\n<\/p>\n
The following information should be read in conjunction with the condensed
\nconsolidated financial statements and the notes thereto contained elsewhere in
\nthis report. Statements made in this Item 2, “Management’s Discussion and
\nAnalysis and Plan of Financial Condition and Results of Operations,” and
\nelsewhere in this quarterly report on Form 10-Q that do not consist of
\nhistorical facts, are “forward-looking statements.” Statements accompanied or
\nqualified by, or containing words such as “may,” “will,” “should,” “believes,”
\n“expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,”
\n“outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute
\nforward-looking statements, and as such, are not a guarantee of future
\nperformance. The statements involve factors, risks and uncertainties, the impact
\nor occurrence of which can cause actual results to differ materially from the
\nexpected results described in such statements. Risks and uncertainties can
\ninclude, among others, fluctuations in general business cycles and changing
\neconomic conditions; changing product demand and industry capacity; increased
\ncompetition and pricing pressures; advances in technology that can reduce the
\ndemand for the Company’s products, as well as other factors, many or all of
\nwhich may be beyond the Company’s control. Consequently, investors should not
\nplace undue reliance upon forward-looking statements as predictive of future
\nresults. The Company disclaims any obligation to update the forward-looking
\nstatements in this report.<\/p>\n
You should read the following information in conjunction with our financial
\nstatements and related notes contained elsewhere in this report. You should
\nconsider the risks and difficulties frequently encountered by early-stage
\ncompanies, particularly those engaged in new and rapidly evolving markets and
\ntechnologies. Our limited operating history provides only a limited historical
\nbasis to assess the impact that critical accounting policies may have on our
\nbusiness and our financial performance.<\/p>\n
We encourage you to review our periodic reports filed with the SEC and included
\nin the SEC’s EDGAR database, including the Annual Report on Form 10-K for the
\nyear ended December 31, 2021, filed with the SEC on March 31, 2022, and the
\nCompany’s subsequent public filings with the SEC.<\/p>\n
\n\n\nCorporate Information\n\n\n<\/pre>\nNextPlat Corp, formerly Orbsat Corp (“NextPlat”), is a Nevada corporation. Our
\nheadquarters and principal executive offices are located at 3250 Mary St., Suite
\n410, Coconut Grove, FL 33133. Our telephone number is (305) 560-5355, and our
\ncorporate website is www.nextplat.com. Unless the context requires otherwise, in
\nthis report the terms “the Company,” “we,” “us,” and, “our” refer to NextPlat
\nand our wholly owned subsidiaries.<\/p>\n\n\n\n27\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\n\n\n\nCOVID-19 Update\n\n\n<\/pre>\nIn March 2020, the World Health Organization declared the outbreak of a novel
\ncoronavirus (“COVID-19”) a global pandemic prompting government-imposed
\nquarantines, suspension of in-person attendance of academic programs, and
\ncessation of certain travel and business closures. The United States has entered
\na recession as a result of the COVID-19 pandemic, which may prolong and
\nexacerbate the negative impact on us. Although we expect the availability of
\nvaccines and various treatments with respect to COVID-19 to have an overall
\npositive impact on business conditions in the aggregate over time, the exact
\ntiming of these positive developments is uncertain. In December 2020, the United
\nStates began distributing two vaccines that, in addition to other vaccines under
\ndevelopment, are expected to help to reduce the spread of the coronavirus that
\ncauses COVID-19 once they are widely distributed. If the vaccines prove less
\neffective than currently understood by the scientific community and the United
\nStates Food and Drug Administration, or if there are problems with the
\nacceptance, availability, timing or other difficulties with widely distributing
\nthe vaccines, the pandemic may last longer, and could continue to impact our
\nbusiness for longer, than we currently expect. In response to COVID-19,
\ngovernmental authorities have implemented numerous measures to try to contain
\nthe virus, such as travel bans and restrictions, prohibitions on group events
\nand gatherings, shutdowns of certain businesses, curfews, shelter in place
\norders and recommendations to practice social distancing. Although many
\ngovernmental measures have had specific expiration dates, some of those measures
\nhave already been extended more than once, and there is considerable uncertainty
\nregarding the duration of such measures and the implementation of any potential
\nfuture measures, especially if cases increase across the United States, with the
\npotential for additional challenges resulting from the emergence of new variants
\nof COVID-19, some of which may be more transmissible than the initial strain.
\nSuch measures have impacted, and may continue to affect, our workforce,
\noperations, suppliers and customers. We reduced the size of our workforce
\nfollowing the onset of COVID-19 and may need to take additional actions to
\nfurther reduce the size of our workforce in the future; such reductions incur
\ncosts, and we can provide no assurance that we will be able to rehire our
\nworkforce in the event our business experiences a subsequent recovery. We took
\nsteps to curtail our operating expenses and conserve cash. We may elect or need
\nto take additional remedial measures in the future as the information available
\nto us continues to develop, including with respect to our workforce,
\nrelationships with our third-party vendors, and our customers. There is no
\ncertainty that the remedial measures we have implemented to date, or any
\nadditional remedial steps we may take in the future, will be sufficient to
\nmitigate the risks posed by COVID-19. Further, such measures could potentially
\nmaterially adversely affect our business, financial condition and results of
\noperations and create additional risks for us. Any escalation of COVID-19 cases
\nacross many of the markets we serve could have a negative impact on us.
\nSpecifically, we could be adversely impacted by limitations on our employees to
\nperform their work due to illness caused by the pandemic or local, state, or
\nfederal orders requiring our stores to close or employees to remain at home;
\nlimitation of carriers to deliver our product to customers; product shortages;
\nlimitations on the ability of our customers to conduct their business and
\npurchase our products and services; and limitations on the ability of our
\ncustomers to pay us in a timely manner. These events may have a material,
\nadverse effect on our results of operations, cash flows and liquidity.<\/p>\nThe ultimate magnitude of COVID-19, including the full extent of the material
\nnegative impact on our financial and operational results, will depend on future
\ndevelopments, such as the duration and severity of the pandemic, the extent of
\nany additional increases in cases across the United States, and the related
\nlength of its impact on the global economy, as well as the timing and
\navailability of effective medical treatments and vaccines, which remain
\nuncertain and cannot be predicted at this time. The resumption of our normal
\nbusiness operations may be delayed or constrained by lingering effects of
\nCOVID-19 on our customers, suppliers and\/or third-party service providers.
\nFurthermore, the extent to which our mitigation efforts are successful, if at
\nall, is not currently ascertainable. Due to the daily evolution of the COVID-19
\npandemic and the responses to curb its spread, we cannot predict the full impact
\nof the COVID-19 pandemic on our business and results of operations, but our
\nbusiness, financial condition, results of operations and cash flows have already
\nbeen materially adversely impacted, and we anticipate they will continue to be
\nadversely affected by the COVID-19 pandemic and its negative effects on global
\neconomic conditions. Any recovery from the COVID-19 pandemic and related
\neconomic impact may also be slowed or reversed by a variety of factors, such as
\nany increase in COVID-19 infections. Even after the COVID-19 pandemic has
\nsubsided, we may continue to experience adverse impacts to our business as a
\nresult of its national and, to some extent, global economic impact, including
\nthe current recession and any recession that may occur in the future.<\/p>\n\n\n\n28\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nThe success of our business depends on our global operations, including our
\nsupply chain and consumer demand, among other things. As a result of COVID-19,
\nwe have experienced shortages in inventory due to manufacturing issues, a
\nreduction in the volume of sales in some parts of our business, such as rental
\nsales and direct website sales, and a reduction in personnel due to lockdown
\nrelated issues. Our results of operations for the year ended December 31, 2020
\nreflected this impact. Recently, some governmental agencies in the US and
\nEurope, where we produce the largest percentage of our sales, have lifted
\ncertain restrictions. We have incurred strong increases in sales outside of our
\nAmazon marketplaces for the three months ended March 31, 2022. However due to
\nuncertainties related to variants of COVID-19, we are uncertain as to the
\ncontinuation of the increases to revenue.<\/p>\n\n\n\nRecent Events\n\n\n<\/pre>\nExpanding beyond our current global network of online storefronts serving
\nthousands of consumers, enterprises, and governments, we intend to develop a
\nnext generation platform for digital assets built for Web3, an internet service
\nbuilt using decentralized blockchains. Our new platform (“NextPlat Digital”),
\nwhich is currently in the design and development phase in collaboration with
\nconsultants and contracted developers, will initially enable the use of
\nnon-fungible tokens (“NFTs”), in e-commerce and in community-building
\nactivities. NextPlat Digital may in the future also enable the posting and use
\nof other digital or “crypto” assets once applicable legal and regulatory
\nrequirements are addressed. As currently contemplated, NextPlat Digital will
\nfacilitate the creation\/minting, purchase and sale of a broad range of
\nnon-yield-generating and non-fractionalized NFT products, including, but not
\nlimited to, art, music, collectables, digital real estate, video games, game
\nitems and certificates of authenticity. We also anticipated developing and
\ndeploying NFTs for use in tokenizing data for use in brand loyalty programs.<\/p>\nNextPlat Digital, as currently planned, will be used by us to create both (a)
\npublic marketplaces, for us and third-parties, where anyone with a crypto wallet
\nor credit card can buy an NFT from an authorized user, or, if authorized, sell
\ntheir own NFTs, and (b) private market places that only allow a particular
\ncompany or entity to sell their own NFTs within a branded market (such as for
\nthe promotion of a particular brand or product). We anticipate that NextPlat
\nDigital will be substantially complete within the next six to nine months.<\/p>\n\n\n\n29\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nIn determining if and how an NFT can be posted on our platform, we will follow
\nan internally developed model that will permit us to make a risk-based
\nassessment regarding the likelihood that a particular NFT could be deemed a
\n“security” within the meaning of the U.S. federal securities laws. This process
\nwill involve employees trained to identify the indicia of a “security” who will
\nalso work with outside legal counsel experienced in crypto asset regulatory
\nmatters to make a determination with respect to each NFT, or category of NFT,
\nproposed to be posted on our platform. These processes and procedures are risk
\nbased assessments and are not a legal standard or binding on regulators or
\ncourts. In the event an NFT or other digital asset is deemed by us, pursuant to
\nthe above analysis, to possess a reasonable likelihood of being deemed a
\nsecurity, we will (a) comply with applicable laws and regulations by forming,
\nacquiring or engaging a licensed broker-dealer authorized to act as an trading
\nsystem for those digital assets, or (b) transact in such digital assets offshore
\nin a way that complies with applicable laws and regulations; or (c) not transact
\nin the subject NFT. We do not currently intend to undertake or participate in
\n“initial coin offerings”, the minting of “coins” or cryptocurrencies.<\/p>\nOur creation and operation of NextPlat Digital will also present a number of new
\nregulatory and legal compliance obligations for the Company. For example, if we
\nare deemed to be involved in the exchange or transmission of value that
\nsubstitutes for currency, or fall under other evolving requirements, we may be
\ndeemed to be a “money transmitter” and will be subject to Anti-Money Laundering
\n(AML) rules, as well as U.S. Department of the Treasury’s Financial Crimes
\nEnforcement Network (FinCEN) requirements and state licensing requirements. In
\nconnection with complying with applicable regulations and laws (including
\nKnow-Your-Customer (KYC), Anti-Money Laundering (AML) and Combating the
\nFinancing of Terrorism (CFT) regulations) when onboarding new users, we intend
\nto utilize third-party tools to proactively screen for high-risk wallets,
\nincluding explicitly sanctioned addresses and addresses associated with
\nsanctioned entities. The applicable requirements and our compliance obligations
\nwill vary depending on the nature of the client, the service or product provided
\nand jurisdiction. For example, if we form or acquire a broker dealer in order to
\npost, trade or sell NFTs or other digital assets that are securities, we will
\nfully comply with all applicable KYC, AML and CFT compliance requirements. If,
\non the other hand, we facilitate the distribution of free promotional corporate
\ncollectable NFTs that are not deemed to be securities, our compliance
\nrequirements will be significantly less.<\/p>\nJanuary 2022 Private Placement of Common Stock<\/p>\n
On December 31, 2021, after markets closed, a securities purchase agreement (the
\n“Purchase Agreement”) was circulated to, and signatures were received from,
\ncertain institutional and accredited investors (the “December Investors”) in
\nconnection with the sale in a private placement by the Company of 2,229,950
\nshares of the Company’s common stock (the “December Offering”). On January 2,
\n2022, the Company delivered to December Investors a fully executed Purchase
\nAgreement, which was dated December 31, 2021. The purchase price for the common
\nstock sold in the December Offering was $3.24 per share, the closing transaction
\nprice reported by Nasdaq on December 31, 2021.<\/p>\nThe closing of the December Offering occurred on January 5, 2022. The Company
\nreceived gross proceeds from the sale of the common stock in the December
\nOffering of approximately $7.2 million. The Company intends to use the proceeds
\nfrom the December Offering for general corporate purposes, including potential
\nacquisitions and joint ventures. Approximately 73% of funds raised in the
\nDecember Offering were secured from existing shareholders and from the members
\nof the Company’s senior management and Board of Directors.<\/p>\nIn connection with the December Offering, the Company entered into a
\nregistration rights agreement with the December Investors (the “Registration
\nRights Agreement”), pursuant to which, among other things, the Company agreed to
\nprepare and file with the SEC a registration statement to register for resale
\nthe shares of the Company’s common stock sold in the Offering.<\/p>\nThe shares of common stock offered and sold in the December Offering were sold
\nin reliance on the exemption from registration provided by Section 4(a)(2) of
\nthe Securities Act and Rule 506 of Regulation D promulgated under the Securities
\nAct and corresponding provisions of state securities or “blue sky” laws.<\/p>\nThe terms of the transaction disclosed above, including the provisions of the
\nPurchase Agreement and Registration Rights Agreement, were approved by the Board
\nof Directors and because some of the securities were offered and sold to
\nofficers and directors of the Company, such terms were separately reviewed and
\napproved by the Audit Committee of the Board of Directors.<\/p>\n\n\n\n30\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\n\n\n\n\nJanuary 2022 Name Change\n\n\n\n<\/pre>\nOn January 18, 2022, the Company filed a Certificate of Amendment of the Amended
\nand Restated Articles of Incorporation of the Company with the Secretary of
\nState of the State of Nevada in order to change the Company’s corporate name
\nfrom Orbsat Corp to NextPlat Corp. This name change was effective as of January
\n21, 2022. The name change was approved by the Company’s stockholders at the 2021
\nannual meeting of stockholders held on December 16, 2021.<\/p>\n\n\n\nRestricted Stock Award\n\n\n<\/pre>\nOn January 21, 2022, the Company issued 10,000 shares of common stock in
\nconnection with restricted stock awards, with a fair market value of $3.48 per
\nshare, on the date of issuance. All shares were fully vested and upon issuance
\nresulted in stock-based compensation of $34,800. Shares were issued in reliance
\non the exemption from registration provided by Section 4(a)(2) of the Securities
\nAct of 1933, as amended, as there was no general solicitation, and the
\ntransaction did not involve a public offering.<\/p>\nEnterprise Resource Planning System (ERP)<\/p>\n
On April 1, 2022, the Company went live with its implementation of an enterprise
\nresource planning “ERP” system to replace our legacy business applications. The
\nnew ERP platform will provide better support for our changing business needs and
\nplans for future growth. The project includes software, external implementation
\nassistance, testing, training, and support. We anticipate that approximately 40%
\nof the cost will be expensed in the period incurred and 60% will be capitalized
\nand depreciated over its useful life. The Company intends to maintain dual
\naccounting systems, until such time it is deemed acceptable.<\/p>\nAs of March 31, 2022, there were 50,000,000 shares of common stock authorized
\nand 9,293,096 shares issued and outstanding.<\/p>\nAs of March 31, 2022, there were 2,836,092 registered warrants to purchase
\ncommon stock authorized and 2,530,092 registered warrants issued and
\noutstanding, at an exercise price of $5.00, and 144,000 unregistered underwriter
\nwarrants issued and outstanding, at an exercise price of $5.50. The warrants
\nexpire in June of 2026.<\/p>\nAs of March 31, 2022, there were no shares of Series A, B, C, D, E, F, G, H, I,
\nJ, K and L Convertible Preferred Stock authorized, and no shares issued and
\noutstanding.<\/p>\nWe had net cash used in operations of $868,558 during the three months ended
\nMarch 31, 2022. At March 31, 2022, we had working capital of $22,766,775.
\nAdditionally, at March 31, 2022, we had an accumulated deficit of $22,836,298
\nand stockholder’s equity of $23,705,244.<\/p>\nResults of Operations for the Three Months Ended March 31, 2022 compared to the
\nThree Months Ended March 31, 2021<\/p>\nRevenue. Sales for the three months ended March 31, 2022, consisted primarily of
\nsales of satellite phones, tracking devices, accessories, and airtime plans. For
\nthe three months ended March 31, 2022, revenues generated were $3,577,778
\ncompared to $1,461,428 of revenues for the three months ended March 31, 2021, an
\nincrease in total revenues of $2,116,350 or 144.8%. Total sales for Global
\nTelesat Communications Ltd. were $2,595,840 for the three months ended March 31,
\n2022, as compared to $1,013,435 for the three months ended March 31, 2021, an
\nincrease of $1,582,405 or 156.1%. Total sales for Orbital Satcom Corp. were
\n$981,938 for the three months ended March 31, 2022 as compared to $447,993, for
\nthe three months ended March 31, 2021, an increase of $533,945 or 119.2%. The
\nCompany attributes the changes in revenue to new product lines, increased
\ninventory, and additional e-commerce storefronts.<\/p>\nCost of Sales. During the three months ended March 31, 2022, cost of revenues
\nincreased to $2,776,685 compared to $1,023,911, for the three months ended March
\n31, 2021, an increase of $1,752,774 or 171.2%. Gross profit margins during the
\nthree months ended March 31, 2022 were 22.4% as compared to 29.9% for the
\ncomparable period in the prior year. The decrease is primarily due to a lower
\npercentage of high margin sales int the first quarter ended March 31, 2022 as
\ncompared to the same period in 2021.<\/p>\n\n\n\n31\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nOperating Expenses. Total operating expenses for the three months ended March
\n31, 2022, were $1,635,708, an increase of $899,262 or 122.1%, from total
\noperating expenses for the three months ended March 31, 2021, of $736,446.
\nFactors contributing to the decrease are described below.<\/p>\nSelling, general and administrative expenses were $574,350 and $175,890 for the
\nthree months ended March 31, 2022 and 2021, respectively, an increase of
\n$398,460 or 226.5%. The fluctuations in the increase, for the three months ended
\nMarch 31, 2022, are attributable to certain SG&A expenses that fluctuate with
\nsales volatility, as well as, an increase in marketing expenses, stock-based
\ncompensation, D&O and medical insurance, recruiting expenses and other costs
\nassociated with an increase in personnel.<\/p>\nSalaries, wages and payroll taxes were $635,576 and $208,174, for the three
\nmonths ended March 31, 2022 and 2021, respectively, an increase of $427,402, or
\n205.3%. The increase is a result of an increase in personnel, for the three
\nmonths ended March 31, 2022.<\/p>\nProfessional fees were $326,213 and $292,882 for the three months ended March
\n31, 2022 and 2021, respectively, an increase of $33,331, or 11.4%. The increase
\nduring the three months ended March 31, 2022 as compared to the same period in
\n2021, is attributable to increase in director fees, accounting and legal fees,
\noffset by a reduction in professional fees related to the public offering from
\nthe quarter ended March 31, 2021.<\/p>\nDepreciation and amortization expenses were $99,569 and $73,700 for the three
\nmonths ended March 31, 2022 and 2021, respectively, an increase of $25,869 or
\n35.1%. The increase was primarily attributable to the addition of fixed assets
\noffset by fully amortized assets, as compared to the same period in the prior
\nyear.<\/p>\nWe expect our expenses in each of these areas to continue to increase during
\nfiscal 2022 and beyond as we expand our operations and begin generating
\nadditional revenues under our current business. Similarly, we are unable at this
\ntime to estimate the amount of the expected increases.<\/p>\nTotal Other Expense. Our total other expenses were $15,468 compared to $504,213
\nduring the three months ended March 31, 2022 and 2021, respectively, a decrease
\nof $488,745. The decrease is attributable to interest expense incurred in the
\nsame period of the prior year.<\/p>\nNet Loss. We recorded net loss before income tax of $850,083 for the three
\nmonths ended March 31, 2022 as compared to a net loss of $803,142, for the three
\nmonths ended March 31, 2021. The increase in the loss is a result of the factors
\nas described above.<\/p>\n\n\n\n32\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nComprehensive Gain (Loss). We recorded a loss for foreign currency translation
\nadjustments for the three months ended March 31, 2022 of $15,330 and a gain of
\n$1,611 for the three months ended March 31, 2021. The fluctuations of the
\nincrease\/decrease are primarily attributed to the increase\/decrease recognized
\ndue to exchange rate variances.<\/p>\nLiquidity and Capital Resources<\/p>\n
Liquidity is the ability of a company to generate funds to support its current
\nand future operations, satisfy its obligations, and otherwise operate on an
\nongoing basis. At March 31, 2022, we had a cash balance of $21,907,935. Our
\nworking capital is $22,766,775 at March 31, 2022.<\/p>\nOur current assets at March 31, 2022 increased 26% from December 31, 2021 and
\nincluded cash, accounts receivable, prepaid expenses, unbilled revenue, right of
\nuse, inventory and other current assets.<\/p>\nOur current liabilities at March 31, 2022 decreased 38.6% from December 31, 2021
\nand included our accounts payable, due to related party, provision for income
\ntaxes, contract liabilities, lease liabilities and other liabilities in the
\nordinary course of our business.<\/p>\nAt March 31, 2022, the Company had an accumulated deficit of $22,836,298,
\nworking capital of $22,766,775 and net loss of $850,083 during the three months
\nended March 31, 2022.<\/p>\nAs of the date of this report, the Company’s existing cash resources and
\nexisting borrowing availability are sufficient to support planned operations for
\nthe next 12 months. As a result, management believes that the existing financial
\nresources are sufficient to continue operating activities for at least one year
\npast the issuance date of the financial statements.<\/p>\n\n\n\nOperating Activities\n\n\n<\/pre>\nNet cash flows used by operating activities for the three months ended March 31,
\n2022 amounted to $868,558 and were primarily attributable to our net loss of
\n$850,083, total amortization expense of $6,250 and depreciation of $93,319,
\namortization of right of use of $8,803, stock based compensation of $34,800 and
\nnet change in assets and liabilities of $161,647, primarily attributable to an
\nincrease in accounts receivable of $70,307, an increase in inventory of
\n$453,496, a decrease in unbilled revenue of $8,278, an increase in prepaid
\nexpense of $26,232, a decrease in VAT receivable of $33,044, a decrease in other
\ncurrent assets of $48,539, an increase in accounts payable of $352,201, a
\ndecrease in contract liabilities of $6,401, a decrease in lease liabilities of
\n$8,718, and decrease in provision for income taxes of $38,555.<\/p>\nNet cash flows used by operating activities for the three months ended March 31,
\n2021 amounted to $459,764 and were primarily attributable to our net loss of
\n$803,142, total amortization expense of $6,250 and depreciation of $67,250,
\namortization of discount on debt of $501,164, increase in stock based
\ncompensation of $14,200, a decrease in right of use of $7,563 and net change in
\nassets and liabilities of $253,249, primarily attributable to an increase in
\naccounts receivable of $94,176, an increase in inventory of $239,490, an
\nincrease in unbilled revenue of $2,067, , an increase in other current assets of
\n$19,195, increase in accounts payable of $114,261, a decrease in contract
\nliabilities of $5,157, a decrease in lease liabilities of $7,589, and an
\nincrease in provision for income taxes of $164.<\/p>\n\n\n\nInvesting Activities\n\n\n<\/pre>\nNet cash flows used in investing activities were $67,997 and $459 for the three
\nmonths ended March 31, 2022 and 2021, respectively. During the three months
\nended March 31, 2022 and March 31, 2021, we purchased property and equipment of
\n$0 and $459, respectively.<\/p>\n\n\n\n33\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\n\n\n\nFinancing Activities\n\n\n<\/pre>\nNet cash flows provided by financing activities were $5,608,353 and $289,131 for
\nthe three months ended March 31, 2022 and 2021, respectively. Net cash flows
\nprovided by financing activities were $5,608,353 for the three months ended
\nMarch 31, 2022 and were primarily attributed to proceeds from common stock
\noffering of $5,605,038, proceeds from related party of $19,737 and offset by
\nrepayments of notes payable for $16,422.<\/p>\nNet cash flows provided by financing activities were $289,131 for the three
\nmonths ended March 31, 2021 and were for proceeds from a convertible note
\npayable of $350,000 and offset by repayments of notes payable for $60,643.<\/p>\nOff-Balance Sheet Arrangements<\/p>\n
We do not currently have any off-balance sheet arrangements that have or are
\nreasonably likely to have a current or future effect on our financial condition,
\nchanges in financial condition, revenues or expenses, results of operations,
\nliquidity, capital expenditures or capital resources that are material to our
\nstockholders.<\/p>\nOur company has not entered into any transaction, agreement or other contractual
\narrangement with an entity unconsolidated with us under which we have<\/p>\n? an obligation under a guaranteed contract, although we do have obligations<\/p>\n
under certain sales arrangements including purchase obligations to vendors<\/p>\n
? a retained or contingent interest in assets transferred to the unconsolidated<\/p>\n
entity or similar arrangement that serves as credit, liquidity or market risk<\/p>\n
support to such entity for such assets,<\/p>\n
? any obligation, including a contingent obligation, under a contract that would<\/p>\n
be accounted for as a derivative instrument, or<\/p>\n
? any obligation, including a contingent obligation, arising out of a variable<\/p>\n
interest in an unconsolidated entity that is held by us and material to us<\/p>\n
where such entity provides financing, liquidity, market risk or credit risk<\/p>\n
support to, or engages in leasing, hedging or research and development services<\/p>\n
with us.\n\n\n\n<\/pre>\nCritical Accounting Policies and Estimates<\/p>\n
Critical accounting estimates are those that management deems to be most
\nimportant to the portrayal of our financial condition and results of operations,
\nand that require management’s most difficult, subjective or complex judgments,
\ndue to the need to make estimates about the effects of matters that are
\ninherently uncertain. We have identified our critical accounting estimates which
\nare discussed below.<\/p>\n\n\n\nUse of Estimates\n\n\n<\/pre>\nIn preparing the consolidated financial statements, management is required to
\nmake estimates and assumptions that affect the reported amounts of assets and
\nliabilities as of the date of the statements of financial condition, and
\nrevenues and expenses for the years then ended. Actual results may differ
\nsignificantly from those estimates. Significant estimates made by management
\ninclude, but are not limited to, the assumptions used to calculate stock-based
\ncompensation, derivative liabilities and common stock issued for services.<\/p>\n\n\n\nReclassification\n\n\n<\/pre>\nCertain prior year amounts have been reclassified for consistency with the
\ncurrent year presentation. These reclassifications had no effect on the reported
\nresults of operations.<\/p>\nBasis of Presentation and Principles of Consolidation<\/p>\n
The consolidated financial statements are prepared in accordance with generally
\naccepted accounting principles in the United States of America (“US GAAP”). The
\nconsolidated financial statements of the Company include the Company and its
\nwholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat
\nCommunications Ltd. All material intercompany balances and transactions have
\nbeen eliminated in consolidation.<\/p>\n\n\n\n34\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nAccounts receivable and allowance for doubtful accounts<\/p>\n
The Company has a policy of reserving for questionable accounts based on its
\nbest estimate of the amount of probable credit losses in its existing accounts
\nreceivable. The Company periodically reviews its accounts receivable to
\ndetermine whether an allowance is necessary based on an analysis of past due
\naccounts and other factors that may indicate that the realization of an account
\nmay be in doubt. Account balances deemed to be uncollectible are offset against
\nsales and relieved from accounts receivable, after all means of collection have
\nbeen exhausted and the potential for recovery is considered remote. As of March
\n31, 2022, and 2021, there were no allowances for doubtful accounts<\/p>\n\n\n\nInventories\n\n\n<\/pre>\nInventories are valued at the lower of cost or net realizable value, using the
\nfirst-in first-out cost method. The Company assesses the valuation of its
\ninventories and reduces the carrying value of those inventories that are
\nobsolete or in excess of the Company’s forecasted usage to their estimated net
\nrealizable value. The Company estimates the net realizable value of such
\ninventories based on analysis and assumptions including, but not limited to,
\nhistorical usage, expected future demand and market requirements. A change to
\nthe carrying value of inventories is recorded to cost of goods sold.<\/p>\n\n\n\nPrepaid expenses\n\n\n<\/pre>\nPrepaid expenses amounted to $172,950 and $146,935, at March 31, 2022 and
\nDecember 31, 2021, respectively. Prepaid expenses include prepayments in cash
\nfor rent, insurance, pre-payments associated with the Company’s new office and
\nsoftware license fees which are being amortized over the terms of the respective
\nagreement. The current portion consists of costs paid for future services which
\nwill occur within a year.<\/p>\n\n\n\n35\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\n\n\n\n\nForeign Currency Translation\n\n\n\n<\/pre>\nThe Company’s reporting currency is U.S. Dollars. The accounts of one of the
\nCompany’s subsidiaries, GTCL, is maintained using the appropriate local
\ncurrency, Great British Pound, as the functional currency. All assets and
\nliabilities are translated into U.S. Dollars at balance sheet date,
\nshareholders’ equity is translated at historical rates and revenue and expense
\naccounts are translated at the average exchange rate for the year or the
\nreporting period. The translation adjustments are reported as a separate
\ncomponent of stockholders’ equity, captioned as accumulated other comprehensive
\n(loss) gain. Transaction gains and losses arising from exchange rate
\nfluctuations on transactions denominated in a currency other than the functional
\ncurrency are included in the statements of operations.<\/p>\nThe relevant translation rates are as follows: for the three months ended March
\n31, 2022, closing rate at 1.3138 US$: GBP, quarterly average rate at 1.3419173
\nUS$: GBP, for the three months ended March 31, 2021, closing rate at 1.3783 US$:
\nGBP, quarterly average rate at 1.379068 US$: GBP, for the year ended 2021
\nclosing rate at 1.353372 US$: GBP, average rate at 1.375083 US$: GBP.<\/p>\nRevenue Recognition and Unearned Revenue<\/p>\n
The Company recognizes revenue from satellite services when earned, as services
\nare rendered or delivered to customers. Equipment sales revenue is recognized
\nwhen the equipment is delivered to and accepted by the customer. Only equipment
\nsales are subject to warranty. Historically, the Company has not incurred
\nsignificant expenses for warranties. Equipment sales which have been prepaid,
\nbefore the goods are shipped are recorded as contract liabilities and once
\nshipped is recognized as revenue. The Company also records as contract
\nliabilities, certain annual plans for airtime, which are paid in advance. Once
\nairtime services are incurred, they are recognized as revenue. Unbilled revenue
\nis recognized for airtime plans whereby the customer is invoiced for its data
\nusage the following month after services are incurred.<\/p>\nThe Company’s customers generally purchase a combination of our products and
\nservices as part of a multiple element arrangement. The Company’s assessment of
\nwhich revenue recognition guidance is appropriate to account for each element in
\nan arrangement can involve significant judgment. This assessment has a
\nsignificant impact on the amount and timing of revenue recognition.<\/p>\n\n\n\n36\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\n\n\n\nProperty and Equipment\n\n\n<\/pre>\nProperty and equipment are carried at historical cost less accumulated
\ndepreciation. Depreciation is based on the estimated service lives of the
\ndepreciable assets and is calculated using the straight-line method.
\nExpenditures that increase the value or productive capacity of assets are
\ncapitalized. Fully depreciated assets are retained in the property and
\nequipment, and accumulated depreciation accounts until they are removed from
\nservice. When property and equipment are retired, sold or otherwise disposed of,
\nthe asset’s carrying amount and related accumulated depreciation are removed
\nfrom the accounts and any gain or loss is included in operations. Repairs and
\nmaintenance are expensed as incurred.<\/p>\nThe estimated useful lives of property and equipment are generally as follows:<\/p>\n
\n\n\n\n Years\nOffice furniture and fixtures 4\nComputer equipment 4\nRental equipment 4\nAppliques 10\nWebsite development 2\n\n\n\n\nIntangible assets\n\n\n<\/pre>\nIntangible assets include customer contracts purchased and recorded based on the
\ncost to acquire them. These assets are amortized over 10 years. Useful lives of
\nintangible assets are periodically evaluated for reasonableness and the assets
\nare tested for impairment whenever events or changes in circumstances indicate
\nthat the carrying amount may no longer be recoverable.<\/p>\n\n\n\n37\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nImpairment of long-lived assets<\/p>\n
The Company reviews long-lived assets for impairment whenever events or changes
\nin circumstances indicate that the carrying amount of the assets may not be
\nfully recoverable, or at least annually. The Company recognizes an impairment
\nloss when the sum of expected undiscounted future cash flows is less than the
\ncarrying amount of the asset. The amount of impairment is measured as the
\ndifference between the asset’s estimated fair value and its book value. The
\nCompany did not consider it necessary to record any impairment charges during
\nthe periods ended March 31, 2022 and March 31, 2021, respectively.<\/p>\nAccounting for Derivative Instruments<\/p>\n
Derivatives are required to be recorded on the balance sheet at fair value.
\nThese derivatives, including embedded derivatives in the Company’s structured
\nborrowings, are separately valued and accounted for on the Company’s balance
\nsheet. Fair values for exchange traded securities and derivatives are based on
\nquoted market prices. Where market prices are not readily available, fair values
\nare determined using market-based pricing models incorporating readily
\nobservable market data and requiring judgment and estimates.<\/p>\nThe Company did not identify any assets or liabilities that are required to be
\npresented on the consolidated balance sheets at fair value in accordance with
\nthe accounting guidance. The carrying amounts reported in the balance sheet for
\ncash, accounts payable, and accrued expenses approximate their estimated fair
\nmarket value based on the short-term maturity of the instruments.<\/p>\n\n\n\nShare-Based Payments\n\n\n<\/pre>\nCompensation cost relating to share-based payment transactions are recognized in
\nthe financial statements. The cost is measured at the grant date, based on the
\ncalculated fair value of the award, and is recognized as an expense over the
\nemployee’s requisite service period (generally the vesting period of the equity
\naward).<\/p>\n\n\n\n38\n\n\n\n\n\n<\/pre>\nITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
\nOF OPERATIONS (continued)<\/p>\nRecent Accounting Pronouncements<\/p>\n
Accounting Pronouncements Recently Adopted<\/p>\n
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260),
\nDebt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
\nCompensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own
\nEquity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an
\nissuer’s accounting for modifications or exchanges of freestanding
\nequity-classified written call options (for example, warrants) that remain
\nequity classified after modification or exchange. The ASU provides guidance to
\nclarify whether an issuer should account for a modification or an exchange of a
\nfreestanding equity-classified written call option that remains equity
\nclassified after modification or exchange as (1) an adjustment to equity and, if
\nso, the related earnings per share effects, if any, or (2) an expense and, if
\nso, the manner and pattern of recognition. ASU 2021-04 is effective for annual
\nbeginning after December 15, 2021, including interim periods within those fiscal
\nyears. Early adoption is permitted, including adoption in an interim period. The
\nCompany is currently evaluating the impact that this standard will have on its
\nconsolidated financial statements.<\/p>\nIn October 2021, the FASB issued guidance which requires companies to apply
\nTopic 606, Revenue from Contracts with Customers, to recognize and measure
\ncontract assets and contract liabilities from contracts with customers acquired
\nin a business combination. Public entities must adopt the new guidance for
\nfiscal years beginning after December 15, 2022 and interim periods within those
\nfiscal years, with early adoption permitted. The Company is currently evaluating
\nthe impact and timing of adoption of this guidance<\/p>\nAny new accounting standards, not disclosed above, that have been issued or
\nproposed by FASB that do not require adoption until a future date are not
\nexpected to have a material impact on the consolidated financial statements upon
\nadoption.<\/p>\nOther accounting standards that have been issued or proposed by FASB that do not
\nrequire adoption until a future date are not expected to have a material impact
\non the consolidated financial statements upon adoption. The Company does not
\ndiscuss recent pronouncements that are not anticipated to have an impact on or
\nare unrelated to its financial condition, results of operations, cash flows or
\ndisclosures.<\/p>\n\u00a9 Edgar Online, source Glimpses<\/p>\n<\/div>\n