NextPlat Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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. 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 attached as an exhibit thereto to have a conversion price of $2.20 per share. At present, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement. We own approximately 38.4% of the total outstanding voting securities of Progressive Care, and we expect to exercise and/or convert such portion of the convertible and exercisable Progressive Care securities we own to increase its equity holdings in Progressive Care to more than 50% of Progressive Care’s issued and outstanding voting securities. Progressive Care, through its subsidiaries, is a Florida health services organization and provider of 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. 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. The agreement gives us the right to utilize the Tmall Global e-commerce platform for use by NextPlat’s Customers in the sale of their products to the Chinese consumer market and will provide NextPlat Customers a turn-key solution through which products can be sold to the Chinese consumer market. NextPlat Customers are defined as companies primarily based in and producing products in the United States and throughout all of the Americas. 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 There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation included in our 2022 Form 10-K. 20 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Results of Operations for the Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022 Revenue . Sales for the three months ended March 31, 2023, consisted primarily of sales of satellite phones, tracking devices, accessories, and airtime plans. For the three months ended March 31, 2023, revenues generated were approximately $2.9 million compared to $3.6 million of revenues for the three months ended March 31, 2022, a decrease in total revenues of approximately $0.7 million or 19.6%. Total sales for Global Telesat Communications Ltd. were approximately $2.2 million for the three months ended March 31, 2023, as compared to $2.6 million for the three months ended March 31, 2022, a decrease of approximately $0.4 million or 16.2%. The decrease was mainly attributable to the unfavorable change in the foreign exchange rates of approximately $0.2 million and sales due to outbreak of the war in Ukraine during the first quarter of 2022 of approximately $1.0 million, which was non-recurring during the same period in 2023. Excluding these factors sales increased by approximately $0.8 million for the first quarter of 2023 when compared to the same period in 2022. Total sales for Orbital Satcom Corp. were approximately $0.7 million for the three months ended March 31, 2023 as compared to approximately $1.0 million for the three months ended March 31, 2022, a decrease of approximately $0.3 million or 28.7%. The decrease in revenues were mainly attributable to the outbreak of war in Ukraine during the first quarter of 2022, which was non-recurring in 2023 of approximately $0.3 million. Cost of Sales . During the three months ended March 31, 2023, cost of revenues decreased to approximately $2.3 million as compared to $2.8 million for the three months ended March 31, 2022, a decrease of approximately $0.5 million or 18.8%. Gross profit margins during the three months ended March 31, 2023 were 21.6% as compared to 22.4% for the comparable period in the prior year. This decrease in gross margin was largely a result of significantly increased shipping and fuel surcharge costs during the first quarter ended March 31, 2023 as compared to the same period in 2022 . Operating Expenses . Total operating expenses for the three months ended March 31, 2023, were approximately $1.9 million, an increase of approximately $0.3 million or 13.7%, from total operating expenses for the three months ended March 31, 2022, of approximately $1.6 million. Factors contributing to the increase are described below. Selling, general and administrative (“SG&A”) expenses were approximately $0.8 million and $0.6 million for the three months ended March 31, 2023 and 2022, respectively, an increase of approximately $0.2 million or 37.3%. The increase for the three months ended March 31, 2023 was mainly attributable to the increase in stock-based compensation of approximately $0.2 million when compared to the same period in 2022. Salaries, wages and payroll taxes were approximately $0.6 million for the three months ended March 31, 2023 and 2022. Depreciation and amortization expenses were approximately $0.2 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, an increase of approximately $0.1 million or 62.3%. The increase was primarily attributable to fixed assets additions offset by fully amortized assets, as compared to the same period in 2022. 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. Total Other (Income) Expense . Our total other (income) expense was approximately $(83,000) and $15,000 during the three months ended March 31, 2023 and 2022, respectively, an overall favorable impact of approximately $98,000. The favorable change was attributable to interest earned, management fees earned, and favorable foreign exchange impact during the first quarter of 2023. Net Loss . We recorded net loss of approximately $1.2 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. The increase in the net loss was a result of the factors described above. 21 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comprehensive Loss . We recorded comprehensive losses for foreign currency translation adjustments of approximately $23,000 and $15,000 for the three months ended March 31, 2023 and 2022, respectively. The increase was primarily attributed to exchange rate variances. Liquidity and Capital Resources Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. As of March 31, 2023, we had a cash balance of approximately $16.7 million. Our working capital was approximately $18.1 million at March 31, 2023. Our current assets at March 31, 2023 decreased 3.6% from December 31, 2022 primarily because of net cash outflows from operations . Our current liabilities at March 31, 2023 increased approximately $0.3 million from December 31, 2022 primarily because of an increase in accounts payable and accrued liabilities from inventory purchases. As of the date of this report, the Company’s existing cash resources and existing borrowing availability are sufficient to support planned operations for the next 12 months. As a result, management believes that the existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements. Cash Flow from Operating Activities Net cash flows used by operating activities for the three months ended March 31, 2023 amounted to approximately $2.1 million and were primarily attributable to our net loss of approximately $1.2 million, adjusted for non-cash expenses including amortization expense of $6,250 and depreciation of approximately $155,000, amortization of right of use assets of approximately $49,000, stock-based compensation of approximately $243,000, loss in equity method investment of approximately $32,000, and net change in operating assets and liabilities of approximately $1.4 million. Cash Flow from Investing Activities Net cash flows used in investing activities were approximately $69,000 and $68,000 for three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 and 2022, we purchased property and equipment of approximately $69,000 and $68,000, respectively. Cash Flow from Financing Activities Net cash flows used in financing activities were approximately $13,000 compared to cash provided by financing activities of approximately $5.6 million for the three months ended March 31, 2023 and 2022, respectively. The cash used during the three months ended March 31, 2023 were primarily attributed to payments to related parties of approximately $2,000 and repayments of notes payable for approximately $11,000. Recent Financing Activities April 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. 22 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Off-Balance Sheet Arrangements We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders. Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have ● an obligation under a guaranteed contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors ● a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets, ● any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or ● any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.