NXPL NextPlat Corporation

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Nevada		001-40447		65-0783722
(State or Other Jurisdiction of Incorporation or Organization)		(Commission File No.)		(I.R.S. Employer Identification No.)

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-14(c)).

Title of each class		Trading Symbol (s)		Name of each exchange on which registered
Common Stock, par value $0.0001		NXPL		The Nasdaq Stock Market, Inc.
Warrants		NXPLW		The Nasdaq Stock Market, Inc.

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a.

Financial Statements of Business Acquired.

b.

Pro Forma Financial Information.

Exhibit No.		Description
23.1		Consent of Daszkal Bolton LLP
99.1		Audited Consolidated Financial Statements of Progressive Care Inc. as of and for the years ended December 31, 2022 and 2021, the accompanying notes thereto and the related Independent Registered Public Accounting Firm's Report
99.2		Unaudited Consolidated Financial Statements of Progressive Care, Inc. as of and for the three and six months ended June 30, 2023 and for the year ended December 31, 2022
99.3		Unaudited pro forma condensed combined Balance Sheet of NextPlat Corp and Progressive Care Inc. as of June 30, 2023 and the unaudited pro forma condensed combined Statement of Operations of NextPlat Corp and Progressive Care Inc. for the year ended December 31, 2022, and the six months ended June 30, 2023
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	NEXTPLAT CORP
	By:	/s/ Charles M. Fernandez
	Name:	Charles M. Fernandez
	Title:	Chairman and Chief Executive Officer
Dated: September 11, 2023

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

NextPlat Corp.

Coconut Grove, Florida

 

We consent to the incorporation by reference in the Registration Statements (Forms S-3 No. 333-272809, S-3 No. 333-269422, S-3 No. 333-268488 and S-3 No. 333-262748) and related Prospectus of NextPlat Corp. of our audit report dated March 30, 2023 with respect to the consolidated financial statements of Progressive Care, Inc as of and for the years ended December 31, 2022 and 2021, which appear in this Form 8-K of NextPlat Corp..

 

 

/s/ Daszkal Bolton LLP

 

Boca Raton, Florida

September 11, 2023

 

 

Exhibit 99.1

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm Daszkal Bolton LLP (PCAOB ID 229)	F-1
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021	F-3
Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and December 31, 2021	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and December 31, 2021	F-6
Notes to Consolidated Financial Statements	F-7

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

Stockholders of Progressive Care, Inc.

Hallandale Beach, FL

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Progressive Care, Inc. (the “Company”) at December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Goodwill Impairment Assessments

 

As described in Note 3 to the consolidated financial statements, the Company’s goodwill balance was approximately $1.4 million at December 31, 2022. Management tests goodwill for impairment by performing an initial qualitative assessment (and quantitative assessment, if necessary), at least annually, or more frequently if an indication of impairment exists. Management’s goodwill impairment assessment and testing is performed during the fourth quarter of each year by comparing the estimated fair value of an associated reporting unit at December 31, 2022 to its carrying value.

 

 

The principal considerations for our determination that performing procedures relating to qualitative goodwill impairment testing is a critical audit matter are there was significant judgment by management when developing the fair value measurement of any reporting units where qualitative test was performed and there was a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management’s analysis.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s qualitative goodwill impairment test, including controls over the valuation of any reporting units for which a qualitative test was performed. Evaluating whether the assumptions used by management was reasonable considering (i) the current and past performing of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit.

 

Valuation of Derivative Liabilities

 

As described Note 3 and 10 to the consolidated financial statements, the Company determined that the conversion features of its convertible notes in conjunction with financing arrangements required to be accounted for as derivative liabilities. The derivative liabilities are recorded at fair value when issued and subsequently re-measured to fair value each reporting period. The Company utilized the Monte Carlo Simulation Model (“model”) to determine the fair value of the derivative liabilities, which uses certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate.

 

We determined the assessment of the fair values of the derivative liabilities as a critical audit matter due to the significant judgements used by the Company in determining the fair value of the derivative liabilities. Auditing the valuation of the derivative liabilities involved a high degree of auditor judgement and specialized skills and knowledge were needed.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value measurement, evaluating the appropriateness of the model used by the Company to value the derivative liabilities, testing the reasonableness of the assumptions used by the Company in the model including exercise price, term, expected volatility, and risk-free interest rate and testing the accuracy and completeness of data used by the Company in developing the assumptions use in the model.

 

/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
We have served as the Company’s auditor since 2020
Boca Raton, Florida
March 30, 2023

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

		December 31, 2022				December 31, 2021
Assets
Current Assets
Cash		$	6,742,876			$	1,412,108
Accounts receivable – trade, net			3,671,786				2,187,848
Receivables - other			2,004,805				382,324
Inventory, net			713,284				1,150,390
Prepaid expenses			245,983				813,310
Total Current Assets			13,378,734				5,945,980
Property and equipment, net			2,582,753				2,423,497
Other Assets
Goodwill			1,387,860				1,387,860
Intangible assets, net			126,696				152,791
Operating right-of-use assets, net			446,180				595,790
Finance right-of-use assets, net			53,814				87,156
Deposits			38,637				38,637
Total Other Assets			2,053,187				2,262,234
Total Assets		$	18,014,674			$	10,631,711
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities		$	7,384,336			$	6,000,034
Notes payable and accrued interest, net of unamortized debt discount and debt issuance costs			226,931				202,184
Operating lease liabilities - current portion			200,314				149,744
Finance lease liabilities – current portion			33,616				33,976
Total Current Liabilities			7,845,197				6,385,938
Long-term Liabilities
Notes payable, net of current portion			2,248,626				3,108,794
Derivative liabilities			—				221,900
Operating lease liabilities - net of current portion			278,602				469,665
Finance lease liabilities – net of current portion			24,198				57,814
Total Liabilities			10,396,623				10,244,111
Commitments and Contingencies			—				—
Stockholders’ Equity
Preferred Stock, Series A ($0.001 par value, 10,000,000 shares authorized; 0 and 51 shares issued and outstanding at December 31, 2022 and 2021, respectively)			—				—
Preferred Stock, Series B ($0.001 par value, 100,000 shares authorized; 3,000 and 0 issued and outstanding at December 31, 2022 and 2021, respectively)			3				—
							—
Common stock ($0.0001 par value, 100,000,000 shares authorized; 3,347,440 and 2,724,422 issued and outstanding at December 31, 2022 and 2021, respectively)			66,947				54,487
Additional paid-in capital			22,525,214				8,862,050
Accumulated deficit			(14,974,113	)			(8,528,937	)
Total Stockholders’ Equity			7,618,051				387,600
Total Liabilities and Stockholders’ Equity		$	18,014,674			$	10,631,711

 

See accompanying notes to consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 

		Years Ended December 31,
		2022				2021
Revenues, net		$	40,601,859			$	38,852,580
Cost of revenue			30,898,783				28,678,742
Gross profit			9,703,076				10,173,838
Operating expenses
Selling, general and administrative expenses			12,285,174				11,209,715
Bad debt (recovery) expense			(3,300	)			208,953
Total operating expenses			12,281,874				11,418,668
Loss from operations			(2,578,798	)			(1,244,830	)
Other (loss) income
Change in fair value of derivative liabilities			(3,322,500	)			1,821,100
Gain on debt extinguishment			953,228				1,054,951
Grant revenue			2,079,297				—
Other finance costs			(147,622	)			—
Abandoned offering costs			(635,545	)			—
Day one loss on issuance of units			(1,026,155	)			—
Day one loss on debt modification			(523,526	)			—
Gain (loss) on disposal of fixed assets			11,562				(17,621	)
Interest income			84,742				10
Interest expense			(797,715	)			(1,395,617	)
Total other (loss) income			(3,324,234	)			1,462,823
(Loss) income before income taxes			(5,903,032	)			217,993
Income taxes			(866	)			—
Net (loss) income		$	(5,903,898	)		$	217,993
Series A Preferred Stock dividend associated with induced conversion			(541,278	)			—
Net (loss) income attributable to Common Shareholders		$	(6,445,176	)		$	217,993
Basic weighted average (loss) earnings per common share		$	(2.21	)		$	0.08
Diluted weighted average (loss) earnings per common share		$	(2.21	)		$	0.07
Basic weighted average common shares outstanding			2,911,684				2,603,203
Diluted weighted average common shares outstanding			2,911,684				3,090,451

 

See accompanying notes to consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

 

		Preferred Series A								Preferred Series B								Common Stock								Additional								Total Stockholders’
		$0.001 Par Value								$0.001 Par Value								$0.0001 Par Value								Paid in				Accumulated				(Deficit)
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balance at December 31, 2020			51			$	—				—			$	—				2,428,930			$	48,577			$	6,978,301			$	(8,746,930	)		$	(1,720,052	)
Issuance of common stock for settlement of debt principle and interest			—				—				—				—				268,245				5,365				1,636,615				—				1,641,980
Issuance of common stock for services			—				—												27,247				545				247,134				—				247,679
Net income			—				—				—				—				—				—				—				217,993				217,993
Balance at December 31, 2021			51				—				—				—				2,724,422				54,487				8,862,050				(8,528,937	)			387,600
							—				—				—
Issuance of common stock for services			—				—				—				—				141,472				2,830				676,852				—				679,682
Stock-based compensation			—				—				—				—				248,982				4,979				1,180,019				—				1,184,998
Issuance of common stock for debt modification agreement			—				—				—				—				105,000				2,100				459,900				—				462,000
Issuance of common stock in exchange for redemption and cancellation of Series A Preferred Stock			(51	)			—				—				—				127,564				2,551				538,727				—				541,278
Series A Preferred Stock dividend associated with induced conversion			—				—				—				—				—				—				—				(541,278	)			(541,278	)
Issuance of Series B Preferred Stock from securities purchase agreement			—				—				3,000				3				—				—				—				—				3
Reclassification of debt and equity contracts			—				—				—				—				—				—				10,108,997				—				10,108,997
Stock options granted during the period			—				—				—				—				—				—				698,669				—				698,669
Net loss			—				—				—				—				—				—				—				(5,903,898	)			(5,903,898	)
			—				—				—				—				—				—				—
Balance at December 31, 2022			—			$	—				3,000			$	3				3,347,440			$	66,947			$	22,525,214			$	(14,974,113	)		$	7,618,051

 

See accompanying notes to the consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

		Years Ended December 31,
		2022				2021
Cash flows from operating activities:
Net (loss) income attributable to Common Shareholders		$	(6,445,176	)		$	217,993
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation			141,737				165,308
Change in provision for doubtful accounts			(3,300	)			101,700
Stock-based compensation			1,904,668				247,679
Amortization of debt issuance costs and debt discounts			417,286				1,058,615
Gain on debt extinguishment			(953,228	)			(1,054,951	)
Other financing costs			147,622				—
Series A Preferred Stock dividend associated with induced conversion			541,278				—
Day one loss on issuance of units			1,026,155				—
Day one loss on debt modification			523,526				—
Amortization of right of use assets-Finance leases			31,655				33,344
Amortization of right of use assets-Operating leases			151,297				192,879
Change in fair value of derivative liability			3,322,500				(1,821,100	)
Change in accrued interest on notes payable			320,639				258,635
Change in accrued interest on lease liabilities			25,606				—
Amortization of intangible assets			36,095				175,865
Gain on disposal of fixed assets			(11,562	)			—
Changes in operating assets and liabilities:
Accounts receivable			(1,466,258	)			269,716
Grant receivable			(1,636,861	)			—
Inventory			437,106				(205,116	)
Prepaid expenses			695,764				(220,506	)
Deposits			—				(2,236	)
Accounts payable and accrued liabilities			1,622,462				23,316
Operating lease liabilities			(159,609	)			(199,070	)
Net cash provided by (used in) operating activities			669,402				(757,929	)
Cash flows from investing activities:
Purchase of property and equipment			(185,882	)			(123,317	)
Proceeds from disposal of fixed assets			11,562				—
Purchase of intangible assets			(10,000	)			—
Net cash used in investing activities			(184,320	)			(123,317	)
Cash flows from financing activities:
Proceeds from issuance of notes payable			—				421,400
Gross proceeds from issuance of preferred stock			6,000,000				—
Payment of stock issuance costs			(579,036	)			—
Payment of debt discount and debt issuance costs			(221,964	)			—
Payments of notes payable			(312,849	)			(167,934	)
Payments on lease liabilities			(40,465	)			(60,807	)
Net cash provided by financing activities			4,845,686				192,659
Increase (decrease) in cash			5,330,768				(688,587	)
Cash at beginning of year			1,412,108				2,100,695
Cash at end of year		$	6,742,876			$	1,412,108
Supplemental disclosures of cash flow information:
Cash paid for interest		$	104,212			$	78,367
Cash paid for income taxes		$	886			$	—
Supplemental schedule of non-cash investing and financing activities:
Debt principal and interest repaid through conversion into common stock shares		$	—			$	1,641,980
Debt extension fees and other financing costs added to note principal		$	484,377			$	—
Issuance of common stock for services rendered		$	679,681			$	247,679
Insurance premiums financed through issuance of note payable		$	128,437			$	126,313
Equipment purchase financed through issuance of note payable		$	115,111			$	—

See accompanying notes to the consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

 

Note 1. Organization & Nature of Operations

 

Unless the context requires otherwise, references to the “Company”, “we”, “us”, or “our” in these consolidated financial statements on Form 10-K refer to Progressive Care Inc. and its subsidiaries.

 

Progressive Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.

 

Progressive, through its wholly-owned subsidiaries, Pharmco, LLC (“Pharmco 901”), Touchpoint RX, LLC doing business as Pharmco Rx 1002, LLC (“Pharmco 1002”), Family Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX” or “Pharmco 1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”), and ClearMetrX Inc. (“ClearMetrX”) is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk and data management services to healthcare organizations and providers.

 

Pharmco 901 was formed on November 29, 2005 as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive. Pharmco 901 was acquired by Progressive on October 21, 2010. We currently deliver prescriptions to Florida’s diverse population and ship medications to patients in states where we hold non-resident pharmacy licenses as well. We currently hold Florida Community Pharmacy Permits at all Florida pharmacy locations and our Pharmco 901 location is licensed as a non-resident pharmacy in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to dispense to patients in the state of Massachusetts without a non-resident pharmacy license because Massachusetts does not require such a license for these activities.

 

Pharmco 1103 is a pharmacy with locations in North Miami Beach and Orlando, Florida that provides Pharmco’s pharmacy services to Broward County, the Orlando/Tampa corridor, and the Treasure Coast of Florida. Progressive acquired all the ownership interests in Pharmco 1103 in a purchase agreement entered into on June 1, 2019.

 

Pharmco 1002 is a pharmacy located in Palm Springs, Florida that provides Pharmco’s pharmacy services to Palm Beach, St. Lucie and Martin Counties, Florida. Progressive acquired all the ownership interests in Pharmco 1002 in a purchase agreement entered into on July 1, 2018.

 

ClearMetrX was formed on June 10, 2020 and provides third-party administration (“TPA”) services to 340B covered entities. ClearMetrX also provides data analytics and reporting services to support and improve care management for health care organizations.

 

RXMD Therapeutics was formed on October 1, 2019. RXMD Therapeutics had no operating activity to date.

 

Note 2. Basis of Presentation and Principles of Consolidation

 

The accompanying consolidated financial statements for the years ended December 31, 2022 and 2021 have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for annual financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

 

 

Note 3. Summary of Significant Accounting Policies

 

Emerging Growth Company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to opt out of such extended transition period.

 

Use of Estimates

 

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to residual values, estimated asset lives, impairments and bad debts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Common Stock Reverse Stock Split

 

On December 29, 2022, we effected a 1-for-200 reverse stock split of our common stock and the number of shares of common stock that we are authorized to issue was reduced to 100 million. All share information throughout this Annual Report on Form 10-K has been retrospectively adjusted to reflect the reverse stock split. The shares of common stock retain a par value of $0.001 per share.

 

Reclassifications

 

Certain reclassifications have been made to the 2021 financial statement presentation to conform to that of the current period. Total equity and net (loss) income are unchanged due to these reclassifications.

 

Cash

 

The Company maintains its cash in bank deposit accounts at several financial institutions, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) and at times may exceed federally insured limits. The Company had approximately $5.6 million that was uninsured at December 31, 2022. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk associated with its cash balances, since our deposits are held with high quality financial institutions that are well capitalized.

 

 

Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2022 and 2021.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Trade accounts receivable are stated at the invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy benefit managers (“PBMs”) and insurance providers and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral. The Company records an allowance for doubtful accounts for estimated differences between the expected and actual payment of accounts receivable. These reductions were made based upon reasonable and reliable estimates that were determined by reference to historical experience, contractual terms, and current conditions. Each quarter, the Company reevaluates its estimates to assess the adequacy of its allowance and adjusts the amounts as necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Risks and Uncertainties

 

The Company’s operations are subject to intense competition, risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.

 

Billing Concentrations

 

The Company’s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the insured is responsible for payment should the insurance company not reimburse the Company.

 

The Company generated reimbursements from three significant PBMs:

 

		Years Ended December 31,
		2022				2021
A			56	%			59	%
B			36	%			31	%
C			5	%			5	%

 

Inventory

 

Inventory is valued on a lower of first-in, first-out (FIFO) cost or net realizable value basis. Inventory primarily consists of prescription medications, pharmacy and testing supplies, and retail items. The Company provides a valuation allowance for obsolescence and slow-moving items. The Company recorded an allowance for obsolescence of $40,000 at December 31, 2022 and 2021, respectively.

 

Property and Equipment

 

Property and equipment are recorded at cost or fair value if acquired as part of a business combination. Property and equipment are depreciated or amortized using the straight-line method over their estimated useful lives. Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Expenditures for maintenance and repairs are charged to expense as incurred. Estimated useful lives of property and equipment are as follows:

 

Description		Estimated Useful Life (in years)
Building			40
Building improvements		Remaining life of the building
Leasehold improvements and fixtures		Lesser of estimated useful life or life of lease
Furniture and equipment			5
Computer equipment and software			3
Vehicles		3	-	5

 

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges during the years ended December 31, 2022 and 2021, respectively.

 

 

Business acquisitions

 

The Company records business acquisitions using the acquisition method of accounting. All of the assets acquired, liabilities assumed, and contractual contingencies are recognized at their fair value on the acquisition date. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized and goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.

 

Goodwill

 

Goodwill represents the excess of the purchase price of FPRX and Pharmco 1002 over the value assigned to their net tangible and identifiable intangible assets. FPRX and Pharmco 1002 are considered to be the reporting units for goodwill. Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate that the assets may be impaired.

 

Intangible Assets

 

Identifiable intangible assets subject to amortization generally represent the cost of client relationships and tradenames acquired, as well as non-compete agreements to which the Company is a party. In valuing these assets, the Company makes assumptions regarding useful lives and projected growth rates, and significant judgment is required. The Company periodically reviews its identifiable intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of those assets exceed their respective fair values, additional impairment tests are performed to measure the amount of the impairment losses, if any.

 

Fair Value Measurements

 

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

 

●

Cash, accounts receivable, and accounts payable and accrued liabilities: The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature.

 

●

Notes payable and lease liabilities: The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company could obtain in current financing. The carrying value of lease liabilities approximate fair value due to the implicit rate in the lease in relation to the Company’s borrowing rate and the duration of the leases (Level 2 inputs).

 

Assets Measured and Recorded at Fair Value on a Recurring Basis

 

The following tables presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of:

 

Description

Level 1

Level 2

Level 3

Balance at December 31, 2022

Derivative Liabilities

$

—

$

—

$

—

$

—

 

Description		Level 1				Level 2				Level 3				Balance at December 31, 2021
Derivative Liabilities		$	—			$	—			$	221,900			$	221,900

 

The following table is a roll forward from December 31, 2021 to December 31, 2022 of the opening and closing balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

 

		Derivative Liabilities
Balance December 31, 2021		$	221,900
Total losses for the period:
Changes in fair value			3,322,500
New derivatives			8,042,000
Transfers out			(11,586,400	)
Balance December 31, 2022		$	-

 

Changes in fair value of derivative liabilities for the year ended December 31, 2022 were included in net (loss) income for the year.

 

Derivative Liabilities

 

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and paragraph 815-40-25 of the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”). The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Consolidated Statements of Operations as other income or expense. Upon registration, conversion or exercise, as applicable, of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the Consolidated Balance Sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months after the balance sheet date.

 

The fair value of these derivative instruments is determined using the Monte Carlo Simulation Model.

 

 

Revenue Recognition

 

The Company recognizes pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments are received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For third-party medical insurance and other claims, authorization is obtained to ensure payment from the customer’s insurance provider before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number is issued by the customers’ insurance provider.

 

The Company recognizes testing revenue when the tests are performed and results are delivered to the customer. Each test is considered an arrangement with the customer and is a separate performance obligation. Payment is generally received in advance from the customer.

 

Billings for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal. Prescription revenues were 89% and 87% of total revenue for the years ended December 31, 2022 and 2021, respectively.

 

The Company accrues an estimate of fees, including direct and indirect remuneration (“DIR”) fees, which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.

 

The following table disaggregates net revenue by categories:

 

		For the Years Ended December 31,
		2022				2021
Prescription revenue		$	36,288,366			$	33,828,219
340B contract revenue			3,789,781				2,803,859
Testing revenue			1,915,471				4,320,657
Rent and other revenue			2,560				1,555
Subtotal			41,996,178				40,954,290
PBM fees			(1,394,319	)			(2,098,508	)
Sales returns			—				(3,202	)
Revenues, net		$	40,601,859			$	38,852,580

 

Grant Revenue

 

Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company is eligible for refundable employee retention credits (“ERCs”) subject to certain conditions which were met during the year ended December 31, 2022. In connection with the ERCs, the Company adopted a policy to recognize the ERCs when earned and report the amounts as grant revenue in accordance with FASB ASC 958-605. Accordingly, the Company recorded approximately $2.1 million of grant revenue and grant revenue receivable during the year ended December 31, 2022. The Company received approximately $1.6 million of ERC proceeds during the year ended December 31, 2022, which were credited against grant revenue receivable. Grant revenue receivable balance at December 31, 2022 was approximately $0.3 million and recorded in Receivables – other on the Consolidated Balance Sheets.

 

Cost of Revenue

 

Cost of pharmacy revenue is derived based upon vendor purchases relating to prescriptions sold, cost of testing supplies for tests administered to patients, and point-of-sale scanning information for non-prescription sales and is adjusted based on periodic inventories. All other costs related to revenues are expensed as incurred.

 

DIR Fees

 

The Company reports DIR fees as a reduction of revenue on the accompanying Consolidated Statements of Operations. DIR fees are fees charged by PBMs to pharmacies for network participation as well as periodic reimbursement reconciliations. For some PBMs, DIR fees are charged at the time of the settlement of a pharmacy claim. Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies after claim settlement, often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate DIR fees on a trimester basis and charge the Company for these fees as reductions of reimbursements paid to the Company two to three months after the end of the trimester (e.g., DIR fees for January – April 2022 claims were charged by these PBMs in July – August 2022). For DIR fees that are not collected at the time of claim settlement, the Company records an accrued liability at each reporting date for estimated DIR fees that are expected to be collected by the PBMs in a future period. The estimated liability for these fees is highly subjective and the actual amount collected may differ from the accrued liability. The uncertainty of management’s estimates is due to inadequate disclosure to the Company by the PBMs as to exactly how these fees are calculated either at the time the DIR fees are actually assessed and reported to the Company. The detail level of the disclosure of assessed DIR fees varies based on the information provided by the PBM.

 

 

Vendor Concentrations

 

The Company had significant concentrations with one vendor. The purchases from this significant vendor were 95% and 96% of total vendor purchases for the years ended December 31, 2022 and 2021, respectively.

 

Selling, General and Administrative Expenses

 

Selling expenses primarily consist of salaries, contract labor, occupancy costs, and expenses directly related to operations. General and administrative costs include advertising, insurance, professional fees, and depreciation and amortization.

 

Advertising

 

Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Advertising expense was approximately $0.3 million for the years ended December 31, 2022 and 2021, respectively.

 

Stock-Based Compensation

 

Stock-based compensation expense is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. The Company uses the Black-Scholes and Monte Carlo Simulation models to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

 

Stock-based compensation expense is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s policy is to recognize forfeitures as they occur.

 

Stock Warrants

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the Consolidated Statements of Operations. The fair value of the warrants issued in the Private Placement transaction was estimated using a Monte Carlo simulation approach (see Note 14).

 

Offering Costs Associated with the Public Offering

 

The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – Expenses of Offering. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Company’s planned underwritten public offering. Offering costs generally are deferred and reclassified as a charge to additional paid-in capital upon the sale of securities. Deferred costs for an abandoned offering are expensed.

 

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Progressive Care Inc., RXMD Therapeutics and PharmcoRx 1103 are taxed as C corporations. Pharmco 901 and Pharmco 1002 are taxed as partnerships, wherein each member is responsible for the tax liability, if any, related to its proportionate share of Pharmco 901 and Pharmco 1002’s taxable income. Progressive Care Inc. has a 100% ownership interest in Pharmco 901 and Pharmco 1002; therefore, all of Pharmco 901 and Pharmco 1002’s taxable income attributable to the period of ownership is included in Progressive Care Inc.’s taxable income.

 

There was no current tax provision for the years ended December 31, 2022 and 2021 because the Company did not have taxable income during those periods. Total available net operating losses to be carried forward to future taxable years was approximately $16.5 million as of December 31, 2022, $12.5 million of which will expire in various years through 2038. The temporary differences giving rise to deferred income taxes principally relate to accelerated depreciation on property and equipment and amortization of goodwill recorded for tax purposes, reserves for estimated doubtful accounts and inventory obsolescence and net operating losses recorded for financial reporting purposes. The Company’s net deferred tax asset at December 31, 2022 and 2021 was fully offset by a 100% valuation allowance as it was not more likely than not that the tax benefits of the net deferred tax asset would be realized. The change in the valuation allowance increased by approximately $1.6 million for the year ended December 31, 2022.

 

The Company accounts for uncertainty in income taxes by recognizing a tax position in the consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company records interest and penalties related to tax uncertainties, if any, as income tax expense. Based on management’s evaluation, the Company does not believe it has any uncertain tax positions for the years ended December 31, 2022 and 2021.

 

(Loss) Earnings per Share

 

Basic (loss) earnings per share (“EPS”) is computed by dividing net (loss) income available to common shareholders by the weighted average number of common shares outstanding during the year, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the year including stock warrants, using the treasury stock method (by using the average stock price for the year to determine the number of shares assumed to be purchased from the exercise of stock warrants), and convertible debt, using the if converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

 

The following are dilutive common stock equivalents during the years ended:

 

		December 31, 2022				December 31, 2021
Convertible debt			709,478				487,248
Stock warrants			576,923				—
Total			1,286,401				487,248

 

The following table presents the calculation of basic and diluted EPS:

 

		Years Ended December 31,
		2022				2021
Net (loss) income attributable to Common Shareholders		$	(6,445,176	)		$	217,993
Basic weighted average common shares outstanding			2,911,684				2,603,203
Potentially dilutive common shares			—				487,248
Diluted weighted average common shares outstanding			2,911,684				3,090,451
Basic weighted average (loss) earnings per common share		$	(2.21	)		$	0.08
Diluted weighted average (loss) earnings per common share		$	(2.21	)		$	0.07

 

Paycheck Protection Program Loan

 

The Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with ASC 470, Debt. The Company treated the PPP loan as indebtedness, which was extinguished and recorded as a gain on debt extinguishment when legally released by the primary obligor.

 

 

Recently Adopted Accounting Standards

 

Debt

 

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard became effective for the Company in the first quarter of 2022 and did not have a material effect on the Company’s consolidated financial statements.

 

Accounting Pronouncements Issued but not yet Adopted

 

Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is required to be adopted for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 with early adoption permitted. The Company will adopt this accounting standard update effective January 1, 2023. We expect that the adoption of the standard will not have a material impact on our consolidated financial statements.

 

Credit Losses

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt this accounting standards update effective January 1, 2023. The Company has not yet quantified the impact of ASU 2016-13 on its consolidated financial statements. However, it is not expected to have a material effect on the Company’s consolidated financial statements.

 

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements.

 

Subsequent Events

 

Management has evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through March 30, 2023, the date the consolidated financial statements were available to be issued.

 

Note 4. Liquidity and Going Concern Consideration

 

The Company has sustained recurring operating losses and negative cash flows from operations. At December 31, 2022, the Company had an accumulated deficit of approximately $15.0 million. For the year ended December 31, 2022, the Company had a net loss of $5.9 million. The Company expects to continue to incur significant losses for at least the next 12 months.

 

 

The Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and other commitments in the normal course of business.

 

On August 30, 2022, the Company entered into a Debt Modification Agreement (“the Modification Agreement”) with a group of investors led by NextPlat Corporation (the “NextPlat investors”) wherein the terms were modified for the existing Secured Convertible Promissory Note previously held by Iliad Research and Trading, L.P. (“the Iliad Note”) and sold to the NextPlat investors. The NextPlat investors purchased the Iliad Note as part of a Confidential Note Purchase and Release Agreement (“the NPA”) between Iliad Research and Trading L.P. and the NextPlat investors. As of the date of the Securities Purchase Agreement (“SPA”), the aggregate amount of principal and interest outstanding was approximately $2.8 million (see Note 5). As part of the Modification Agreement, the NextPlat investors agreed to modify the following terms of the Iliad Note as follows:

 

	1.	The Maturity Date was extended to August 31, 2027.
	2.	The Outstanding Balance shall bear interest at the simple annual rate of five percent (5%) per annum.
	3.	The Company is prohibited from prepaying the Note.
	4.	The Conversion Price for the Note was modified to a fixed price of $4.00 per share of common stock.
	5.	The Note shall provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange.

 

The Company also entered into a Private Placement Transaction wherein the Company raised approximately $6.0 million in gross proceeds from the sale of Series B Convertible Preferred Stock (see Note 5), which approximately $0.6 million were withheld from the gross proceeds as it relates to offering costs and approximately $0.4 million in stock issued for services rendered and derivative liabilities associated with the offering.

 

Management believes that the above transactions mitigate the previously reported conditions related to the Company’s ability to continue as a going concern over the next 12 months.

 

Note 5. Private Placement Transaction

 

On August 30, 2022, the Company entered into a SPA with NextPlat Corporation (“NextPlat”) wherein the Company received gross proceeds of $6.0 million through the sale of 3,000 units. Each unit is made up of one share of Series B Convertible Preferred Stock, $0.001 par value, and one redeemable warrant (“the Investor Warrants”). Each warrant entitles the holder to purchase one share of Series B Convertible Preferred Stock at an exercise price of $2,000. The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Series B Convertible Preferred Stock has a stated value of $2,000 per share. Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of the Company’s common stock determined by dividing the stated value by the conversion price of $4.00. The Company incurred total offering costs associated with the transaction of approximately $1.0 million, which approximately $0.6 million in offering costs were withheld from the gross proceeds and approximately $0.4 million in stock issued for service rendered and derivative liabilities associated with the offering.

 

In conjunction with the Private Placement Transaction, the Company also entered into a Debt Modification Agreement with NextPlat (see Note 4). The Company also issued placement agent warrants with substantively similar terms as the Investor Warrants.

 

In connection with the Private Placement Transaction, the Company entered into a registration rights agreement with NextPlat pursuant to which, among other things, the Company agreed to prepare and file with the SEC a resale registration statement to register the shares of the Company’s common stock to be issued upon conversion of the Series B Convertible Preferred Stock, the NextPlat Convertible Note, and Warrants.

 

Subsequent to December 31, 2022, the Company filed with the SEC a Request for Withdrawal of Registration Statement on Form S-1.

 

 

Note 6. Accounts Receivable – Trade, net

 

Accounts receivable consisted of the following at:

 

		December 31, 2022				December 31, 2021
Gross accounts receivable – trade		$	3,875,686			$	2,395,048
Less: Allowance for doubtful accounts			(203,900	)			(207,200	)
Accounts receivable – trade, net		$	3,671,786			$	2,187,848

 

For the years ended December 31, 2022 and 2021, the Company recognized bad debt (recovery) expense in the amount of approximately ($3,300) and $209,000, respectively.

 

Note 7. Property and Equipment, net

 

Property and equipment, net consisted of the following at:

 

		December 31, 2022				December 31, 2021
Building		$	1,651,069			$	1,651,069
Building improvements			513,075				507,238
Furniture and equipment			423,829				330,291
Leasehold improvements and fixtures			276,614				276,614
Vehicles			251,715				81,633
Land			184,000				184,000
Computer equipment and software			101,230				101,230
Total			3,401,532				3,132,075
Less: accumulated depreciation			(818,779	)			(708,578	)
Property and equipment, net		$	2,582,753			$	2,423,497

 

Depreciation expense for the year ended December 31, 2022 and 2021 was approximately $142,000 and $165,000, respectively.

 

Note 8. Intangible Assets

 

Intangible assets consisted of the following at:

 

		December 31, 2022				December 31, 2021
Trade names		$	362,000			$	362,000
Pharmacy records			263,000				263,000
Non-compete agreements			166,000				166,000
Software			86,424				—
Website			67,933				67,933
Subtotal			945,357				858,933
Less accumulated amortization			(818,661	)			(782,566	)
Net intangible assets		$	126,696			$	76,367
Software not yet placed in service			—				76,424
Total intangible assets, net		$	126,696			$	152,791

 

Amortization of intangible assets amounted to approximately $36,000 and $176,000 for the years ended December 31, 2022 and 2021, respectively. The following table represents the total estimated future amortization of intangible assets for the five succeeding years:

 

Year		Amount
2023			48,772
2024			30,390
2025			17,285
2026			17,285
2027			12,964
Total		$	126,696

 

Note 9. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of the following at:

 

		December 31, 2022				December 31, 2021
Accounts payable – trade		$	6,517,496			$	4,677,555
Accrued payroll and payroll taxes			228,957				143,074
Accrued DIR fees			500,589				712,002
Accrued legal fees			—				306,588
Other accrued liabilities			137,294				160,815
Total		$	7,384,336			$	6,000,034

 

 

10. Notes Payable

 

Notes payable consisted of the following at:

 

		December 31, 2022				December 31, 2021
A. Convertible notes payable and accrued interest - collateralized		$	2,837,910			$	2,143,891
B. Mortgage note payable - commercial bank - collateralized			1,225,913				1,307,562
C. Note payable - uncollateralized			25,000				25,000
D. Notes payable - collateralized			137,017				52,231
Insurance premiums financing			70,302				68,164
Subtotal			4,296,142				3,596,848
Less: unamortized debt discount			(1,820,585	)			(198,677	)
Less: unamortized debt issuance costs			—				(575	)
Less: unamortized investment length premium			—				(86,618	)
Total			2,475,557				3,310,978
Less: current portion of notes payable			(226,931	)			(202,184	)
Long-term portion of notes payable		$	2,248,626			$	3,108,794

 

The corresponding notes payable above are more fully discussed below:

 

(A) Convertible Notes Payable – collateralized

 

Iliad Research and Trading, L.P.

 

On March 6, 2019, Progressive entered a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad Research”) in the amount of $3,310,000 (“the Iliad Research note”). The Iliad Research note accrued interest at the rate of 10% per annum and was convertible into shares of common stock ($0.0001 par value per share) based on the average of the two lowest closing trading prices during the twenty trading days immediately preceding the applicable conversion. Through a series of extensions entered into, the maturity date was extended to May 15, 2023, at which time all unpaid principal and accrued and unpaid interest were due. The Iliad Research note was acquired as part of the Confidential Note Purchase and Release Agreement entered into between Iliad Research and the NextPlat investors, and the terms of the Iliad Research note were modified as part of the Debt Modification Agreement between the Company and the NextPlat investors (see Note 4).

 

The provisions of the Iliad Research note contained a weekly volume limitation on the number of shares common stock received from note conversions that can be sold (“Volume Limitation”). In the event of Volume Limitation breach, the Outstanding Balance of the Iliad Research note was reduced by an amount equal to such Excess Sales (the “Outstanding Balance Reduction”). During the year ended December 31, 2021, the volume of sales of Conversion Shares exceeded the Volume Limitation, which resulted in an Outstanding Balance Reduction in the amount of $180,000, which was recorded as a gain on debt extinguishment during the period.

 

On December 14, 2021, Progressive Care filed a demand (“the Company Demand”) with Iliad Research that alleged breaches of the Volume Limitation provisions of the Iliad Research note, as well as a previous note agreement with an affiliate of Iliad Research, Chicago Venture Partners, LP (“CVP”), (“the CVP note”). The CVP Note previously had been paid off in 2020. On January 7, 2022, in response to the Company Demand, Iliad Research and CVP filed a complaint with the Third Judicial District Court of Salt Lake County, State of Utah, as well as an Arbitration Notice pursuant to the CVP and Iliad Research Purchase Agreements.

 

On January 20, 2022, Progressive Care entered into an agreement with Iliad Research and CVP (“the Settlement Agreement”), in which (1) the maturity date of the Iliad Research note was extended to May 15, 2022, for which the Company paid an extension fee in the amount of approximately $46,000, (2) the outstanding balance of the Iliad Research note was increased by $100,000 because the Iliad Research note was not repaid by February 16, 2022, (3) the balance of the Iliad Research note was reduced by $180,000 (recorded in 2021) as settlement of the alleged breaches of the Volume Limitation provisions of the Iliad Research note, (4) CVP paid $175,000 to Progressive Care as settlement of the alleged breaches of the Volume Limitation provisions of the CVP note, and (5) Iliad Research and its affiliated entities agreed not to sell any shares of Progressive Care or submit any Redemption Notices for a stated time period (“Standstill Period”). The $180,000 debt reduction and $175,000 received were accounted for as gains on debt extinguishment, the $100,000 was accounted for as interest expense and the $46,000 extension fee was recorded as other finance costs.

 

During the second quarter of 2022, the Company and Iliad Research entered into a series of agreements to (i) extend the Standstill Period to July 15, 2022, and (ii) extend the maturity date of the Iliad Research note to May 15, 2023. The fees paid to extend the Standstill Period of approximately $101,000 were recorded as other finance costs. The fees to modify the terms to extend the maturity date in the amount of approximately $237,000 were added to the outstanding note balance, resulting in the recognition of a loss on debt extinguishment.

 

The outstanding balance on the Iliad Research note was approximately $2,144,000 at December 31, 2021, inclusive of accrued interest in the amount of approximately $833,000. On August 30, 2022, the Iliad Research note was purchased by the NextPlat investors.

 

The conversion features embedded within the Iliad Research note represented an embedded derivative. Accordingly, the embedded conversion right was bifurcated from the debt host and accounted for as a derivative liability and remeasured to fair value each reporting period. Fair value was determined using a Monte Carlo simulation model. For the years ended December 31, 2022 and 2021, the Company recorded in earnings a change in fair value of the derivative liability in the amounts of approximately ($1,256,000) and $914,000, respectively. Upon the entrance into the Debt Modification Agreement with the NextPlat investors on August 30, 2022, the outstanding fair value of the derivative liability of $1,477,400 million was written off and included in gain on debt extinguishment for the year ended December 31, 2022. The derivative liability balance at December 31, 2021 was approximately $222,000.

 

 

Debt Issuance Costs, Debt Discount, and Investment Length Premium Associated with the Iliad Research Note

 

Debt issuance costs consist of fees incurred through securing financing from Iliad Research on March 6, 2019. Debt discount consists of the discount recorded upon recognition of the derivative liability upon issuance of the first and second tranches. Investment length premium is calculated at a 5% premium on the outstanding balance when the note is still outstanding at (a) 18 months from the effective date, (b) 24 months from the effective date, and (c) 30 months from the effective date.

 

Debt issuance costs, debt discount and investment length premium were amortized to interest expense over the term of the related debt using the straight-line method. Total amortization expense for the years ended December 31, 2022 and 2021 was approximately $286,000 and $1,058,615, respectively.

 

NextPlat Investors

 

On August 30, 2022, the Company entered into the Modification Agreement with the NextPlat investors wherein the terms were modified for the existing Secured Convertible Promissory Note originally held by Iliad Research (“the Note”) and sold to the NextPlat investors (“the NextPlat Investors Note”). The NextPlat investors purchased the Note as part of a Confidential Note Purchase and Release Agreement between Iliad Research and the NextPlat investors. As of the date of the SPA, the aggregate amount of principal and interest outstanding on the NextPlat Investors Note was approximately $2.8 million. As part of the Modification Agreement, the NextPlat investors agreed to modify the following terms of the NextPlat Investors Note:

 

	1.	The Maturity Date was extended to August 31, 2027.
	2.	The Outstanding Balance shall bear interest at the simple annual rate of five percent (5%) per annum.
	3.	The Company is prohibited from prepaying the Note.
	4.	The Conversion Price for the Note was modified to a fixed price of $4.00 per share of common Stock.
	5.	The Note shall provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange.

 

The outstanding balance on the NextPlat Investors Note was approximately $2.8 million at December 31, 2022, inclusive of accrued interest in the amount of approximately $47,000 at December 31, 2022. The Note is reported net of a debt discount of approximately $1.8 million on the Consolidated Balance Sheets at December 31, 2022.

 

Embedded Derivative Liability

 

The Company identified an embedded derivative feature in the NextPlat Investors Note and concluded that it required bifurcation and liability classification as a derivative liability. The fair value of the embedded derivative at the issuance date of the Note (August 30, 2022) was approximately $2.0 million. The Company recorded a gain of approximately $284,000 million from the change in the fair value of the derivative liability in its Consolidated Statements of Operations for the year ended December 31, 2022. As a result of the common stock reverse stock split on December 29, 2022, the derivative liability was reclassified to equity.

 

Debt Issuance Costs and Debt Discount Associated with the NextPlat Investors Note

 

Debt Issuance Costs consist of fees incurred from the Placement Agent and Investment Advisor associated with the NextPlat Investors Debt Modification Agreement. Debt Discount consists of the discount recorded from the issuance of approximately 105,000 shares of common stock to the NextPlat Investors as consideration for the Debt Modification Agreement.

 

Debt issuance costs and debt discount were amortized to interest expense over the term of the related debt using the straight-line method. Total amortization expense for the year ended December 31, 2022 was approximately $131,000.

 

 

(B) Mortgage Note Payable – collateralized

 

In 2018, Pharmco 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the amount of $1,530,000. The promissory note is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive Care Inc.

 

(C) Note Payable – Uncollateralized

 

As of December 31, 2022 and 2021, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an investor.

 

(D) Notes Payable – Collateralized

 

In September 2019, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to pay off a capital lease obligation on pharmacy equipment in the amount of $85,429. The terms of the promissory note payable require 48 monthly payments of $2,015, including interest at 6.5%. The balance outstanding on the note payable was approximately $16,000 and $40,000 at December 31, 2022 and 2021, respectively. The promissory note is secured by equipment with a net book value of approximately $16,000 and $36,000 at December 31, 2022 and 2021, respectively.

 

In April 2021, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of $29,657. During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory note payable requires 46 monthly payments of $331, including interest at 6.9%. The balance outstanding at December 31, 2022 and 2021 on the note payable was approximately $9,000 and $12,000, respectively. The remaining equipment was written off during September 2021.

 

In July 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount approximately of $90,000. The terms of the promissory note payable require 6 monthly payments of $0 starting July 2022, and 60 monthly payments of $1,859, including interest at 8.78% starting January 2023. The balance outstanding on the note payable was approximately $90,000 on December 31, 2022. The promissory note is secured by equipment with a net book value of approximately $84,000 on December 31, 2022.

 

In September 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase a vehicle in the amount approximately of $25,000. The terms of the promissory note payable require 24 monthly payments of $1,143, including interest at 8.29% starting October 2022. The balance outstanding on the note payable was approximately $22,000 on December 31, 2022. The promissory note is secured by the vehicle with a net book value of approximately $23,000 on December 31, 2022.

 

Principal outstanding at December 31, 2022, is expected to be repayable as follows:

 

Year		Amount
2023		$	226,931
2024			121,119
2025			114,412
2026			118,623
2027			123,590
Thereafter			3,591,467
Total		$	4,296,142

 

Interest expense on these notes payable, exclusive of debt discount and debt issue cost amortization, was approximately $340,900 and $330,500 for the years ended December 31, 2022 and 2021, respectively.

 

 

Note 11. Lease Obligations

 

The Company has entered into a number of lease arrangements under which the Company is the lessee. Three of the leases are classified as finance leases and three of the leases are classified as operating leases. In addition, the Company has elected the short-term lease practical expedient in ASC Topic 842 related to real estate leases with terms of one year or less and short-term leases of equipment used in our pharmacy locations. The following is a summary of the Company’s lease arrangements.

 

Finance Leases

 

In May 2018, the Company entered into a finance lease obligation to purchase pharmacy equipment with a cost of approximately $115,000. The terms of the lease agreement require monthly payments of $1,678 plus applicable tax over 84 months ending March 2025 including interest at the rate of 6%. The finance lease obligation is secured by equipment with a net book value of approximately $38,000 and $55,000 at December 31, 2022 and 2021, respectively.

 

The Company assumed an equipment finance lease obligation for medication dispensing equipment from the acquisition of Pharmco 1002 in July 2018. The lease expired in March 2022. The finance lease obligation was secured by equipment with a net book value of $0 at December 31, 2022 and 2021, respectively.

 

In December 2020, the Company entered into an interest-free finance lease obligation to purchase computer servers with a cost of approximately $51,000. The terms of the lease agreement require monthly payments of $1,411 plus applicable tax over 36 months ending November 2023. The finance lease obligation is secured by equipment with a net book value of approximately $16,000 and $32,000 at December 31, 2022 and 2021, respectively.

 

Operating Leases

 

The Company entered into a lease agreement for its Orlando pharmacy in August 2020. The term of the lease is 66 months with a termination date of February 2026. The lease agreement calls for monthly payments that began in February 2021, of $4,310, with an escalating payment schedule each year thereafter.

 

The Company leases its North Miami Beach pharmacy location under an operating lease agreement with a lease commencement date in September 2021. The term of the lease is 60 months with a termination date in August 2026. The lease calls for monthly payments of $5,237, with an escalating payment schedule each year thereafter.

 

The Company also leases its Palm Beach County pharmacy locations under operating lease agreements expiring in February 2024.

 

The Company recognized lease costs associated with all leases as follows:

 

		For the Years Ended December 31,
		2022				2021
Operating lease cost:
Fixed rent expense		$	191,573			$	380,972
Finance lease cost:
Amortization of right-of-use assets			31,655				33,344
Interest expense			3,097				6,482
Total lease costs		$	226,325			$	420,798

 

Supplemental cash flow information related to leases was as follows:

 

		For the Years Ended December 31,
		2022				2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	159,609			$	199,070
Financing cash flows from finance leases			40,465				60,807
Total cash paid for lease liabilities		$	200,074			$	259,877

 

 

Supplemental balance sheet information related to leases was as follows:

 

		December 31, 2022				December 31, 2021
Operating leases:
Operating lease right-of-use assets, net		$	446,180			$	595,790
Operating lease liabilities:
Current portion			200,314				149,744
Long-term portion			278,602				469,665
Weighted average remaining lease term (years)			3.11				4.01
Weighted average discount rate			4.8	%			4.8	%
Finance leases:
Finance lease right-of-use assets, net			53,814				87,156
Finance lease liabilities:
Current portion			33,616				33,976
Long-term portion			24,198				57,814
Weighted average remaining lease term (years)			1.89				2.78
Weighted average discount rate			4.4	%			4.0	%

 

Maturities of lease liabilities were as follows:

 

Year		Finance Lease				Operating Lease				Total Future Lease Commitments
2023		$	35,662			$	181,787			$	217,449
2024			20,142				144,583				164,725
2025			5,035				134,933				139,968
2026			—				53,459				53,459
Total lease payments to be paid			60,839				514,762				575,601
Less: future interest expense			(3,025	)			(35,846	)			(38,871	)
Lease liabilities			57,814				478,916				536,730
Less: current maturities			(33,616	)			(200,314	)			(233,930	)
Long-term portion of lease liabilities		$	24,198			$	278,602			$	302,800

 

 

Note 12. Stockholders’ Equity

 

On December 29, 2022, we effected a 1-for-200 reverse stock split of our common stock and the number of shares of common stock that we are authorized to issue was reduced to 100 million. All common stock share information has been retrospectively adjusted to reflect the reverse stock split.

 

Preferred Stock

 

The Series A preferred stock is a non-dividend producing instrument that ranks superior to the Company’s common stock. Each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding common stock and Preferred Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.

 

With respect to all matters upon which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of Series A Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.

 

In July 2014, the board of directors approved the issuance of 51 shares of the Company’s Series A Preferred Stock to a certain employee of the Company, which is equal to 50.99% of the total voting power of all issued and outstanding voting capital of the Company in satisfaction of $20,000 in past due debt. In October 2020, the preferred shares were transferred to a trust whose beneficiary is related to the employee. In August 2022, the Company entered into a Share Exchange Agreement with the trust in which the 51 shares of the Company’s Series A Preferred Stock were acquired from the trust and cancelled in exchange for the issuance of 127,564 shares of the Company’s common stock. As a result of the exchange the Company recorded a preferred stock dividend of approximately $541,000 associated with the transaction.

 

On August 30, 2022, the Company entered into a SPA with NextPlat wherein the Company sold 3,000 units, generating gross proceeds of $6.0 million. Each unit is made up of one share of Series B Convertible Preferred Stock, $0.001 par value, and Investor Warrants. Each warrant entitles the holder to purchase one share of Series B Convertible Preferred Stock at an exercise price of $2,000. The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Series B Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares. Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of the Company’s common stock determined by dividing the stated value by the conversion price which is $4.00. The Company incurred offering costs associated with the transaction of approximately $1.0 million.

 

Note 13. Stock-Based Compensation

 

For the years ended December 31, 2022 and 2021, the Company recorded total stock-based compensation expense of $1.9 million and $0.2 million, respectively. There were no income tax benefits recognized from stock-based compensation during the years ended December 31, 2022 and 2021 due to cumulative losses and valuation allowances.

 

The 2020 Incentive Plan (the “2020 Plan”) was adopted in November 2020. Under this 2020 Plan, a total of 375,000 shares were authorized for stock-based compensation available in the form of either restricted stock units (“RSUs”) or stock options. As of December 31, 2022, under the 2020 Plan, the Company has granted 3,650 RSUs and 40,000 stock options and has 331,350 shares available for future issuance. The fair value of the RSUs equaled the stock price at the grant date and the RSUs vested upon issuance.

 

 

The following table summarizes fully vested stock options granted under the 2020 Plan for the year ended December 31, 2022:

 

		Number Outstanding				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)
Balance outstanding at December 31, 2021			—			$	—				—
Granted			40,000			$	5.80				8.83
Exercised			—			$	—				—
Forfeited			—			$	—				—
Cancelled			—			$	—				—
Balance outstanding at December 31, 2022			40,000			$	5.80				8.83
Options exercisable at December 31, 2022			40,000			$	5.80				8.83
Weighted average fair value of options granted during the year						$	5.80				8.83

 

Awards Issued Outside of Equity Incentive Plans

 

Restricted Stock Units

 

During the years ended December 31, 2022 and 2021, the Company granted 249,907 and 294,008, respectively, RSUs as stock-based compensation. The fair value of the RSUs equaled the stock price at the grant date and the RSUs vested upon issuance.

 

Stock Options

 

During 2022, the Company granted 282,965 stock options at a weighted average exercise price of $4.40, and no options were exercised, forfeited, or expired. As of December 31, 2022, there was approximately $1.1 million of total unrecognized compensation cost related to 188,643 nonvested stock options granted. The cost is expected to be recognized over a weighted-average period of 2.89 years. The options have a weighted-average remaining contractual life of 9.67 years.

 

The fair value of option awards was estimated on the date of grant using the Monte Carlo simulation model. Expected volatilities are based on historical volatilities of the Company’s common stock. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of the grants.

 

The fair value of options granted was determined using the following weighted-average assumptions as of grant date.

 

Risk-free interest rate			3.5	%
Expected term (in years)		10
Expected stock price volatility			120	%
Dividend yield			0	%

 

Note 14. Warrants Liabilities

 

As of December 31, 2022, there were 380,500 Placement Agent Warrants and 3,000 Investor Warrants issued and outstanding. All of the warrants were issued on August 30, 2022. There were no warrants exercised, forfeited or canceled during the year ended December 31, 2022. Investor Warrants may only be exercised for a whole number of Preferred Stock shares. The Investor Warrants will be exercisable at any time at the option of the Warrant Holders. The Investor Warrants will expire five years from the issue date of the Investor Warrants (September 2, 2027) or earlier upon redemption or liquidation. The exercise price per share of preferred stock under the Investor Warrants is $2,000. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, pursuant to the terms and conditions of the Securities Purchase Agreement, then the Investor Warrants may also be exercised, in whole or in part, at such time by means of a cashless exercise.

 

 

The Placement Agent Warrants are exercisable into 380,500 shares of the Company’s common stock at an exercise price per common stock share of $4.00. The Placement Agent Warrants may be exercised at any time at the option of the Placement Agent and expire on September 2, 2027. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares by the Holder, pursuant to the terms and conditions of the Purchase Agreement, then the Placement Agent Warrants may also be exercised, in whole or in part, at such time by means of a cashless exercise.

 

The Company determined that the warrants do not meet the definition of a liability under FASB ASC Topic 480. However, they do meet the definition of a derivative under FASB ASC Topic 815 because at the time the warrants were issued, the Company had insufficient common stock shares to settle the warrants when considering all other commitments that may require the issuance of common stock shares. The Company determined that the fair value of the warrants on their issuance date of August 30, 2022 was approximately $6.1 million and elected to classify the preferred stock shares and warrants as liabilities. On December 29, 2022, the Company effected a 1-for-200 reverse stock split of our common stock. As result of the reverse stock split, the warrants were reclassified from liabilities to equity. The Company recorded a loss of approximately $2.4 million from the change in fair value of the derivative warrant liability on its Consolidated Statements of Operations for the year ended December 31, 2022.

 

The Company’s warrants were valued on the applicable dates using the Monte Carlo Simulation Model. Significant inputs into this technique at measurement dates are as follows:

 

		August 30, 2022 (1)				December 29, 2022 (2)
Fair market value of the Company’s stock (3)		$	4.40			$	6.00
Exercise price		$	4.00			$	4.00
Stock price		$	4.00			$	4.00
Term (in years) (4)			5				5
Expected life (in years) (5)			5				5
Volatility			90	%			90	%
Risk-free interest rate (6)			3.3	%			4.0	%
Warrants measurement input			3.3	%			4.0	%

 

(1)	Date of issuance
(2)	Measurement date prior to reverse stock split
(3)	The fair value of the stock was determined by using the Company’s closing stock price as reflected in the OTC Markets.
(4)	The term is the contractual remaining term.
(5)	The expected life is the contractual term of the warrants.
(6)	The risk-free rates used for inputs represent the yields on the valuation date with periods consistent with the contractual remaining term.

 

The Company incurred a day one loss of approximately $1.0 million because the Company had insufficient authorized common stock shares to settle the warrants.

 

Note 15. Commitments and Contingencies

 

Legal Matters

 

On May 3, 2022, a complaint was filed by the Plaintiff Positive Health Alliance, Inc. (“PHA”) against Pharmco LLC, a wholly owned subsidiary of the Company, in the U.S. Circuit Court of Miami Dade, Florida, alleging that defendant failed to pay amounts due and owing to PHA under the parties’ contract for discounted prescription drugs. PHA is seeking judgment against Pharmco for compensatory damages in the amount of $407,504, plus attorneys’ fees and costs. PHA and Pharmco entered into a settlement agreement on July 1, 2022, pursuant to which Pharmco paid to PHA the total amount of $407,504 in 13 installment payments. The complaint was dismissed with prejudice on July 8, 2022. The balance outstanding was approximately $280,000 and $408,000 at December 31, 2022 and 2021, respectively (recorded in Accounts Payable and Accrued Liabilities).

 

 

On June 8, 2022, a complaint was filed by the Company against KeyCentrix, LLC (“KCL”), in the U.S. District Court for the Southern District of Florida, alleging fraudulent inducement, breach of express warranty and breach of implied warranty. The complaint stems from an agreement by KCL to license to the Company certain pharmacy management software known as “Newleaf” for use in the operations of pharmacies operated by the Company.

 

Note 16. Related Party Transactions

 

During the year ended December 31, 2021, the Company had a consulting arrangement with Spark Financial Consulting (“Spark”), which is a consulting company owned by an employee of the Company. Spark provides business development services including but not limited to recruiting, targeting and evaluation of potential mergers and acquisitions, finding third party contractors and assisting with related negotiations in exchange for a monthly fee of $16,000 in 2021. Additionally, Spark may be entitled to additional fees for additional consulting services. During the year ended December 31, 2021, the Company paid Spark $118,769. The agreement was terminated during the third quarter of 2021.

 

The Company had an employment agreement with a certain pharmacist, Head of the Compounding Department, who is the first paternal cousin to an employee of the Company. In consideration for duties performed, including but not limited to, marketing, patient consultation, formulary development, patient and physician education, training, recruitment, sales management, as well as pharmacist responsibilities, the Company agreed to provide monthly compensation of $15,000 or $10,000 plus 5% commission on monthly gross profits generated by the Compounding Department, whichever is greater. During the year ended December 31, 2021, payments to the pharmacist were $63,495. The employment agreement was terminated during the third quarter of 2021.

 

On August 30, 2022, NextPlat, Charles M. Fernandez, Rodney Barreto, and certain other purchasers purchased from Iliad Research a Secured Convertible Promissory Note, dated March 6, 2019, made by the Company to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.8 million. The aggregate purchase price paid to Iliad for the Note was $2.3 million of which NextPlat contributed $1.0 million and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”). In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with the Company. In consideration of the concessions in the Debt Modification Agreement, the Company issued 105,000 shares of its common stock to the purchasers of the Note, of which NextPlat, Messrs. Fernandez and Barreto, received 45,653, 18,261, and 18,261 shares, respectively. 

 

Note 17. Retirement Plan

 

The Company sponsors a 401(k) retirement plan (“the Plan”) covering qualified employees of Pharmco 901, Pharmco 1002 and FPRX, as defined. Employees who have been employed more than one year are eligible to participate in the Plan. Through September 30, 2021, the Company matched the employee’s contribution up to a maximum of 3% of the eligible employee’s compensation. The Company contributed approximately $2,200 in matching contributions for the year ended December 31, 2021. The Company did not make any matching contributions for the year ended December 31, 2022.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

SCHEDULE II – VALUATION ACCOUNTS

 

		Balance at Beginning of Period				Additions Charged (Credited) to Expense				Net (Deductions) Recoveries				Balance at End of Period
Year ended December 31, 2021
Account receivable, allowance for doubtful accounts		$	105,500			$	208,953			$	(107,253	)		$	207,200
Deferred tax valuation allowance		$	2,177,560			$	—			$	119,510			$	2,297,070
Year ended December 31, 2022
Account receivable, allowance for doubtful accounts		$	207,200			$	(3,300	)		$	—			$	203,900
Deferred tax valuation allowance		$	2,297,070			$	—			$	1,614,855			$	3,911,925

 

Exhibit 99.2

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

 

INDEX

 

Unaudited Consolidated Financial Statements for the Three and Six Months Ended June 30, 2023 and 2022

 

	Page
Condensed Consolidated Financial Statements (Unaudited)	F-1
Condensed Consolidated Balance Sheets	F-1
Condensed Consolidated Statements of Operations	F-2
Condensed Consolidated Statements of Stockholders’ Equity	F-3
Condensed Consolidated Statements of Cash Flows	F-4
Notes to the Condensed Consolidated Financial Statements	F-5

 

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Condensed Consolidated Balance Sheets

 

		June 30, 2023				December 31, 2022
		(Unaudited)				(Audited)
Assets
Current Assets
Cash		$	7,352,183			$	6,742,876
Accounts receivable – trade, net			4,951,408				3,671,786
Receivables - other, net			1,526,756				2,004,805
Inventory, net			1,630,881				713,284
Prepaid expenses			220,314				245,983
Total Current Assets			15,681,542				13,378,734
Property and equipment, net			2,720,471				2,582,753
Other Assets
Goodwill			1,387,860				1,387,860
Intangible assets, net			102,327				126,696
Operating right-of-use assets, net			368,270				446,180
Finance right-of-use assets, net			37,143				53,814
Deposits			39,137				38,637
Total Other Assets			1,934,737				2,053,187
Total Assets		$	20,336,750			$	18,014,674
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities		$	8,196,322			$	7,384,336
Notes payable and accrued interest			148,181				226,931
Operating lease liabilities			184,378				200,314
Finance lease liabilities			23,816				33,616
Total Current Liabilities			8,552,697				7,845,197
Long-term Liabilities
Notes payable, net of current portion			1,173,364				2,248,626
Operating lease liabilities, net of current portion			215,203				278,602
Finance lease liabilities, net of current portion			14,735				24,198
Total Liabilities			9,955,999				10,396,623
Commitments and Contingencies			—				—
Stockholders’ Equity
Preferred Stock, Series B ($0.001 par value, 100,000 shares designated; 3,000 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)			3				3
Common stock ($0.0001 par value, 100,000,000 shares authorized; 5,188,033 and 3,347,440 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)			67,131				66,947
Additional paid-in capital			30,055,095				22,525,214
Accumulated deficit			(19,741,478	)			(14,974,113	)
Total Stockholders’ Equity			10,380,751				7,618,051
Total Liabilities and Stockholders’ Equity		$	20,336,750			$	18,014,674

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Revenues, net		$	11,556,085			$	9,973,584			$	22,948,029			$	20,024,580
Cost of revenue			7,997,239				7,943,231				16,242,498				15,613,620
Gross profit			3,558,846				2,030,353				6,705,531				4,410,960
Operating expenses
Selling, general and administrative expenses			2,922,674				2,207,723				6,046,464				4,761,687
Bad debt expense (recovery)			12,000				19,900				21,100				(17,900	)
Total operating expenses			2,934,674				2,227,623				6,067,564				4,743,787
Income (loss) from operations			624,172				(197,270	)			637,967				(332,827	)
Other income (loss)
Change in fair value of derivative liabilities			—				(220,300	)			—				(1,173,400	)
Loss on debt extinguishment			—				(237,173	)			—				(62,173	)
Debt conversion expense			(5,205,609	)			—				(5,205,609	)			—
Other finance costs			—				(147,204	)			—				(147,204	)
Gain on sale or disposal of property and equipment			2,500				—				2,500				11,562
Interest income			6,751				—				12,417				—
Interest expense			(64,840	)			(77,909	)			(214,640	)			(537,290	)
Total other loss			(5,261,198	)			(682,586	)			(5,405,332	)			(1,908,505	)
Loss before income taxes			(4,637,026	)			(879,856	)			(4,767,365	)			(2,241,332	)
Provision for income taxes			—				(866	)			—				(866	)
Net loss attributable to common shareholders		$	(4,637,026	)		$	(880,722	)		$	(4,767,365	)		$	(2,242,198	)
Basic and diluted weighted average loss per common share		$	(1.05	)		$	(0.32	)		$	(1.22	)		$	(0.82	)
Weighted average number of common shares outstanding during the year – basic and diluted			4,426,978				2,744,910				3,895,532				2,736,244

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)

 

		Preferred Stock, Series B								Common Stock								Additional								Total
		$0.001 Par Value								$0.0001 Par Value								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balance at December 31, 2022			3,000			$	3				3,347,440			$	66,947			$	22,525,214			$	(14,974,113	)		$	7,618,051
Stock-based compensation			—				—				10,861				1				50,001				—				50,002
Net loss for the three months ended March 31, 2023			—				—				—				—				—				(130,339	)			(130,339	)
Balance at March 31, 2023			3,000				3				3,358,301				66,948				22,575,215				(15,104,452	)			7,537,714
Stock-based compensation			—				—				62,353				6				199,594				—				199,600
Issuance of common stock for PIPE transaction			—				—				455,000				46				999,954				—				1,000,000
Cost associated with issuance of common stock for PIPE transaction			—				—				—				—				(120,000	)			—				(120,000	)
Issuance of common stock and common stock purchase warrants for debt conversion			—				—				1,312,379				131				6,400,332				—				6,400,463
Net loss for the three months ended June 30, 2023			—				—				—				—				—				(4,637,026	)			(4,637,026	)
Balance at June 30, 2023			3,000			$	3				5,188,033			$	67,131			$	30,055,095			$	(19,741,478	)		$	10,380,751

 

		Preferred Stock, Series A								Common Stock								Additional								Total
		$0.001 Par Value								$0.0001 Par Value								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity (Deficit)
Balance December 31, 2021			51			$	—				2,724,422			$	54,487			$	8,862,050			$	(8,528,937	)		$	387,600
Issuance of common stock for services			—				—				3,094				62				20,938				—				21,000
Stock-based compensation			—				—				17,297				348				104,652				—				105,000
Net loss for the three months ended March 31, 2022			—				—				—				—				—				(1,361,476	)			(1,361,476	)
Balance March 31, 2022			51				—				2,744,813				54,897				8,987,640				(9,890,413	)			(847,876	)
Net loss for the three months ended June 30, 2022			—				—				—				—				—				(880,722	)			(880,722	)
Balance June 30, 2022			51			$	—				2,744,813			$	54,897			$	8,987,640			$	(10,771,135	)		$	(1,728,598	)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Six Months Ended June 30,
		2023				2022
Cash flows from operating activities:
Net loss		$	(4,767,365	)		$	(2,242,198	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation			95,646				63,478
Change in provision for doubtful accounts			21,100				(17,900	)
Stock-based compensation			249,602				126,000
Amortization of debt issuance costs and debt discounts			128,211				285,870
Loss on debt extinguishment			—				62,173
Debt conversion expense			5,205,609				—
Other financing costs			—				147,204
Amortization of right-of-use assets - finance leases			16,672				16,672
Amortization of right-of-use assets - operating leases			77,909				73,913
Change in fair value of derivative liability			—				1,173,400
Change in accrued interest on notes payable			46,552				435,330
Change in accrued interest on lease liabilities			10,224				13,078
Amortization of intangible assets			24,369				16,048
Gain on sale or disposal of property and equipment			(2,500	)			(11,562	)
Changes in operating assets and liabilities:
Accounts receivable			(1,099,995	)			48,101
Grant receivable			277,322				—
Inventory			(917,597	)			(24,212	)
Prepaid expenses			25,669				23,951
Deposits			(500	)			—
Accounts payable and accrued liabilities			850,660				840,117
Operating lease liabilities			(91,379	)			(70,317	)
Net cash provided by operating activities			150,209				959,146
Cash flows from investing activities:
Purchase of property and equipment			(233,364	)			—
Proceeds from sale or disposal of property and equipment			2,500				11,562
Purchase of intangible assets			—				(10,000	)
Net cash (used in) provided by investing activities			(230,864	)			1,562
Cash flows from financing activities:
Payments on notes payable			(172,595	)			(126,651	)
Payments on finance lease liabilities			(17,443	)			(19,238	)
Issuance of common stock for PIPE transaction			1,000,000				—
Payment of stock issuance costs			(120,000	)			—
Net cash provided by (used in) financing activities			689,962				(145,889	)
Increase in cash			609,307				814,819
Cash at beginning of period			6,742,876				1,412,108
Cash at end of period		$	7,352,183			$	2,226,927
Supplemental disclosures of cash flow information:
Cash paid for interest		$	36,734			$	33,702
Cash paid for income taxes		$	—			$	866
Supplemental schedule of non-cash investing and financing activities:
Debt conversion of long-term notes payable and accrued interest, net of unamortized debt discount and debt issuance costs		$	1,194,855			$	—
Issuance of common stock and common stock purchase warrants for debt conversion		$	6,400,463			$	—
Debt extension fees and other financing costs added to note principal		$	—			$	484,377
Issuance of common stock for services rendered		$	—			$	21,000
Insurance premiums financed through issuance of note payable		$	—			$	20,395

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

June 30, 2023

(Unaudited)

 

Unless the context requires otherwise, references to the “Company”, “we”, “us”, “our”, “our Company”, or “our business” refer to Progressive Care Inc. and its subsidiaries.

 

 

Note 1. Organization & Nature of Operations

 

Progressive Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.

 

Progressive, through its wholly-owned subsidiaries, Pharmco, LLC (“Pharmco 901”), Touchpoint RX, LLC doing business as Pharmco Rx 1002, LLC (“Pharmco 1002”), Family Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX” or “Pharmco 1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”), and ClearMetrX Inc. (“ClearMetrX”) is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk and data management services to healthcare organizations and providers.

 

Pharmco 901 was formed on November 29, 2005 as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive. Pharmco 901 was acquired by Progressive on October 21, 2010. We currently deliver prescriptions to Florida’s diverse population and ship medications to patients in states where we hold non-resident pharmacy licenses as well. We currently hold Florida Community Pharmacy Permits at all Florida pharmacy locations and our Pharmco 901 location is licensed as a non-resident pharmacy in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to dispense to patients in the state of Massachusetts without a non-resident pharmacy license because Massachusetts does not require such a license for these activities.

 

Pharmco 1103 is a pharmacy with locations in North Miami Beach and Orlando, Florida that provides Pharmco’s pharmacy services to Broward County, the Orlando/Tampa corridor, and the Treasure Coast of Florida. Progressive acquired all the ownership interests in Pharmco 1103 in a purchase agreement entered into on June 1, 2019.

 

Pharmco 1002 is a pharmacy located in Palm Springs, Florida that provides Pharmco’s pharmacy services to Palm Beach, St. Lucie and Martin Counties, Florida. Progressive acquired all the ownership interests in Pharmco 1002 in a purchase agreement entered into on July 1, 2018.

 

ClearMetrX was formed on June 10, 2020 and provides third-party administration (“TPA”) services to 340B covered entities. ClearMetrX also provides data analytics and reporting services to support and improve care management for health care organizations.

 

RXMD Therapeutics was formed on October 1, 2019. RXMD Therapeutics had no operating activity to date.

 

Note 2. Basis of Presentation and Principles of Consolidation

 

The accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2022 Form 10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2022 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.

 

 

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Certain 2022 financial information has been reclassified to conform to the 2023 presentation. Such reclassifications do not impact the Company’s previously reported financial position or net income (loss).

 

Note 3. Summary of Significant Accounting Policies

 

The significant accounting policies of the Company were described in Note 3 to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to the Company’s significant accounting policies for the six months ended June 30, 2023. 

 

Concentrations

 

The Company had significant concentrations with one vendor. The purchases from this significant vendor were 97% and 96% of total vendor purchases for the three months ended June 30, 2023 and 2022, respectively, and 97% for the six months ended June 30, 2023 and 2022, respectively.

 

Recently Adopted Accounting Standards

 

In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-04, “Liabilities (Topic 405) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121”, to amend and add various SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Bulletin No. 121. The Company adopted this conforming guidance upon issuance and the adoption had no material impact on our condensed consolidated financial statements and related disclosures.

 

In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statement (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)”, to amend various SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 120, among other things. The Company adopted this conforming guidance upon issuance and the adoption had no material impact on our condensed consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance effective January 1, 2023 and the adoption had no material impact on our condensed consolidated financial statements and related disclosures. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost.

 

 

Subsequent Events

 

Appointment of Directors

 

Effective July 17, 2023, the Board of Directors of the Company, appointed Elizabeth Alcaine and Anthony Armas as directors of the Company. In connection with such appointment, Ms. Alcaine and Mr. Armas entered into Director Agreements with the Company and were each issued $50,000 in shares of the Company's common stock. Annually, after execution of the Agreement and subject to continued service on the Board, Ms. Alcaine and Mr. Armas will each be issued the number of shares of the Company’s common stock equivalent to $50,000 as determined based on the average closing price on the three trading days immediately preceding the last day of such anniversary date.

 

        Change in Control Transactions

 

On July 1, 2023, NextPlat Corp (“NextPlat”), Charles M. Fernandez, and Rodney Barreto exercised common stock purchase warrants and were issued common stock shares by the Company. Charles M. Fernandez serves as the Chairman and Chief Executive Officer of the Company and the Chief Executive Officer, Executive Chairman and Director of NextPlat. Rodney Barreto serves as the Vice-Chairman of the Company and a Director of NextPlat. NextPlat exercised common stock purchase warrants on a cashless basis and was issued 402,269 common stock shares. NextPlat also exercised common stock purchase warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. Mr. Fernandez exercised common stock purchase warrants on a cashless basis and was issued 211,470 common stock shares. Mr. Barreto exercised common stock purchase warrants on a cashless basis and was issued 130,571 common stock shares. After the exercise of the common stock purchase warrants, NextPlat, Messrs. Fernandez and Barreto collectively owned 53% of the Company’s voting common stock. As of June 30, 2023, prior to the exercise of common stock purchase warrants, NextPlat and Messrs. Fernandez and Barreto collectively owned approximately 46% of the Company’s voting common stock.

 

Also, on June 30, 2023, NextPlat, along with Messrs. Fernandez and Barreto, entered into a voting agreement whereby at any annual or special shareholders meeting of the Company’s stockholders, and whenever the holders of the Company’s common stock act by written consent, Messrs. Fernandez and Barreto agreed to vote all of the common stock shares (including any new shares hereafter acquired or acquired through the conversion of securities convertible into Common Stock) that they own, directly or indirectly, in the same manner that NextPlat votes its Common Stock and equivalents. The voting agreement is irrevocable and perpetual in term.

 

As a result of the common stock purchase warrant exercises and the entry into the voting agreement, the Company concluded that there was a change in control in the Company under the voting interest model in U.S. GAAP. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting interest in the Company through the concurrent common stock purchase warrant exercises and voting agreement noted above. Therefore, under U.S. GAAP, beginning on July 1, 2023, NextPlat will include Progressive Care’s financial statements in its consolidated financial statements.

 

 

Note 4. Fair Value Measurements

 

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

 

●

Cash, accounts receivable, and accounts payable and accrued liabilities: The amounts reported in the accompanying Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature.

 

●

Notes payable and lease liabilities: The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company could obtain in current financing. The carrying value of lease liabilities approximated fair value due to the implicit rate in the lease in relation to the Company’s borrowing rate and the duration of the leases (Level 2 inputs).

 

Common Stock Purchase Warrants

 

As of June 30, 2023, the Company had common stock purchase warrants classified as Level 3 equity instruments. The fair value of the common stock purchase warrants on the date of issuance was approximately $4.6 million. The Company used the Monte Carlo simulation model for valuation of the common stock purchase warrants. Key inputs into the Monte Carlo simulation model were as follows at the valuation date: risk-free interest rate: 3.5%-3.7%; expected term: 3-5.6 years; expected volatility: 93%-102%; exercise price: $2.20. For additional information on the initial issuance of the common stock purchase warrants, see also “Note 12. Stockholder’s Equity, Common Stock and Common Stock Purchase Warrants”.

 

 

Note 5. Revenue

 

The Company recognizes pharmacy revenue and 340B contract revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments are received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For third-party medical insurance and other claims, authorization is obtained to ensure payment from the customer’s insurance provider before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number is issued by the customers’ insurance provider.

 

The Company recognizes COVID-19 testing revenue when the tests are performed and results are delivered to the customer. Each test is considered an arrangement with the customer and is a separate performance obligation. Payment is generally received in advance from the customer.

 

Billings for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal. Prescription revenues were 85% and 93% of total revenue for the three months ended June 30, 2023 and 2022, respectively, and 88% and 89% for the six months ended June 30, 2023 and 2022, respectively.

 

The Company accrues an estimate of pharmacy benefit manager (“PBM”) fees, including direct and indirect remuneration (“DIR”) fees, which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.

 

The following table disaggregates net revenue by categories:

 

		Three Months Ended June 30,
		2023				2022
Prescription revenue		$	9,864,709			$	9,275,774
340B contract revenue			2,093,919				706,102
COVID-19 testing revenue			8,147				368,197
Rent and other revenue			5,688				1,450
Sub total			11,972,463				10,351,523
PBM fees			(416,378	)			(377,939	)
Revenues, net		$	11,556,085			$	9,973,584

 

		Six Months Ended June 30,
		2023				2022
Prescription revenue		$	20,305,653			$	17,881,657
340B contract revenue			3,670,215				1,094,057
COVID-19 testing revenue			53,603				1,659,214
Rent and other revenue			5,703				1,657
Sub total			24,035,174				20,636,585
PBM fees			(1,087,145	)			(612,005	)
Revenues, net		$	22,948,029			$	20,024,580

 

 

Note 6. Earnings (Loss) per Share

 

The components of basic and diluted earnings (loss) per share (“EPS”) were as follows:

 

		Three Months Ended June 30,
		2023				2022
Net loss attributable to common shareholders		$	(4,637,026	)		$	(880,722	)
Basic weighted average common shares outstanding			4,426,978				2,744,910
Potentially dilutive common shares			—				—
Diluted weighted average common shares outstanding			4,426,978				2,744,910
Basic weighted average loss per common share		$	(1.05	)		$	(0.32	)
Diluted weighted average loss per common share		$	(1.05	)		$	(0.32	)

 

		Six Months Ended June 30,
		2023				2022
Net loss attributable to common shareholders		$	(4,767,365	)		$	(2,242,198	)
Basic weighted average common shares outstanding			3,895,532				2,736,244
Potentially dilutive common shares			—				—
Diluted weighted average common shares outstanding			3,895,532				2,736,244
Basic weighted average loss per common share		$	(1.22	)		$	(0.82	)
Diluted weighted average loss per common share		$	(1.22	)		$	(0.82	)

 

 

Note 7. Accounts Receivable – Trade, net

 

Accounts receivable consisted of the following at:

 

		June 30, 2023				December 31, 2022
Gross accounts receivable – trade		$	5,176,408			$	3,875,686
Less: allowance for doubtful accounts			(225,000	)			(203,900	)
Accounts receivable – trade, net		$	4,951,408			$	3,671,786

 

The Company recognized bad debt expense in the amount of approximately $12,000 and $19,900 for three months ended June 30, 2023 and 2022, respectively. The Company recognized bad debt expense (recovery) in the amount of approximately $21,100 and ($17,900) for the six months ended June 30, 2023 and 2022, respectively.

 

Accounts receivable – trade, net as of January 1, 2022 and June 30, 2022 were approximately $2.2 million, respectively.

 

The Company generated reimbursements from three significant PBMs:

 

		Six Months Ended June 30,
		2023				2022
A			38	%			55	%
B			28	%			6	%
C			19	%			25	%

 

 

Note 8. Property and Equipment, net

 

Property and equipment, net consisted of the following:

 

		June 30, 2023				December 31, 2022
Building		$	1,651,069			$	1,651,069
Building improvements			513,075				513,075
Vehicles			459,461				251,715
Furniture and equipment			444,909				423,829
Leasehold improvements and fixtures			281,154				276,614
Land			184,000				184,000
Computer equipment			101,230				101,230
Total			3,634,898				3,401,532
Less: accumulated depreciation			(914,427	)			(818,779	)
Property and equipment, net		$	2,720,471			$	2,582,753

 

Depreciation expense was approximately $52,000 and $29,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $96,000 and $63,000 for the six months ended June 30, 2023 and 2022, respectively.

 

Note 9. Intangible Assets

 

Intangible assets consisted of the following at:

 

		June 30, 2023				December 31, 2022
Trade names		$	362,000			$	362,000
Pharmacy records			263,000				263,000
Non-compete agreements			166,000				166,000
Software			86,424				86,424
Website			67,933				67,933
Subtotal			945,357				945,357
Less: accumulated amortization			(843,030	)			(818,661	)
Net intangible assets		$	102,327			$	126,696

 

Amortization of intangible assets amounted to approximately $12,000 and $8,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $24,400 and $16,000 for the six months ended June 30, 2023 and 2022, respectively. The following table represents the total estimated future amortization of intangible assets for the five succeeding years:

 

Year		Amount
2023 (remaining six months)		$	24,403
2024			30,390
2025			17,285
2026			17,285
2027			12,964
Total		$	102,327

 

Note 10. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of the following at:

 

		June 30, 2023				December 31, 2022
Accounts payable – trade		$	7,189,868			$	6,517,496
Accrued payroll and payroll taxes			198,823				228,957
Accrued PBM fees			650,000				500,589
Other accrued liabilities			157,631				137,294
Total		$	8,196,322			$	7,384,336

 

 

Note 11. Notes Payable

 

Notes payable consisted of the following at:

 

		June 30, 2023				December 31, 2022
A. Convertible note payable and accrued interest - collateralized		$	—			$	2,837,910
B. Mortgage note payable - commercial bank - collateralized			1,183,427				1,225,913
C. Note payable - uncollateralized			25,000				25,000
D. Notes payable - collateralized			109,930				137,017
Insurance premiums financing			3,188				70,302
Subtotal			1,321,545				4,296,142
Less: unamortized debt discount			—				(1,820,585	)
Total			1,321,545				2,475,557
Less: current portion of notes payable			(148,181	)			(226,931	)
Long-term portion of notes payable		$	1,173,364			$	2,248,626

 

The corresponding notes payable above are more fully discussed below:

 

(A) Convertible Note Payable – collateralized

 

NextPlat Investors

 

In August 2022, the Company entered into the Modification Agreement with the NextPlat investors wherein the terms were modified for an existing Secured Convertible Promissory Note originally held by Iliad Research (“the Note”) and sold to the NextPlat investors (“the NextPlat Investors Note”). The NextPlat investors purchased the Note as part of a Confidential Note Purchase and Release Agreement between Iliad Research and the NextPlat investors. As of the date of the Securities Purchase Agreement (“SPA”), the aggregate amount of principal and interest outstanding on the NextPlat Investors Note was approximately $2.8 million. As part of the Modification Agreement, the NextPlat investors agreed to modify the following terms of the NextPlat Investors Note:

 

	1.	The Maturity Date was extended to August 31, 2027.
	2.	The Outstanding Balance shall bear interest at the simple annual rate of five percent (5%) per annum.
	3.	The Company is prohibited from prepaying the Note.
	4.	The Conversion Price for the Note was modified to a fixed price of $4.00 per share of common Stock.
	5.	The Note shall provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange.

 

On May 5, 2023, the Company entered into a Debt Conversion Agreement (the “DCA”) with NextPlat and the other holders (the “Holders”) of the Amended and Restated Secured Convertible Promissory Note. Pursuant to the DCA, NextPlat and the other Holders agreed to modify and convert the total $2.9 million of outstanding principal and accrued and unpaid interest to Common Stock at a conversion price of $2.20 per share (the “Debt Conversion”) for a total of 1,312,379 shares. Additionally, the Company issued 330,000 common stock purchase warrants to certain existing Progressive Care investors to induce them to approve the Debt Conversion (the “Inducement Warrants”). The Inducement Warrants were recorded at fair value as equity instruments. The Debt Conversion was recorded using inducement accounting and resulted in a total debt conversion expense of approximately $5.2 million for the six months ended June 30, 2023. Debt conversion expense consisted of debt issuance costs and debt discount of approximately $1.7 million, the fair value of the common stock purchase warrants issued of approximately $4.6 million, partially offset by the loss from inducement accounting of approximately $1.1 million.

 

 

Debt Issuance Costs and Debt Discount Associated with the NextPlat Investors Note

 

Debt issuance costs consist of fees incurred from the Placement Agent and Investment Advisor associated with the NextPlat Investors Debt Modification Agreement. Debt discount consists of the discount recorded from the issuance of approximately 105,000 shares of common stock to the NextPlat Investors as consideration for the Debt Modification Agreement. 

 

Debt issuance costs and debt discount are amortized to interest expense over the term of the related debt using the straight-line method. Total amortization expense for the six months ended June 30, 2023 was approximately $128,000.

 

As a result of the Debt Conversion, the remaining balance of debt issuance costs and debt discount of approximately $1.7 million at the date of the Debt Conversion was written off and recognized as part of debt conversion expense for the six months ended June 30, 2023 on the Condensed Consolidated Statements of Operations.

 

(B) Mortgage Note Payable – collateralized

 

In 2018, Pharmco 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the amount of $1,530,000. The promissory note is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive Care Inc.

 

(C) Note Payable – Uncollateralized

 

As of June 30, 2023 and December 31, 2022, the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an investor.

 

(D) Notes Payable – Collateralized

 

In September 2019, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to pay off a capital lease obligation on pharmacy equipment in the amount of approximately $85,000. The terms of the promissory note payable require 48 monthly payments of $2,015, including interest at 6.5%. The balance outstanding on the note payable was approximately $4,000 and $16,000 as of June 30, 2023 and December 31, 2022, respectively.

 

In April 2021, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of approximately $30,000. During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory note payable requires 46 monthly payments of $331, including interest at 6.9%. The balance outstanding as of June 30, 2023 and December 31, 2022 on the note payable was approximately $7,400 and $9,000, respectively.

 

In July 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of approximately $90,000. The terms of the promissory note payable require 60 monthly payments of $1,859, including interest at 8.78% starting January 2023. The balance outstanding on the note payable was approximately $82,000 and $90,000 as of June 30, 2023 and December 31, 2022, respectively.

 

In September 2022, the Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase a vehicle in the amount of approximately $25,000. The terms of the promissory note payable require 24 monthly payments of $1,143, including interest at 8.29% starting October 2022. The balance outstanding on the note payable was approximately $16,000 and $22,000 as of June 30, 2023 and December 31, 2022, respectively.

 

 

Principal outstanding as of June 30, 2023, is expected to be repayable as follows:

 

Year		Amount
2023 (remaining six months)		$	90,341
2024			121,126
2025			114,419
2026			118,630
2027			123,597
Thereafter			753,432
Total		$	1,321,545

 

Interest expense on these notes payable, exclusive of debt discount and debt issue cost amortization, was approximately $31,000 and $77,000 for the three months ended June 30, 2023 and 2022, respectively, and $82,000 and $250,000 for the six months ended June 30, 2023 and 2022, respectively.

 

Note 12. Stockholders’ Equity

 

Preferred Stock

 

The Company has 10,000,000 shares of preferred stock authorized.

 

On August 30, 2022, pursuant to a SPA with NextPlat, the Company sold 3,000 units wherein each unit is made up of one share of Series B Convertible Preferred Stock, $0.001 par value, and Investor Warrants. Each warrant entitles the holder to purchase one share of Series B Convertible Preferred Stock at an exercise price of $2,000. The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Series B Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares. Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of the Company’s common stock determined by dividing the stated value by the conversion price of $4.00.

 

As of June 30, 2023 and December 31, 2022, 100,000 shares are designated as Series B Preferred Stock, par value $0.001 per share and 9,900,000 shares of undesignated preferred shares, par value $0.001 per share.

 

With respect to all matters upon which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.

 

 

Common Stock and Common Stock Purchase Warrants

 

On December 29, 2022, we effected a 1-for-200 reverse stock split of our common stock and the number of shares of common stock that we are authorized to issue was reduced to 100 million. All fiscal year 2022 common stock share information has been retrospectively adjusted to reflect the reverse stock split.

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

 

On May 5, 2023, the Company entered into an SPA with NextPlat, pursuant to which NextPlat agreed to purchase 455,000 newly issued units of securities from the Company (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, of Progressive Care (“Common Stock”) and one common stock purchase warrant to purchase a share of Common Stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and will be immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of Common Stock. The Company received cash proceeds of $880,000, net of placement agent commission of $70,000 and legal fees of $50,000. The Company accounted for the PIPE Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the PIPE Warrants was approximately $1.0 million.

 

Simultaneous with the closing, the Company entered into a DCA with NextPlat and the other Holders of that certain Amended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by the Company in the original face amount of $2.8 million (the “Note”). Pursuant to the DCA, NextPlat and the other Holders agreed to modify and convert the total $2.9 million of outstanding principal and accrued and unpaid interest to Common Stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of Common Stock issued upon conversion of the Note pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Company’s Chairman and Chief Executive Officer, received 228,240 shares, and Rodney Barreto, the Company’s Vice-Chairman of the Board of Directors, received 228,240 shares. In addition, each of the Holders also received a common stock purchase warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and will be immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Conversion Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Conversion Warrants was approximately $2.7 million.

 

At the same time, the Company and NextPlat entered into a First Amendment (the “Amendment”) to that certain Securities Purchase Agreement dated November 16, 2022 (the “Debenture Purchase Agreement”). Under the Debenture Purchase Agreement, the Company agreed to issue, and NextPlat agreed to purchase, from time to time during the three-year term of the Debenture Purchase Agreement, up to an aggregate of $10.0 million of secured convertible debentures to NextPlat (the “Debentures”). Pursuant to the Amendment, NextPlat and the Company agreed to amend the Debenture Purchase Agreement and the form of Debenture to have a conversion price of $2.20 per share. As of June 30, 2023, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement.

 

Dawson James Securities, Inc. (the “Placement Agent”) served as placement agent for the Unit Purchase. In consideration for the Placement Agent’s services, the Company issued to the Placement Agent and its affiliates warrants to purchase 91,000 shares of Common Stock (the “Placement Agent Warrants”). The Placement Agent Warrants have a five-year term and will be exercisable in December 2023. Each Placement Agent Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Placement Agent Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Placement Agent Warrants was approximately $0.2 million.

 

In addition, the Company issued 330,000 warrants to certain existing Progressive Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and will be immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Inducement Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Inducement Warrants was approximately $0.7 million.

 

 

Note 13. Stock-Based Compensation

 

The Company recorded total stock-based compensation expense of approximately $190,000 and $25,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $250,000 and $55,000 for the six months ended June 30, 2023 and 2022, respectively, relating to shares of common stock issued to directors for services provided. There were no income tax benefits recognized from stock-based compensation during the six months ended June 30, 2023 and 2022 due to cumulative losses and valuation allowances.

 

Note 14. Commitments and Contingencies

 

Legal Matters

 

On May 3, 2022, a complaint was filed by the Plaintiff Positive Health Alliance, Inc. (“PHA”) against Pharmco LLC, a wholly owned subsidiary of the Company, in the U.S. Circuit Court of Miami Dade, Florida, alleging that defendant failed to pay amounts due and owing to PHA under the parties’ contract for discounted prescription drugs. PHA is seeking judgment against Pharmco for compensatory damages in the amount of $407,504, plus attorneys’ fees and costs. PHA and Pharmco entered into a settlement agreement on July 1, 2022, pursuant to which Pharmco paid to PHA the total amount of $407,504 in 13 installment payments. The complaint was dismissed with prejudice on July 8, 2022. The balance outstanding was approximately $50,000 and $280,000 as of June 30, 2023 and December 31, 2022, respectively (recorded in Accounts payable and accrued liabilities).

 

On June 8, 2022, a complaint was filed by the Company against KeyCentrix, LLC (“KCL”), in the U.S. District Court for the Southern District of Florida, alleging fraudulent inducement, breach of express warranty and breach of implied warranty. The complaint stems from an agreement by KCL to license to the Company certain pharmacy management software known as “Newleaf” for use in the operations of pharmacies operated by the Company.

 

Note 15. Related Party Transactions

 

On May 5, 2023, the Company entered into an SPA with NextPlat, pursuant to which NextPlat agreed to purchase 455,000 newly issued Units of securities from the Company at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, Common Stock and one common stock purchase warrant to purchase a share of Common Stock (the “PIPE Warrants”).

 

On May 9, 2023, pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez received 228,240 shares, and Rodney Barreto received 228,240 shares. To induce the approval of the debt conversion pursuant to the DCA, Messrs. Fernandez and Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. In addition, NextPlat and Messrs. Fernandez and Barreto also received a common stock purchase warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note.

 

On February 1, 2023, the Company entered into a Management Services Agreement (the “Management Agreement”) with NextPlat Corp to provide certain management and administrative services to the Company for $25,000 per month fee. On May 1, 2023, the Management Agreement was amended to update the fee to $20,000 per month. During the six months ended June 30, 2023, the Company paid $115,000 to NextPlat as management fees.

 

On August 30, 2022, NextPlat, Charles M. Fernandez, Rodney Barreto, and certain other purchasers purchased from Iliad Research a Secured Convertible Promissory Note, dated March 6, 2019, made by the Company to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.8 million. In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with the Company. In consideration of the concessions in the Debt Modification Agreement, the Company issued 105,000 shares of its common stock to the purchasers of the Note, of which NextPlat, Messrs. Fernandez and Barreto, received 45,653, 18,261, and 18,261 shares, respectively.

 

Exhibit 99.3

 

Unaudited Pro Forma Condensed Combined Balance Sheet

NextPlat Corp and Progressive Care Inc.

June 30, 2023

 

		NextPlat				Progressive				Pro Forma					Pro Forma
		Corp				Care, Inc.				Adjustments			Reference		Combined
ASSETS
Current Assets
Cash		$	20,605,670			$	7,352,183			$	-		A		$	27,957,853
Accounts receivable, net			589,119				4,951,408									5,540,527
Other receivables, net			-				1,526,756									1,526,756
Inventory			2,066,214				1,630,881									3,697,095
Unbilled revenue			175,410				-									175,410
VAT receivable			432,777				-									432,777
Prepaid expenses – current portion			347,341				220,314									567,655
Total Current Assets			24,216,531				15,681,542									39,898,073
Property and equipment, net			1,032,006				2,720,471				1,244,789		D			4,997,266
Other Assets
Goodwill			-				1,387,860				(1,387,860	)	E			-
											2,465,000		E			2,465,000
Operating right-of-use assets, net			756,819				368,270									1,125,089
Finance right-of-use assets, net			-				37,143									37,143
Intangible assets, net			37,500				102,327				14,720,000		D			14,859,827
Equity method investment			4,820,888				-				506,000		A
											1,439,637		C
											(6,766,525	)	C, F			-
Prepaid expenses – long term portion			49,373				-									49,373
Deposits			-				39,137									39,137
Total Other Assets			5,664,580				1,934,737				10,976,252					18,575,569
Total Assets		$	30,913,117			$	20,336,750				12,221,041				$	63,470,908
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	1,284,470			$	8,196,322								$	9,480,792
Contract liabilities			58,873				-									58,873
Notes payable and accrued interest			-				148,181									148,181
Note payable Coronavirus loans– current portion			63,171				-									63,171
Due to related party			20,000				-									20,000
Operating lease liabilities - current			204,465				184,378									388,843
Finance lease liabilities - current			-				23,816									23,816
Income taxes payable			160,974				-									160,974
Total Current Liabilities			1,791,953				8,552,697									10,344,650
Long Term Liabilities:
Notes payable - long term			-				1,173,364									1,173,364
Notes payable Coronavirus – long term			131,607				-									131,607
Operating lease liabilities – long term			567,071				215,203									782,274
Finance lease liabilities - long term			-				14,735									14,735
Total Liabilities			2,490,631				9,955,999									12,446,630
Stockholders' Equity
Preferred stock			-				3									3
Common stock			1,870				67,131				(67,131	)	A			1,870
Additional paid-in capital			65,171,061				30,055,095				506,000		A			90,169,691
											(21,527,254	)	E
											15,964,789		D
Accumulated deficit			(36,674,775	)			(19,741,478	)			1,439,637		C			(54,976,616	)
Accumulated other comprehensive loss			(75,670	)			-									(75,670	)
Total stockholders' equity			28,422,486				10,380,751				(3,683,959	)				35,119,278
Non-controlling interest											15,905,000		E			15,905,000
Total Liabilities and Stockholders' Equity		$	30,913,117			$	20,336,750			$	12,221,041				$	63,470,908
Book value per share		$	1.52			$	2.00								$	1.88
Shares of common stock outstanding			18,699,596				5,188,033									18,699,596

 

Unaudited Pro Forma Condensed Combined Statement of Operations

NextPlat Corp and Progressive Care Inc.

Six months ended June 30, 2023

 

		NextPlat				Progressive				Pro Forma					Pro Forma
		Corp				Care, Inc.				Adjustments			Reference		Combined
Net sales		$	5,833,515			$	22,948,029								$	28,781,544
Cost of sales			4,368,830				16,242,498									20,611,328
Gross profit			1,464,685				6,705,531				-					8,170,216
Operating expenses:
Selling, general and administrative			6,058,554				6,046,464				(115,000	)	G			11,990,018
Bad debt expense			-				21,100									21,100
Total operating expenses			6,058,554				6,067,564				(115,000	)				12,011,118
Income (Loss) before other (income) expense			(4,593,869	)			637,967				115,000					(3,840,902	)
Other (income) expense:
Interest expense			9,708				214,640									224,348
Debt conversion expense			-				5,205,609									5,205,609
Interest income			(182,748	)			(12,417	)								(195,165	)
Gain on sale or disposal of property and equipment			-				(2,500	)								(2,500	)
Other income			(315,845	)			-				115,000		G			(200,845	)
Foreign currency exchange rate variance			(68,673	)			-									(68,673	)
Total other (income) expense			(557,558	)			5,405,332				-					4,962,774
Loss before income taxes			(4,036,311	)			(4,767,365	)								(8,803,676	)
Income taxes			(52,023	)			-									(52,023	)
Loss before equity method investment			(4,088,334	)			(4,767,365	)			-					(8,855,699	)
Equity in net loss of affiliate			(1,439,637	)			-				1,439,637		F			-
Net loss		$	(5,527,971	)		$	(4,767,365	)			1,439,637				$	(8,855,699	)

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

NextPlat Corp and Progressive Care Inc.

Year Ended December 31, 2022

 

		NextPlat				Progressive				Pro Forma					Pro Forma
		Corp				Care, Inc.				Adjustments			Reference		Combined
Net sales		$	11,710,142			$	40,601,859								$	52,312,001
Cost of sales			9,221,294				30,898,783									40,120,077
Gross profit			2,488,848				9,703,076									12,191,924
Operating expenses:
Selling, general and administrative			9,690,631				12,285,174									21,975,805
Bad debt expense			-				(3,300	)								(3,300	)
Total operating expenses			9,690,631				12,281,874									21,972,505
Income (Loss) before other (income) expense			(7,201,783	)			(2,578,798	)								(9,780,581	)
Other (income) expense:
Change in fair value of derivative liabilities			-				3,322,500									3,322,500
Gain on debt extinguishment			-				(953,228	)								(953,228	)
Grant revenue			-				(2,079,297	)								(2,079,297	)
Other finance costs			-				147,622									147,622
Abandoned offering costs			-				635,545									635,545
Day one loss on issuance of units			-				1,026,155									1,026,155
Day one loss on debt modification			-				523,526									523,526
Interest expense			24,497				797,715									822,212
Interest income			(20,814	)			(84,742	)								(105,556	)
Gain on sale or disposal of property and equipment			-				(11,562	)								(11,562	)
Other income			-				-									-
Foreign currency exchange rate variance			128,648				-									128,648
Total other (income) expense			132,331				3,324,234									3,456,565
Loss before income taxes			(7,334,114	)			(5,903,032	)								(13,237,146	)
Income taxes			(87,000	)			(866	)								(87,866	)
Loss before equity method investment			(7,421,114	)			(5,903,898	)								(13,325,012	)
Equity in net loss of affiliate			(1,739,475	)			-				1,739,475		F			-
Net loss		$	(9,160,589	)		$	(5,903,898	)			1,739,475				$	(13,325,012	)
Series A Preferred Stock dividend associated with induced conversion			-				(541,278	)			-					(541,278	)
Net loss attributable to Common Shareholders		$	(9,160,589	)		$	(6,445,176	)			1,739,475				$	(13,866,290	)

 

 

 

NEXTPLAT CORP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements

 

Note 1. Basis of Presentation

 

The accompanying Unaudited Pro Forma Condensed Combined Financial Statements (the “Pro Forma Statements”) present the proforma combined financial position and results of operations of the combined company based upon the historical consolidated financial statements of NextPlat Corp (“NextPlat” or the “Company”) and the historical consolidated financial statements of Progressive Care Inc. (“Progressive Care”), after giving effect to the Acquisition and adjustments described in these footnotes, and are intended to reflect the impact of the Acquisition on NextPlat.

 

On August 30, 2022, NextPlat entered into a Securities Purchase Agreement (the “SPA”) between NextPlat and Progressive Care, under which NextPlat, its Executive Chairman and Chief Executive Officer, Charles M. Fernandez, board member, Rodney Barreto, and certain other investors invested an aggregate of $8.3 million into Progressive Care.  In connection with the SPA, NextPlat purchased 3,000 newly issued Units of Progressive Care valued at $6 million, with each Unit comprised of one share of Progressive Care’s Series B Convertible Preferred Stock, $0.001 par value,  and one Investor Warrant to purchase a share of Series B Convertible Preferred Stock at an exercise price of $2,000  The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise.  The Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares (after giving effect to the Reverse Stock Split described below).  Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of  Progressive Care Common Stock shares determined by dividing the stated value by the conversion price which is $4.00 (after giving effect to the Reverse Stock Split described below).  

 

In addition, on August 30, 2022, NextPlat Corp, Messrs. Fernandez and Barreto, and certain other investors (collectively, the “NextPlat Investors”) entered into a Modification Agreement wherein the terms were modified for an existing Secured Convertible Promissory Note (the “Note”) originally held by a third party note holder and sold to the NextPlat Investors.  The NextPlat Investors purchased the Note as part of a Confidential Note Purchase and Release Agreement between the former note holder and the NextPlat Investors.  As of the date of the SPA, the aggregate amount of principal and interest outstanding on the Note was approximately $2.8 million.  As part of the Modification Agreement, various terms of the Note were modified, among them, the Conversion Price for the Note was modified to a fixed price of $4.00 per share of common stock (after giving effect to the Reverse Stock Split described below).  In addition, the Note was modified to provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange. Also, pursuant to the SPA, Messrs. Fernandez and Barreto were nominated for election to Progressive Care’s Board of Directors.  

 

On September 13, 2022, the Progressive Care Board of Directors appointed Charles M. Fernandez as Chairman of the Board of Directors and Rodney Barreto as the Vice Chairman of the Board of Directors. In connection with these appointments, Alan Jay Weisberg, Progressive Care’s current Chairman and Chief Executive Officer, was appointed to serve as a Vice Chairman. On September 12, 2022, two of Progressive Care’s Directors, Birute Norkute and Oleg Firer, resigned as Directors. On October 7, 2022, the Progressive Care Board of Directors unanimously voted to approve the appointment of Pedro Rodriguez, MD to the Board.  Dr. Rodriguez was nominated to the Progressive Care Board by NextPlat.

 

On November 11, 2022, Mr. Weisberg resigned from his positions as Progressive Care’s Chief Executive Officer and co-Vice-Chairman of the Board of Directors.  On the same date, the Board appointed Mr. Fernandez to serve as the new Chief Executive Officer immediately.  

 

On December 29, 2022, Progressive Care filed a Certificate of Amendment to Articles of Incorporation (the “Amendment to Articles”) with the Secretary of State of the State of Delaware. Pursuant to the Amendment to Articles, each 200 shares of Progressive Care’s common stock outstanding was converted into one share of common stock (the “Reverse Stock Split”) and the number of shares of common stock that Progressive Care is authorized to issue was reduced to 100 million (the “Reduction in Authorized Stock”). The Reverse Stock Split and the Reduction in Authorized Stock were approved by the Progressive Care Board of Directors and the shareholders.

 

 

On May 5, 2023, NextPlat entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care,  pursuant to which NextPlat purchased 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1 million (the “Unit Purchase”). Each Unit consisted of one share of common stock, par value $0.0001 per share, of Progressive Care and one warrant to purchase a share of common stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and are immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of common stock. On May 9, 2023, the Companies closed the transactions contemplated in the SPA. Progressive Care received cash proceeds of $880,000, net of placement agent commission of $70,000 and legal fees of $50,000.

 

Simultaneous with the closing, Progressive Care entered into a Debt Conversion Agreement (the “DCA”) with NextPlat and the other holders (the “Holders”) of that certain Amended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by the Company in the original face amount of approximately $2.8 million (the “Note”). Pursuant to the DCA, NextPlat and the other Holders agreed to convert the total approximately $2.9 million of outstanding principal and accrued and unpaid interest to Common Stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of Common Stock issued upon conversion of the Note pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Company’s Chairman and Chief Executive Officer, received 228,240 shares, and Rodney Barreto, the Company’s Vice-Chairman of the Board of Directors, received 228,240 shares. In addition, each of the Holders also received a warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and are immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock. In addition, the Company issued 330,000 warrants to certain existing Progressive Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and are immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Common Stock.

 

On July 1, 2023, NextPlat, along with Messrs. Fernandez and Barreto, exercised common stock purchase warrants and were issued common stock shares by Progressive Care. NextPlat exercised common stock purchase warrants on a cashless basis and was issued 402,269 common stock shares. NextPlat also exercised common stock purchase warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. Mr. Fernandez exercised common stock purchase warrants on a cashless basis and was issued 211,470 common stock shares. Mr. Barreto exercised common stock purchase warrants on a cashless basis and was issued 130,571 common stock shares. After the exercise of the common stock purchase warrants, NextPlat, Messrs. Fernandez and Barreto collectively owned approximately 53% of the Company’s voting common stock. As of June 30, 2023, prior to the exercise of the common stock purchase warrants, NextPlat and Messrs. Fernandez and Barreto collectively owned approximately 46% of the Company’s voting common stock.

 

Also, on June 30, 2023, NextPlat, along with Messrs. Fernandez and Barreto, entered into a voting agreement whereby at any annual or special shareholders meeting of Progressive Care’s stockholders, and whenever the holders of Progressive Care’s common stock act by written consent, Messrs. Fernandez and Barreto agreed to vote all of the common stock shares (including any new shares acquired after the date of the voting agreement or acquired through the conversion of securities convertible into Common Stock) that they own, directly or indirectly, in the same manner that NextPlat votes its common stock and equivalents. The voting agreement is irrevocable and perpetual in term.

 

As a result of the common stock purchase warrant exercises and the entry into the voting agreement, NextPlat concluded that there was a change in control in Progressive Care under the voting interest model in U.S. GAAP. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting interest in Progressive Care through the concurrent common stock purchase warrant exercises and voting agreement noted above.

 

The accompanying Pro Forma Statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of NextPlat’s and Progressive Care’s operations. The accompanying Pro Forma Statements have been adjusted to reflect adjustments to NextPlat’s historical consolidated financial information that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) to reclassify certain Progressive Care items to conform to NextPlat’s presentation. The Unaudited Pro Forma Combined Statements of Operations reflect the Acquisition as if it had been completed on January 1, 2022. The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the Acquisition as if it was completed on January 1, 2023.

 

 

Note 2.  Preliminary Purchase Price Allocation

 

The Company has performed a preliminary valuation analysis of the fair market value of the net assets acquired in the Acquisition.  The following table summarizes the preliminary allocation of the purchase price as of the date of the Acquisition.  The purchase price consists of the fair market value of Progressive Care’s net assets as of July 1, 2023.

 

 

			Preliminary Allocation
Total purchase consideration		$	11,517,000
Fair value of non-controlling interest			15,905,000
Total consideration		$	27,422,000
Identifiable net assets acquired:
Cash		$	7,352,000
Accounts receivable, net			6,478,000
Inventory			1,631,000
Prepaid expenses			220,000
Property and equipment, net			3,965,000
Right of use assets, net			405,000
Intangible assets, net:
Trade name			4,060,000
Development technology			2,560,000
Pharmacy records			8,100,000
Other			102,000
Deposits			39,000
Accounts payable and accrued expenses			(8,196,000	)
Notes payable and accrued interest - current portion			(148,000	)
Lease liabilities - current portion			(208,000	)
Notes payable - long term			(1,173,000	)
Lease liabilities - long term			(230,000	)
Net assets acquired		$	24,957,000
Goodwill			2,465,000

 

The preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma condensed combined statement of operations. The final purchase price allocation is subject to change as more detailed analyses are completed and additional information about the fair value of assets acquired becomes available during the measurement period.

 

 

Note 3. Pro Forma Adjustments

 

The pro forma adjustments are based on the Company’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

A.

Adjustment to cash for exercise of common stock purchase warrants to acquire 230,000 shares of Progressive Care common stock on July 1, 2023.

 

B.

Adjustment to Progressive Care’s stockholders’ equity for cashless exercise of common stock purchase warrants to acquire Progressive Care common stock on July 1, 2023 as follows:

 

NextPlat Corp                         402,269 shares

 

Charles M. Fernandez             211,470 shares

 

Rodney Barreto                       130,571 shares

 

C.

To record elimination of NextPlat equity in earnings of equity method investee (Progressive Care).

 

D.

To record adjustment for fair value measurement of previously-held equity interest (PHEI) in Progressive Care in accordance with FASB ASC 805-10-25-10.

 

E.

To record purchase price allocation to net assets of Progressive Care, to record fair value of non-controlling interest, and to record goodwill for value obtained in excess of net assets acquired.

 

Purchase price allocation:
Consideration paid		$	11,517,000
Fair-value of non-controlling interest			15,905,000
		$	27,422,000
Allocated to:
Historical book value of Progressive Care, Inc. assets and liabilities		$	10,381,000
Elimination of Progressive Care, Inc. purchased goodwill			(1,388,000	)
Fair value adjustments:
Trade name			4,060,000
Developed technology			2,560,000
Pharmacy records			8,100,000
Building & other intangibles			1,244,000
Goodwill			2,465,000
		$	-

 

F.

To record elimination of NextPlat equity in net loss of affiliate (Progressive Care).

 

G.

To eliminate intercompany management service income and expense.

 

v3.23.2

Document And Entity Information	Jul. 01, 2023
Document Information [Line Items]
Entity, Registrant Name	NEXTPLAT CORP
Document, Type	8-K
Document, Period End Date	Jul. 01, 2023
Entity, Incorporation, State or Country Code	NV
Entity, File Number	001-40447
Entity, Tax Identification Number	65-0783722
Entity, Address, Address Line One	3250 Mary St.
Entity, Address, Address Line Two	Suite 410
Entity, Address, City or Town	Coconut Grove
Entity, Address, State or Province	FL
Entity, Address, Postal Zip Code	33133
City Area Code	305
Local Phone Number	560-5355
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity, Emerging Growth Company	false
Amendment Flag	false
Entity, Central Index Key	0001058307
CommonStockParValue00001 Custom [Member]
Document Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.0001
Trading Symbol	NXPL
Security Exchange Name	NASDAQ
Warrants Custom [Member]
Document Information [Line Items]
Title of 12(b) Security	Warrants
Trading Symbol	NXPLW
Security Exchange Name	NASDAQ

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