NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
NextPlat
Corp (the “Company”) was formerly Orbsat Corp (“NextPlat”), a Nevada corporation. NextPlat currently generates
its revenues from the provision of a comprehensive array of communication services and related equipment sales. In recent years the Company
has successfully leveraged e-commerce solutions to establish a truly global reach. We intend to achieve our mission and further grow
our business by pursuing the following strategies: increased product offerings, marketplace expansion, government sourced revenue, product
innovation, future acquisitions and E-Commerce Platforms.
The
Company was originally incorporated in 1997 in Florida. On April 21, 2010, the Company merged with and into a wholly-owned subsidiary
for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its
name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to Silver Horn Mining Ltd. pursuant to a merger
with a wholly owned subsidiary.
Global
Telesat Communications Limited (“GTC”) was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered
into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which GTC became a wholly
owned subsidiary of ours.
On
March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation
to Nevada from Delaware, effecting a 1:150 reverse split of our common stock, and changing our name to Great West Resources, Inc. in
connection with the plans to enter into the business of potash mining and exploration. During late 2014, we abandoned our efforts to
enter the potash business.
For
accounting purposes, this transaction was accounted for as a reverse acquisition and has been treated as a recapitalization of the Company
with GTC considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements
of the registrant. The completion of the Share Exchange resulted in a change of control. The Share Exchange was accounted for as a reverse
acquisition and re-capitalization. The GTC shareholders obtained approximately 39% of voting control on the date of Share Exchange. GTC
was the acquirer for financial reporting purposes and the Company was the acquired company. The consolidated financial statements after
the acquisition include the balance sheets of both companies at historical cost, the historical results of GTC and the results of the
Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes
has been retroactively restated to reflect the recapitalization. See Note 12 – Stockholders’ Equity.
Orbital
Satcom Corp, a Nevada corporation was formed on November 14, 2014.
On
January 22, 2015, we changed our name to “Orbital Tracking Corp” from “Great West Resources, Inc.” pursuant to
a merger with a newly formed wholly owned subsidiary.
Effective
March 8, 2018, following the approval of a majority of our shareholders, we effected a reverse split of our common stock at a ratio of
1 for 150. On August 19, 2019, we effected a reverse split of our common stock at a ratio of 1 for 15. As a result of the reverse split,
our common stock now has the CUSIP number: 68557F100. All share and per share information in the accompanying consolidated financial
statements and footnotes has been retroactively restated to reflect these reverse splits.
Also,
on August 19, 2019, we changed our name to “Orbsat Corp” from “Orbital Tracking Corp.” pursuant to a merger with
a newly formed wholly owned subsidiary.
On
March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock
split not to exceed 1-for-5 reverse stock split.
A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13, 2021. The Company’s
Board of Directors (the “Board”) subsequently approved the 1-for-5
reverse stock split. The Company filed a Certificate
of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common
stock, at a ratio of 1-for-5.
The effective time of the reverse stock split was 12:01 a.m. ET on May 28, 2021. The Company’s common stock began trading on a
split-adjusted basis commencing upon market open on May 28, 2021. The common stock has been assigned a new CUSIP number, 68557F 209.
The warrants were assigned the CUSIP number, 68557F 118. No fractional shares of common stock were issued as a result of the reverse
stock split. Stockholders of record who would otherwise be entitled to receive a fractional share received a whole share.
On
December 16, 2021, at the Annual Meeting of Stockholders (the “Annual Meeting”) of the Company the stockholders approved
certificate of amendment to the Company’s Amended and Restated Articles of Incorporation changing the Company’s name to NextPlat
Corp. The Name Change Amendment was filed on January 18, 2022, and the Company’s
name change from Orbsat Corp to NextPlat Corp was effective as of January 21, 2022.
Effective
January 21, 2022, the trading symbol for the Company’s common stock, par value $0.0001 per share (the “Common Stock”)
on the NASDAQ Capital Market will be “NXPL” and the trading symbol for the Company’s Warrants (the “Warrants”)
on the NASDAQ Capital Market will be “NXPLW.” The CUSIP number for our Common Stock (68557F209) and our Warrants (68557F118)
remain unchanged. Prior to January 21, 2022, our common stock and warrants were traded on the Nasdaq Capital Market under the symbols
“OSAT” and “OSATW,” respectively
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Discontinued
Operations
The
Company’s former operations were developing and manufacturing products and services, which reduce fuel costs, save power and energy
and protect the environment. The products and services were made available for sale into markets in the public and private sectors. In
December 2009, the Company discontinued these operations and disposed of certain of its subsidiaries, and prior periods have been restated
in the Company’s consolidated financial statements and related footnotes to conform to this presentation.
The
remaining liabilities for discontinued operations are presented in the consolidated balance sheets under the caption “Liabilities
from discontinued operation” and relates to the discontinued operations of developing and manufacturing of energy saving
and fuel-efficient products and services. The carrying amounts of the major classes of these liabilities as of December 31, 2021, and
2020 are summarized as follows:
SUMMARY OF CARRYING AMOUNT OF MAJOR CLASSES OF LIABILITIES
| |
December 31, 2021 | | |
December 31, 2020 | |
Assets of discontinued operations | |
$ | - | | |
$ | - | |
Liabilities | |
| | | |
| | |
Accounts payables and accrued expenses | |
$ | (112,397 | ) | |
$ | (112,397 | ) |
Liabilities from discontinued operations | |
$ | (112,397 | ) | |
$ | (112,397 | ) |
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, (“Orbital Satcom”) and Global Telesat Communications Limited, (“GTC”). All material intercompany
balances and transactions have been eliminated in consolidation.
Liquidity
As
an early-stage growth company, NextPlat’s ability to access capital is critical. On June 2, 2021, through an upsized underwritten
public offering of 2,880,000
units at a price to the public of $5.00
per unit, the Company received gross proceeds
of $14,404,666 (the
“June Offering”). See Note 12, Stockholders’ Equity, for more information
regarding the June Offering.
In
connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and purchased an additional
432,000 warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon
the exercise in full of the balance of its over-allotment option, purchased 432,000 additional shares of the common stock for additional
gross proceeds of $2,155,680 from the sale of the Shares.
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 Company’s existing financial resources are
sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
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.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company
places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal
Deposit Insurance Corporation (“FDIC”) up to $250,000. All cash amounts in excess of $250,000, $17,017,978, are unsecured.
To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the
financial institution in which it holds deposits.
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 December 31, 2021, and 2020, there is an allowance for doubtful
accounts of $0 and $15,596, respectively.
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 current and long term amounted to $97,068
and $49,867,
respectively for the year ended December 31, 2021, as compared to $1,784
and $0
at for the year ended December 31, 2020.
Prepaid expenses include prepayments in cash for accounting fees, prepayments in equity instruments, which are being amortized over the
terms of their respective agreements, as well as cost associated with certain contract liabilities. The current portion consists of costs
paid for future services which will occur within a year.
Foreign
Currency Translation
The
Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTC, is maintained using
the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S.
Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated
at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of
stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The
relevant translation rates are as follows: for the year ended December 31, 2021, closing rate at 1.353372 US$: GBP, yearly average rate
at 1.375083 US$: GBP, for the year ended December 31, 2020 closing rate at 1.3665 US$: GBP, yearly average rate at 1.286618 US$: GBP.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition and Unearned Revenue
The
Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue
is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically,
the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped
are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain
annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue
is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred.
The
Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The
Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve
significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
The
Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration
which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company
determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify
the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied
to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred
to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services
promised within each contract and determine those that are performance obligations and assess whether each promised good or service is
distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied.
In
accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient,
which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude
amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement
date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate
effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied
performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance
obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the
revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively
applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for
the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for
separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves
more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized
as products are delivered or as services are provided over the term of the customer contract.
Contract
liabilities are shown separately in the consolidated balance sheets as current liabilities. At December 31, 2021, we had contract liabilities
of approximately $36,765. At December 31, 2020, we had contract liabilities of approximately $36,704.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost
of Product Sales and Services
Cost
of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers
to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer
service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs
which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes
deferred revenue.
Shipping
and handling costs are included as a component of costs of product sales in the Company’s consolidated statements of operations
because the Company includes in revenue the related costs that the Company bills its customers.
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.
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:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| |
Years | |
Office furniture and fixtures | |
| 4 | |
Computer equipment | |
| 4 | |
Rental equipment | |
| 4 | |
Appliques | |
| 10 | |
Website development | |
| 2 | |
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation
expense for the years ended December 31, 2021, and 2020 was $292,102 and $269,926, respectively.
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 December 31, 2021 and December 31, 2020, 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 other 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.
Stock-based
Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the
consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period).
The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pursuant
to ASC Topic 718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement
date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount
of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at
the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those
options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued
in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price
of $0.
Income
Taxes
The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”)
which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach
require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets
for which management believes it is more likely than not that the net deferred asset will not be realized.
The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there
may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance
with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax
positions that meet the more likely than not recognition threshold is measured at the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with
tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits
in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon
examination.
The
Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded
a liability for uncertain tax benefits.
The
Company has adopted ASC 740-10-25, “Definition of Settlement,” which provides guidance on how an entity should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a
tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished.
For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position
is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities,
generally for three years after they are filed.
Leases
Effective
January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition
of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use
asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the
Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the
right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the
right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and
the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded
when incurred.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In
calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company
excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and
recognizes rent expense on a straight-line basis over the lease term.
At
December 31, 2021 and 2020, the Company had aggregated current and long-term operating lease liabilities of $19,763 and $0, respectively,
and right of use assets of $22,643 and $55,606, respectively.
Research
and Development
The
Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research
and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred.
Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed
when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs
related to both present and future products are expensed in the period incurred. For the years ended December 31, 2021 and 2020, there
were no expenditures on research and development.
Accumulated
Other Comprehensive Income (Loss)
Comprehensive
income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity. For the Company, comprehensive
loss for the years ended December 31, 2021and 2020 included net loss and unrealized losses from foreign currency translation adjustments.
Earnings
per Common Share
Net
income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income
(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during
the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average
shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded.
The
following are dilutive common stock equivalents during the year ended:
SCHEDULE OF DILUTIVE COMMON STOCK EQUIVALENTS
| |
December
31, 2021 | | |
December
31, 2020 | |
Convertible
notes payable (1) | |
| - | | |
| 1,245,468 | |
Stock
Options | |
| 929,892 | | |
| 600,009 | |
Stock
Warrants | |
| 2,530,092 | | |
| 800 | |
Total | |
| 3,459,984 | | |
| 1,846,277 | |
(1) | 1,245,468
shares of our common stock issuable upon conversion of $1,294,268
of Convertible Notes Payable as of December 31, 2020, not accounting for 4.99%
beneficial ownership limitations. |
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Related
Party Transactions
A
party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of
the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence
the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing
its own separate interests is also a related party, (see Note 17).
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.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE
2 – INVENTORIES
At
December 31, 2021 and 2020, inventories consisted of the following:
SCHEDULE OF INVENTORIES
| |
December
31, 2021 | | |
December
31, 2020 | |
Finished
goods | |
$ | 1,019,696 | | |
$ | 361,422 | |
| |
| | | |
| | |
Less
reserve for obsolete inventory | |
| - | | |
| - | |
Total | |
$ | 1,019,696 | | |
$ | 361,422 | |
For
the years ended December 31, 2021 and 2020, the Company did not make any change for reserve for obsolete inventory.
NOTE
3 – VAT RECEIVABLE
On
January 1, 2021, VAT rules relating to imports and exports between the UK and EU changed as a result, of the UK’s departure from
the EU, (“BREXIT”). For the year ending December 31, 2021, the Company recorded a receivable in the amount of $491,417 for
amounts available to reclaim against the tax liability from UK and EU countries. Subsequently to December 31, 2021, the Company has received
a total of £70,756 or $95,759, using an exchange rate close of 1.3533720 GBP:USD, in regard to this receivable.
NOTE
4 – PREPAID EXPENSES
Prepaid
expenses current and long term amounted to $97,068
and $49,867,
respectively for the year ended December 31, 2021,
as compared to $1,784 and
$0 at
for the year ended December 31, 2020. Prepaid expenses include prepayments in cash for accounting fees, prepayments in equity instruments,
which are being amortized over the terms of their respective agreements, as well as cost associated with certain contract liabilities.
The current portion consists of costs paid for future services which will occur within a year.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
December
31, 2021 | | |
December
31, 2020 | |
Office
furniture and fixtures | |
$ | 16,969 | | |
$ | 6,470 | |
Computer
equipment | |
| 67,458 | | |
| 33,361 | |
Rental
equipment | |
| 53,296 | | |
| 48,187 | |
Appliques | |
| 2,160,096 | | |
| 2,160,096 | |
Website
development | |
| 247,541 | | |
| 69,149 | |
Property, Plant and Equipment, Gross | |
| | | |
| | |
Less
accumulated depreciation | |
| (1,502,501 | ) | |
| (1,211,099 | ) |
| |
| | | |
| | |
Total | |
$ | 1,042,859 | | |
$ | 1,106,164 | |
Depreciation
expense was $292,102 and $269,926 for the year ended December 31, 2021 and 2020, respectively.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
6 – INTANGIBLE ASSETS
On
December 10, 2014, the Company entered the satellite voice and data equipment sales and service business through the purchase of certain
contracts from Global Telesat Corp., (“GTC”). These contracts permit the Company to utilize the Globalstar, Inc. and Globalstar
LLC (collectively, “Globalstar”) mobile satellite voice and data network. The purchase price for the contracts of $250,000
was paid by the Company under an asset purchase agreement by and among the Company, its wholly-owned subsidiary Orbital Satcom, GTC and
World Surveillance Group, Inc.
Included
in the purchased assets are: (i) the rights and benefits granted to GTC under each of the Globalstar Contracts, subject to certain exclusions,
(ii) account and online access to the Globalstar Cody Simplex activation system, (iii) GTC’s existing customers who are serviced
pursuant to the Globalstar Contracts (only as to their business directly and exclusively related to the Globalstar Contracts), and (iv)
all of GTC’s rights and benefits directly and exclusively related to the Globalstar Contracts.
Amortization
of customer contracts are included in depreciation and amortization. For the year ended December 31, 2021, the Company amortized $25,000.
Future amortization of intangible assets is as follows:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| |
| | |
2022 | |
$ | 25,000 | |
2023 | |
| 25,000 | |
2024 | |
| 25,000 | |
Total | |
$ | 75,000 | |
For
the years ended December 31, 2021 and 2020, there were no additional expenditures on research and development
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts
payable and accrued other liabilities consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
| |
December
31, 2021 | | |
December
31, 2020 | |
Accounts
payable | |
$ | 846,380 | | |
$ | 747,476 | |
Rental
deposits | |
| 2,030 | | |
| 10,761 | |
Customer
deposits payable | |
| 59,733 | | |
| 53,570 | |
Accrued
wages & payroll liabilities | |
| 20,107 | | |
| 1,913 | |
VAT
liability & sales tax payable | |
| 6,203 | | |
| 50,453 | |
Pre-merger
accrued other liabilities | |
| 88,448 | | |
| 88,448 | |
Accrued
interest | |
| 138 | | |
| 99,982 | |
Accrued
other liabilities | |
| 40,305 | | |
| - | |
Total | |
$ | 1,063,344 | | |
$ | 1,052,603 | |
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
8 – LINE OF CREDIT
On
October 9, 2019, Orbital Satcom Corp., entered into a short-term loan agreement for $29,000, with Amazon. The one-year term loan was
paid monthly, had an interest rate of 9.72%, with late payment penalty interest of 11.72%. For the years ended December 31, 2021, and
2020, the Company recorded interest expense of $0 and $952, respectively. The short-term line of credit balance as of December 31, 2021,
and 2020, was $0, respectively.
NOTE
9– CONVERTIBLE NOTES PAYABLE
Convertible
notes payable – long term
March
2021 Financing
On
March 5, 2021, the Company entered into a Note Purchase Agreement (the “March 2021 NPA”) by and between the Company and one
individual accredited investor (the “Lender”). Pursuant to the terms of the March 2021 NPA, the Company sold a convertible
promissory note with a principal amount of $350,000
(the “March 2021 Note”). The March
2021 Note is a general, unsecured obligation of the Company and bears simple interest at a rate of 7%
per annum and matures on the third anniversary of the date of issuance (the “Maturity Date”), to the extent that the
March 2021 Note and the principal amount and any interest accrued thereunder have not been converted into shares of the Company’s
common stock. In the event that any amount due under the March 2021 Note was not paid as and when due, such amount will accrue interest
at the rate of 12%
per year, simple interest, non-compounding, until paid. The Company may not pre-pay or redeem the March 2021 Note other than as required
by the Agreement. The
Noteholder had an optional right of conversion such that a Noteholder may elect to convert his March 2021 Note, in whole or in part,
outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined
by dividing the indebtedness under the March 2021 Note price equal to the lesser of (a) $7.50 per share, and (b) a 30% discount to the
price of the common stock in the qualified transaction. Following an event of default, the conversion price shall be adjusted to be equal
to the lower of: (i) the then applicable conversion price or (ii) the price per share of 85% of the lowest traded price for the Company’s
common stock during the 15 trading days preceding the relevant conversion. In addition, subject to the ownership limitations, if a qualified
transaction is completed, without further action from the Noteholder, on the closing date of the qualified transaction, 50% of the principal
amount of this March 2021 Note and all accrued and unpaid interest shall be converted into Company common stock at a conversion price
equal to the 30% discount to the offering price in such qualified transaction, which price shall be proportionately adjusted for stock
splits, stock dividends or similar events. A
“Qualified Transaction” refers the completion of the public offering of the Company’s securities stock with gross proceeds
of at least $10,000,000
pursuant to which the Company’s securities
become registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, or a merger with a company listed on
the Nasdaq or Canadian stock exchanges, as amended. The Noteholder is granted registration rights and pre-emptive rights. In addition,
the March 2021 NPA includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance
with covenants thereunder, (iii) bankruptcy or insolvency. The Company’s issuance of the March 2021 Note under the terms of the
March 2021 NPA was made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities
Act”) in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The investor
in the March 2021 Note is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities
Act. There were no discounts or brokerage fees associated with this offering. The Company used the offering proceeds for working capital
and general corporate purposes. In April 2021 the Noteholder waived contractual pre-emptive rights set forth in the March 2021 NPA.
On May 27, 2021, the Lender converted $350,000 of the March 2021 Note into 100,000 shares of common stock.
December
2020 Financing
On
December 1, 2020, the Company entered into a Note Purchase Agreement by and among the Company and certain lenders where the Company sold
an aggregate principal amount of $244,000 of its convertible promissory notes (the “December 2020 Notes”). The December 2020
Note holders had an optional right of conversion such that a Noteholder may elect to convert his December 2020 Note, in whole or in part,
outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined
by dividing the outstanding indebtedness by $0.25, subject to certain adjustments.
August
2020 Financing
On
August 21, 2020, the Company entered into a Note Purchase Agreement by and among the Company and certain lenders where the Company sold
an aggregate principal amount of $933,000 of its convertible promissory notes (the “August 2020 Notes”). The August 2020
Note holders had an optional right of conversion such that a Noteholder may elect to convert his August 2020 Note, in whole or in part,
outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined
by dividing the outstanding indebtedness by $0.20, subject to certain adjustments.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9– CONVERTIBLE NOTES PAYABLE
(CONTINUED)
The
balances of the Company’s convertible note payable consist of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| |
December
31, 2021 | | |
December
31, 2020 | |
May
2019 Notes | |
$ | - | | |
$ | 462,085 | |
August
2020 Notes | |
| - | | |
| 588,182 | |
December
2020 Notes | |
| - | | |
| 244,000 | |
March
2021 Notes | |
| - | | |
| - | |
Convertible
debt | |
| - | | |
| 1,294,267 | |
Debt
Discount | |
| - | | |
| (1,084,944 | ) |
| |
| | | |
| | |
Total | |
$ | - | | |
$ | 209,323 | |
For
the years ended December 31, 2021 and 2020, we amortized the discount on the debt, to interest expense of $1,425,365
and $538,087,
resulting in a balance of unamortized notes payable of $0
and $209,323,
respectively.
For
the year ended December 31, 2021, the Holders converted a total of $1,644,267
of the convertible debt to 1,345,468
shares of common shares.
On
June 15, 2020, the change in conversion price from $0.50
to $1.00
per share, resulted in a difference in the carrying
value of the balance of the note payable. Under ASC 470-50-40-13, if it is determined that the original and new debt instruments are
substantially different, the new debt instrument shall be initially recorded at fair value, and that amount shall be used to determine
the debt extinguishment gain or loss to be recognized and the effective rate of the new instrument. The original debt had a carrying
value of $269,262 as
of June 15, 2020, the fair value of the amended debt was $0,
which resulted a gain from the extinguishment of debt $269,262.
For
the year ended December 31, 2020, the Holders converted a total of $687,734 of the convertible debt to 699,800 shares of common shares,
26,823 of which were at the conversion rate of $0.50 per share and 672,978 of which were at the conversion rate of $1.00 per share. The
balance of the convertible notes at December 31, 2020, net of unamortized discount of $1,084,944, is $209,323.
NOTE 10 STOCK SUBSCRIPTION PAYABLE
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.
For the year ended December
31, 2021, the Company received gross proceeds of $1,400,000 of the $7,225,038, pursuant to the December Offering, see Note 19 Subsequent
events. On January 5, 2022, the Company received an additional $5,825,038, resulting in the issuance of 2,229,950 shares of the Company’s
common stock, eliminating the stock subscription payable as well as, the closing of the offering.
NOTE
11 CORONAVIRUS LOANS
On
April 20, 2020, the Board of Directors the Company, approved for its wholly owned UK subsidiary, Global Telesat Communications LTD (“GTC”),
to apply for a Coronavirus Interruption Loan, offered by the UK government, for an amount up to £250,000.
On July 16, 2020 (the “Issue Date”), GTC, entered into a Coronavirus Interruption Loan Agreement (“Debenture”)
by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £250,000,
or USD $338,343
at an exchange rate of GBP:USD of 1.3533720.
The Debenture bears interest beginning July 16, 2021, at a rate of 3.99%
per annum over the Bank of England Base Rate (0.1%
as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of 6 years from
the date of drawdown, July 15, 2026, the “Maturity Date”. The first repayment of £4,166.67
(exclusive of interest) will be made 13 month(s)
after July 16, 2020. Voluntary
prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the limit
or, if less, the balance of the debenture. The
Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to
be used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others:
(i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event
of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of December 31, 2021, and
2020, the Company has recorded $56,391
and $41,831
as current portion of notes payable and $253,757
and $320,626
as notes payable long term, respectively.
On
May 8, 2020, NextPlat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan was for $20,832
and had a term of 2 years, of which the first 6 months are deferred at an interest rate of 1%. On May 23, 2021, BlueVine, the Company’s
SBA approved mortgage lender and originator, notified the Company, that the loan in the amount of $20,832, had been forgiven. As of December
31, 2021, the Company has recorded $20,832 as forgiveness of debt
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
12 - STOCKHOLDERS’ EQUITY
Capital
Structure
On
March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the
accompanying consolidated financial statements are retroactively restated for the effect of the Reincorporation.
On
March 5, 2016, the Company shareholders voted in favor of an amendment to its Articles of Incorporation to increase the total number
of shares of authorized capital stock to 800,000,000 shares consisting of (i) 750,000,000 shares of common stock and (ii) 50,000,000
shares of preferred stock from 220,000,000 shares consisting of (i) 200,000,000 shares of common stock and (ii) 20,000,000 shares of
preferred stock.
Effective
March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. All share and per share information in the accompanying
consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.
On
July 24, 2019, the Company filed a Certificate of Change (the “Certificate of Change”) with the Nevada Secretary of State.
The Certificate of Change provides for (i) a 1-for-15 reverse split (the “Reverse Split”) of the Company’s common stock,
$0.0001 par value per share, and the Company’s preferred stock, $0.0001 par value per share, (ii) a reduction in the number of
authorized shares of common stock in direct proportion to the Reverse Split (i.e. from 750,000,000 shares to 50,000,000 shares), and
(iii) a reduction in the number of authorized shares of preferred stock in direct proportion to the Reverse Split (i.e. from 50,000,000
shares to 3,333,333 shares). No fractional shares will be issued in connection with the Reverse Split. Stockholders who otherwise would
be entitled to receive fractional shares of common stock or preferred stock, as the case may be, will have the number of post-Reverse
Split shares to which they are entitled rounded up to the nearest whole number of shares. No stockholders will receive cash in lieu of
fractional shares. The Reverse Split was approved by FINRA on August 19, 2019.
On
May 28, 2021, the Company effected a reverse
stock split of its common stock at a ratio of 1-for-5 (the
“Reverse Split”). No fractional shares of common stock were issued as a result of the Reverse Split. Stockholders of record
who were otherwise entitled to receive a fractional share received a whole share. The conversion or exercise prices of Company’s
issued and outstanding convertible securities, stock options and warrants will be adjusted accordingly. All information presented in
this Annual Report on Form 10-K, assumes a 1-for-5
reverse stock split of Company’s outstanding
shares of common stock, and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set
forth in this Annual Report on Form 10K have been adjusted to give effect to such assumed reverse stock split.
Listing
on the Nasdaq Capital Market
Our
common stock and warrants have been trading on the Nasdaq Capital Market under the symbols “NXPL” and “NXPLW,”
respectively, since January 21, 2022. Prior to January 21, 2022, our common stock and warrants were traded on the Nasdaq Capital Market
under the symbols “OSAT” and “OSATW,” respectively.
The
authorized capital of the Company consists of 50,000,000
shares of common stock, par value $0.0001
per share and 3,333,333
shares of preferred stock, par value $0.0001
per share. As of December 31, 2021, and 2020,
there were and 7,053,146
and 817,450
shares of common stock and 0
shares of preferred stock issued and outstanding,
respectively.
Preferred
Stock
As
of December 31, 2021 and 2020, there were no preferred shares issued and outstanding.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
Warrants
As
of December 31, 2021, there were 2,836,092 registered warrants authorized to purchase of common stock and 2,530,092 registered warrants
issued and outstanding.
On
June 2, 2021, the Company issued 2,880,000 warrants to purchase 2,880,000 shares of common stock in an offering, at an exercise price
of $5.00 and a term of 5 years.
On
June 10, 2021, the Company issued 1,000 shares of common stock in our June Offering, as described below, for the exercise of 1,000 warrants,
at an exercise price of $5.00, for cash consideration of $5,000.
On
June 28, 2021, the Company issued an additional 432,000 warrants to purchase 432,000 shares of common stock in June Offering, at an exercise
price of $5.00 and a term of 5 years.
On
July 6, 2021, the Company issued 78,500 shares of common stock, for the exercise of 78,500 warrants, at an exercise price of $5.00, for
cash consideration of $392,500.
On
July 8, 2021, the Company issued 425,000 shares of common stock, for the exercise of 425,000 warrants, at an exercise price of $5.00,
for cash consideration of $2,125,000.
On
July 12, 2021, the Company issued 2,000 shares of common stock, for the exercise of 2,000 warrants, at an exercise price of $5.00, for
cash consideration of $10,000.
On
July 13, 2021, the Company issued 59,853 shares of common stock, for the exercise of 59,853 warrants, at an exercise price of $5.00,
for cash consideration of $299,265.
On
July 14, 2021, the Company issued 278,555 shares of common stock, for the exercise of 278,555 warrants, at an exercise price of $5.00,
for cash consideration of $1,392,775.
On
July 15, 2021, the Company issued 5,000 shares of common stock in connection with the exercise of 5,000 options, for cash consideration
of $5,000.
On
July 19, 2021, the Company issued 1,000 shares of common stock, for the exercise of 1,000 warrants, at an exercise price of $5.00, for
cash consideration of $5,000.
On
July 30, 2021, the Company issued 80,000 shares of common stock, for the exercise of 80,000 warrants, at an exercise price of $5.00,
for cash consideration of $400,000.
Underwriter
Warrants
In
addition to, but separate from, the registered warrants included in the units sold in the June Offering, the Company issued 144,000 warrants
to Maxim Group LLC, the underwriter (the “Underwriter Warrants”) in connection with the June Offering. The Underwriter Warrants
expire five years from the effective date of the June Offering and are exercisable at a per share price equal to $5.50 per share, or
110% of the public offering price per unit in the June Offering.
As
of December 31, 2021, there were 144,000
Underwriter Warrants issued and outstanding.
A
summary of the status of the Company’s total outstanding warrants and changes during the year ended December 31, 2021 is as follows:
SCHEDULE OF OUTSTANDING STOCK WARRANTS ACTIVITIES
| |
Number
of Warrants | | |
Weighted Average
Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | |
Balance at January 1, 2020 | |
| 800 | | |
$ | 300.00 | | |
| 2.37 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Cancelled | |
| - | | |
| - | | |
| - | |
Balance outstanding and exercisable at December 31, 2020 | |
| 800 | | |
$ | 300.00 | | |
| 1.37 | |
| |
| | | |
| | | |
| | |
Balance
at January 1, 2021 | |
| 800 | | |
$ | 300.00 | | |
| 1.37 | |
Granted | |
| 3,456,000 | | |
| - | | |
| - | |
Exercised | |
| (925,908 | ) | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Cancelled | |
| (800 | ) | |
| - | | |
| - | |
Balance
outstanding and exercisable at December 31, 2021 | |
| 2,530,092 | | |
$ | 5.00 | | |
| 4.42 | |
As
of December 31, 2021, and December 31, 2020, there were 2,530,092 and 800 warrants outstanding, respectively.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
Common
Stock
For
the year ended December 31, 2021
On
January 12, 2021, the Company issued an aggregate of 30,000 shares of common stock upon the conversion of $30,000 of its convertible
debt, at the conversion rate of $1.00 per share.
On
February 23, 2021, the Company issued an aggregate of 80,289 shares of common stock upon the conversion of $80,289 of its convertible
debt, at the conversion rate of $1.00 per share.
On
February 23, 2021, the Company issued an aggregate of 120,000 shares of common stock upon the conversion of $150,000 of its convertible
debt, at the conversion rate of $1.25 per share.
On
February 23, 2021, the Company issued an aggregate of 1,000 shares of common stock for services in the amount of $14,200.
On
March 1, 2021, the Company issued an aggregate of 149,532 shares of common stock upon the conversion of $149,532 of its convertible debt,
at the conversion rate of $1.00 per share.
On
March 1, 2021, the Company issued an aggregate of 38,616 shares of common stock upon the conversion of $48,270 of its convertible debt,
at the conversion rate of $1.25 per share.
On
March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock split not to exceed 1
for 5 reverse stock split. A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13,
2021. The Company’s Board of Directors subsequently approved the 1-for-5 reverse stock split. The Company has filed a Certificate
of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common
stock, at a ratio of 1-for-5. The effective time of the reverse stock split will be 12:01 a.m. ET on May 28, 2021.
The Company’s common stock will begin trading on a split-adjusted basis commencing upon market open on May 28, 2021. The common
stock will be assigned a new CUSIP number, 68557F 209. The warrants will be assigned the CUSIP number, 68557F 118. No fractional shares
of common stock will be issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to receive
a fractional share will receive a whole share.
On
May 20, 2021, Company issued an aggregate of 29,800 shares of common stock upon the conversion of $29,800 of its convertible debt, at
a weighted average conversion rate of $1.00.
On May 27, 2021, Company issued
an aggregate of 897,231 shares of common stock upon the conversion of $1,156,377 of its convertible debt, at a weighted average conversion
rate of $1.29.
On
May 28, 2021, Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC(the “Underwriter”),
pursuant to which the
Company agreed to issue and sell to the Underwriter in an underwritten public offering 2,880,000
units consisting of one share of common stock and one
warrant, exercisable for one share of common stock at a public offering price of $5.00
per unit, (after giving effect to a 1-for-5 reverse
stock split, discussed above) for aggregate gross proceeds of approximately $14,400,000
before deducting underwriting discounts, commissions,
and other offering expenses (the “June Offering”). The common stock and warrants were immediately separable and were issued
separately. The common stock and warrants began trading on the Nasdaq Capital Market, on May 28, 2021, under the symbols “OSAT”
and “OSATW,” respectively. In addition, the Company In addition, the Company has granted the Underwriter a 45-day option
to purchase an additional 432,000
shares of common stock and/or warrants to purchase
up to an aggregate of 432,000
shares of common stock, in any combination thereof,
at the public offering price per security, less the underwriting discounts and commissions, to cover over-allotments, if any. The June
Offering closed on June 2, 2021.In connection with closing of the June Offering, the Underwriter partially exercised its overallotment
option and purchased an additional 432,000
warrants at $0.01
per warrant for additional gross proceeds to
the Company of $4,320.
On June 28, 2021, the Underwriter, upon the exercise in full of the balance of its over-allotment option, purchased 432,000
additional gross and net proceeds after
deducting underwriting discounts of $2,160,000 and $1,983,226, respectively.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
We
have issued to the Underwriter warrants to purchase up to a total of 144,000
shares of common stock (5% of the shares of common
stock included in the Units, excluding the over-allotment, if any) (the “Underwriter Warrants”). The Underwriter Warrants
are exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective date
of the registration statement and expire five years from the effective date of the offering, which period is in compliance with
FINRA Rule 5110(e). The Underwriter Warrants are exercisable at a per share price equal to $5.50
per share, or 110%
of the public offering price per unit in the offering. The Underwriter Warrants have been deemed compensation by FINRA and are therefore
subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(2)) will
not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in
any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants
or the underlying securities for a period of 180 days from the effective date of the registration statement. In addition, the warrants
provide for certain piggyback registration rights. The piggyback registration rights provided will not be greater than five years from
the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8). We will bear all fees and expenses attendant
to registering the securities issuable on exercise of the Underwriter Warrants. The exercise price and number of shares issuable upon
exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary
cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares
will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
The June Offering of
common stock and warrants, and the underwriter’s exercise of the over-allotment option in connection therewith, resulted in
total gross proceeds of approximately $16,560,000
before deducting underwriting discounts, commissions, and other offering expenses.
On
June 10, 2021, the Company issued 1,000 shares of common stock, for the exercise of 1,000 warrants, at an exercise price of $5.00, for
cash consideration of $5,000.
On
July 6, 2021, the Company issued 78,500 shares of common stock, for the exercise of 78,500 warrants, at an exercise price of $5.00, for
cash consideration of $392,500.
On
July 8, 2021, the Company issued 425,000 shares of common stock, for the exercise of 425,000 warrants, at an exercise price of $5.00,
for cash consideration of $2,125,000.
On
July 12, 2021, the Company issued 2,000 shares of common stock, for the exercise of 2,000 warrants, at an exercise price of $5.00, for
cash consideration of $10,000.
On
July 13, 2021, the Company issued 59,853 shares of common stock, for the exercise of 59,853 warrants, at an exercise price of $5.00,
for cash consideration of $299,265.
On
July 14, 2021, the Company issued 278,555 shares of common stock, for the exercise of 278,555 warrants, at an exercise price of $5.00,
for cash consideration of $1,392,775.
On
July 15, 2021, the Company issued 5,000 shares of common stock in connection with the exercise of 5,000 options, for cash consideration
of $5,000.
On
July 19, 2021, the Company issued 1,000 shares of common stock, for the exercise of 1,000 warrants, at an exercise price of $5.00, for
cash consideration of $5,000.
On
July 30, 2021, the Company issued 80,000 shares of common stock, for the exercise of 80,000 warrants, at an exercise price of $5.00,
for cash consideration of $400,000.
On
September 3, 2021, the Company issued 10,000 shares of common stock in connection with restricted stock awards, with a fair market value
of $5.35 per share, from the date of the award.
On
September 14, 2021, the Company issued 40,000 shares of common stock in connection with restricted stock awards, with a fair market value
of $5.35 per share, from the date of the award.
On
September 22, 2021, the Company issued a total of 12,437
common shares for the exercise of 14,200
options through a cashless exercise using
2,763
options for the $1.00
exercise price and in connection with a 1,000
restricted stock award.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
On
October 21, 2021, the Company issued 10,000
shares of common stock in connection with restricted
stock awards, with a fair market value of $4.75
per share, from the date of the award, for stock-based
compensation of $47,500.
On
December 21, 2021, the Company issued 563,500 shares of common stock in connection with restricted stock awards, with a fair market value
of $3.74 per share, from the date of the award for stock-based compensation of $2,107,490.
On
December 28, 2021, the Company awarded at total of 15,000
restricted stock awards, at a fair market value
of $3.81,
from the date of issuance. The Company issued 10,393
shares of common stock, withholding 4,607
of the award for the payment of taxes, this resulted
in net stock-based compensation of $39,597.
For
the year ended December 31, 2020
The
Company issued a total of 791,760 shares of common stock during the year ended December 31, 2020, as described below:
On
January 30, 2020, the Company issued an aggregate of 3,629 common stock upon the conversion of $1,815 of its convertible debt, at the
conversion rate of $0.50 per share.
On
January 31, 2020, the Company issued an aggregate of 3,629 common stock upon the conversion of $1,815 of its convertible debt, at the
conversion rate of $0.50 per share.
On
February 10, 2020, the Company issued an aggregate of 5,084 common stock upon the conversion of $2,542 of its convertible debt, at the
conversion rate of $0.50 per share.
On
February 11, 2020, the Company issued an aggregate of 4,716 common stock upon the conversion of $2,358 of its convertible debt, at the
conversion rate of $0.50 per share.
On
February 18, 2020, the Company issued an aggregate of 2,638 common stock upon the conversion of $1,319 of its convertible debt, at the
conversion rate of $0.50 per share.
On
February 19, 2020, the Company issued an aggregate of 894 common stock upon the conversion of $446 of its convertible debt, at the conversion
rate of $0.50 per share.
On
March 9, 2020, the Company issued an aggregate of 2,061 common stock upon the conversion of $1,031 of its convertible debt, at the conversion
rate of $0.50 per share.
On
April 17, 2020, the Company issued an aggregate of 1,409 common stock upon the conversion of $705 of its convertible debt, at the conversion
rate of $0.50 per share.
On
April 22, 2020, the Company issued an aggregate of 74 common stock upon the conversion of $37 of its convertible debt, at the conversion
rate of $0.50 per share.
On
June 22, 2020, the Company issued an aggregate of 2,687 common stock upon the conversion of $2,687 of its convertible debt, at the conversion
rate of $1.00 per share.
On
July 8, 2020, the Company issued an aggregate of 219 common stock upon the conversion of $219 of its convertible debt, at the conversion
rate of $1.00 per share.
On
July 16, 2020, the Company’s Board of Directors approved, and the Company entered into a 12-month consulting agreement (“Consulting
Agreement”) with an unrelated third-party for capital raising advisory services and business growth and development services, with
the term renewable upon mutual consent of the parties. Upon signing of the Consulting Agreement, the Company agreed to issue 4,000
restricted shares of its common stock to the
consultant (the “Consulting Shares”), 1,000
additional restricted shares of common stock
to be issued quarterly until the consultant may receive cash compensation for its services, which will be determined, upon completion
of certain milestones, by the Company’s CEO. On July 22, 2020, the Company issued 4,000
common stock valued at $50,200
and on November 13, 2020, the Company issued
1,000
common stock valued at $11,250.
On
July 23, 2020, the Company issued an aggregate of 468 common stock upon the conversion of $468 of its convertible debt, at the conversion
rate of $1.00 per share.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
On
August 25, 2020, David Phipps exercised 80,000 options via a cashless exercise. Additionally, on August 25, 2020, Hector Delgado and
two employees exercised 22,000 options through a cashless exercise. The Company withheld newly acquired shares pursuant to the exercise
of the Option. The amount of common stock issued is calculated by using [Number of Options Exercising] minus [Exercise Price]
* [Number of Options Exercising] divided by [Prior Close OSAT Market Price]. As a result of the exercise 85,960 shares
of common stock were issued.
On
August 25, 2020, the Company issued 1,000 common stock for consulting services valued at $12,550.
On
August 26, 2020, the Company issued an aggregate of 117,200 common stock upon the conversion of $117,200 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 1, 2020, the Company issued an aggregate of 38,219 common stock upon the conversion of $38,219 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 2, 2020, the Company issued an aggregate of 4,351 common stock upon the conversion of $4,351 of its convertible debt, at the
conversion rate of $1.00 per share.
On
September 8, 2020, the Company issued an aggregate of 33,600 common stock upon the conversion of $33,600 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 10, 2020, the Company issued an aggregate of 114,457 common stock upon the conversion of $114,457 of its convertible debt,
at the conversion rate of $1.00 per share.
On
September 11, 2020, the Company issued an aggregate of 15,000 common stock upon the conversion of $15,000 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 14, 2020, the Company issued an aggregate of 66,294 common stock upon the conversion of $66,294 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 15, 2020, the Company issued an aggregate of 13,529 common stock upon the conversion of $13,529 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 16, 2020, the Company issued an aggregate of 30,275 common stock upon the conversion of $30,275 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 17, 2020, the Company issued an aggregate of 33,197 common stock upon the conversion of $33,197 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 21, 2020, the Company issued an aggregate of 5,780 common stock upon the conversion of $5,780 of its convertible debt, at the
conversion rate of $1.00 per share.
On
September 22, 2020, the Company issued an aggregate of 55,005 common stock upon the conversion of $55,005 of its convertible debt, at
the conversion rate of $1.00 per share.
On
September 30, 2020, the Company issued an aggregate of 43,240 common stock upon the conversion of $43,240 of its convertible debt, at
the conversion rate of $1.00 per share.
On
November 3, 2020, the Company issued an aggregate of 6,061 common stock upon the conversion of $6,061 of its convertible debt, at the
conversion rate of $1.00 per share.
On
November 5, 2020, the Company issued an aggregate of 25,848 common stock upon the conversion of $25,848 of its convertible debt, at the
conversion rate of $1.00 per share.
On
November 6, 2020, the Company issued an aggregate of 11,340 common stock upon the conversion of $11,340 of its convertible debt, at the
conversion rate of $1.00 per share.
On
November 11, 2020, the Company issued an aggregate of 20,000 common stock upon the conversion of $20,000 of its convertible debt, at
the conversion rate of $1.00 per share.
On
November 13, 2020, the Company issued an aggregate of 38,894 common stock upon the conversion of $38,894 of its convertible debt, at
the conversion rate of $1.00 per share.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
Stock
Options
Options
Issued Outside of Equity Incentive Plan
On
August 24, 2021, the Company issued to Douglas Ellenoff, Chief Business Development Strategist, 300,000 options which are fully vested,
to purchase its common stock. The Company will issue an additional 150,000 options per year for the next three years which will be fully
vested at the end of each year, as long as Mr. Ellenoff remains employed by the Company. During the next three years, Mr. Ellenoff will
be eligible to receive an additional 250,000 per year on each of the first three anniversaries of the commencement of his employment
if during each such year Mr. Ellenoff introduces the Company to twelve (12) or more potential Business Transactions (as defined in the
Ellenoff Agreement and which transactions need not be consummated); provided that the Company’s Chief Executive Officer may, in
his sole discretion, waive the vesting requirement in any given year. Such options have an exercise price of $5.35 per share and will
terminate 5 years after they vest.
Also
on August 24, 2021, the Company granted 25,000 options to Paul R Thomson, its Executive Vice President and current Chief Financial Officer.
The options were issued outside of the Company’s 2020 Equity Incentive Plan and are not governed by the 2020 Plan. The options
have an exercise price of $5.35 per share, vest immediately, and have a term of five years.
The
325,000 options granted were valued on the grant date at approximately $3.24 per option or a total of $1,053,064 using a Black-Scholes
option pricing model with the following assumptions: stock price of $5.37 per share (based on the closing price of the Company’s
common stock of the date of grant), volatility of 75.25%, expected term of 5 years, and a risk-free interest rate of 0.28%.
On
October 8, 2021, the Company granted 25,000 options to Andrew Cohen, its Senior Vice President of Operations. The options were issued
outside of the Company’s Equity Incentive Plans and are not governed by any Plans. The options have an exercise price of $5.35
per share, vest immediately, and have a term of five years.
The
25,000 options granted were valued on the grant date at approximately $2.90 per option or a total of $72,350 using a Black-Scholes option
pricing model with the following assumptions: stock price of $4.75 per share (based on the closing price of the Company’s common
stock of the date of grant), volatility of 80%, expected term of 5 years, and a risk-free interest rate of 0.28%.
2018
Incentive Plan
On
June 14, 2018, our Board of Directors approved the 2018 Incentive Plan (the “2018 Plan”). The purpose of the 2018 Plan is
to provide a means for the Company to continue to attract, motivate and retain management, key employees, consultants and other independent
contractors, and to provide these individuals with greater incentive for their service to the Company by linking their interests in the
Company’s success with those of the Company and its shareholders. An award may also be granted to any consultant, agent, advisor
or independent contractor for bona fide services rendered to the Company or any Related Company (as defined in the 2018 Plan) that; are
not in connection with the offer and sale of the Company’s securities in a capital raising transaction, and do not directly or
indirectly promote or maintain a market for the Company’s securities. The 2018 Plan is administered by the Board its Compensation
Committee and may grant Options designated as Incentive Stock Options or Nonqualified Stock Options. The 2018 Plan provides that up to
a maximum of 13,333 shares of the Company’s common stock (subject to adjustment) are available for issuance under the 2018 Plan.
Subject to earlier termination in accordance with the terms of the 2018 Plan and the instrument evidencing the option, the maximum term
of an incentive stock option shall not exceed ten years, and in the case of an incentive stock option granted to a Ten Percent Stockholder
(as defined in the 2018 Plan), shall not exceed five years. Any portion of an option that is not vested and exercisable on the date of
a plan participant’s Termination of Service (as defined in the 2018 Plan) shall expire on such date. In the event of a Change in
Control (as defined in the 2018 Plan); all outstanding awards, other than performance shares and performance units, shall become fully
and immediately exercisable, and all applicable deferral and restriction limitations or forfeiture provisions shall lapse, immediately
prior to the Change in Control and shall terminate at the effective time of the Change in Control; provided, however, that with respect
to a Change in Control that is a Company Transaction (as defined in the 2018 Plan), such awards shall become fully and immediately exercisable,
and all applicable deferral and restriction limitations or forfeiture provisions shall lapse, only if and to the extent such awards are
not converted, assumed or replaced by the Successor Company (as defined in the 2018 Plan.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
Amended
and Restated 2020 Equity Incentive Plan
On
August 21, 2020, the Company’s Board of Directors approved and adopted the Company’s 2020 Equity Incentive Plan (the “2020
Plan”) in order to provide a means for the Company to continue to attract, motivate and retain management, key employees, directors
and consultants. On December 31, 2020, the Company’s Board of Directors approved and adopted an amendment that increased the number
of shares available for issuance under the 2020 Plan from 450,000 shares to 800,000 shares of the Company’s common stock. On August
10, 2021, the Company’s Board of Directors further amended the 2020 Plan and adopted and approved an Amended and Restated 2020
Equity Incentive Plan (the “A&R 2020 Plan”), in order to, among other things: (i) clarify that the exercise price of
stock options will be set at “Fair Market Value,” and (ii) make conforming revision to reflect the 1-for-5 reverse split
that was effective on May 28, 2021. The A&R 2020 Plan was approved by the Company’s stockholders on December 16, 2021, at the
Company’s 2021 Annual Meeting of Stockholders.
The
A&R 2020 Plan provides for discretionary awards of, among others, stock options, stock awards, stock unit awards and stock appreciation
rights to participants. Each award made under the A&R 2020 Plan will be evidenced by a written award agreement specifying the terms
and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the A&R 2020 Plan.
All employees, directors, and consultants of the Company and its subsidiaries are eligible to receive awards under the A&R 2020 Plan.
The
A&R 2020 Plan is administered by the “Committee” which is defined in the A&R 2020 Plan as the Compensation Committee
of the Board or such other committee as may be designated by the Board from time to time to administer the Plan, or, if no such committee
has been designated at the time of any grants, it shall mean the Board.
The
number of shares of common stock that may be issued under the A&R 2020 Plan is 800,000. Shares issuable under the A&R 2020 Plan
may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of
any award made under the A&R 2020 Plan for any reason, the shares subject to the award will again be available for issuance. Any
shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an
award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will
count toward the number of shares issued under the A&R 2020 Plan. The number of common shares issuable under the A&R 2020 Plan
is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation,
split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company
or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve
the intended benefits under the A&R 2020 Plan. No award granted under the A&R 2020 Plan may be transferred, except by will, the
laws of descent and distribution.
The
maximum number of shares subject to Awards granted under the A&R 2020 Plan or otherwise during any one calendar year to any Director
for service on the Board (other than to Mr. Phipps and the Company’s CEO and President, if serving on the Board, to whom no annual
limit is applicable), taken together with any cash fees paid by the Company to such Director during such calendar year for service on
the Board, will not exceed $100,000 in total value (calculating the value of any such Awards based on the grant date fair value or such
value as determined by the Board, at its discretion, of such Awards for financial reporting purposes).
The
Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under
any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law,
regulation or stock exchange rule. The Board may terminate, suspend or amend the A&R 2020 Plan, in whole or in part, from time to
time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule,
and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without
the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange
on which the shares are listed. Notwithstanding the foregoing, neither the A&R 2020 Plan nor any outstanding award agreement can
be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price
of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards.
No awards may be granted under the A&R 2020 Plan on or after the tenth anniversary of the effective date of the A&R 2020 Plan.
The
Company uses the Black-Scholes Model to calculate the fair value of its options. The valuation result generated by this pricing model
is necessarily driven by the value of the underlying common stock incorporated into the model. Management determined the expected volatility
was 462.15%, a risk-free rate of interest between 0.68-0.93%, and contractual lives of the options of ten years. In connection with the
stock option grant, for the year ended December 31, 2020, the Company recorded a charge for the fair value of options granted of $830,900.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
2021
Equity Incentive Plan
The
Company’s Board of Directors approved and adopted the 2021 Incentive Award Plan (“2021 Plan”), subject to stockholder
approval, on August 10, 2021. The 2021 Plan was approved by the Company’s stockholders on December 16, 2021, at the Company’s
2021 Annual Meeting of Stockholders.
The
purpose of the 2021 Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected
to make) important contributions to the Company and its subsidiaries by providing these individuals with equity ownership opportunities.
The
number of shares initially available for issuance under awards granted pursuant to the 2021 Plan is 768,819 shares of common stock. The
number of shares initially available for issuance will be increased on January 1 of each calendar year beginning in 2022 and ending in
2031, by an amount equal to the lesser (A) an amount such that the resulting sum (the new “Overall Share Limit”) is equal
to 12% of the aggregate number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and
(B) such smaller number of shares of Common Stock as is determined by the Board. Shares issued under the 2021 Plan may be authorized
but unissued shares, shares purchased in the open market or treasury shares. If an award under the 2021 Plan expires, lapses or is terminated,
exchanged for cash, surrendered to an exchange program, repurchased, cancelled without having been fully exercised or forfeited, any
shares subject to such award will, as applicable, become or again be available for new grants under the 2021 Plan.
All
employees, directors, and consultants of the Company and its subsidiaries are eligible to receive awards under the 2021 Plan. As of October
22, 2021, eighteen individuals are eligible to receive awards under the 2021 Plan.
The
2021 Plan is generally administered by the Board, which may delegate its duties and responsibilities to committees of Board and or officers
of the Company (referred to collectively as the “plan administrator”). The plan administrator will have the authority to
make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2021
Plan, subject to its express terms and conditions. The plan administrator will also set the terms and conditions of all awards under
the 2021 Plan, including any vesting and vesting acceleration conditions. The plan administrator may also institute and determine the
terms and conditions of an “exchange program,” which could provide for the surrender or cancellation, transfer, or reduction
or increase of exercise price, of outstanding awards, subject to the limitations provided for in the Incentive Award Plan.
The
2021 Plan provides for the grant of stock options, including incentive stock options, or ISOs, and nonqualified stock options, or NSOs;
restricted stock; dividend equivalents; restricted stock units, or RSUs; stock appreciation rights, or SARs; and other stock or cash-based
awards. All awards under the 2021 Plan will be set forth in award agreements, which will detail the terms and conditions of the awards,
including any applicable vesting and payment terms and post-termination exercise limitations.
Other
Stock or Cash Based Awards may be granted to participants, including awards entitling participants to receive shares to be delivered
in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified performance criteria
or otherwise), in each case subject to any conditions and limitations in the 2021 Plan. The plan administrator will determine the terms
and conditions of other stock or cash-based awards.
Performance
awards include any of the foregoing awards that are granted subject to vesting and/or payment based on the attainment of specified performance
goals or other criteria the plan administrator may determine, which may or may not be objectively determinable. Performance criteria
upon which performance goals are established by the plan administrator.
In
connection with certain transactions and events affecting the Company’s Common Stock, including a change in control (as defined
in the 2021 Plan), or change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action
under the 2021 Plan to prevent the dilution or enlargement of intended benefits, facilitate such transaction or event, or give effect
to such change in applicable laws or accounting principles. This includes cancelling awards in exchange for either an amount in
cash or other property with a value equal to the amount that would have been obtained upon exercise or settlement of the vested portion
of such award or realization of the participant’s rights under the vested portion of such award, accelerating the vesting of awards,
providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares available, replacing
awards with other rights or property and/or terminating awards under the 2021 Plan.
On
December 16, 2021, the Company granted 100,000 options pursuant to its 2021 equity incentive plan, with an exercise price of $3.81 per
share, of which half vest on day of grant with the second half vesting on the one-year anniversary of the date of grant. The options
have a ten-year term and expire on December 16, 2031. The grants were awarded as follows: 75,000 to Charles Fernandez, 10,000 to Paul
R. Thomson and 15,000 to Theresa Carlise.
The
vested portion of the options granted, 50,000 options were valued on the grant date at approximately $3.04 per option or a total of $151,940
using a Black-Scholes option pricing model with the following assumptions: stock price of $3.81 per share (based on the closing price
of the Company’s common stock of the date of grant), volatility of 80%, expected term of 10 years, and a risk-free interest rate
of 0.28%.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
For
the years ended December 31, 2021 and 2020, the Company recorded total stock-based compensation of $3,758,424 and $904,900, respectively.
Stock
options outstanding at December 31, 2021 and 2020, as disclosed in the below table, have approximately ($270,837) and $3,012,851 of intrinsic
value, respectively.
A
summary of the status of the Company’s outstanding stock options and changes during the years ended December 31, 2021 and 2020,
is as follows:
SCHEDULE
OF OUTSTANDING STOCK OPTIONS ACTIVITIES
| |
Number
of Options | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (Years) | |
Balance
at January 1, 2020 | |
| 7,809 | | |
$ | 87.45 | | |
| 5.16 | |
Granted | |
| 698,400 | | |
$ | 1.20 | | |
| 9.92 | |
Exercised | |
| (106,200 | ) | |
$ | 1.00 | | |
| 9.64 | |
Forfeited | |
| - | | |
$ | - | | |
| - | |
Cancelled | |
| - | | |
$ | - | | |
| - | |
Balance
outstanding at December 31, 2020 | |
| 600,009 | | |
$ | 2.35 | | |
| 9.91 | |
Options
exercisable at December 31, 2020 | |
| 600,009 | | |
$ | 2.35 | | |
| 9.91 | |
Weighted
average fair value of options granted during the period | |
| | | |
$ | 1.20 | | |
| 9.92 | |
| |
| | | |
| | | |
| | |
Balance
at January 1, 2021 | |
| 600,009 | | |
$ | 2.35 | | |
| 9.91 | |
Granted | |
| 400,000 | | |
$ | 2.22 | | |
| 5.32 | |
Exercised | |
| (19,200 | ) | |
$ | - | | |
| - | |
Forfeited | |
| (917 | ) | |
$ | - | | |
| - | |
Cancelled | |
| (50,000 | ) | |
$ | - | | |
| - | |
Balance
outstanding at December 31, 2021 | |
| 929,892 | | |
$ | 3.53 | | |
| 5.32 | |
Options
exercisable at December 31, 2021 | |
| 929,892 | | |
$ | 3.53 | | |
| 5.32 | |
Weighted
average fair value of options granted during the period | |
| | | |
$ | 2.22 | | |
| 5.32 | |
Restricted
Stock Awards
On February 23, 2021, the
Company issued an aggregate of 1,000 shares of common stock for services in the amount of $14,200.
On
May 28, 2021, the Company awarded 600,000 shares of restricted common stock Charles
M. Fernandez, Chairman and Chief Executive Officer, which will vest 1/3 at each of the three
anniversaries of the grant date. This equity award was made outside of a shareholder approved stock
or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
On
August 24, 2021, in connection with Paul R. Thomson employment as Executive Vice President, and currently Chief Financial Officer, and
as a material inducement to enter into the Thomson Agreement, Mr. Thomson received a restricted stock grant of 25,000 shares of Common
Stock, 10,000 of which vest immediately, and the remaining 15,000 of which will vest at the rate of 5,000 shares at the end of each of
the next three annual anniversaries of his employment. These equity awards to Mr. Thomson were issued outside of a shareholder approved
stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)). On October 7,
2021, the Board of Directors of the Company (the “Board”) appointed Paul R. Thomson, the Executive Vice President of the
Company, to the additional position of Chief Financial Officer of the Company effective October 9, 2021.
Also
on August 24, 2021, under the terms of the Ellenoff Agreement, Douglas Ellenoff, Chief Business Development Strategist, will receive,
in lieu of cash compensation: (i) a restricted stock award of 100,000 shares of Common Stock of the Company, 40,000 of which were issued
after the execution of the Ellenoff Agreement and vest immediately, and the remaining 60,000 of which will be issued and vest at the
rate of 20,000 shares at the end of each of the next three annual anniversaries of his employment, provided that Mr. Ellenoff serves
on the Board at any time during such year; These equity awards to Mr. Ellenoff were material to induce Mr. Ellenoff to enter into the
Ellenoff Agreement and were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant”
exception (Nasdaq Listing Rule 5635(c)(4)).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCKHOLDERS’ EQUITY (CONTINUED)
On
October 8, 2021, in connection with Andrew Cohen employment as Senior Vice President of Operations, and as a material inducement to enter
into the Cohen Agreement, Mr. Cohen received a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately,
and the remaining 15,000 of which will vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of
his employment. These equity awards to Mr. Cohen were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq
“inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
On
December 16, 2021, the following awards of unregistered restricted stock to the Company’s directors and officers became effective;
Charles
M. Fernandez, Executive Chairman and Chief Executive Officer- (1) Award of 101,000 shares of restricted common stock of the Company under
the 2020 Plan. All shares fully vested and issued on the Effective Grant Date and (2) Award of 275,000 shares of restricted common stock
of the Company under the 2021 Plan. Half of the shares fully vested and issued on the Effective Grant Date. The second half of the shares
to be issued and to vest on the first anniversary of the Effective Grant Date.
David
Phipps, Director and President of Orbsat; Chief Executive Officer of Global Operations - Award of 275,000 shares of restricted common
stock of the Company under the 2021 Plan. All shares fully vested and issued on the Effective Grant Date.
Kendall
Carpenter, Director - Award of 20,000 shares of restricted common stock of the Company under the 2021 Plan. Half of the shares fully
vested and issued on the Effective Grant Date. The second half of the shares to be issued and to vest on the first anniversary of the
Effective Grant Date.
Louis
Cusimano, Director - Award of 20,000 shares of restricted common stock of the Company under the 2021 Plan. Half of the shares fully vested
and issued on the Effective Grant Date. The second half of the shares to be issued and to vest on the first anniversary of the Effective
Grant Date.
Hector
Delgado, Director - Award of 20,000 shares of restricted common stock of the Company under the 2021 Plan. Half of the shares fully vested
and issued on the Effective Grant Date. The second half of the shares to be issued and to vest on the first anniversary of the Effective
Grant Date.
John
Miller, Director - Award of 20,000 shares of restricted common stock of the Company under the 2021 Plan. Half of the shares fully vested
and issued on the Effective Grant Date. The second half of the shares to be issued and to vest on the first anniversary of the Effective
Grant Date.
Paul
R. Thomson, Executive Vice President and Chief Financial Officer – Award of 10,000 shares of restricted common stock of the Company
under the 2021 Plan. All shares fully vested and issued on the Effective Grant Date.
Theresa
Carlise, Chief Accounting Officer, Treasurer and Secretary - Award of 15,000 shares of restricted common stock of the Company under the
2021 Plan. All shares fully vested and issued on the Effective Grant Date.
For the year ended December 31, 2021, the Company recorded total stock-based compensation for the awards and options granted of $3,758,424.
For the year ended December 31, 2020, the Company recorded stock-based compensation of $904,900.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
13 – INCOME TAXES
The
Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally requires the establishment
of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net federal and state operating
loss carry forward for tax purposes totaling approximately $6.8 million at December 31, 2020, expiring through the year 2036, generally.
The
tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping
modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move
to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which
taxed income over $10 million at 35%, with a flat rate of 21%. Due to the continuing loss position of the Company, such changes should
not be material.
For
U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the
“Code”) Section 382, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited
as to the amount that could be utilized each year, or possibly eliminated, based on the Code. The Company has also, not completed its
review of NOL’s pertaining to years the Company was known as “Silver Horn Mining Ltd.” and “Great West Resources,
Inc.”, which may not be available due to IRC Section 382 and because of a change in business line that may eliminate NOL’s
associated with ““Silver Horn Mining Ltd.” and “Great West Resources, Inc.” The company has also not reviewed
the impact relating to “Recent Events” for its IRC Section 382 possible NOL’s limitation.
The
components of earnings before income taxes for the years ended December 31, 2021 and 2020 were as follows:
SUMMARY
OF COMPONENTS OF EARNINGS BEFORE INCOME TAXES
| |
| | |
| |
| |
Year
Ended | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Income
(loss) before income taxes: | |
| | | |
| | |
Income
tax provision (benefit) consists of the following for the years ended December 31, 2021 and 2020:
SUMMARY
OF COMPONENTS OF INCOME TAX PROVISION (BENEFIT)
| |
| | |
| |
| |
Year
Ended | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Income
tax provision (benefit): | |
| | | |
| | |
Current | |
| | | |
| | |
Federal | |
$ | - | | |
$ | - | |
State | |
| - | | |
| - | |
Foreign | |
| 15,000 | | |
| 3,563 | |
Total
current | |
| 15,000 | | |
| 3,563 | |
Deferred: | |
| | | |
| | |
Federal | |
| - | | |
| - | |
State | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | |
Total
deferred | |
| - | | |
| - | |
Total
income tax provision (benefit) | |
$ | 15,000 | | |
$ | 3,563 | |
The
Company’s wholly owned subsidiary, GTC, is a United Kingdom (“UK”) Limited Company and files tax returns in the UK.
Its estimated tax liability for December 31, 2021 and 2020 is approximately $15,000 and $3,563, respectively.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 – INCOME TAXES (CONTINUED)
A
reconciliation of the income tax provision (benefit) by applying the statutory United States federal income tax rate to income (loss)
before income taxes is as follows:
SUMMARY
OF EFFECTIVE TAX RATE AND STATUTORY FEDERAL RATE
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
| |
| $ | | |
| % | | |
| $ | | |
| % | |
Federal
income tax provision (benefit) at statutory rate | |
$ | 1,736,000 | | |
| 21 | % | |
$ | (580,000 | ) | |
| 21 | % |
State
tax expense net of federal tax benefit | |
| 211,000 | | |
| 3 | % | |
| 36,000 | | |
| (1 | )% |
State
tax expense federal impact | |
| 29,000 | | |
| - | | |
| - | | |
| - | |
Non-deductible
expenses | |
| (320,000 | ) | |
| (4 | )% | |
| 57,000 | | |
| (2 | )% |
State
rate change adjustment | |
| (138,000 | ) | |
| (2 | )% | |
| - | | |
| - | |
Foreign
taxes at rate different than US Taxes | |
| (2,000 | ) | |
| - | | |
| - | | |
| - | |
Other
true-ups | |
| 188,000 | | |
| 2.0 | % | |
| 1,267,000 | | |
| 46 | % |
Change
in valuation allowance | |
| (1,689,000 | ) | |
| (20.0 | )% | |
| (776,000 | ) | |
| (28 | )% |
Income
tax provision (benefit) | |
$ | 15,000 | | |
| - | | |
$ | 4,000 | | |
| - | |
Deferred
tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial
reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
December
31, 2021 | | |
December
31, 2020 | |
Deferred
tax assets: | |
| | | |
| | |
Net
operating loss carryforward | |
$ | 2,455,000 | | |
$ | 1,721,000 | |
Property
plant and equipment and intangibles asset | |
| 132,000 | | |
| 124,000 | |
Stock-based
compensation | |
| 1,133,000 | | |
| 186,000 | |
Total
deferred tax assets | |
$ | 3,720,000 | | |
$ | 2,031,000 | |
| |
| | | |
| | |
Deferred
tax liabilities: | |
| | | |
| | |
Book
basis of property and equipment in excess of tax basis | |
$ | - | | |
$ | - | |
Total
deferred tax liabilities | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Net
deferred tax asset before valuation allowance | |
$ | 3,720,000 | | |
$ | 2,030,777 | |
Less:
valuation allowance | |
| (3,720,000 | ) | |
| (2,030,777 | ) |
Net
deferred tax asset | |
$ | - | | |
$ | - | |
The
net operating loss carryforward increased from $6,789,695
at December 31, 2020 to $ 10,159,749
at December 31, 2021. After consideration of
all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2021 and 2020, due to
the uncertainty of realizing the deferred income tax assets. Out of the $10,159,749
net operating loss carryforward, $2,872,841 will
begin to expire in 2036 and $7,286,908 will have an indefinite life.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 – INCOME TAXES (CONTINUED)
The
Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for
a 10.5% tax on certain income of controlled foreign corporations. We have elected to account for GILTI as a period cost if and when occurred,
rather than recognizing deferred taxes for basis differences expected to reverse.
The
Company is subject to taxation in the U.S. and various states and foreign jurisdictions. U.S. federal income tax returns for 2018 and
after remain open to examination. We and our subsidiaries are also subject to income tax in multiple states and foreign jurisdictions.
Generally, foreign income tax returns after 2017 remain open to examination. No income tax returns are currently under examination. As
of December 31, 2021 and 2020, the Company does not have any unrecognized tax benefits, and continues to monitor its current and prior
tax positions for any changes. The Company recognizes penalties and interest related to unrecognized tax benefits as income tax expense.
For the years ended December 31, 2021 and 2020, there were no penalties or interest recorded in income tax expense.
NOTE
14 - COMMITMENTS AND CONTINGENCIES
COVID-19
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 again 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 could have a material, adverse effect on our results of operations, cash flows and liquidity.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
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. 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.
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 years ended December 31, 2021 and for the year ended December 31, 2020, reflect this impact; however, we expect that
this trend may continue, and the full extent of the impact is unknown. In recent months, some governmental agencies in the US and Europe,
where we produce the largest percentage of our sales, have lifted certain restrictions. However, if customer demand continues to be low,
our future equipment sales, subscriber activations and sales margin will be impacted.
Employment
Agreements
2021
Phipps Employment Agreement
On
June 5, 2021, the Company to enter into a new three year employment agreement with Mr. Phipps the that was effective as of June 2, 2021,
also referred to herein as the 2021 Phipps Employment Agreement). Under the terms of the 2021 Phipps Employment Agreement, Mr. Phipps
will serve as the serve as President of the Company and Chief Executive Officer of Global Operations. The term will be automatically
extended for additional one-year terms thereafter unless terminated by the Company or Mr. Phipps by written notice. Mr. Phipps’
annual base compensation under the 2021 Phipps Employment Agreement is an aggregate of $350,000.The
Company may increase (but not decrease) his compensation during its term. In addition, Mr. Phipps will be entitled to receive
an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. Mr. Phipps
is also entitled to participate in any other executive compensation plans adopted by the Board of Directors, and is eligible for such
grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time
determine (the “Share Awards”). Share Awards will be subject to the applicable Plan terms and conditions, provided, however,
that Share Awards will be subject to any additional terms and conditions as are provided therein or in any award certificate(s), which
shall supersede any conflicting provisions governing Share Awards provided under the equity incentive plan. The Company is required to
pay or to reimburse Mr. Phipps for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Phipps in the course of his
employment, consistent with the Company’s policy. Mr. Phipps will be entitled to participate in such pension, profit sharing, group
insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the
Company provides to its senior employees. The 2021 Phipps Agreement may be terminated based on death or disability of Mr. Phipps, for
cause or without good reason, for cause or with good reason, and as a result of the change of control of the Company. The 2021 Phipps
Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition
and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, the 2021 Phipps Agreement was amended in order to,
among other things, (i) increase Mr. Phipps’ compensation to include a car allowance of $1,000
a month and (ii) clarify Mr. Phipps position
to be President of NextPlat Corp and the Chief Executive Officer of Global Operations.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
Fernandez
Employment Agreements
Fernandez
May Employment Agreement
On May 23, 2021, the Company
entered into a three (3) year Employment Agreement (the “May Agreement”) with Mr. Fernandez to serve as Chairman of the Board.
Such agreement includes provision for automatic one (1) year extensions. Under the terms of May Agreement, Mr. Fernandez’s employment
commenced on May 28, 2021. As compensation for services under the May Agreement, Mr. Fernandez was to receive, in monthly installments
during the term, the sum of $12,000 per month. Mr. Fernandez was also be entitled to such cash bonus opportunity and equity compensation
arrangements as the Compensation Committee may determine following the effectiveness of this registration statement. The May Agreement
also provided for the Company to reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue in full
force and effect throughout the entire period of employment for personal catastrophe and disability insurance coverages. Such insurance
was to have premium limits not to exceed one hundred percent (100%) of Mr. Fernandez’s Base Salary per annum. In addition, Mr.
Fernandez was entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior executives. Under the May
Agreement, the Company was also obligated to reimburse Mr. Fernandez for up to $10,000 per year related to Mr. Fernandez’s business
and personal travel and/or that of his immediate family members, as well as up to $10,000 per year for professional fees incurred by
Mr. Fernandez, whether in connection with Mr. Fernandez’s association with the Company or otherwise. In connection to the June
Offering, which is described above, the Company granted Mr. Fernandez an award of restricted stock with a grant date fair value equal
to $3,000,000 determined at the per unit offering price of $5.00 per unit (the “RSA”), which RSA will vest 1/3 at each of
the three anniversaries of the grant date. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as
that term is defined in the RSA. The Company, at its sole expense, is obligated to register the reoffer and resale by Mr. Fernandez of
the securities granted to Employee pursuant to the RSA.
Fernandez
June Employment Agreement
On
June 2, 2021, the Company entered into a new employment agreement (the “June Agreement”) with Charles M. Fernandez, with
an initial term of 5 years effective on May 28, 2021. The June Agreement replaced “the May Agreement”. Under the June Agreement,
Mr. Fernandez will serve as the Chairman and Chief Executive Officer of the Company. The June Agreement will be automatically extended
for additional one-year terms unless terminated by the Company or Mr. Fernandez by written notice. Mr. Fernandez’s annual base
compensation under the June Agreement is $350,000 per year. The Company may increase (but not decrease) his compensation during the June
Agreement’s term. In addition, Mr. Fernandez is entitled to receive an annual cash bonus if the Company meets or exceeds criteria
adopted by the Compensation Committee of the Board. Mr. Fernandez is also entitled to participate in any other executive compensation
plans adopted by the Board, and is eligible for such grants of Share Awards. Share Awards will be subject to the applicable Plan terms
and conditions, provided, however, that Share Awards will be subject to any additional terms and conditions as are provided therein or
in any award certificate(s), which will supersede any conflicting provisions governing Share Awards provided under the equity incentive
plan. The Company is required to pay or to reimburse Mr. Fernandez for all reasonable out-of-pocket expenses actually incurred or paid
by Mr. Fernandez in the course of his employment, consistent with the Company’s policy.
Mr.
Fernandez will also be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and
benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior employees. The June
Agreement may be terminated based on death or disability of Mr. Fernandez, for cause or without good reason, for cause or with good reason,
as a result of the change of control of the Company and at the option of Mr. Fernandez with or without cause. The June Agreement also
contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation
covenants, indemnification provisions, etc.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
The
Company will also reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue personal catastrophe and
disability insurance coverages for himself, which policy will have policy limits not to exceed one hundred percent (100%) of his base
salary per annum at any given time. In addition, the Company will pay for any and all travel-related expenses incurred by Mr. Fernandez
and/or his immediate family members, not to exceed $10,000.00 per fiscal year, regardless of whether or not such expenses are incurred
by Mr. Fernandez in connection with services or duties to be performed by him as an employee of the Company. The Company will also pay
for any and all fees and costs incurred by Mr. Fernandez in connection with professional services provided to him, not to exceed $10,000
per year, including, without limitation, services provided to the Company by attorneys, accountants, financial planners and the like,
regardless of whether or not such services are provided to Mr. Fernandez in connection with his employment with the Company.
In
addition, the June Agreement (which repeats, but not duplicates, a grant of restricted stock made under the May Agreement), Mr. Fernandez
received an award of restricted stock with a grant date fair value equal to $3,000,000
determined at the per unit offering price in
the June Offering ($5
per Unit) (the “RSA”), which RSA
will vest 1/3 at each of the three anniversaries of the grant date. The Grant Date for the RSA is May 28, 2021, as determined pursuant
to the May Agreement. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as that term is defined
in the Restricted Stock Agreement pursuant to which the RSA was made (the “May Restricted Stock Agreement”). The Company
at its sole expense is obligated to register for reoffer and resale by Mr. Fernandez the securities granted to him pursuant to
the May Restricted Stock Agreement.
If
Mr. Fernandez’s employment is terminated for any reason at any time by the Company prior to the full vesting of the RSA without
“Cause” (as that term is defined in the June Agreement), the RSA will vest and Mr. Fernandez will receive all right, title
and interest in the balance of the securities granted to him in the RSA.
During
the term of the June Agreement and so long as Mr. Fernandez is employed by the Company, he may nominate two directors to the Company’s
Board of Directors. The appointment of these directors to the Board is subject to approval by the Board of Directors.
On
August 7, 2021, the June Agreement was amended in order to, among other things, increase Mr. Fernandez’s compensation by (i) providing
for medical plan coverage for Mr. Fernandez and his family at the expense of the Company, and (ii) providing for an auto allowance $1,000
per month.
Ellenoff
Employment Agreement
On
August 24, 2021, Douglas S. Ellenoff was appointed to the positions of Chief Business Development Strategist of the “Company” and Vice Chairman of the Board of Directors of the Company. The appointment was made on the approval and recommendation of the Nominating
Committee of the Board. Mr. Ellenoff was not appointed to any committees of the Board.
In
connection with Mr. Ellenoff’s appointment to the position of Chief Business Development Strategist of the Company, Mr. Ellenoff
and the Company entered into a three year Employment Agreement, dated August 24, 2021, which is also referred to herein as the
“Ellenoff Agreement”, Under the Ellenoff employment Agreement, which sets forth the terms of his employment, including
with regard to compensation. Mr. Ellenoff will be nominated and renominated to serve on the Board during the term of the agreement. Under
the terms of the Ellenoff Employment Agreement, Mr.
Ellenoff will receive, in lieu of cash compensation: (i) a restricted stock award of 100,000 shares of Common Stock of the Company, 40,000
of which will be issued within 5 business days of the execution of the Ellenoff Employment Agreement and vest immediately, and
the remaining 60,000 of which will be issued and vest at the rate of 20,000 shares at the end of each of the next three annual anniversaries
of his employment, provided that Mr. Ellenoff serves on the Board at any time during such year; and (ii) options to purchase a total
of 1,500,000 shares of the Corporation’s Common Stock, 300,000 of which will issued within 5 business days of the execution of
the Ellenoff Employment Agreement and vest immediately, 150,000 of which will vest on each of the next three annual anniversaries
of the commencement of his employment, and the remaining 750,000 of which will vest at the rate of 250,000 per year on each of the first
three anniversaries of the commencement of his employment if during each such year Mr. Ellenoff introduces the Company to twelve (12)
or more potential Business Transactions (as defined in the Ellenoff Employment Agreement and which transactions need not be consummated);
provided that the Company’s Chief Executive Officer may, in his sole discretion, waive the vesting requirement in any given year.
Such options have an exercise price of $5.35
per share and will terminate 5
years after they vest. These equity awards to
Mr. Ellenoff were material to induce Mr. Ellenoff to enter into the Ellenoff Employment Agreement and were issued outside of a
shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Uddin
Employment Agreement
On
June 22, 2021, the Company appointed Sarwar Uddin as the Chief Financial Officer of the Company. Mr. Uddin replaced Thomas Seifert, whose
employment by the Company terminated on the same date. The initial term of Mr. Uddin’s agreement is one year commencing on June
22, 2021. The term of the employment agreement will be automatically extended for additional one-year terms unless terminated by the
Company or Mr. Uddin by written notice. Mr. Uddin’s annual base compensation is $240,000. The Company may increase (but not decrease)
his compensation during its term. In addition, Mr. Uddin will be entitled to receive an annual cash bonus if the Company meets or exceeds
criteria adopted by the Compensation Committee of the Board of Directors. Mr. Uddin is also entitled to participate in any other executive
compensation plans adopted by the Board of Directors and is eligible for such grants of awards under stock option or other equity incentive
plans as the Compensation Committee of the Company may from time to time determine (the “Share Awards”). The Company is required
to pay or to reimburse Mr. Uddin for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Uddin in the course of his
employment, consistent with the Company’s policy. Mr. Uddin shall be entitled to participate in such pension, profit sharing, group
insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the
Company provides to its senior Employees. The employment agreement may be terminated based on death or disability of the executive, for
cause or without good reason, for cause or with good reason, and as a result of the change of control of the Company. The employment
agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition
and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Compensation
Committee of the Board of Directors of NextPlat Corp, the Company entered into an amendment to the current employment agreement to increase
Mr. Uddin’s compensation by providing for an allowance of $600 per month for the payment of medical plan coverage for Mr. Uddin
and his family.
On
October 4, 2021, Mr. Uddin, notified the Company of his resignation from all positions he held with the Company. Mr. Uddin’s resignation
was effective as of the close of business on October 8, 2021.
Carlise
Employment Agreement
On
June 22, 2021, the Company appointed Theresa Carlise, Controller, Treasurer and Secretary. The initial term of Ms. Carlise agreement
was one year. The term of the employment agreement will be automatically extended for additional one-year terms unless terminated by
the Company or Ms. Carlise by written notice. Ms. Carlise’s annual base compensation is $180,000. The Carlise Agreement provides
for medical plan coverage and an auto allowance. The Company may increase (but not decrease) her compensation during its term. In addition,
Ms. Carlise will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee
of the Board of Directors. Ms. Carlise is also entitled to participate in any other executive compensation plans adopted by the Board
of Directors and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee
of the Company may from time to time determine (the “Share Awards”). The Company is required to pay or to reimburse Ms. Carlise
for all reasonable out-of-pocket expenses actually incurred or paid by Ms. Carlise in the course of her employment, consistent with the
Company’s policy. Ms. Carlise shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization,
and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior
Employees. The employment agreement may be terminated based on death or disability of the executive, for cause or without good reason,
for cause or with good reason, and as a result of the change of control of the Company. The employment agreement also contains certain
provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants,
indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Compensation Committee of the Board of
Directors of NextPlat Corp, the Company entered into an amendment to the current employment agreement. The Amendment for Ms. Carlise
amends her Employment Agreement in order to, among other things, change Ms. Carlise’s title to “Chief Accounting Officer,
Secretary and Treasurer. On October 8, 2021, on the approval and recommendation of the Compensation Committee, and following the subsequent
approval of the Board, the Company entered into an amendment to the Company’s current employment agreement with Theresa Carlise,
the Company’s Chief Accounting Officer, Treasurer and Secretary, to extend the initial term of her employment agreement from 1
year to 3 years (the “Carlise Amendment”).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
Thomson
Employment Agreement
On
August 24, 2021, Paul R. Thomson was appointed to the position of Executive Vice President of the Company. Mr. Thomson’s appointment
as Executive Vice President was effective on August 24, 2021, the date of that certain Employment Agreement between Mr. Thomson and the
Company (the “Thomson Agreement”). The Thomson Agreement has an initial term of three (3) years and will be automatically
extended for additional 1-year term unless terminated by the Company or Mr. Thomson by written notice. Mr. Thomson’s annual base
compensation is $250,000. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. Thomson will
be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board.
Mr. Thomson is also entitled to participate in any other executive compensation plans adopted by the Board and is eligible for such grants
of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine
(the “Share Awards”).
In
connection with Mr. Thomson’s employment, and as a material inducement to enter into the Thomson Agreements, Mr. Thomson received
(i) immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a term of 5 years;
and (ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining 15,000 of which
will vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These equity awards
to Mr. Thomson were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant”
exception (Nasdaq Listing Rule 5635(c)(4)). On October 7, 2021, the Board of Directors of the Company (the “Board”) appointed
Paul R. Thomson, the Executive Vice President of the Company, to the additional position of Chief Financial Officer of the Company effective
October 9, 2021. As Chief Financial Officer, Mr. Thomson will also become the Company’s principal financial officer, effective
October 9, 2021. On October 8, 2021, on the approval and recommendation of the Compensation Committee of the Board (the “Compensation
Committee”), and following subsequent approval of the Board, the Company entered into an amendment to the Company’s current
employment agreement with Mr. Thomson to reflect his new title of “Executive Vice President and Chief Financial Officer”
effective October 9, 2021 (the “Thomson Amendment”).
Cohen
Employment Agreement
On
October 7, 2021, the Board appointed Andrew Cohen as Senior Vice President of Operations of the Company, effective October 8, 2021. In
connection with Mr. Cohen’s appointment, the Company entered into an employment agreement, dated October 8, 2021 (the “Cohen
Agreement”), that sets forth the terms of his employment.
The
Cohen Agreement has an initial term of three (3) years and will be automatically extended for additional 1-year terms unless
terminated by the Company or Mr. Cohen by written notice. Mr. Cohen’s annual base compensation is $250,000. The Company may increase
(but not decrease) his compensation during its term. In addition, Mr. Cohen will be entitled to receive an annual cash bonus if the Company
meets or exceeds criteria adopted by the Compensation Committee of the Board. Mr. Cohen is also entitled to participate in any other
executive compensation plans adopted by the Board and is eligible for such grants of awards under stock option or other equity incentive
plans as the Compensation Committee may from time to time determine (the “Share Awards”). The Company is required to pay
or to reimburse Mr. Cohen for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Cohen in the course of his employment,
consistent with the Company’s policy. Mr. Cohen will be entitled to participate in such pension, profit sharing, group insurance,
hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides
to its senior employees. The Cohen Agreement may be terminated based on, among other things, the death or disability of Mr. Cohen, for
cause, for good reason, and as a result of the change of control of the Company. The Cohen Agreement also contains certain provisions
that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants.
In
connection with Mr. Cohen’s employment, and as a material inducement to enter into the Cohen Agreement, Mr. Cohen received (i)
immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a term of 5 years; and
(ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining 15,000 of which will
vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These equity awards to
Mr. Cohen were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception
(Nasdaq Listing Rule 5635(c)(4)).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
Consulting
Agreements
On
July 16, 2020, the Company’s Board of Directors approved, and the Company entered into a 12-month consulting agreement (“Consulting
Agreement”) with an unrelated third-party for capital raising advisory services and business growth and development services, with
the term renewable upon mutual consent of the parties. Upon signing of the Consulting Agreement, the Company agreed to issue 20,000 restricted
shares of its common stock to the consultant (the “Consulting Shares”), 5,000 additional restricted shares of common stock
to be issued quarterly until the consultant may receive cash compensation for his services, which will be determined, upon completion
of certain milestones, by the Company’s CEO.
Lease
Agreements
On
December 2, 2021, the Company entered into a 62-month lease for 4,141 square feet of office space for $186,345 annually. The rent increases
3% annually. The space is not available for occupancy until the second quarter of 2022, at which time rent will commence, as well as
adjusting the right of asset and the corresponding operating lease liability to include this lease.
Effective
July 24, 2019, a three-year lease was signed for 2,660 square feet for £25,536 annually, for our facilities in Poole, England,
“UK lease”, for £2,128 per month, or USD $2,926 per month at the yearly average conversion rate of 1.375083. The Poole
lease will expire July 2022 and we may seek to expand to a larger facility.
The
UK lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.
Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have
any leases classified as financing leases.
The
rate implicit to the UK lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present
value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU)
assets and lease liabilities during the year ended December 31, 2021 was 6.00%, derived from borrowing rate, as obtained from the Company’s
most recent lenders. Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets
impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired,
and if so, the amount of the impairment loss to recognize. As of December 31, 2021, we have not recognized any impairment losses for
our ROU assets.
We
monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement
of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would
reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result
in a negative ROU asset balance is recorded in profit or loss.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
(CONTINUED)
At
December 31, 2021, the Company had current and long-term operating lease liabilities of $19,763 and $0, respectively, and right of use
assets of $22,643.
Future
minimum lease payments under the UK lease are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENT
| |
Minimum | |
| |
Lease | |
Years
Ending December 31, | |
Payment | |
2022 | |
$ | 22,643 | |
2023 | |
| - | |
Total
undiscounted future non-cancelable minimum lease payments | |
| 22,643 | |
Less:
Imputed interest | |
| (2,880 | ) |
Present
value of lease liabilities | |
$ | 19,763 | |
Weighted
average remaining term | |
| 0.58 | |
Net
rent expense for the years ended December 31, 2021 and 2020 were $35,112 and $32,607, respectively.
Litigation
On
June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert
asserts that the termination was not for cause and that he is owed all compensation payable under his employment agreement executed in
June 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or compensation relating to his
prior service with the Company or arising under any employment agreement. The Company believes it has adequate defenses to any such claims.
The Company has determined to initiate litigation against Mr. Seifert asserting a number of claims including, but not limited to, rescission
of the employment agreement, fraud in the inducement in connection with the execution of the employment agreement, and breach of the
fiduciary duties of good faith and loyalty. The Company does not expect to seek substantial monetary relief in the litigation.
From
time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of
business. The Company is not currently involved in any pending legal proceeding or litigation, and, to the best of our knowledge, no
governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties
is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and
operating results.
NOTE
17 – RELATED PARTY TRANSACTIONS
As
of December 31, 2021, the accounts payable due to related party includes $30,000 due to Charles Fernandez and accounts payable
due to Theresa Carlise of $5,308. Total related party payments due as of December 31, 2021 and December 31, 2020 are $35,308 and
$102,060, respectively. Those related party payables are non-interest bearing and due on demand.
The
Company’s UK subsidiary, GTC had an over-advance line of credit with HSBC, for working capital needs, which was not renewed by
the Company on December 31, 2021. The over-advance limit was £25,000 or
$33,834 at
an exchange rate of 1.353372,
with interest at 5.50%
over Bank of England’s base rate or current rate of 6.25%
variable. The advance was guaranteed by David Phipps, the Company’s President and Chief Executive Officer of Global
Operations. The Company uses an American Express account for Orbital Satcom Corp and an American Express account for GTC,
both in the name of David Phipps who personally guarantees the balance owed.
For
the year ended December 31, 2021, the Company employs five individuals related to Mr. Phipps who earned gross wages totaling $188,384
and for the year ended December 31, 2020, three
individuals were employed related to Mr. Phipps earning $85,722.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
18 - CONCENTRATIONS
Customers:
Amazon
accounted for 63.6% and 73.3% of the Company’s revenues during the years ended December 31, 2021 and 2020, respectively. No other
customer accounted for 10% or more of the Company’s revenues for either period.
Suppliers:
The
following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the years
ended December 31, 2021 and 2020.
SCHEDULE OF CONCENTRATION RISK
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
| | |
| | |
| | |
| |
Network
Innovations | |
$ | 658,642 | | |
| 10.6 | % | |
$ | 912,056 | | |
| 17.5 | % |
Garmin | |
$ | 1,102,230 | | |
| 17.7 | % | |
$ | 813,875 | | |
| 15.6 | % |
Globalstar
Europe | |
$ | 725,315 | | |
| 11.6 | % | |
$ | 540,463 | | |
| 10.3 | % |
SatCom
Global | |
$ | 973,652 | | |
| 15.6 | % | |
$ | 474,404 | | |
| 9.1 | % |
Cygnus
Telecom | |
$ | 800,008 | | |
| 12.8 | % | |
$ | 623,736 | | |
| 11.9 | % |
Geographic:
The
following table sets forth revenue as to each geographic location, for the years ended December 31, 2021 and 2020:
SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION
| |
Year
Ended December 31, 2021 | | |
| | |
Year
Ended December 31, 2020 | | |
| |
| |
| | |
| | |
| | |
| |
Europe | |
$ | 5,146,336 | | |
| 66.5 | % | |
$ | 3,658,612 | | |
| 64.3 | % |
North
America | |
| 1,776,288 | | |
| 22.9 | % | |
| 1,532,273 | | |
| 26.9 | % |
South
America | |
| 37,139 | | |
| 0.5 | % | |
| 34,915 | | |
| 0.6 | % |
Asia
& Pacific | |
| 695,770 | | |
| 9.0 | % | |
| 420,048 | | |
| 7.4 | % |
Africa | |
| 84,377 | | |
| 1.1 | % | |
| 43,948 | | |
| 0.8 | % |
| |
$ | 7,739,910 | | |
| | | |
$ | 5,689,796 | | |
| | |
NOTE
19 – SUBSEQUENT EVENTS
January
2022 Private Placement of Common Stock
On
December 31, 2021, after markets closed, a securities purchase agreement (the “Purchase Agreement”) was circulated to, and
signatures were received from, certain institutional and accredited investors (the “December Investors”) in connection with
the sale in a private placement by the Company of 2,229,950 shares of the Company’s common stock (the “December Offering”).
On January 2, 2022, the Company delivered to December Investors a fully executed Purchase Agreement, which was dated December 31, 2021.
The purchase price for the common stock sold in the December Offering was $3.24 per share, the closing transaction price reported by
Nasdaq on December 31, 2021.
The
closing of the December Offering occurred on January 5, 2022. The Company received gross proceeds from the sale of the
common stock in the December Offering of approximately $7.2 million. The Company intends
to use the proceeds from the December Offering for general corporate purposes, including potential acquisitions and joint ventures. Approximately
73% of funds raised in the December Offering were secured from existing shareholders and from the members of the Company’s senior
management and Board of Directors.
In
connection with the December Offering, the Company entered into a registration rights agreement with the December Investors (the “Registration
Rights Agreement”), pursuant to which, among other things, the Company agreed to prepare and file with the SEC a registration statement
to register for resale the shares of the Company’s common stock sold in the Offering.
The
shares of common stock offered and sold in the December Offering were sold in reliance on the exemption from registration provided by
Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions
of state securities or “blue sky” laws.
The
terms of the transaction disclosed above, including the provisions of the Purchase Agreement and Registration Rights Agreement, were
approved by the Board of Directors; and because some of the securities were offered and sold to officers and directors of the Company,
such terms were separately reviewed and approved by the Audit Committee of the Board of Directors.
January
2022 Name Change
On
January 18, 2022, the Company filed a Certificate of Amendment of the Amended and Restated Articles of Incorporation of the Company with
the Secretary of State of the State of Nevada in order to change the Company’s corporate name from Orbsat Corp to NextPlat Corp.
This name change was effective as of January 21, 2022. The name change was approved by the Company’s stockholders at the 2021 annual
meeting of stockholders held on December 16, 2021.
Appointment
of Director; Compensatory Arrangements of Director
On
January 7, 2022, the Board of Directors (the “Board”) of the Company appointed Rodney Barreto as a new director to the Board,
effective January 20, 2022. No decision has been made with respect to the naming of Mr. Barreto to any regular committees of the Board.
In
connection with Mr. Barreto’s appointment to the Board, the Company executed a Director Services Agreement (the “Director
Agreement”) with Mr. Barreto on January 11, 2022. The Director Agreement has a two-year term (subject to the director’s
nomination and election) and provides for a cash retainer of $48,000 per year, plus an equity award of 20,000 shares of restricted stock,
half of which will be issued and vest on the day of grant, with the remaining half vesting and being issued on the first anniversary
of the grant date. The Director Agreement also contains customary confidentiality and indemnification provisions and require the Company
to maintain a specified amount of director and officer insurance. There are no arrangements or understandings between Mr. Barreto and
any other person pursuant to which Mr. Barreto was selected as a director