,608,353 Effect of exchange rate on cash ( 23,133 ) ( 31,841 ) Net (decrease) increase in cash ( 2,171,264 ) 4,639,957 Cash beginning of period 18,891,232 17,267,978 Cash end of period $ 16,719,968 $ 21,907,935 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for Interest $ 4,988 $ 3,243 Income tax $ - $ 38,555 Non-cash adjustments during the period for Common stock issued for stock subscription payable $ - $ 1,400,000 See the accompanying notes to condensed consolidated financial statements. 6 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Unless the context requires otherwise, references to the “Company”, “we”, “us”, “our”, “our Company”, or “our business” refer to Nextplat Corp and its subsidiaries. Note 1. Organization & Nature of Operations . NextPlat Corp, a Nevada corporation (the “Company”, “NextPlat”, “we”), formerly Orbsat Corp was incorporated in 1997. The Company operates two main e-commerce websites as well as 25 third-party e-commerce storefronts on platforms such as Alibaba, Amazon and Walmart. These e-commerce venues form an effective global network serving thousands of consumers, enterprises, and governments. NextPlat has announced its intention to broaden its e-commerce platform and is implementing a comprehensive system 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. In addition, we provide a comprehensive array of Satellite Industry communication services and related equipment sales. Our wholly-owned subsidiary, Global Telesat Communications Limited (“GTC”), was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which we acquired all of the outstanding equity in GTC. Our wholly-owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”), a Nevada corporation, was formed on November 14, 2014. On June 22, 2022, NextPlat B.V. (“NXPLBV”) was formed in Amsterdam, Netherlands, as a wholly owned subsidiary of NextPlat Corp. Presently, NXPLBV does not have any active operations. 7 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2. Basis of Presentation and Principles of Consolidation The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2022 Form 10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2022 Form 10-K. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of comprehensive loss, statements of stockholders’ equity and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These Condensed Consolidated Financial Statements have been prepared by management in accordance with general accepted accounting principles in the United States of America (“U.S. GAAP”) and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Use of Estimates In preparing the Condensed Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, assumptions used to calculate stock-based compensation, 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 and corporate income taxes. 8 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3. Summary of Significant Accounting Policies The significant accounting policies of the Company were described in Note 1. to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the Company’s significant accounting policies for the three months ended March 31, 2023. Cash The Company places its cash with high credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . All cash amounts in excess of $ 250,000 , approximately $ 16.2 million, are unsecured. In April 2023, the Company has entered into a deposit placement agreement for Insured Cash Sweep Service (“ICS”). This service is a secure, and convenient way to access FDIC protection on large deposits, earn a return, and enjoy flexibility. This will reduce the Company’s risk as it relates to uninsured FDIC amounts in excess of $ 250,000 . Foreign Currency Translation 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 three months ended March 31, 2023, closing rate at 1.23 US$: GBP, quarterly average rate at 1.21 US$: GBP, for the three months ended March 31, 2022, closing rate at 1.31 US$: GBP, quarterly average rate at 1.34 US$: GBP, for the year ended 2022 closing rate at 1.21 US$: GBP, yearly average rate at 1.24 US$: GBP. Unearned Revenue Contract liabilities are shown separately in the condensed consolidated balance sheets as current liabilities. At March 31, 2023 and December 31, 2022, we had contract liabilities of approximately $ 34,000 and $ 36,000 , respectively. 9 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Recent Accounting Pronouncements Accounting Pronouncements Recently Adopted In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance effective January 1, 2023 and the adoption had no material impact on our condensed consolidated financial statements and related disclosures. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. 10 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 4. Earnings (Loss) per Share Net income (loss) per common share is calculated in accordance with Accounting Standards Codification (“ASC”) Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded. Schedule Of Earnings Per Share Three Months Ended March 31, 2023 2022 Net loss attributable to common shareholders $ ( 1,187,230 ) $ ( 850,083 ) Basic weighted average common shares outstanding 14,415,458 9,166,877 Potentially dilutive common shares — — Diluted weighted average common shares outstanding 14,415,458 9,166,877 Basic weighted average loss per common share $ ( 0.08 ) $ ( 0.09 ) Diluted weighted average loss per common share $ ( 0.08 ) $ ( 0.09 ) Note 5. Inventory At March 31, 2023 and December 31, 2022, inventory consisted of the following: SCHEDULE OF INVENTORY March 31, 2023 (Unaudited) December 31, 2022 (Audited) Finished goods $ 2,163,521 $ 1,286,612 Less reserve for obsolete inventory - - Total $ 2,163,521 $ 1,286,612 Note 6. VAT Receivable On January 1, 2021, VAT rules relating to imports and exports between the UK and EU changed as a result of the UK’s departure from the EU. For the three months ended March 31, 2023 and the year ended December 31, 2022, the Company recorded a receivable in the amount of approximately $ 510,000 and $ 433,000 , respectively, for amounts available to reclaim against the tax liability from UK and EU countries. Note 7. Prepaid Expenses Prepaid expenses current and long term amounted to approximately $ 78,000 and $ 49,000 , respectively at March 31, 2023, as compared to $ 46,000 and $ 49,000 , respectively at December 31, 2022. Prepaid expenses include prepayments in cash for accounting fees, public company expenses, insurance, prepayments in equity instruments, which are being amortized over the terms of their respective agreements, as well as cost associated with certain contract liabilities. The current portion consists of costs paid for future services which will occur within a year. Note 8. Property and Equipment, net Property and equipment, net consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT, NET March 31, 2023 (Unaudited) December 31, 2022 (Audited) Office furniture and fixtures $ 128,605 $ 128,252 Computer equipment 77,243 72,345 Rental equipment 46,099 37,531 Appliques 2,160,096 2,160,096 Leasehold improvements 47,824 47,792 Website development 721,022 665,030 Property and equipment gross 3,180,889 3,111,046 Less: accumulated depreciation ( 2,021,848 ) ( 1,865,244 ) Property and equipment, net $ 1,159,041 $ 1,245,802 Depreciation expense was approximately $ 155,000 and $ 93,000 for the three months ended March 31, 2023 and 2022, respectively. Note 9. Intangible Assets, net Intangible assets, net consist of customer contracts purchased as part of the GTC acquisition in 2014. 11 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Amortization of customer contracts is included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Comprehensive Loss. For the three months ended March 31, 2023 and 2022, the Company recognized amortization expense of $ 6,250 and $ 6,250 , respectively. Future amortization of intangible assets is as follows: SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS 2023 (nine months) $ 18,750 2024 25,000 Total $ 43,750 Note 10. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES March 31, 2023 (Unaudited) December 31, 2022 (Audited) Accounts payable $ 1,312,170 $ 1,194,067 Rental deposits 4,422 4,325 Customer deposits payable 62,093 86,462 Accrued wages & payroll liabilities 27,835 23,040 VAT liability & sales tax payable 104,470 5,685 U.K. income tax payable 5,847 23,771 Accrued legal fees - 84,685 Accrued stock based compensation 182,745 - Pre-merger accrued other liabilities 88,448 88,448 Accrued interest - 356 Accrued other liabilities 7,268 7,256 Total $ 1,795,298 $ 1,518,095 12 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 11. Coronavirus Loan 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 4.0 % per annum over the Bank of England Base Rate ( 0.1 % as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of 6 years from the date of drawdown, July 15, 2026, the “Maturity Date”. The first repayment of £ 4,166.67 (exclusive of interest) was made 13 month(s) after July 16, 2020. Voluntary prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the limit or, if less, the balance of the debenture . The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government. The proceeds from the Debenture were used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of March 31, 2023, and December 31, 2022, the Company has recorded approximately $ 62,000 and $ 60,000 as current portion of notes payable and approximately $ 144,000 and $ 156,000 as notes payable long term, respectively. Note 12. Stockholders’ Equity Preferred Stock We have authorized 3,333,333 shares of $ 0.0001 par value of preferred stock. No preferred stock was outstanding for any year presented. As of March 31, 2023, there were no shares of preferred stock issued and outstanding. Common Stock We have authorized 50,000,000 shares of $ 0.0001 par value common stock. As of March 31, 2023, 14,441,025 shares of common stock were issued and outstanding. Listing on the Nasdaq Capital Market Our common stock and warrants have been trading on the Nasdaq Capital Market under the symbols “NXPL” and “NXPLW,” respectively, since January 21, 2022. Prior to January 21, 2022, our common stock and warrants were traded on the Nasdaq Capital Market under the symbols “OSAT” and “OSATW,” respectively. 13 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 13. Stock-Based Compensation For the three months ended March 31, 2023 and 2022, stock-based compensation expense recognized in selling, general and administrative expenses was approximately $ 243,000 and $ 35,000 , respectively. There were no income tax benefits recognized from stock-based compensation during the three months ended March 31, 2023 and 2022 due to cumulative losses and valuation allowances. Note 14. Related Party Transactions On February 1, 2023, the Company entered into a Management Services Agreement with Progressive Care Inc. (“Progressive Care”) to provide certain management and administrative services to Progressive Care for a $ 25,000 per month fee. During the three months ended March 31, 2023, the Company received $ 50,000 from Progressive Care as management fees and this amount is included in other income on the condensed consolidated statements of comprehensive loss. On July 12, 2022, the Company hired Lauren Sturges Fernandez, the spouse of Mr. Fernandez, as Manager of Digital Assets. Mrs. Fernandez is an at-will employee with an annual salary of $ 95,000 . On September 22, 2022, Mrs. Fernandez’s title was changed to Chief of Staff and Special Assistant to the Chairman of the Board, with no change to her salary. Previously Mrs. Fernandez was a consultant and earned compensation for her services of $ 10,995 for the year ended December 31, 2022. In April 2023, Mrs. Fernandez’s annual salary increased to $ 125,000 , which was approved by the Board of Directors. 14 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 15. Commitments and Contingencies Litigation On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed all compensation payable under his employment agreement executed in June 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or compensation relating to his prior service with the Company or arising under any employment agreement. The Company believes it has adequate defenses to any such claims. The Company has determined to initiate litigation against Mr. Seifert asserting a number of claims including, but not limited to, rescission of the employment agreement, fraud in the inducement in connection with the execution of the employment agreement, and breach of the fiduciary duties of good faith and loyalty. The Company does not expect to seek substantial monetary relief in the litigation. From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation, and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results. Note 16. Leases The Company has entered into a number of lease arrangements under which the Company is the lessee. These leases are classified as operating leases. In addition, the Company has elected the short-term lease practical expedient in ASC Topic 842 related to real estate leases with terms of one year. The following is a summary of the Company’s lease arrangements. Operating Lease Agreements On December 2, 2021, the Company entered into a 62-month lease for 4,141 square feet of office space in Florida, for $ 186,345 annually. The rent increases 3 % annually. The lease commenced upon occupancy on June 13, 2022, and will expire on August 31, 2027. For our facilities in Poole, England, we rent office and warehouse space of approximately 2,660 square feet for £ 30,000 annually or approximately USD $ 37,107 , based on a yearly average exchange rate of 1.24 GBP:USD. The Poole lease was renewed on October 6, 2022, and will expire October 31, 2023. The Florida lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any leases classified as financing leases. The rate implicit to the Florida lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities for the three months ended March 31, 2023 and for the year ended December 31, 2022 was 3.75 %. Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of March 31, 2023 and December 31, 2022, we have not recognized any impairment losses for our ROU assets. We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss. 15 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 17. Concentrations Customers: Sales to customers through Amazon accounted for 57.2 % and 45.9 % of the Company’s revenues during the three months ended March 31, 2023 and 2022, respectively. No other customer accounted for 10 % or more of the Company’s revenues for either period. Suppliers: The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the three months ended March 31, 2023 and 2022 (unaudited). SCHEDULE OF CONCENTRATION RISK March 31, 2023 March 31, 2022 Iridium Satellite $ 527,681 18.6 % $ - - % Garmin $ 594,441 20.9 % $ 415,965 14 % Network Innovations $ 334,184 11.8 % $ 320,516 10.8 % Cygnus Telecom $ 308,668 10.9 % $ 940,914 31.7 % Concentration risk, amount $ 308,668 10.9 % $ 940,914 31.7 % Geographic : The following table sets forth revenue as to each geographic location, for the three months ended March 31, 2023 and 2022 (unaudited): SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION March 31, 2023 March 31, 2022 Europe $ 2,063,354 71.7 % $ 2,899,398 81.00 % North America 585,796 20.4 % 437,216 12.20 % South America 9,274 0.3 % 11,773 0.30 % Asia & Pacific 158,500 5.5 % 196,169 5.50 % Africa 59,229 2.1 % 33,222 1.00 % Revenue $ 2,876,153 $ 3,577,778 Note 18. Subsequent Events May 2023 Investment in Progressive Care and Debt Conversion On May 5, 2023, NextPlat entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, pursuant to which the Company agreed to purchase 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $ 2.20 for an aggregate purchase price of $ 1 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $ 0.0001 per share, of Progressive Care (“Common Stock”) and one warrant to purchase a share of Common Stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and will be immediately exercisable. Each PIPE Warrant is exercisable at $ 2.20 per share of Common Stock. On May 9, 2023, NextPlat and Progressive Care closed the transactions contemplated in the SPA. Progressive Care intends to use the net proceeds from the Unit Purchase for its working capital needs. Simultaneous with the closing, Progressive Care entered into a Debt Conversion Agreement (the “DCA”) with NextPlat and the other holders (the “Holders”) of that certain Amended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by Progressive Care in the original face amount of approximately $ 2.8 million (the “Note”). Pursuant to the DCA, NextPlat and the other Holders agreed to convert the total approximately $ 2.9 million of outstanding principal and accrued and unpaid interest to Common Stock at a conversion price of $ 2.20 per share. Of the total 1,312,379 shares of Common Stock issued upon conversion of the Note pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Executive Chairman and Chief Executive Officer of NextPlat, received 228,240 shares, and Rodney Barreto received 228,240 shares. In addition, each of the Holders also received a warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and will be immediately exercisable. Each Conversion Warrant is exercisable at $ 2.20 per share of Common Stock. 16 NEXTPLAT CORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) At the same time, Progressive Care and NextPlat entered into a First Amendment (the “Amendment”) to that certain Securities Purchase Agreement dated November 16, 2022 (the “Debenture Purchase Agreement”). Under the Debenture Purchase Agreement, Progressive Care agreed to issue, and NextPlat Corp agreed to purchase, from time to time during the three-year term of the Debenture Purchase Agreement, up to an aggregate of $ 10 million of secured convertible debentures from the Company (the “Debentures”). Pursuant to the Amendment, NextPlat and Progressive Care agreed to amend the Debenture Purchase Agreement and the form of Debenture to have a conversion price of $ 2.20 per share. At present, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement. In addition, Progressive Care issued warrants to certain existing Progressive Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and will be immediately exercisable. Each Inducement Warrant is exercisable at $ 2.20 per share of Common Stock. Alibaba Merchant Sourcing Agreement On April 20, 2023, the Company and Alibaba.com Singapore E-Commerce Private Limited, a company organized under the laws of Singapore (“Alibaba”), entered into a Merchant Sourcing Agreement (the “Agreement”) pursuant to which the Company and Alibaba will collaborate in a non-exclusive manner to increase the sale of products produced and sold by American companies to the Chinese consumer market on the Tmall Global e-commerce platform. The Agreement has a term of ninety (90) days. A pril 2023 Private Placement of Common Stock On April 5, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”) for the sale by the Company in a private placement of 3,428,571 shares of the Company’s common stock, $ 0.0001 par value per share (the “Common Stock”). The offering price of the Common Stock was $ 1.75 per share, the closing price of the Common Stock on April 4, 2023. On April 11, 2023, the Private Placement closed. Upon the closing of the Private Placement, the Company received gross proceeds of approximately $ 6.0 million. The Company sold the Common Stock to the Investor in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws. The Investor represented that it is acquiring the Common Stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. Accordingly, the Common Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws. 17 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report on Form 10-Q that do not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company’s products, as well as other factors, many or all of which may be beyond the Company’s control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance. We encourage you to review our periodic reports filed with the SEC and included in the SEC’s EDGAR database, including our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023, and our subsequent public filings with the SEC. 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. 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. 18 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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. 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. April 2023 Private Placement of Common Stock On April 5, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”) for the sale by the Company in a private placement of 3,428,571 shares of the Company’s common stock, $0.0001 par value per share (the “Common Stock”). The offering price of the Common Stock was $1.75 per share, the closing price of the Common Stock on April 4, 2023. On April 11, 2023, the Private Placement closed. Upon the closing of the Private Placement, we received gross proceeds of approximately $6.0 million. The Company sold the Common Stock to the Investor in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws. The Investor represented that it is acquiring the Common Stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. Accordingly, the Common Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws. May 2023 Investment in Progressive Care and Debt Conversion On May 5, 2023, we entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, pursuant to which we agreed to purchase 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, of Progressive Care (“Common Stock”) and one warrant to purchase a share of Common Stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and will be immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of Common Stock. On May 9, 2023, NextPlat and Progressive Care closed the transactions contemplated in the SPA. Progressive Care intends to use the net proceeds from the Unit Purchase for its working capital needs. 19