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 and Plan 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 read the following information in conjunction with our financial
statements and related notes contained elsewhere 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 the Annual Report on Form 10-K for the
year ended December 31, 2021, filed with the SEC on March 31, 2022, and the
Company’s subsequent public filings with the SEC.
Corporate Information
NextPlat Corp, formerly Orbsat Corp (“NextPlat”), is a Nevada corporation. Our
headquarters and principal executive offices are located at 3250 Mary St., Suite
410, Coconut Grove, FL 33133. Our telephone number is (305) 560-5355, and our
corporate website is www.nextplat.com. Unless the context requires otherwise, in
this report the terms “the Company,” “we,” “us,” and, “our” refer to NextPlat
and our wholly owned subsidiaries.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
COVID-19 Update
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (“COVID-19”) a global pandemic prompting government-imposed
quarantines, suspension of in-person attendance of academic programs, and
cessation of certain travel and business closures. The United States has entered
a recession as a result of the COVID-19 pandemic, which may prolong and
exacerbate the negative impact on us. Although we expect the availability of
vaccines and various treatments with respect to COVID-19 to have an overall
positive impact on business conditions in the aggregate over time, the exact
timing of these positive developments is uncertain. In December 2020, the United
States began distributing two vaccines that, in addition to other vaccines under
development, are expected to help to reduce the spread of the coronavirus that
causes COVID-19 once they are widely distributed. If the vaccines prove less
effective than currently understood by the scientific community and the United
States Food and Drug Administration, or if there are problems with the
acceptance, availability, timing or other difficulties with widely distributing
the vaccines, the pandemic may last longer, and could continue to impact our
business for longer, than we currently expect. In response to COVID-19,
governmental authorities have implemented numerous measures to try to contain
the virus, such as travel bans and restrictions, prohibitions on group events
and gatherings, shutdowns of certain businesses, curfews, shelter in place
orders and recommendations to practice social distancing. Although many
governmental measures have had specific expiration dates, some of those measures
have already been extended more than once, and there is considerable uncertainty
regarding the duration of such measures and the implementation of any potential
future measures, especially if cases increase across the United States, with the
potential for additional challenges resulting from the emergence of new variants
of COVID-19, some of which may be more transmissible than the initial strain.
Such measures have impacted, and may continue to affect, our workforce,
operations, suppliers and customers. We reduced the size of our workforce
following the onset of COVID-19 and may need to take additional actions to
further reduce the size of our workforce in the future; such reductions incur
costs, and we can provide no assurance that we will be able to rehire our
workforce in the event our business experiences a subsequent recovery. We took
steps to curtail our operating expenses and conserve cash. We may elect or need
to take additional remedial measures in the future as the information available
to us continues to develop, including with respect to our workforce,
relationships with our third-party vendors, and our customers. There is no
certainty that the remedial measures we have implemented to date, or any
additional remedial steps we may take in the future, will be sufficient to
mitigate the risks posed by COVID-19. Further, such measures could potentially
materially adversely affect our business, financial condition and results of
operations and create additional risks for us. Any escalation of COVID-19 cases
across many of the markets we serve could have a negative impact on us.
Specifically, we could be adversely impacted by limitations on our employees to
perform their work due to illness caused by the pandemic or local, state, or
federal orders requiring our stores to close or employees to remain at home;
limitation of carriers to deliver our product to customers; product shortages;
limitations on the ability of our customers to conduct their business and
purchase our products and services; and limitations on the ability of our
customers to pay us in a timely manner. These events may have a material,
adverse effect on our results of operations, cash flows and liquidity.
The ultimate magnitude of COVID-19, including the full extent of the material
negative impact on our financial and operational results, will depend on future
developments, such as the duration and severity of the pandemic, the extent of
any additional increases in cases across the United States, and the related
length of its impact on the global economy, as well as the timing and
availability of effective medical treatments and vaccines, which remain
uncertain and cannot be predicted at this time. The resumption of our normal
business operations may be delayed or constrained by lingering effects of
COVID-19 on our customers, suppliers and/or third-party service providers.
Furthermore, the extent to which our mitigation efforts are successful, if at
all, is not currently ascertainable. Due to the daily evolution of the COVID-19
pandemic and the responses to curb its spread, we cannot predict the full impact
of the COVID-19 pandemic on our business and results of operations, but our
business, financial condition, results of operations and cash flows have already
been materially adversely impacted, and we anticipate they will continue to be
adversely affected by the COVID-19 pandemic and its negative effects on global
economic conditions. Any recovery from the COVID-19 pandemic and related
economic impact may also be slowed or reversed by a variety of factors, such as
any increase in COVID-19 infections. Even after the COVID-19 pandemic has
subsided, we may continue to experience adverse impacts to our business as a
result of its national and, to some extent, global economic impact, including
the current recession and any recession that may occur in the future.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The success of our business depends on our global operations, including our
supply chain and consumer demand, among other things. As a result of COVID-19,
we have experienced shortages in inventory due to manufacturing issues, a
reduction in the volume of sales in some parts of our business, such as rental
sales and direct website sales, and a reduction in personnel due to lockdown
related issues. Our results of operations for the year ended December 31, 2020
reflected this impact. Recently, some governmental agencies in the US and
Europe, where we produce the largest percentage of our sales, have lifted
certain restrictions. We have incurred strong increases in sales outside of our
Amazon marketplaces for the three months ended March 31, 2022. However due to
uncertainties related to variants of COVID-19, we are uncertain as to the
continuation of the increases to revenue.
Recent Events
Expanding beyond our current global network of online storefronts serving
thousands of consumers, enterprises, and governments, 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 will
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.
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 anticipate that NextPlat
Digital will be substantially complete within the next six to nine months.
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
In determining if and how an NFT can be posted on 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 securities laws. 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 do not currently intend to undertake or participate in
“initial coin offerings”, the minting of “coins” or cryptocurrencies.
Our creation and operation of NextPlat Digital will also present a number of new
regulatory and legal compliance obligations for the Company. For example, 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 Anti-Money Laundering
(AML) rules, as well as U.S. Department of the Treasury’s Financial Crimes
Enforcement Network (FinCEN) requirements and state licensing requirements. In
connection with complying with applicable regulations and laws (including
Know-Your-Customer (KYC), Anti-Money Laundering (AML) and Combating the
Financing of Terrorism (CFT) regulations) when onboarding new users, we intend
to utilize third-party tools to proactively screen for high-risk wallets,
including explicitly sanctioned addresses and addresses associated with
sanctioned entities. The applicable 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 form or acquire a broker dealer in order to
post, trade or sell NFTs or other digital assets that are securities, we will
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.
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.
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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.
Restricted Stock Award
On January 21, 2022, the Company issued 10,000 shares of common stock in
connection with restricted stock awards, with a fair market value of $3.48 per
share, on the date of issuance. All shares were fully vested and upon issuance
resulted in stock-based compensation of $34,800. Shares were issued in reliance
on the exemption from registration provided by Section 4(a)(2) of the Securities
Act of 1933, as amended, as there was no general solicitation, and the
transaction did not involve a public offering.
Enterprise Resource Planning System (ERP)
On April 1, 2022, the Company went live with its implementation of an enterprise
resource planning “ERP” system to replace our legacy business applications. The
new ERP platform will provide better support for our changing business needs and
plans for future growth. The project includes software, external implementation
assistance, testing, training, and support. We anticipate that approximately 40%
of the cost will be expensed in the period incurred and 60% will be capitalized
and depreciated over its useful life. The Company intends to maintain dual
accounting systems, until such time it is deemed acceptable.
As of March 31, 2022, there were 50,000,000 shares of common stock authorized
and 9,293,096 shares issued and outstanding.
As of March 31, 2022, there were 2,836,092 registered warrants to purchase
common stock authorized and 2,530,092 registered warrants issued and
outstanding, at an exercise price of $5.00, and 144,000 unregistered underwriter
warrants issued and outstanding, at an exercise price of $5.50. The warrants
expire in June of 2026.
As of March 31, 2022, there were no shares of Series A, B, C, D, E, F, G, H, I,
J, K and L Convertible Preferred Stock authorized, and no shares issued and
outstanding.
We had net cash used in operations of $868,558 during the three months ended
March 31, 2022. At March 31, 2022, we had working capital of $22,766,775.
Additionally, at March 31, 2022, we had an accumulated deficit of $22,836,298
and stockholder’s equity of $23,705,244.
Results of Operations for the Three Months Ended March 31, 2022 compared to the
Three Months Ended March 31, 2021
Revenue. Sales for the three months ended March 31, 2022, consisted primarily of
sales of satellite phones, tracking devices, accessories, and airtime plans. For
the three months ended March 31, 2022, revenues generated were $3,577,778
compared to $1,461,428 of revenues for the three months ended March 31, 2021, an
increase in total revenues of $2,116,350 or 144.8%. Total sales for Global
Telesat Communications Ltd. were $2,595,840 for the three months ended March 31,
2022, as compared to $1,013,435 for the three months ended March 31, 2021, an
increase of $1,582,405 or 156.1%. Total sales for Orbital Satcom Corp. were
$981,938 for the three months ended March 31, 2022 as compared to $447,993, for
the three months ended March 31, 2021, an increase of $533,945 or 119.2%. The
Company attributes the changes in revenue to new product lines, increased
inventory, and additional e-commerce storefronts.
Cost of Sales. During the three months ended March 31, 2022, cost of revenues
increased to $2,776,685 compared to $1,023,911, for the three months ended March
31, 2021, an increase of $1,752,774 or 171.2%. Gross profit margins during the
three months ended March 31, 2022 were 22.4% as compared to 29.9% for the
comparable period in the prior year. The decrease is primarily due to a lower
percentage of high margin sales int the first quarter ended March 31, 2022 as
compared to the same period in 2021.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Operating Expenses. Total operating expenses for the three months ended March
31, 2022, were $1,635,708, an increase of $899,262 or 122.1%, from total
operating expenses for the three months ended March 31, 2021, of $736,446.
Factors contributing to the decrease are described below.
Selling, general and administrative expenses were $574,350 and $175,890 for the
three months ended March 31, 2022 and 2021, respectively, an increase of
$398,460 or 226.5%. The fluctuations in the increase, for the three months ended
March 31, 2022, are attributable to certain SG&A expenses that fluctuate with
sales volatility, as well as, an increase in marketing expenses, stock-based
compensation, D&O and medical insurance, recruiting expenses and other costs
associated with an increase in personnel.
Salaries, wages and payroll taxes were $635,576 and $208,174, for the three
months ended March 31, 2022 and 2021, respectively, an increase of $427,402, or
205.3%. The increase is a result of an increase in personnel, for the three
months ended March 31, 2022.
Professional fees were $326,213 and $292,882 for the three months ended March
31, 2022 and 2021, respectively, an increase of $33,331, or 11.4%. The increase
during the three months ended March 31, 2022 as compared to the same period in
2021, is attributable to increase in director fees, accounting and legal fees,
offset by a reduction in professional fees related to the public offering from
the quarter ended March 31, 2021.
Depreciation and amortization expenses were $99,569 and $73,700 for the three
months ended March 31, 2022 and 2021, respectively, an increase of $25,869 or
35.1%. The increase was primarily attributable to the addition of fixed assets
offset by fully amortized assets, as compared to the same period in the prior
year.
We expect our expenses in each of these areas to continue to increase during
fiscal 2022 and beyond as we expand our operations and begin generating
additional revenues under our current business. Similarly, we are unable at this
time to estimate the amount of the expected increases.
Total Other Expense. Our total other expenses were $15,468 compared to $504,213
during the three months ended March 31, 2022 and 2021, respectively, a decrease
of $488,745. The decrease is attributable to interest expense incurred in the
same period of the prior year.
Net Loss. We recorded net loss before income tax of $850,083 for the three
months ended March 31, 2022 as compared to a net loss of $803,142, for the three
months ended March 31, 2021. The increase in the loss is a result of the factors
as described above.
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Comprehensive Gain (Loss). We recorded a loss for foreign currency translation
adjustments for the three months ended March 31, 2022 of $15,330 and a gain of
$1,611 for the three months ended March 31, 2021. The fluctuations of the
increase/decrease are primarily attributed to the increase/decrease recognized
due 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. At March 31, 2022, we had a cash balance of $21,907,935. Our
working capital is $22,766,775 at March 31, 2022.
Our current assets at March 31, 2022 increased 26% from December 31, 2021 and
included cash, accounts receivable, prepaid expenses, unbilled revenue, right of
use, inventory and other current assets.
Our current liabilities at March 31, 2022 decreased 38.6% from December 31, 2021
and included our accounts payable, due to related party, provision for income
taxes, contract liabilities, lease liabilities and other liabilities in the
ordinary course of our business.
At March 31, 2022, the Company had an accumulated deficit of $22,836,298,
working capital of $22,766,775 and net loss of $850,083 during the three months
ended March 31, 2022.
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.
Operating Activities
Net cash flows used by operating activities for the three months ended March 31,
2022 amounted to $868,558 and were primarily attributable to our net loss of
$850,083, total amortization expense of $6,250 and depreciation of $93,319,
amortization of right of use of $8,803, stock based compensation of $34,800 and
net change in assets and liabilities of $161,647, primarily attributable to an
increase in accounts receivable of $70,307, an increase in inventory of
$453,496, a decrease in unbilled revenue of $8,278, an increase in prepaid
expense of $26,232, a decrease in VAT receivable of $33,044, a decrease in other
current assets of $48,539, an increase in accounts payable of $352,201, a
decrease in contract liabilities of $6,401, a decrease in lease liabilities of
$8,718, and decrease in provision for income taxes of $38,555.
Net cash flows used by operating activities for the three months ended March 31,
2021 amounted to $459,764 and were primarily attributable to our net loss of
$803,142, total amortization expense of $6,250 and depreciation of $67,250,
amortization of discount on debt of $501,164, increase in stock based
compensation of $14,200, a decrease in right of use of $7,563 and net change in
assets and liabilities of $253,249, primarily attributable to an increase in
accounts receivable of $94,176, an increase in inventory of $239,490, an
increase in unbilled revenue of $2,067, , an increase in other current assets of
$19,195, increase in accounts payable of $114,261, a decrease in contract
liabilities of $5,157, a decrease in lease liabilities of $7,589, and an
increase in provision for income taxes of $164.
Investing Activities
Net cash flows used in investing activities were $67,997 and $459 for the three
months ended March 31, 2022 and 2021, respectively. During the three months
ended March 31, 2022 and March 31, 2021, we purchased property and equipment of
$0 and $459, respectively.
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Financing Activities
Net cash flows provided by financing activities were $5,608,353 and $289,131 for
the three months ended March 31, 2022 and 2021, respectively. Net cash flows
provided by financing activities were $5,608,353 for the three months ended
March 31, 2022 and were primarily attributed to proceeds from common stock
offering of $5,605,038, proceeds from related party of $19,737 and offset by
repayments of notes payable for $16,422.
Net cash flows provided by financing activities were $289,131 for the three
months ended March 31, 2021 and were for proceeds from a convertible note
payable of $350,000 and offset by repayments of notes payable for $60,643.
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.
Critical Accounting Policies and Estimates
Critical accounting estimates are those that management deems to be most
important to the portrayal of our financial condition and results of operations,
and that require management’s most difficult, subjective or complex judgments,
due to the need to make estimates about the effects of matters that are
inherently uncertain. We have identified our critical accounting estimates which
are discussed below.
Use of Estimates
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition, and
revenues and expenses for the years then ended. Actual results may differ
significantly from those estimates. Significant estimates made by management
include, but are not limited to, the assumptions used to calculate stock-based
compensation, derivative liabilities and common stock issued for services.
Reclassification
Certain prior year amounts have been reclassified for consistency with the
current year presentation. These reclassifications had no effect on the reported
results of operations.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America (“US GAAP”). The
consolidated financial statements of the Company include the Company and its
wholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat
Communications Ltd. All material intercompany balances and transactions have
been eliminated in consolidation.
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Accounts receivable and allowance for doubtful accounts
The Company has a policy of reserving for questionable accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are offset against
sales and relieved from accounts receivable, after all means of collection have
been exhausted and the potential for recovery is considered remote. As of March
31, 2022, and 2021, there were no allowances for doubtful accounts
Inventories
Inventories are valued at the lower of cost or net realizable value, using the
first-in first-out cost method. The Company assesses the valuation of its
inventories and reduces the carrying value of those inventories that are
obsolete or in excess of the Company’s forecasted usage to their estimated net
realizable value. The Company estimates the net realizable value of such
inventories based on analysis and assumptions including, but not limited to,
historical usage, expected future demand and market requirements. A change to
the carrying value of inventories is recorded to cost of goods sold.
Prepaid expenses
Prepaid expenses amounted to $172,950 and $146,935, at March 31, 2022 and
December 31, 2021, respectively. Prepaid expenses include prepayments in cash
for rent, insurance, pre-payments associated with the Company’s new office and
software license fees which are being amortized over the terms of the respective
agreement. The current portion consists of costs paid for future services which
will occur within a year.
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Foreign Currency Translation
The Company’s reporting currency is U.S. Dollars. The accounts of one of the
Company’s subsidiaries, GTCL, is maintained using the appropriate local
currency, Great British Pound, as the functional currency. All assets and
liabilities are translated into U.S. Dollars at balance sheet date,
shareholders’ equity is translated at historical rates and revenue and expense
accounts are translated at the average exchange rate for the year or the
reporting period. The translation adjustments are reported as a separate
component of stockholders’ equity, captioned as accumulated other comprehensive
(loss) gain. Transaction gains and losses arising from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the statements of operations.
The relevant translation rates are as follows: for the three months ended March
31, 2022, closing rate at 1.3138 US$: GBP, quarterly average rate at 1.3419173
US$: GBP, for the three months ended March 31, 2021, closing rate at 1.3783 US$:
GBP, quarterly average rate at 1.379068 US$: GBP, for the year ended 2021
closing rate at 1.353372 US$: GBP, average rate at 1.375083 US$: GBP.
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.
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Property and Equipment
Property and equipment are carried at historical cost less accumulated
depreciation. Depreciation is based on the estimated service lives of the
depreciable assets and is calculated using the straight-line method.
Expenditures that increase the value or productive capacity of assets are
capitalized. Fully depreciated assets are retained in the property and
equipment, and accumulated depreciation accounts until they are removed from
service. When property and equipment are retired, sold or otherwise disposed of,
the asset’s carrying amount and related accumulated depreciation are removed
from the accounts and any gain or loss is included in operations. Repairs and
maintenance are expensed as incurred.
The estimated useful lives of property and equipment are generally as follows:
Years
Office furniture and fixtures 4
Computer equipment 4
Rental equipment 4
Appliques 10
Website development 2
Intangible assets
Intangible assets include customer contracts purchased and recorded based on the
cost to acquire them. These assets are amortized over 10 years. Useful lives of
intangible assets are periodically evaluated for reasonableness and the assets
are tested for impairment whenever events or changes in circumstances indicate
that the carrying amount may no longer be recoverable.
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
fully recoverable, or at least annually. The Company recognizes an impairment
loss when the sum of expected undiscounted future cash flows is less than the
carrying amount of the asset. The amount of impairment is measured as the
difference between the asset’s estimated fair value and its book value. The
Company did not consider it necessary to record any impairment charges during
the periods ended March 31, 2022 and March 31, 2021, respectively.
Accounting for Derivative Instruments
Derivatives are required to be recorded on the balance sheet at fair value.
These derivatives, including embedded derivatives in the Company’s structured
borrowings, are separately valued and accounted for on the Company’s balance
sheet. Fair values for exchange traded securities and derivatives are based on
quoted market prices. Where market prices are not readily available, fair values
are determined using market-based pricing models incorporating readily
observable market data and requiring judgment and estimates.
The Company did not identify any assets or liabilities that are required to be
presented on the consolidated balance sheets at fair value in accordance with
the accounting guidance. The carrying amounts reported in the balance sheet for
cash, accounts payable, and accrued expenses approximate their estimated fair
market value based on the short-term maturity of the instruments.
Share-Based Payments
Compensation cost relating to share-based payment transactions are recognized in
the financial statements. The cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the
employee’s requisite service period (generally the vesting period of the equity
award).
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own
Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an
issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (for example, warrants) that remain
equity classified after modification or exchange. The ASU provides guidance to
clarify whether an issuer should account for a modification or an exchange of a
freestanding equity-classified written call option that remains equity
classified after modification or exchange as (1) an adjustment to equity and, if
so, the related earnings per share effects, if any, or (2) an expense and, if
so, the manner and pattern of recognition. ASU 2021-04 is effective for annual
beginning after December 15, 2021, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. The
Company is currently evaluating the impact that this standard will have on its
consolidated financial statements.
In October 2021, the FASB issued guidance which requires companies to apply
Topic 606, Revenue from Contracts with Customers, to recognize and measure
contract assets and contract liabilities from contracts with customers acquired
in a business combination. Public entities must adopt the new guidance for
fiscal years beginning after December 15, 2022 and interim periods within those
fiscal years, with early adoption permitted. The Company is currently evaluating
the impact and timing of adoption of this guidance
Any new accounting standards, not disclosed above, 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 consolidated financial statements upon
adoption.
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 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.
© Edgar Online, source Glimpses
