UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________to _______________.
Commission File Number 000-25097001-40447
ORBITAL TRACKING CORP.
(Exact name of small business issuer as specified in its charter)
| (Exact name of registrant as specified in its charter) |
| Nevada | 65-0783722 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
18851 NE 29th Avenue, Suite 700 Aventura, FL | 33180 | |
| (Address of principal executive offices | (Zip Code) |
| (305)-560-5355 |
| Registrant’s telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.0001 | OSAT | The Nasdaq Stock Market Inc. | ||
Warrants | OSATW | The Nasdaq Stock Market Inc. |
18851 NE 29th Avenue, Suite 700
Aventura, FL 33180
Telephone: (305)-560-5355
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ||
| Non-accelerated filer ☒ | Smaller reporting company | ||
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inby Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
TheIndicate the number of shares outstanding of each of the Registrant’s Common Stock outstandingregistrant’s classes of common stock as of November 14, 2017 was 74,977,104.the latest practicable date.
| Class | Outstanding at August 16, 2021 | |
| Common Stock, $0.0001 par value |
FORM 10-Q
INDEX
| i |
The Company’s unaudited condensed consolidated financial statements of Orbsat Corp (“Orbsat,” the “Company,” “we,” or “our”), for the ninesix months ended SeptemberJune 30, 20172021 and for comparable periods in the prior year are included below. The condensed consolidated financial statements should be read in conjunction with the notes to condensed consolidated financial statements that follow.
ORBITAL TRACKINGORBSAT CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 14,415,649 | $ | 728,762 | ||||
| Accounts receivable, net | 339,183 | 177,031 | ||||||
| Inventory | 1,151,958 | 361,422 | ||||||
| Unbilled revenue | 85,727 | 75,556 | ||||||
| VAT receivable | 279,215 | - | ||||||
| Prepaid expenses | 1,784 | 1,784 | ||||||
| Other current assets | 31,576 | 27,912 | ||||||
| Total current assets | $ | 16,305,092 | 1,372,467 | |||||
| Property and equipment, net | 998,964 | 1,106,164 | ||||||
| Right of use | 40,130 | 55,606 | ||||||
| Intangible assets, net | 87,500 | 100,000 | ||||||
| Total assets | $ | 17,431,686 | $ | 2,634,237 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 1,714,625 | $ | 1,052,603 | ||||
| Contract liabilities | 41,173 | 36,704 | ||||||
| Note payable – current portion | - | 121,848 | ||||||
| Note payable Coronavirus loans– current portion | 51,686 | 41,831 | ||||||
| Due to related party | 217,041 | 102,060 | ||||||
| Lease liabilities – current | 30,484 | 30,125 | ||||||
| Provision for income taxes | 19,184 | 18,957 | ||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | ||||||
| Total current liabilities | 2,186,590 | 1,516,525 | ||||||
| Long term liabilities: | ||||||||
| Convertible debt, net of discount, unamortized, $0 and $1,084,944, respectively | - | 209,323 | ||||||
| Note payable Coronavirus loans– long term | 294,014 | 320,626 | ||||||
| Lease liabilities – long term | 6,703 | 22,574 | ||||||
| Total Liabilities | 2,487,307 | 2,069,048 | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock, ($par value; shares authorized, shares issued and outstanding as of June 30, 2021 and shares issued and outstanding at December 31, 2020, respectively) | 548 | 82 | ||||||
| Additional paid-in capital | 31,139,486 | 14,486,492 | ||||||
| Accumulated (deficit) | (16,140,089 | ) | (13,878,553 | ) | ||||
| Accumulated other comprehensive income | (55,566 | ) | (42,832 | ) | ||||
| Total stockholders’ equity | 14,944,379 | 565,189 | ||||||
| Total liabilities and stockholders’ equity | $ | 17,431,686 | $ | 2,634,237 | ||||
| September 30, 2017 | December 31, 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 268,216 | $ | 114,733 | ||||
| Accounts receivable, net | 508,256 | 96,758 | ||||||
| Inventory | 397,988 | 335,267 | ||||||
| Unbilled revenue | 65,690 | 54,344 | ||||||
| Prepaid expenses | 151,102 | 171,164 | ||||||
| Other current assets | 59,668 | 29,841 | ||||||
| Total current assets | 1,450,920 | 802,107 | ||||||
| Property and equipment, net | 1,796,517 | 1,978,338 | ||||||
| Intangible assets, net | 231,250 | 250,000 | ||||||
| Total assets | $ | 3,478,687 | $ | 3,030,445 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 982,128 | $ | 536,906 | ||||
| Deferred revenue | 126,735 | 2,624 | ||||||
| Related party payable | 67,891 | 67,453 | ||||||
| Derivative liabilities – current portion | - | 1,237 | ||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | ||||||
| Total current liabilities | 1,289,151 | 720,617 | ||||||
| Total Liabilities | - | 720,617 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $0.0001 par value; 50,000,000 shares authorized | ||||||||
| Series A ($0.0001 par value; 20,000 shares authorized, and no shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | - | - | ||||||
| Series B ($0.0001 par value; 30,000 shares authorized, 6,666 and 6,666 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 1 | 1 | ||||||
| Series C ($0.0001 par value; 4,000,000 shares authorized, 3,540,365 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 354 | 354 | ||||||
| Series D ($0.0001 par value; 5,000,000 shares authorized, 3,008,984 and 3,428,984 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 301 | 343 | ||||||
| Series E ($0.0001 par value; 8,746,000 shares authorized, 7,002,877 and 7,929,651 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 700 | 793 | ||||||
| Series F ($0.0001 par value; 1,100,000 shares authorized, 1,099,998 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 110 | 110 | ||||||
| Series G ($0.0001 par value; 10,090,000 shares authorized, 10,083,351 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 1,008 | 1,008 | ||||||
| Series H ($0.0001 par value; 200,000 shares authorized, 87,500 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 9 | 9 | ||||||
| Series I ($0.0001 par value; 114,944 shares authorized, 92,944 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 9 | 9 | ||||||
| Series J ($0.0001 par value; 125,000 shares authorized, 54,669 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 5 | |||||||
| Series K ($0.0001 par value; 1,250,000 shares authorized, 1,166,652 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 117 | |||||||
| Common Shares, $0.0001 par value; 750,000,000 shares authorized, 74,977,104 and 57,309,364 outstanding as of September 30, 2017 and December 31, 2016, respectively | 7,498 | 5,731 | ||||||
| Additional paid-in capital | 10,390,184 | 6,935,817 | ||||||
| Accumulated (deficit) | (8,210,745 | ) | (4,601,406 | ) | ||||
| Accumulated other comprehensive loss | (15 | ) | (32,941 | ) | ||||
| Total stockholder equity | 2,189,536 | 2,309,828 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,478,687 | $ | 3,030,445 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
ORBITAL TRACKINGORBSAT CORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE THREE AND NINE MONTHS ENDED
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||||||||
| Net sales | $ | 1,956,260 | $ | 1,220,254 | $ | 3,417,688 | $ | 2,688,357 | ||||||||
| Cost of sales | 1,414,770 | 962,562 | 2,438,681 | 2,082,664 | ||||||||||||
| Gross profit | 541,490 | 257,692 | 979,007 | 605,693 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and general administrative | 282,006 | 146,965 | 443,696 | 304,171 | ||||||||||||
| Salaries, wages and payroll taxes | 479,538 | 150,404 | 687,712 | 346,046 | ||||||||||||
| Professional fees | 256,034 | 76,776 | 548,916 | 191,665 | ||||||||||||
| Depreciation and amortization | 73,248 | 72,791 | 146,948 | 144,295 | ||||||||||||
| Total operating expenses | 1,090,826 | 446,936 | 1,827,272 | 986,177 | ||||||||||||
| Loss before other expenses and income taxes | (549,336 | ) | (189,244 | ) | (848,265 | ) | (380,484 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Other income | - | (31,525 | ) | - | (31,525 | ) | ||||||||||
| Gain on debt extinguishment | (20,832 | ) | (269,261 | ) | (20,832 | ) | (269,261 | ) | ||||||||
| Interest earned | - | (13 | ) | - | (13 | ) | ||||||||||
| Interest expense | 940,907 | 65,094 | 1,461,601 | 156,347 | ||||||||||||
| Foreign currency exchange rate variance | (11,017 | ) | 19,895 | (27,498 | ) | 22,262 | ||||||||||
| Total other (income) expense | 909,058 | (215,810 | ) | 1,413,271 | (122,190 | ) | ||||||||||
| Net (loss) income before tax expense | $ | (1,458,394 | ) | $ | 26,566 | $ | (2,261,536 | ) | $ | (258,294 | ) | |||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net (loss) income | (1,458,394 | ) | 26,566 | (2,261,536 | ) | (258,294 | ) | |||||||||
| Comprehensive Income: | ||||||||||||||||
| Net (loss) income | (1,458,394 | ) | 26,566 | (2,261,536 | ) | (258,294 | ) | |||||||||
| Foreign currency translation adjustments | (14,345 | ) | 5,602 | (12,734 | ) | (8,866 | ) | |||||||||
| Comprehensive income (loss) | $ | (1,472,738 | ) | $ | 32,168 | $ | (2,274,269 | ) | $ | (267,160 | ) | |||||
| NET LOSS INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding – basic & diluted | 2,480,235 | 51,066 | 1,736,865 | 33,243 | ||||||||||||
| Basic and diluted net (loss) income per share | $ | (0.58 | ) | $ | 0.63 | $ | (1.30 | ) | $ | (8.04 | ) | |||||
(Unaudited)
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine months Ended September 30, 2017 | Nine months Ended September 30, 2016 | |||||||||||||
| Net sales | $ | 1,588,466 | $ | 1,299,373 | $ | 4,547,491 | $ | 3,783,230 | ||||||||
| Cost of sales | 1,240,654 | 1,035,278 | 3,589,537 | 2,935,631 | ||||||||||||
| Gross profit | 347,812 | 264,095 | 957,954 | 847,599 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and general administrative | 158,312 | 150,024 | 456,935 | 456,881 | ||||||||||||
| Salaries, wages and payroll taxes | 178,762 | 158,720 | 513,349 | 503,556 | ||||||||||||
| Stock based compensation | - | - | 600,000 | - | ||||||||||||
| Professional fees | 163,754 | 192,834 | 432,320 | 881,318 | ||||||||||||
| Depreciation and amortization | 74,143 | 70,219 | 224,319 | 216,375 | ||||||||||||
| Total operating expenses | 574,971 | 571,797 | 2,226,923 | 2,058,130 | ||||||||||||
| (Loss) before other expenses and income taxes | (227,159 | ) | (307,702 | ) | (1,268,969 | ) | (1,210,531 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Change in fair value of derivative instruments, net | - | (944 | ) | (1,237 | ) | (425,790 | ) | |||||||||
| Interest expense | 10 | 441 | 446 | 603,427 | ||||||||||||
| Other expense – Subscription Holders Preferred | - | - | 2,308,981 | |||||||||||||
| Foreign currency exchange rate variance | 38,530 | 31,473 | 32,180 | 64,295 | ||||||||||||
| Total other expense | 38,540 | 30,970 | 2,340,370 | 241,932 | ||||||||||||
| Net loss | $ | (265,699 | ) | $ | (338,672 | ) | $ | (3,609,339 | ) | $ | (1,452,463 | ) | ||||
| Comprehensive Loss: | ||||||||||||||||
| Net loss | (265,699 | ) | (338,672 | ) | (3,609,339 | ) | (1,452,463 | ) | ||||||||
| Foreign currency translation adjustments | 18,485 | 19,888 | 32,926 | 17,513 | ||||||||||||
| Comprehensive loss | (247,214 | ) | (318,874 | ) | (3,576,413 | ) | (1,434,950 | ) | ||||||||
| NET INCOME LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding - basic | 72,669,412 | 39,545,787 | 44,087,590 | 29,272,457 | ||||||||||||
| Weighted number of common shares outstanding - diluted | 72,669,412 | 39,545,787 | 44,087,590 | 29,272,457 | ||||||||||||
| Basic net (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||
| Diluted net (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
ORBSAT CORP. AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2021
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2020 | 817,450 | $ | 82 | $ | 14,486,492 | $ | (13,878,553 | ) | $ | (42,832 | ) | $ | 565,189 | |||||||||||
| Issuance common stock from convertible debt | 1,345,468 | 135 | 1,644,132 | - | - | 1,644,267 | ||||||||||||||||||
| Issuance of common related to offering | 2,880,000 | 288 | 12,661,696 | - | - | 12,661,984 | ||||||||||||||||||
| Issuance of common for over-allotment | 432,000 | 43 | 1,983,226 | - | - | 1,983,269 | ||||||||||||||||||
| Issuance of warrants for over-allotment | - | - | 4,320 | - | - | 4,320 | ||||||||||||||||||
| Issuance of common stock from exercise of warrant | 1,000 | - | 5,000 | - | - | 5,000 | ||||||||||||||||||
| Issuance of common for services | 1,000 | - | 14,200 | - | - | 14,200 | ||||||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | 340,420 | - | - | 340,420 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (12,734 | ) | (12,734 | ) | ||||||||||||||||
| Issuance of warrants for over-allotment | ||||||||||||||||||||||||
| Net loss | - | - | - | (2,261,536 | ) | - | (2,261,536 | ) | ||||||||||||||||
| Balance, June 30, 2021 | 5,476,918 | $ | 548 | $ | 31,139,486 | $ | (16,140,089 | ) | $ | (55,566 | ) | $ | 14,944,379 | |||||||||||
For the Six Months Ended June 30, 2020
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2019 | 24,243 | $ | 2 | $ | 11,757,037 | $ | (11,115,178 | ) | $ | (2,152 | ) | $ | 639,709 | |||||||||||
| - | ||||||||||||||||||||||||
| Issuance common stock from convertible debt | 26,823 | 3 | 14,752 | - | - | 14,755 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (8,866 | ) | (8,866 | ) | ||||||||||||||||
| Net loss | - | - | - | (258,294 | ) | - | (258,294 | ) | ||||||||||||||||
| - | ||||||||||||||||||||||||
| Balance, June 30, 2020 | 51,066 | $ | 5 | $ | 11,771,789 | $ | (11,373,472 | ) | $ | (11,018 | ) | $ | 387,304 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBITAL TRACKINGORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended June 30, 2021
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, March 31, 2021 | 1,236,887 | $ | 124 | $ | 15,299,161 | $ | (14,681,695 | ) | $ | (41,221 | ) | $ | 576,369 | |||||||||||
| Issuance common stock from convertible debt | 927,031 | 93 | 1,186,083 | - | - | 1,186,176 | ||||||||||||||||||
| Issuance of common related to offering | 2,880,000 | 288 | 12,661,696 | - | - | 12,661,984 | ||||||||||||||||||
| Issuance of common for over-allotment | 432,000 | 43 | 1,983,226 | - | - | 1,983,269 | ||||||||||||||||||
| Issuance of warrants for over-allotment | - | - | 4,320 | - | - | 4,320 | ||||||||||||||||||
| Issuance of common stock from exercise warrant | 1000 | - | 5,000 | - | - | 5,000 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (14,345 | ) | (14,345 | ) | ||||||||||||||||
| Net loss | - | - | - | (1,458,394 | ) | - | (1,458,394 | ) | ||||||||||||||||
| Balance, June 30, 2021 | 5,476,918 | $ | 548 | $ | 31,139,486 | $ | (16,140,089 | ) | $ | (55,566 | ) | $ | 14,944,379 | |||||||||||
For the Three Months Ended June 30, 2020
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, March 31, 2020 | 46,895 | $ | 5 | $ | 11,768,360 | $ | (11,400,038 | ) | $ | (11,346 | ) | $ | 356,981 | |||||||||||
| Issuance common stock from convertible debt | 4,171 | - | 3,429 | - | - | 3,429 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | 328 | 328 | ||||||||||||||||||
| Net income | - | - | 26,566 | - | 26,566 | |||||||||||||||||||
| Net income (loss) | - | - | - | 26,566 | - | 26,566 | ||||||||||||||||||
| Balance, June 30, 2020 | 51,066 | $ | 5 | $ | 11,771,789 | $ | (11,373,472 | ) | $ | (11,018 | ) | $ | 387,304 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED
(Unaudited)
| June 30, 2021 | June 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,261,536 | ) | $ | (258,294 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation expense | 134,448 | 131,795 | ||||||
| Amortization of intangible asset | 12,500 | 12,500 | ||||||
| Stock base compensation | 14,200 | - | ||||||
| Amortization of right to use | 15,476 | 19,163 | ||||||
| Amortization of convertible debt, net | 1,425,365 | 128,702 | ||||||
| Gain on debt extinguishment | (20,832 | ) | (269,261 | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (158,079 | ) | 91,738 | |||||
| Inventory | (790,536 | ) | 7,877 | |||||
| Unbilled revenue | (10,171 | ) | 11,114 | |||||
| VAT receivable | (279,215 | ) | ||||||
| Prepaid expense | - | 14,506 | ||||||
| Other current assets | (3,664 | ) | 72,392 | |||||
| Accounts payable and accrued liabilities | 662,022 | 109,681 | ||||||
| Lease liabilities | (15,512 | ) | (17,200 | ) | ||||
| Provision for income taxes | 227 | (1,330 | ) | |||||
| Contract liabilities | 4,469 | (5,493 | ) | |||||
| Net cash (used in) provided by operating activities | (1,270,837 | ) | 47,890 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (27,248 | ) | (26,159 | ) | ||||
| Net cash used in investing activities | (27,248 | ) | (26,159 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note payable | 350,000 | 157,500 | ||||||
| Proceeds from related party note payable | 114,981 | 58,917 | ||||||
| Proceeds from common stock offering | 12,661,984 | - | ||||||
| Proceeds from warrant offering | 1,987,589 | - | ||||||
| Proceeds from exercise of warrant | 5,000 | - | ||||||
| Repayments of line of credit | - | (12,048 | ) | |||||
| Repayment of note payable | (121,848) | - | ||||||
| Proceeds of note payable | - | 20,832 | ||||||
| Net cash provided by financing activities | 14,997,706 | 225,201 | ||||||
| Effect of exchange rate on cash | (12,734) | (5,779 | ) | |||||
| Net increase in cash | 13,686,887 | 241,153 | ||||||
| Cash beginning of period | 728,762 | 75,362 | ||||||
| Cash end of period | $ | 14,415,649 | $ | 316,515 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | 3,228 | $ | - | ||||
| Income tax | $ | - | $ | - | ||||
| Non-cash adjustments during the period for | ||||||||
| Beneficial conversion feature on convertible debt | $ | 340,420 | $ | 128,702 | ||||
| Conversion of convertible debt into common shares | $ | 1,644,268 | $ | 14,755 | ||||
| Obtaining right of use asset for lease liability | $ | - | $ | 19,163 | ||||
| September 30, 2017 | September 30, 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,609,339 | ) | $ | (1,452,463 | ) | ||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Change in fair value of derivative liabilities | (1,237 | ) | (425,790 | ) | ||||
| Depreciation expense | 205,569 | 197,625 | ||||||
| Amortization of intangible asset | 18,750 | 18,750 | ||||||
| Preferred stock-based price protection expense | 2,308,981 | - | ||||||
| Amortization of notes payable discount | - | 602,515 | ||||||
| Stock based compensation | 600,000 | - | ||||||
| Amortization of prepaid expense in connection with the issuance of common stock issued for prepaid services | 121,096 | 164,608 | ||||||
| Imputed interest | 446 | 912 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (411,498 | ) | (28,139 | ) | ||||
| Inventory | (62,721 | ) | (99,202 | ) | ||||
| Unbilled revenue | (11,346 | ) | 17,415 | |||||
| Prepaid expense | (101,034 | ) | 115,359 | |||||
| Other current assets | (29,827 | ) | (1,909 | ) | ||||
| Accounts payable and accrued liabilities | 491,916 | 131,321 | ||||||
| Deferred revenue | 124,111 | (13,937 | ) | |||||
| Net (used in) operating activities | (356,133 | ) | (772,935 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (20,676 | ) | (34,967 | ) | ||||
| Net (cash used) in investing activities | (20,676 | ) | (34,967 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments of convertible notes payable | (100,834 | ) | ||||||
| Proceeds from sale of preferred stock | 500,000 | - | ||||||
| Proceeds (repayments) of note payable, related party, net | 438 | 57,807 | ||||||
| Net cash provided by (used in) financing activities | 500,438 | (43,027 | ) | |||||
| Effect of exchange rate on cash | 29,854 | 5,849 | ||||||
| Net increase (decrease) in cash | 153,482 | (845,081 | ) | |||||
| Cash beginning of period | 114,733 | 963,329 | ||||||
| Cash end of period | $ | 268,216 | $ | 118,248 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | - | $ | - | ||||
| Income tax | $ | - | $ | 3,898 | ||||
| NON CASH FINANCE AND INVESTING ACTIVITY | ||||||||
| Common stock issued for prepaid services | $ | - | $ | 100,000 | ||||
| Preferred stock issued for accounts payable | $ | 46,694 | $ | 22,500 | ||||
| Preferred stock issued for conversion of debt | $ | - | $ | 650,670 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The unaudited financial statements for the six months ending June 30, 2021, are not necessarily indicative of the results for the remainder of the fiscal year. The consolidated financial statements as of December 31, 20162020, have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the CompanyOrbsat Corp F/K/A/ Orbital Tracking Corp. (the “Company”) for the year ended December 31, 2016,2020, which are contained in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2017.March 22, 2021. The consolidated balance sheet as of December 31, 20162020 was derived from those financial statements.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information.. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactionswholly-owned subsidiaries, Orbital Satcom Corp. and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2017, and the results of operations and cash flows for the nine and three months ended September 30, 2017 have been included. The results of operations for the nine and three months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
Description of Business
Orbital Tracking Corp. (the “Company”) was formerly Great West Resources, Inc., a Nevada corporation. The Company, through its wholly owned subsidiaries, Global Telesat Communications Limited (“GTCL”)Ltd. All material intercompany balances and Orbital Satcom Corp. (“Orbital Satcom”)transactions have been eliminated in consolidation.
Description of Business
Orbsat Corp is a provider of satellite basedsatellite-based hardware, airtime and related services both in the United States and internationally. The Company’s principal focus is on growing the Company’s existing satellite basedsatellite-based hardware, airtime and related services business line and developing the Company’s own tracking devices for use by retail customers worldwide.
The Company was originally incorporated in 1997 in Florida. On April 21, 2010, the Company merged with and into a wholly-owned subsidiary for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to Silver Horn Mining Ltd. pursuant to a merger with a wholly-owned subsidiary.
GTC was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which GTC became a wholly owned subsidiary of ours.
On March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of our common stock, and changing our name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014, we abandoned our efforts to enter the potash business.
A wholly-owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”), a Nevada corporation was formed on November 14, 2014.
On January 22, 2015, we changed our name to “Orbital Tracking Corp” from “Great West Resources, Inc.” pursuant to a merger with a newly formed wholly owned subsidiary.
Effective March 8, 2018, following the approval of a majority of our shareholders, we effected a reverse split of our common stock at a ratio of 1 for 150. On August 19, 2019, we effected a reverse split of our common stock at a ratio of 1 for 15. As a result of the reverse split, our common stock now has the CUSIP number: 68557F100. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect these reverse splits.
Also, on August 19, 2019, we changed our name to “Orbsat Corp.” from “Orbital Tracking Corp.” pursuant to a merger with a newly formed wholly owned subsidiary.
On March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock split not to exceed 1 for 5 reverse stock split. A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13, 2021. The Company’s Board of Directors subsequently approved a 1-for-5 reverse stock split. The Company has filed a Certificate of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common stock, at a ratio of 1-for-5. The effective time of the reverse stock split was 12:01 a.m. ET on May 28, 2021. The Company’s common stock began trading on a split-adjusted basis commencing upon market open on May 28, 2021. The common stock has been assigned a new CUSIP number, 68557F 209. The warrants were assigned the CUSIP number, 68557F 118. No fractional shares of common stock were issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to receive a fractional share were received a whole share.
All information presented in this Annual Report on Form 10-K other than in Company’s consolidated financial statements and the notes thereto assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth in this Annual Report on Form 10-K have been adjusted to give effect to such assumed reverse stock split.
On May 28, 2021, our common stock and Warrants commenced trading on Nasdaq under the symbols “OSAT” and “OSATW,” respectively
| 7 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Global Telesat Communications Limited (“GTCL”) was formed under the laws of England and Wales in 2008. On February 19, 2015, the Company entered into a share exchange agreement with GTCL and all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly-owned subsidiary of the Company.
Liquidity
As an early-stage growth company, Orbsat’ s ability to access capital is critical. On June 2, 2021, through an upsized underwritten public offering of units at a price to the public of $per unit, the Company received gross proceeds of $14,404,666.
In connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and purchased an additional 432,000 warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon the exercise in full of the balance of its over-allotment option, purchased additional shares of the common stock for additional gross proceeds of $2,155,680 from the sale of the Shares. Orbsat management has plans to raise additional capital in 2021.
As of the date of this report, the Company’s existing cash resources and existing borrowing availability are sufficient to support planned operations for the next 12 months. As a result, management believes that the Company’s existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
These financial statements have been prepared by management in accordance with GAAP and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities preferred deemed dividend and common stock issued for services.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.$250,000. All cash amounts in excess of $250,000, $14,165,649, are unsecured. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Accounts receivable and allowance for doubtful accounts
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expenseoffset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of SeptemberJune 30, 2017,2021, and December 31, 2016,2020, there is an allowance for doubtful accounts of $427$15,782 and $6,720.$14,155, respectively.
| 8 |
ORBSAT CORP AND SUBSIDIARIES
InventoriesFKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are valued at the lower of cost or market,net realizable value, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
Prepaid expenses
Prepaid expenses amounted to $1,784, at June 30, 2021 and December 31, 2020, respectively. Prepaid expenses include prepayments in cash for accounting fees, prepayments in equity instruments and license fees which are being amortized over the terms of their respective agreements and product costs associated with deferred revenue. The current portion consists of costs paid for future services which will occur within a year.
Foreign Currency Translation
The Company’s reporting currency is USU.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, (GreatGreat British Pound)Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferredreported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuationfluctuations on transactions denominated in a currency other than the functional currency isare included in the statements of operations.
The relevant translation rates are as follows: for the three and ninesix months ended SeptemberJune 30, 20172021, closing rate at 1.33991.382800 US$: GBP, quarterly average rate at 1.397146 US$: GBP and yearly average rate at 1.388107 US$: GBP, for the six months ended June 30, 2020, closing rate at 1.2402 US$: GBP, quarterly average rate at 1.241159 US$: GBP, for the year ended 2020 closing rate at 1.260983 US$: GBP, average rate at 1.308421.260983 US$: GBP and 1.27500 US$: GBP. For the three and nine months ended September 30, 2016 closing rate at 1.29820 US$: GBP, average rate at 1.31320 US$: GBP and 1.39353 US$: GBP and for the year ended 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$ GBP.
Global Telesat Communications LTD, (GTCL) represents 67.4% of total company sales for the nine months ended September 30, 2017 and as such, currency rate variances have an impact on results. For the nine months ended September 30, 2017 the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.39353 to 1.27500. Had the yearly average rate remained, sales for the nine months would have been higher by $287,576. GTCL comparable sales in GBP, its home currency, increased 21% or £425,714, from £2,000,471 to £2,426,185, for the nine months ended September 30, 2017 as compared to September 30, 2016.
Revenue Recognition and Unearned Revenue
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred.
The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
| 9 |
RevenueORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is recognizedapplied to contracts when allit is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the following criteria have been met:transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In accordance with ASC 605-25,ASU No. 2016-12, Revenue Recognitionfrom Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient—Multiple-Element Arrangements,based, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.
Contract liabilities is shown separately in the unaudited consolidated balance sheets as current liabilities. At June 30, 2021 and December 31, 2020, we had contract liabilities of $41,173 and $36,704, respectively.
Cost of Product Sales and Services
Cost of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue.
Shipping and handling costs are included as a component of costs of product sales in the Company’s consolidated statements of operations because the Company includes in revenue the related costs that the Company bills its customers.
Intangible assets
Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.
Goodwill and other intangible assets
In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment review include the following:
| Significant underperformance relative to expected historical or projected future operating results; | ||
| Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and | ||
| Significant negative industry or economic trends. |
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company recorded an impairment charge of $0 and $0, during the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively.
| 10 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.
The estimated useful lives of property and equipment are generally as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Rental equipment | 4 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Depreciation expense for the six months ended June 30, 2021 and 2020 were $134,448 and $131,795, respectively.
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods ended SeptemberJune 30, 20172021 and December 31, 2016,June 30, 2020, respectively.
Fair value of financial instrumentsAccounting for Derivative Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measuredDerivatives are required to be recorded on the balance sheet at fair valuevalue. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on a recurring basis. ASC 820 establishes a common definitionthe Company’s balance sheet. Fair values for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair valueexchange traded securities and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputsderivatives are prioritized below:
Level 1: Observable inputs such asbased on quoted market prices. Where market prices in active markets for identical assets or liabilities
Level 2: Observableare not readily available, fair values are determined using market-based inputs or unobservable inputs that are corroborated bypricing models incorporating readily observable market data and requiring judgment and estimates.
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2017 to September 30, 2017:
Conversion Feature Derivative Liability | Warrant Liability | Total | ||||||||||
| Balance at January 1, 2017 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance September 30, 2017 | $ | - | $ | - | $ | - | ||||||
The Company did not identify any other assets or liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
| 11 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50,718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of $.
Income Taxes
The Company has adopted Accounting Standards Codification subtopicaccounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income TaxesTaxes” (“ASC740-10”ASC 740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax liabilitiesassets and assetsliabilities for the expected future tax consequences of events that have been included intemporary differences between the financial statement orcarrying amounts and the tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basisbases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expectedliabilities. A valuation allowance is provided to reverse. Valuation allowances are recorded to reduce theoffset any net deferred tax assets to an amount that willfor which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold areis measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”,Settlement,” which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Leases
Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
The Company continues to account for leases in the prior period financial statements under ASC Topic 840.
| 12 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. For the six months ended June 30, 2021 and 2020, there were 0 expenditures on research and development.
Net income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. For the three months and nine months ended September 30, 2017 and September 30, 2016, respectively,In periods where the Company hadhas a net loss, therefore all dilutive securities are excluded.
The following are dilutive common stock equivalents during the periodquarter ended:
SCHEDULE OF DILUTIVE COMMON STOCK EQUIVALENTS
| September 30, 2017 | September 30, 2016 | |||||||
| Convertible preferred stock | 366,207,379 | 209,416,215 | ||||||
| Stock options | 42,850,000 | 2,850,000 | ||||||
| Stock warrants | - | 5,000 | ||||||
| Total | 409,057,379 | 212,271,215 | ||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Convertible notes payable (1) | - | 790,245 | ||||||
| Stock Options | 550,009 | 7,809 | ||||||
| Stock Warrants | 3,455,000 | 800 | ||||||
| Total | 4,005,009 | 798,854 | ||||||
| (1) | There were and shares of our common stock issuable upon conversion of $ of Convertible Notes Payable at a conversion rate of $ per share, as of June 30, 2020, not accounting for beneficial ownership limitation. |
Related Party Transactions
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.party, (see Note 13).
| 13 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. These reclassifications had no effect on previously reported results of operations. The Company reclassified certain expense accounts to conform to the currents year’s treatment.
Recent Accounting Pronouncements
In May 2014,November 2018, the FASB issuedamended Topic 842, Leases, by issuing ASU No. 2014-09, “Revenue from Contracts2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 with Customers (Topic 606)ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. .” The amendmentsnew standard establishes a right-of-use model (ROU) that requires a lessee to this update supersede nearlyrecognize a ROU asset and lease liability on the balance sheet for all existing revenueleases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition guidance under GAAP, includingin the revenue recognition requirements in ASC Topic 605, “Revenue Recognition.”-income statement. The new standard was originally set to become effective in annual periods beginning after December 15, 2016 and for interim and annual reporting periods thereafter. In August 2015, the FASB issued ASU 2015-14“Revenue from Contracts with Customers; Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 for all entities by one year, thereby delaying the effective date of the standard tous on January 1, 2018, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company is currently assessing the impact of ASU 2014-09 on our consolidated financial statements to be completed by the end of 2017.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying unaudited condensed consolidated financial statements are prepared assuming2019, however the Company will continuedid not have any leases that met the criteria as a going concern. At September 30, 2017, the Company had an accumulated deficit of approximately $8,210,745, working capital of approximately $161,768 and net loss of approximately $3,609,339 during the nine months ended September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing. Management intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect. The unaudited condensed consolidated financial statements do not include any adjustments relating to classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – ORBITAL TRACKING CORP AND GLOBAL TELESAT COMMUNICATIONS LIMITED SHARE EXCHANGE, REVERSE ACQUISITION AND RECAPITALIZATION
On February 19, 2015,established above, until July 24, 2019, when the Company entered into a Share Exchange Agreement with Global Telesat Communications Limited, a Private Limited Company formed underthree-year lease for its UK office and warehouse for annual rent of £25,536 or GBP: USD using exchange rate close for the lawssix months ended June 30, 2021, for liability of England and Wales (“GTCL”) and all1.3828 or $35,311. An entity may choose to use either (1) its effective date or (2) the beginning of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated under the Exchange Agreement the GTCL Shareholders (7 members) transferred all of the issued and outstanding equity of GTCL to the OTCearliest comparative period presented in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the OTC and 8,746,000 shares of the newly issued Series E Convertible Preferred Stock of the OTC with each share of Series E Convertible Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.
For accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization of Orbital Tracking Corp. with Global Telesat Communications Limited considered the accounting acquirer, and the financial statements as its date of initial application. If an entity chooses the accounting acquirer becamesecond option, the financial statements of the registrant. The completion of the Share Exchange resulted in a change of control. The Share Exchange was accountedtransition requirements for as a reverse acquisition and re-capitalization. The GTCL Shareholders obtained approximately 39% of voting control onexisting leases also apply to leases entered into between the date of Share Exchange. GTCL was the acquirer for financial reporting purposesinitial application and the Orbital Tracking Corp. waseffective date. The entity must also recast its comparative period financial statements and provide the acquired company. Thedisclosures required by the new standard for the comparative periods. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
At June 30, 2021, the Company had current and long-term operating lease liabilities of $30,484 and $6,703, respectively, and right of use assets of $40,130.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historicalupon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of GTCL and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization. As part of agreement, OTC shareholders retained 5,383,172 shares of the Common Stock, 20,000 shares of series A Convertible Preferred Stock, 6,666 shares of series B Convertible Preferred Stock, 1,197,442 shares of series C Convertible Preferred Stock and 5,000,000 shares of series D Convertible Preferred Stock.operations, cash flows or disclosures.
| 14 |
| Property and equipment | $ | 4,973 | ||
| Accounts receivable | 34,585 | |||
| Cash in bank | 30,934 | |||
| Prepaid expenses | 2,219,677 | |||
| Inventory | 40,161 | |||
| Intangible asset | 250,000 | |||
| Current liabilities | (469,643 | ) | ||
| Due to related party | (2,174 | ) | ||
| Derivative liability | (4,936 | ) | ||
| Liabilities of discontinued operations | (112,397 | ) | ||
| Total purchase price/assets acquired | $ | 1,991,180 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 42 - STOCKHOLDERS’ EQUITY (DEFICIT)INVENTORIES
Preferred Stock
As of SeptemberAt June 30, 2017, there were 50,000,000 shares of Preferred Stock authorized.
As of September 30, 2017, there were 20,000 shares of Series A Convertible Preferred Stock authorized2021 and 0 shares issued and outstanding, due to the conversion of 20,000 shares of Series A into 20,000 shares of common stock.
As of September 30, 2017, there were 30,000 shares of Series B Convertible Preferred Stock authorized and 6,666 shares issued and outstanding.
As of September 30, 2017, there were 4,000,000 shares of Series C Convertible Preferred Stock authorized and 3,540,365 shares issued and outstanding.
As of September 30, 2017, there were 5,000,000 shares of Series D Convertible Preferred Stock authorized and 3,008,984 shares issued and outstanding.
As of September 30, 2017, there were 8,746,000 shares of Series E Convertible Preferred Stock authorized and 7,002,877 shares issued and outstanding.
As of September 30, 2017, there were 1,100,000 shares of Series F shares authorized and 1,099,998 shares issued and outstanding.
As of September 30, 2017, there were 10,090,000 shares of Series G shares authorized and 10,083,351 shares issued and outstanding.
As of September 30, 2017, there were 200,000 shares of Series H shares authorized and 87,500 shares issued and outstanding.
As of September 30, 2017, there were 114,944 shares of Series I shares authorized and 92,944 shares issued and outstanding.
As of September 30, 2017, there were 125,000 shares of Series J shares authorized and 54,669 issued and outstanding.
As of September 30, 2017, there were 1,250,000 shares of Series K shares authorized and 1,166,652 issued and outstanding
Common Stock
As of September 30, 2017, there were 750,000,000 shares of Common Stock authorized and 74,977,104 shares issued and outstanding.
On January 3, 2017, the Company issued an aggregate of 816,810 shares of common stock upon the conversion of 35,000 shares of Series D Preferred Stock and 11,681 shares of Series E Preferred Stock.
On January 4, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Preferred Stock.
On January 6, 2017, the Company issued an aggregate of 6,140 shares of common stock upon the conversion of 614 shares of Series E Preferred Stock.
On January 11, 2017, the Company issued an aggregate of 1,200,000 shares of common stock upon the conversion of 60,000 shares of Series D Preferred Stock.
On JanuaryDecember 31, 2017, the Company issued an aggregate of 2,500,000 shares of common stock upon the conversion of 125,000 shares of Series D Preferred Stock
On March 2, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 50,000 shares of Series D Preferred Stock.
On March 7, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Preferred Stock.
On April 21, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Convertible Preferred Stock.
On May 31, 2017, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of 50,000 of shares of Series J Preferred Stock at a purchase price of $10.00 per share, as well as, the issuance of 4,669 shares of Series J Preferred Stock for accounts payable of $46,694. The initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J certificate of designation. The Company is prohibited from effecting a conversion2020, inventories consisted of the Series J Preferred Stock tofollowing:
SCHEDULE OF INVENTORIES
| June 30, 2021 | December 31, 2020 | |||||||
| Finished goods | $ | 1,151,958 | $ | 361,422 | ||||
| Less reserve for obsolete inventory | - | - | ||||||
| Total | $ | 1,151,958 | $ | 361,422 | ||||
For the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each share of Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Series F Preferred Stock, Series G Preferred Stock and Preferred Series H Preferred Stock, as well as antidilution rights. The Company was required to issue 1,089,389 shares of Series K Preferred Stock, which is convertible into 108,938,900 shares of the Company’s common stock, to the certain holders for the consent and anti-dilution rights. In addition, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 76,763 shares of Series K Preferred Stock, convertible into 7,676,300 shares of common stock, in lieu of Series C Preferred Stock. The additional issuances for the consent, anti-dilution rights and settlement, resulted in the recording of other expense and additional paid in capital of $2,308,981.
On July 18, 2017, the Company issued an aggregate of 2,000,000 shares of common stock upon the conversion of 200,000 shares of Series E Convertible Preferred Stock.
On September 27, 2017, the Company issued an aggregate of 2,000,000 shares of common stock upon the conversion of 200,000 shares of Series E Convertible Preferred Stock.
Stock Options
2014 Equity Incentive Plan
On January 21, 2014, the Board approved the adoption of a 2014 Equity Incentive Plan (the “2014 Plan”). The purpose of the 2014 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The 2014 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants. Pursuant to the terms of the 2014 Plan, either the Board or a board committee is authorized to administer the plan, including by determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Unless earlier terminated by the Board, the Plan shall terminate at the close of business on January 21, 2024. Up to 226,667 shares of common stock are issuable pursuant to awards under the 2014 Plan, as adjusted in a single adjustment for an issuance no later than sixty (60) days following the date of shareholder approval of the Plan in connection with (i) a private placement of the Company’s securities in which the Corporation receives gross proceeds of at least $1,000,000 and (ii) an acquisition of at least 50 mining leases and/or claims in the Holbrook Basin.
On December 28, 2015, the Company issued Ms. Carlise, Chief Financial Officer, a ten-year option to purchase 500,000 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully vested on the date of grant and shall expire in December 2025. The 500,000 options were valued on the grant date at approximately $1.30 per option or a total of $650,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.30 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 992%, expected term of 10 years, and a risk free interest rate of 1.05%. In connection with the stock option grant, the Company recorded stock based compensation for the threesix months ended SeptemberJune 30, 20172021 and for the year ended December 31, 2016 of $0 and $0, respectively.
Also on December 28, 2015,2020, the Company issued Mr. Delgado, its Director,did not make any change for reserve for obsolete inventory.
NOTE 3 – VAT RECEIVABLE
On January 1, 2021, VAT rules relating to imports and exports between the UK and EU changed as a ten-year optionresult, of the UK’s departure from the EU, (“BREXIT”). For the six months ending June 30, 2021, the Company recorded a receivable in the amount of $279,215 for amounts available to purchase 200,000 shares of common stock as compensation for services providedreclaim against the tax liability from UK and EU countries. Subsequently to June 30, 2021, the Company. The options have an exercise price of $0.05 per share, were fully vested on the date of grant and shall expire in December 2025. The 200,000 options were valued on the grant date at approximately $1.30 per option orCompany has received a total of $260,000£104,875 or $145,346, using a Black-Scholes option pricing model with the following assumptions: stock pricean exchange rate close of $1.30 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 992%, expected term of 10 years, and a risk free interest rate of 1.05%. In connection with the stock option grant, the Company recorded stock based compensation for the three months ended September 30, 2017 and for the year ended December 31, 2016 of $0 and $0, respectively.1.3859 GBP:USD, in regards to this receivable.
On December 16, 2016, the Company issued options to Mr. Phipps, to purchase up to 10,000,000 shares of common stock. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The 10,000,000 options were valued on the grant date at approximately $0.019 per option or a total of $190,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.019 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 872%, expected term of 10 years, and a risk-free interest rate of 1.0500%. In connection with the stock option grant, the Company recorded stock based compensation for the year ended December 31, 2016 of $190,000, respectively.NOTE 4 – PREPAID EXPENSES
On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise, 1,250,000 options to Hector Delgado, its Director and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The 30,000,000 options were valued on the grant date at approximately $0.02 per option or a total of $600,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.02 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 736%, expected term of 10 years, and a risk-free interest rate of 1.30%. In connection with the stock option grant, the Company recorded stock based compensation for the nine months ended September 30, 2017 of $600,000, respectively.
A summary of the status of the Company’s outstanding stock options and changes during the nine months ended September 30, 2017 is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2017 | 12,850,000 | $ | 0.02 | 9.10 | ||||||||
| Granted | 30,000,000 | 0.01 | 9.65 | |||||||||
| Exercised | — | — | — | |||||||||
| Forfeited | — | — | — | |||||||||
| Cancelled | — | — | ||||||||||
| Balance outstanding and exercisable at September 30, 2017 | 42,850,000 | $ | 0.01 | 9.26 | ||||||||
Stock Warrants
A summary of the status of the Company’s outstanding stock warrants and changes during the nine months ended September 30, 2017 is as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2017 | 5,000 | $ | 4.50 | 0.35 | ||||||||
| Granted | — | — | — | |||||||||
| Exercised | — | — | — | |||||||||
| Forfeited (expired May 19, 2017) | 5,000 | 4.50 | — | |||||||||
| Cancelled | — | — | — | |||||||||
| Balance outstanding at September 30, 2017 | — | $ | — | — | ||||||||
NOTE 5 – PREPAID STOCK BASED COMPENSATION
Prepaid expenses amounted to $151,102$1,784 at SeptemberJune 30, 20172021 and $171,164 at December 31, 2016.2020. Prepaid expenses include prepayments in cash for professionalaccounting fees, and prepayments made within equity instruments, which are being amortized over the terms of their respective agreements. Amortization of the prepaid expense is included in professional fees. For the nine months ended September 30, 2017 and 2016, amortization expense was $121,096 and $173,009, respectively.agreements, as well as cost associated with certain contract liabilities. The current portion consists primarily of costs paid for future services which will occur within a year.
NOTE 5 - PROPERTY AND EQUIPMENT
At June 30, 2021 and December 31, 2020, property and equipment, net of fully depreciated assets, consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, 2021 | December 31, 2020 | |||||||
| Office furniture and fixtures | $ | 28,261 | $ | 6,470 | ||||
| Computer equipment | 24,189 | 33,361 | ||||||
| Rental equipment | 48,761 | 48,187 | ||||||
| Appliques | 2,160,096 | 2,160,096 | ||||||
| Website development | 83,992 | 69,149 | ||||||
| Property and equipment, gross | 2,345,299 | 2,317,263 | ||||||
| Less accumulated depreciation | (1,346,335 | ) | (1,211,099 | ) | ||||
| Total | $ | 998,964 | $ | 1,106,164 | ||||
Depreciation expense was $134,448and $131,795for the six months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021 and 2020, depreciation expense was $66,998 and $66,541, respectively.
NOTE 6 – INTANGIBLE ASSETS
On February 19, 2015,December 10, 2014, the Company entered the satellite voice and data equipment sales and service business through the purchase of certain contracts from Global Telesat Corp. (“GTC”). These contracts permit the Company to utilize the Globalstar, Inc. and Globalstar LLC (collectively, “Globalstar”) mobile satellite voice and data network. The purchase price for the contracts of $250,000 was paid by the Company under an asset purchase agreement by and among the Company, its wholly owned subsidiary, Orbital Satcom, GTC and World Surveillance Group, Inc.
| 15 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Included in the purchased an intangible asset valued at $250,000 for 1,000,000 sharesassets are: (i) the rights and benefits granted to GTC under each of common stock. the Globalstar Contracts, subject to certain exclusions, (ii) account and online access to the Globalstar Cody Simplex activation system, (iii) GTC’s existing customers who are serviced pursuant to the Globalstar Contracts (only as to their business directly and exclusively related to the Globalstar Contracts), and (iv) all of GTC’s rights and benefits directly and exclusively related to the Globalstar Contracts.
Amortization of customer contracts will beare included in generaldepreciation and administrative expenses. The Company began amortizingamortization. For the customer contracts in January 2015. Amortization expense for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016 was $6,250 and $6,250, respectively, and $18,750 and $18,750,2020, the Company amortized $12,500, respectively. Future amortization of intangible assets is as follows:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| 2017 | 6,250 | |||
| 2018 | 25,000 | |||
| 2019 | 25,000 | |||
| 2020 | 25,000 | |||
| 2021 and thereafter | 100,000 | |||
| Total | $ | 181,250 |
| 1 | ||||
| 2021 | $ | 12,500 | ||
| 2022 | 25,000 | |||
| 2023 | 25,000 | |||
| 2024 | 25,000 | |||
| Total | $ | 87,500 |
For the six months ended June 30, 2021 and 2020, there were no additional expenditures on research and development.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts payable and accrued other liabilities consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
| June 30, 2021 | December 31, 2020 | |||||||
| Accounts payable | $ | 1,365,790 | $ | 747,476 | ||||
| Rental deposits | 10,889 | 10,761 | ||||||
| Customer deposits payable | 55,150 | 53,570 | ||||||
| Accrued wages & payroll liabilities | 13,369 | 1,913 | ||||||
| VAT liability & sales tax payable | 59,503 | 50,453 | ||||||
| Pre-merger accrued other liabilities | 65,948 | 65,948 | ||||||
| Accrued interest | 121,476 | 99,982 | ||||||
| Accrued other liabilities | 22,500 | 22,500 | ||||||
| Total | $ | 1,714,625 | $ | 1,052,603 | ||||
NOTE 8 – LINE OF CREDIT
On February 19, 2015,October 9, 2019, Orbital Satcom Corp, entered into a short-term loan agreement for $29,000, with Amazon. The one-year term loan is paid monthly, has an interest rate of 9.72%, with late payment penalty interest of 11.72%. For the six months ended June 30, 2021 and 2020, the Company recorded interest expense of $0 and $725, respectively. The short-term line of credit balance as of June 30, 2021 and December 31, 2020, was $0 and $0.
| 16 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – NOTE EXCHANGE AGREEMENT
On April 30, 2019, the Company entered into a Shares for Note Exchange Agreement (each, an “Agreement” and collectively, the “Agreements”) with certain holders of the Company’s preferred stock (the “Converting Stockholders”). Pursuant to the terms of the Agreements, the Company agreed to exchange the preferred shares held by the respective Converting Stockholders for promissory notes as follows:
Series of Preferred Stock | No. of Converting Holders of Preferred Stock | Aggregate No. of Shares Held by Converting Stockholders | Aggregate Principal Amount of Notes into which Shares Converted | |||||||||
| B | 1 | 222 | $ | 11 | ||||||||
| C | 1 | 123,526 | $ | 12,353 | ||||||||
| D | 3 | 147,577 | $ | 29,516 | ||||||||
| E | — | — | $ | — | ||||||||
| F | 1 | 23,333 | $ | 233 | ||||||||
| G | 2 | 346,840 | $ | 3,468 | ||||||||
| H | 3 | 916 | $ | 916 | ||||||||
| I | 3 | 3,241 | $ | 3,241 | ||||||||
| J | 5 | 4,296 | $ | 42,961 | ||||||||
| K | 7 | 70,571 | $ | 70,571 | ||||||||
| L | 3 | 1,333 | $ | 5,000 | ||||||||
| TOTAL: | 721,855 | $ | 168,270 | |||||||||
In exchange for the above-referenced shares of preferred stock, the Company issued 1,000,000a promissory note (each, a “Note” and collectively, the “Notes”) to each of the Converting Stockholders on April 30, 2019. Each Note bears interest at a rate of 6% per annum and is due on the second anniversary of the issuance date. Interest accrues on a simple interest, non-compounded basis and will be added to the principal amount on the maturity date. In the event that any amount due under a Note is not paid as and when due, such amounts will accrue interest at the rate of 12% per year, simple interest, non-compounding, until paid. The Company may prepay the Notes at any time.
During the periods ended June 30, 2021 and December 31, 2020, the Company repaid $121,848 and $0 of the notes, leaving a balance of $0 and $121,848, respectively as short-term notes payable. For the six months ended June 30, 2021, the Company recorded interest in relation to the note of $2,503.
| 17 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable – long term
March 2021 Financing
On March 5, 2021, the Company entered into a Note Purchase Agreement (the “March 2021 NPA”) by and between the Company and one individual accredited investor (the “Lender”). Pursuant to the terms of the March 2021 NPA, the Company sold a convertible promissory note with a principal amount of $350,000 (the “March 2021 Note”). The March 2021 Note is a general, unsecured obligation of the Company and bears simple interest at a rate of 7% per annum, and matures on the third anniversary of the date of issuance (the “Maturity Date”), to the extent that the March 2021 Note and the principal amount and any interest accrued thereunder have not been converted into shares of the Company’s common stock. In the event that any amount due under the March 2021 Note is not paid as and when due, such amount will accrue interest at the rate of 12% per year, simple interest, non-compounding, until paid. The Company may not pre-pay or redeem the March 2021 Note other than as required by the Agreement. The Noteholder have an optional right of conversion such that a Noteholder may elect to convert his March 2021 Note, in whole or in part, outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined by dividing the indebtedness under the March 2021 Note price equal to the lesser of (a) $7.50 per share, and (b) a 30% discount to the price of the common stock in the qualified transaction. Following an event of default, the conversion price shall be adjusted to be equal to the lower of: (i) the then applicable conversion price or (ii) the price per share of 85% of the lowest traded price for the Company’s common stock during the 15 trading days preceding the relevant conversion. In addition, subject to the ownership limitations, if a qualified transaction is completed, without further action from the Noteholder, on the closing date of the qualified transaction, 50% of the principal amount of this March 2021 Note and all accrued and unpaid interest shall be converted into Company common stock at a conversion price equal to the 30% discount to the offering price in such qualified transaction, which price shall be proportionately adjusted for stock splits, stock dividends or similar events. A “Qualified Transaction” refers the completion of the public offering of the Company’s securities stock with gross proceeds of at least $10,000,000 pursuant to which the Company’s securities become registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, or a merger with a company listed on the Nasdaq or Canadian stock exchanges, as amended. The Noteholder is granted registration rights and pre-emptive rights. In addition, the March 2021 NPA includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency. The Company’s issuance of the March 2021 Note under the terms of the March 2021 NPA was made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The investor in the March 2021 Note is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act. There were no discounts or brokerage fees associated with this offering. The Company used the offering proceeds for working capital and general corporate purposes.
The balances of the Company’s convertible notes payable consist of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| June 30, 2021 | December 31, 2020 | |||||||
| May 2019 Notes | $ | - | $ | 462,085 | ||||
| August 2020 Notes | - | 588,182 | ||||||
| December 2020 Notes | - | 244,000 | ||||||
| March 2021 Notes | - | - | ||||||
| - | 1,294,267 | |||||||
| Debt Discount | - | (1,084,944 | ) | |||||
| - | ||||||||
| Total | $ | - | $ | 209,323 | ||||
For the six months ended June 30, 2021 and 2020, we amortized the discount on the debt, to interest expense of $1,425,365and $128,702.
For the six months ended June 30, 2021, the Holders converted a total of $1,644,268 of the convertible debt to shares of common shares.
On June 15, 2020, the change in conversion price from $0.50 to $1.00 per share, resulted in a difference in the carrying value of the balance of the note payable. Under ASC 470-50-40-13, if it is determined that the original and new debt instruments are substantially different, the new debt instrument shall be initially recorded at fair value, and that amount shall be used to determine the debt extinguishment gain or loss to be recognized and the effective rate of the new instrument. The original debt had a carrying value of $269,262 as of June 15, 2020, the fair value of the amended debt was $0 ($792,932 principle netted with the $792,392 note payable discount), which resulted a gain from the extinguishment of debt $269,262. Further, as of June 30, 2020, the Company recorded a beneficial conversion feature of the amended note of $17,041, resulting in a balance of unamortized discount notes payable of $775,892 as of June 30, 2020.
For the six months ended June 30, 2020, the Holders converted $12,068 of the convertible debt to common stock, resulting in an issuance of common shares at the conversion rate of $0.50 per share. Following the change in conversion rate on June 15, 2020, the Holders converted an additional $2,687 of the convertible debt to common stock, resulting in an issuance of common shares at the conversion rate of $1.00 per share. The balance of the convertible notes at June 30, 2020 was $790,245.
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 20, 2020, the Board, approved for its wholly owned UK subsidiary, Global Telesat Communications LTD (“GTC”), to apply for a Coronavirus Interruption Loan, offered by the UK government, for an amount up to £250,000. On July 16, 2020 (the “Issue Date”), GTC, entered into a Coronavirus Interruption Loan Agreement (the “Debenture”) by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £, or USD$at an exchange rate of GBP:USD of . The Debenture bears interest beginning July 16, 2021, at a rate of 3.99% per annum over the Bank of England Base Rate (0.1% as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of years from the date of drawdown, , the “Maturity Date”. The first repayment of £(exclusive of interest) will be made 13 month(s) after July 16, 2020. The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to be used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of June 30, 2021, the Company has recorded $as current portion of notes payable and $as notes payable long term.
On May 8, 2020, Orbsat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan is for $ and has a term of years, of which the first 6 months are deferred at an interest rate of . On May 23, 2021, BlueVine, the Company’s SBA approved mortgage lender and originator, notified the Company, that the loan in the amount of $, has been forgiven. As of June 30, 2021, the Company has recorded $20,832 as forgiveness of debt.
NOTE 12 - STOCKHOLDERS’ EQUITY
Capital Structure
On March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reincorporation.
On March 5, 2016, the Company shareholders voted in favour of an amendment to its Articles of Incorporation to increase the total number of shares of authorized capital stock to shares consisting of (i) shares of common stock and (ii) shares of preferred stock from 220,000,000 shares consisting of (i) shares of common stock and (ii) shares of preferred stock.
Effective March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. All share and per share information in the accompanying condensed consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.
On July 24, 2019, the Company filed a Certificate of Change (the “Certificate of Change”) with the Nevada Secretary of State. The Certificate of Change provides for (i) a 1-for-15 reverse split (the “Reverse Split”) of the Company’s common stock, $ par value per share, and the Company’s preferred stock, $ par value per share, (ii) a reduction in the number of authorized shares of common stock in direct proportion to the Reverse Split (i.e. from shares to shares), and (iii) a reduction in the number of authorized shares of preferred stock in direct proportion to the Reverse Split (i.e. from shares to shares). No fractional shares will be issued in connection with the Reverse Split. Stockholders who otherwise would be entitled to receive fractional shares of common stock or preferred stock, as the case may be, will have the number of post-Reverse Split shares to which they are entitled rounded up to the nearest whole number of shares. No stockholders will receive cash in lieu of fractional shares. The Reverse Split was approved by FINRA on August 19, 2019.
On May 28, 2021, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5(the “Reverse Split”). No fractional shares of common stock were issued as a result of the Reverse Split. Stockholders of record who were otherwise entitled to receive a fractional share received a whole share. The conversion or exercise prices of Company’s issued and outstanding convertible securities, stock options and warrants will be adjusted accordingly. All information presented in this Quarterly Report on Form 10Q, other than in Company’s consolidated financial statements and the notes thereto assumes a 1-for-5 reverse stock splitof Company’s outstanding shares of common stock, and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth in this Quarterly Report on Form 10Q have been adjusted to give effect to such assumed reverse stock split.
Listing on the Nasdaq Capital Market
On May 28, 2021, our common stock and Warrants commenced trading on Nasdaq under the symbols “OSAT” and “OSATW,” respectively.
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2021, the authorized capital of the Company consists of shares of common stock, par value $0.0001,$per share, shares of preferred stock, par value $per share.
Preferred Stock
As of June 30, 2021, there were shares of Preferred Stock authorized, none of which are issued and outstanding.
Warrants
As of June 30, 2021, there were 3,311,000 registered warrants authorized to purchase of common stock and 3,311,000 registered warrants issued and outstanding.
On June 2, 2021, the Company issued 2,880,000 warrants to purchase shares of common stock in an offering, at $0.05an exercise price of $5.00 and a term of 5 years.
On June 10, 2021, the Company issued shares of common stock in our June Offering, as described below, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $5,000.
On June 28, 2021, the Company issued an additional warrants to purchase 432,000 shares of common stock in June Offering, at an exercise price of $5.00 and a term of 5 years.
Underwriter Warrants
In addition to, but separate from, the registered warrants included in the units sold in the June Offering, the Company issued 144,000 warrants to Maxim Group LLC, the underwriter (the “Underwriter Warrants”) in connection with the June Offering. The Underwriter Warrants expire five years from the effective date of the June Offering and are exercisable at a per share price equal to $5.50 per share, or $50,000,110% of the public offering price per unit in the June Offering.
As of June 30, 2021, there were 144,000 Underwriter Warrants issued and outstanding.
Common Stock
As of June 30, 2021, there were shares of common stock authorized and shares issued and outstanding.
On February 19, 2021, the Board of Directors of the Company unanimously adopted an amendment to the Company’s Articles of Incorporation to effect a reverse stock split at a ratio of (i) no less than 1-for-2 shares of Common Stock, and (ii) no more than 1-for-5 shares of Common Stock, the exact ratio to be determined in the sole discretion of the Board of Directors, at any time before August 31, 2021. The Board of Directors has obtained (by written consent) the approval of the Company’s stockholders who, in the aggregate, own shares of Common Stock, or of the outstanding shares of Common Stock of the Company prior to the Reverse Split Action.
On January 12, 2021, the Company issued an aggregate of common stock upon the conversion of $30,000 of its convertible debt, at the conversion rate of $1.00 per share.
On February 23, 2021, the Company issued an aggregate of common stock upon the conversion of $80,289 of its convertible debt, at the conversion rate of $1.00 per share.
On February 23, 2021, the Company issued an aggregate of common stock upon the conversion of $150,000 of its convertible debt, at the conversion rate of $1.25 per share.
On February 23, 2021, the Company issued an aggregate of shares of common stock for services in the amount of $14,200.
On March 1, 2021, the Company issued an aggregate of common stock upon the conversion of $149,532 of its convertible debt, at the conversion rate of $1.00 per share.
On March 1, 2021, the Company issued an aggregate of shares of common stock upon the conversion of $48,270 of its convertible debt, at the conversion rate of $1.25 per share.
On March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock split not to exceed 1 for 5 reverse stock split. A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13, 2021. The Company’s Board of Directors subsequently approved a 1-for-5 reverse stock split. The Company has filed a Certificate of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common stock, at a ratio of 1-for-5. The effective time of the reverse stock split will be 12:01 a.m. ET on May 28, 2021.The Company’s common stock will begin trading on a split-adjusted basis commencing upon market open on May 28, 2021. The common stock will be assigned a new CUSIP number, 68557F 209. The warrants will be assigned the CUSIP number, 68557F 118. No fractional shares of common stock will be issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to receive a fractional share will receive a whole share.
On May 20, 2021, Company issued an aggregate of shares of common stock upon the conversion of $29,800 of its convertible debt, at a weighted average conversion rate of $1.00.
On May 27, 2021, Company issued an aggregate of shares of common stock upon the conversion of $1,156,377 of its convertible debt, at a weighted average conversion rate of $1.28.
On May 28, 2021, Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC(the “Underwriter”), pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering 2,880,000 units consisting of one share of common stock and one warrant, exercisable for one share of common stock at a public offering price of $5.00 per unit, (after giving effect to a consultant as compensation1-for-5 reverse stock split, discussed above) for aggregate gross proceeds of approximately $14,400,000 before deducting underwriting discounts, commissions, and other offering expenses (the “June Offering”). The common stock and warrants were immediately separable and were issued separately. The common stock and warrants began trading on the designNasdaq Capital Market, on May 28, 2021, under the symbols “OSAT” and delivery“OSATW,” respectively. In addition, the Company In addition, the Company has granted the Underwriter a 45-day option to purchase an additional shares of dual mode gsm/Globalstar Simplex tracking devicescommon stock and/or warrants to purchase up to an aggregate of 432,000 shares of common stock, in any combination thereof, at the public offering price per security, less the underwriting discounts and related hardwarecommissions, to cover over-allotments, if any. The June Offering closed on June 2, 2021.In connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and intellectual property.purchased an additional warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon the exercise in full of the balance of its over-allotment option, purchased additional shares of the common stock for additional gross proceeds to the Company of $2,155,680.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consistedWe have issued to the Underwriter warrants to purchase up to a total of 144,000 shares of common stock (5% of the following:shares of common stock included in the Units, excluding the over-allotment, if any) (the “Underwriter Warrants”). The Underwriter Warrants are exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective date of the registration statement, and expire five years from the effective date of the offering, which period is in compliance with FINRA Rule 5110(e). The Underwriter Warrants are exercisable at a per share price equal to $5.50 per share, or 110% of the public offering price per unit in the offering. The Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement. In addition, the warrants provide for certain piggyback registration rights. The piggyback registration rights provided will not be greater than five years from the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the Underwriter Warrants. The exercise price and number of shares issuable upon exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
| September 30, 2017 | December 31, 2016 | |||||||
| Office furniture and fixtures | $ | 98,115 | $ | 90,729 | ||||
| Computer equipment | 42,180 | 29,066 | ||||||
| Appliques | 2,160,096 | 2,160,096 | ||||||
| Website development | 114,985 | 100,436 | ||||||
| Less accumulated depreciation | (618,859 | ) | (401,989 | ) | ||||
| Total | $ | 1,796,517 | $ | 1,978,338 | ||||
Depreciation expense was $67,893
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE OF OUTSTANDING STOCK OPTIONS ACTIVITIES
Stock Options
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | 600,009 | $ | 2.35 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | (50,000 | ) | - | |||||||||
| Balance outstanding at June 30, 2021 | 550,009 | $ | 2.56 | |||||||||
| Options exercisable at June 30, 2021 | 550,009 | $ | 2.56 | |||||||||
A summary of the threestatus of the Company’s outstanding warrants and ninechanges during the six months ended SeptemberJune 30, 2016 depreciation expense was $63,969 and $197,625, respectively.2021 is as follows:
SCHEDULE OF OUTSTANDING STOCK WARRANTS ACTIVITIES
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | 800 | $ | 300.00 | |||||||||
| Granted | 3,456,000 | 5.00 | - | |||||||||
| Exercised | (1,000 | ) | 5.00 | - | ||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | (800 | ) | 300.00 | - | ||||||||
| Balance outstanding and exercisable at June 30, 2021 | 3,455,000 | $ | 5.00 | |||||||||
NOTE 8 - INVENTORIES
At SeptemberAs of June 30, 20172021, and December 31, 2016, inventories consisted2020, there were 3,455,000 and 800 warrants outstanding, respectively.
NOTE 13 - RELATED PARTY TRANSACTIONS
As of June 30, 2021, the following:
| September 30, 2017 | December 31, 2016 | |||||||
| Finished goods | $ | 397,988 | $ | 335,267 | ||||
| Less reserve for obsolete inventory | - | - | ||||||
| Total | $ | 397,988 | $ | 335,267 | ||||
For the nine months ended Septemberaccounts payable due to related party includes advances for inventory, services and other expenses due to David Phipps of $153,579, accrued wages and expenses due to Charles M. Fernandez $46,497, accrued salary, and expenses due to Sarwar Uddin and Theresa Carlise $8,170 and $8,795, respectively. Total related party payments due as of June 30, 20172021, and the year ended December 31, 2016,2020, are $217,041 and $102,060, respectively. These related party payables were non-interest bearing and have been repaid in full.
The Company’s UK subsidiary, GTCL has an over-advance line of credit with HSBC, for working capital needs. The over-advance limit is £25,000 or $34,570 at an exchange rate of 1.3828, with interest at 3.95% over Bank of England’s base rate or current rate of 4.05% variable. The advance is guaranteed by David Phipps, the Company’s Chief Executive Officer. The Company did not make any changehas an American Express account for reserveOrbital Satcom Corp. and an American Express account for obsolete inventory.GTCL, both in the name of David Phipps who personally guarantees the balance owed.
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company employs three individuals who are related to Mr. Phipps, of which earned gross wages totaling $76,416 and $37,196 for the six months ended June 30, 2021 and 2020, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
NOTE 9 - RELATED PARTY TRANSACTIONS
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic prompting government-imposed quarantines, suspension of in-person attendance of academic programs, and cessation of certain travel and business closures. The CompanyUnited States has received financingentered a recession as a result of the COVID-19 pandemic, which may prolong and exacerbate the negative impact on us. Although we expect the availability of vaccines and various treatments with respect to COVID-19 to have an overall positive impact on business conditions in the aggregate over time, the exact timing of these positive developments is uncertain. In December 2020, the United States began distributing two vaccines that, in addition to other vaccines under development, are expected to help to reduce the spread of the coronavirus that causes COVID-19 once they are widely distributed. If the vaccines prove less effective than currently understood by the scientific community and the United States Food and Drug Administration, or if there are problems with the acceptance, availability, timing or other difficulties with widely distributing the vaccines, the pandemic may last longer, and could continue to impact our business for longer, than we currently expect. In response to COVID-19, governmental authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter in place orders and recommendations to practice social distancing. Although many governmental measures have had specific expiration dates, some of those measures have already been extended more than once, and there is considerable uncertainty regarding the duration of such measures and the implementation of any potential future measures, especially if cases increase again across the United States, with the potential for additional challenges resulting from the Company’s Chief Executive Officer. No formal repayment termsemergence of new variants of COVID-19, some of which may be more transmissible than the initial strain. Such measures have impacted, and may continue to affect, our workforce, operations, suppliers and customers. We reduced the size of our workforce following the onset of COVID-19 and may need to take additional actions to further reduce the size of our workforce in the future; such reductions incur costs, and we can provide no assurance that we will be able to rehire our workforce in the event our business experiences a subsequent recovery. We took steps to curtail our operating expenses and conserve cash. We may elect or arrangements existed priorneed to February 19, 2015, whentake additional remedial measures in the future as partthe information available to us continues to develop, including with respect to our workforce, relationships with our third-party vendors, and our customers. There is no certainty that the remedial measures we have implemented to date, or any additional remedial steps we may take in the future, will be sufficient to mitigate the risks posed by COVID-19. Further, such measures could potentially materially adversely affect our business, financial condition and results of operations and create additional risks for us. Any escalation of COVID-19 cases across many of the Share Exchangemarkets we serve could have a negative impact on us. Specifically, we could be adversely impacted by limitations on our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring our stores to close or employees to remain at home; limitation of carriers to deliver our product to customers; product shortages; limitations on the ability of our customers to conduct their business and purchase our products and services; and limitations on the ability of our customers to pay us in a timely manner. These events could have a material, adverse effect on our results of operations, cash flows and liquidity.
The ultimate magnitude of COVID-19, including the full extent of the material negative impact on our financial and operational results, will depend on future developments. The resumption of our normal business operations may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers and/or third-party service providers. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not currently ascertainable. Due to the daily evolution of the COVID-19 pandemic and the responses to curb its spread, we cannot predict the full impact of the COVID-19 pandemic on our business and results of operations, but our business, financial condition, results of operations and cash flows have already been materially adversely impacted, and we anticipate they will continue to be adversely affected by the COVID-19 pandemic and its negative effects on global economic conditions. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a variety of factors, such as any increase in COVID-19 infections. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its national and, to some extent, global economic impact, including the current recession and any recession that may occur in the future.
The success of our business depends on our global operations, including our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced shortages in inventory due to manufacturing issues, a reduction in the volume of sales in some parts of our business, such as rental sales and direct website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the six months ended June 30, 2021 and for the year ended December 31, 2020, reflect this impact; however, we expect that this trend may continue, and the full extent of the impact is unknown. In recent months, some governmental agencies in the US and Europe, where we produce the largest percentage of our sales, have lifted certain restrictions. However, if customer demand continues to be low, our future equipment sales, subscriber activations and sales margin will be impacted.
Employment Agreements
Phipps Employment Agreement
On June 5, 2021, the Board of Directors of the Company enteredalso caused the Company to enter into a notenew three year employment agreements with David Phipps, where the stockholder loans bear no interest and are due February 19, 2016. On February 19, 2016, the note was extended an additional year to February 19, 2017 and on January 9, 2017 the note was extended another additional year to February 19, 2018. The balance of the related party note payable was $15,004 as of September 30, 2017. The accounts payable due to related party includes advances for inventory due to David Phipps of $52,887. Total payments due to David Phipps as of September 30, 2017 and December 31, 2016 are $67,891 and $67,453, respectively.effective June 2, 2021.
Also, as part of the Share Exchange Agreement entered into on February 19, 2015, Mr. Phipps received a payment of $25,000 as compensation for transition services that he provided.
The Company employs two individuals who are related to Mr. Phipps, of which earned gross wages totaled $50,406 for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, the Company employed two individuals who were related to Mr. Phipps of which earned gross wages of $45,164.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
On February 19, 2015, Orbital Satcom entered into an employment agreement with Mr. Phipps wherebyreplaced his existing employment agreement and has an initial term of three years. Pursuant to the Phipps Agreement, Mr. Phipps agreed towill serve as the serve as President and Chief Executive Officer of Orbital Satcom for a period of two years, subject to renewal, in consideration for an annual salary of $180,000. Additionally, under the terms of the employment agreement, Mr. Phipps shallGlobal Operations. The term will be eligible for an annual bonus if the Company meets certain criteria, as established by the Board of Directors. Mr. Phipps remains the sole director of GTCL following the closing of the Share Exchange. Mr. Phipps and the Company entered into an Indemnification Agreement at the closing.
The Company entered into an employment agreement with Ms. Carlise on June 9, 2015. The agreement has a term of one year, and shall automatically be extended for additional one-year terms of one year each. The agreement provides for anthereafter unless terminated by the Company or Mr. Phipps by written notice. CEO’s annual base salarycompensation is an aggregate of $72,000.$. The Company may increase (but not decrease his compensation during its term. In addition, to the base salary Ms. Carlise shallMr. Phipps will be eligibleentitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. Mr. Phipps is also entitled to participate in any other executive compensation plans adopted by the Board of Directors, and shall beis eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company.
On December 28, 2015,Company may from time to time determine (the “Share Awards”). Share Awards shall be subject to the applicable Plan terms and conditions, provided, however, that Share Awards shall be subject to any additional terms and conditions as are provided herein or in any award certificate(s), which shall supersede any conflicting provisions governing Share Awards provided under the Company amended heris required to pay or to reimburse the Employee for all reasonable out-of-pocket expenses actually incurred or paid by the Employee in the course of his employment, agreement. Effective December 1, 2015,consistent with the termCompany’s policy. Mr. Phipps shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior Employees. The employment agreement may be terminated based on death or disability of Ms. Carlise’s employment was extended to December 1, 2016 from June 9, 2016, her annual salary was increased to $140,000 from $72,000the executive, for cause or without good reason, for cause or with good reason, and she agreed to devote her full business time toas a result of the change of control of the Company. The termemployment agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Original Agreement, as amended byCompensation Committee of the Amendment, shall automatically extend for additional termsBoard of one year each, unless either party gives prior written noticeDirectors of non-renewalOrbsat Corp, the Company entered into an amendment to the current employment agreement. The Amendment for Mr. Phipps amends his Employment Agreement in order to, among other party no later than 60 days priorthings, (i) change Mr. Phipps’ title to the expiration“President of the initial term or the then current renewal term, as applicable.Orbsat Corp and Chief Executive Officer of Global Operations” and (ii) to increase Mr. Phipps’s compensation by providing for an auto allowance $1,000 a month.
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fernandez May Employment Agreement
On March 3, 2016,May 23, 2021, the Company entered into a two-year Executivethree (3) year Employment Agreement (the “Fernandez Agreement”) with Mr. Phipps, effective January 1, 2016.Fernandez to serve as Chairman of the Board. Such agreement includes provision for automatic one (1) year extensions. Mr. Fernandez’s employment will commence on the later of our receipt of an approval for listing letter from Nasdaq and the effectiveness of the registration statement. Under the EmploymentFernandez Agreement, Mr. PhippsFernandez will serve as the Company’s Chief Executive OfficerChairman and President,a director and will receive an annual base salary equal to the sum of $144,000$. Mr. Fernandez will also be entitled to such cash bonus opportunity and £48,000, equity compensation arrangements as the Compensation Committee may determine following the effectiveness of this registration statement. The Fernandez Agreement also provides for the Company to reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue in full force and effect throughout the entire period of employment personal catastrophe and disability insurance coverages for Mr. Fernandez. Such insurance shall be obtained through any insurance carrier of Mr. Fernandez’s choosing, and shall have premium limits not to exceed one hundred percent (100%) of Mr. Fernandez’s Base Salary per annum. In addition, Mr. Fernandez will be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior Executives. Under the agreement, the Company is also obligated to reimburse Mr. Fernandez for up to $10,000 per year related to Mr. Fernandez’s business and personal travel and/or $61,200that of his immediate family members, as well as up to $10,000 per year for professional fees incurred by Mr. Fernandez, whether in connection with Mr. Fernandez’s association with the Company or otherwise. The Fernandez Agreement is terminable by the Company for Cause (as that term is defined in the Fernandez Employment Agreement), by Mr. Fernandez for Good Reason (as that term is defined in the Fernandez Employment Agreement), or by Mr. Fernandez at his option upon 30 days’ prior written notice to the Company. The Fernandez Agreement provides that Mr. Fernandez may not solicit the Company’s employees or customers for a one-year period after the termination of the agreement nor compete with the Company for a three-month period after the termination of the agreement; provided that such non-competition and non-solicitation agreement shall not apply to any persons or entities with which Mr. Fernandez is currently affiliated or associated. Mr. Fernandez has also been given the right to nominate two individuals to serve on the Board of Directors. The appointment of any such nominee(s) to the Board of Directors will be subject to approval of the Board of Directors (and compliance with applicable law and Nasdaq continuing listing requirements). Upon the pricing of this offering, the Company will grant Mr. Fernandez an award of restricted stock with a grant date fair value equal to $ determined at the yearly conversion rateper unit offering price (the “RSA”), which RSA will vest 1/3 at each of 1.27500.the three anniversaries of the grant date. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as that term is defined in the RSA. The Company at its sole expense is obligated to register the reoffer and resale by Mr. PhippsFernandez of the securities granted to Employee pursuant to the RSA. The Fernandez Employment Agreement and the RSA are filed as Exhibits 10.20 and 10.19, respectively to Form 8-K as filed on May 28, 2021. The foregoing descriptions of the material terms of the Fernandez Employment Agreement and the RSA do not purport to be complete and are qualified in its entirety by reference to such exhibits, which are incorporated by reference.
Fernandez June Employment Agreement
On June 2, 2021, the Company entered into a new employment agreement (the “June Agreement”) with Charles M. Fernandez, with an initial term of 5 years effective on May 28, 2021. The June Agreement replaced his then existing employment agreement dated May 23, 2021 (the “May Agreement”). Under the June Agreement, Mr. Fernandez will serve as the Chairman and Chief Executive Officer of the Company. The June Agreement will be automatically extended for additional one-year terms unless terminated by the Company or Mr. Fernandez by written notice. Mr. Fernandez’s annual base compensation under the June Agreement is also eligible for$ per year. The Company may increase (but not decrease) his compensation during the June Agreement’s term. In addition, Mr. Fernandez is entitled to receive an annual cash bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board. Mr. Fernandez is also entitled to participate in any other executive compensation plans adopted by the Board, and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Board may from time to time determine (the Share Awards). Share Awards will be subject to the applicable Plan terms and conditions, provided, however, that Share Awards will be subject to any additional terms and conditions as are provided therein or in any award certificate(s), which will supersede any conflicting provisions governing Share Awards provided under the equity incentive plan. The Company is required to pay or to reimburse Mr. Fernandez for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Fernandez in the course of his employment, consistent with the Company’s policy.
Mr. Fernandez will also be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, or Board and equity awards as the Company provides to its senior employees. The June Agreement may be approvedterminated based on death or disability of Mr. Fernandez, for cause or without good reason, for cause or with good reason, as a result of the change of control of the Company and at the option of Mr. Fernandez with or without cause. The June Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc.
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The Company will also reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue personal catastrophe and disability insurance coverages for himself, which policy will have policy limits not to exceed one hundred percent (100%) of his base salary per annum at any given time. In addition, the Company will pay for any and all travel-related expenses incurred by Mr. Fernandez and/or his immediate family members, not to exceed $10,000.00 per fiscal year, regardless of whether or not such expenses are incurred by Mr. Fernandez in connection with services or duties to be performed by him as an employee of the Company. The Company will also pay for any and all fees and costs incurred by Mr. Fernandez in connection with professional services provided to him, not to exceed $10,000 per year, including, without limitation, services provided to the Company by attorneys, accountants, financial planners and the like, regardless of whether or not such services are provided to Mr. Fernandez in connection with his employment with the Company.
In addition, the June Agreement (which repeats, but not duplicates, a grant of restricted stock made under the May Agreement), Mr. Fernandez received an award of restricted stock with a grant date fair value equal to $ determined at the per unit offering price in the discretionJune Offering ($ per Unit) (the “RSA”), which RSA will vest 1/3 at each of the three anniversaries of the grant date. The Grant Date for the RSA is May 28, 2021, as determined pursuant to the May Agreement. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as that term is defined in the Restricted Stock Agreement pursuant to which the RSA was made. The Company at its sole expense is obligated to register the reoffer and resale by Mr. Fernandez of the securities granted to him pursuant to the Restricted Stock Agreement.
If Mr. Fernandez’ employment is terminated for any reason at any time by the Company prior to the full vesting of the RSA without “Cause” (as that term is defined in the June Agreement), the RSA will vest and Mr. Fernandez will receive all right, title and interest in the balance of the securities granted to him in the RSA.
During the term of the June Agreement and so long as Mr. Fernandez is employed by the Company, he may nominate two directors to the Company’s Board of Directors. The appointment of these directors to the Board is subject to approval by the Board of Directors.
On August 7, 2021, the June Agreement was amended in order to, among other things, increase Mr. Fernandez’s compensation by (i) providing for medical plan coverage for Mr. Fernandez and his family at the expense of the Company, and (ii) providing for an auto allowance $1,000 per month.
Uddin Employment Agreement
On June 22, 2021, the Company appointed Sarwar Uddin as the Chief Financial Officer of the Company. Mr. Uddin replaced Thomas Seifert, whose employment by the Company terminated on the same date. The initial term of Mr. Uddin’s agreement is one year commencing on June 22, 2021. The term of the employment agreement will be automatically extended for additional one-year terms unless terminated by the Company or Mr. Uddin by written notice. Mr. Uddin’s annual base compensation is $. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. Uddin will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. Mr. Uddin is also entitled to participate in any other executive compensation plans adopted by the Board of Directors and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine (the “Share Awards”). The Company is required to pay or to reimburse Mr. Uddin for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Uddin in the course of his employment, consistent with the Company’s policy. Mr. Uddin shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior Employees. The employment agreement may be terminated based on death or disability of the executive, for cause or without good reason, for cause or with good reason, and as a result of the change of control of the Company. The employment agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Compensation Committee of the Board of Directors of Orbsat Corp, the Company entered into an amendment to the current employment agreement to increase Mr. Uddin’s compensation by providing for an allowance of $600 per month for the payment of medical plan coverage for Mr. Uddin and his family.
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Carlise Employment Agreement
On June 22, 2021, the Company appointed Theresa Carlise, Controller, Treasurer and Secretary. The initial term of Ms. Carlise agreement is one year. The term of the employment agreement will be automatically extended for additional one-year terms unless terminated by the Company or Board. Also on March 3, 2016Ms. Carlise by written notice. Ms. Carlise’s annual base compensation is $, The agreement provides for medical plan coverage and effective January 1, 2016,an auto allowance. The Company may increase (but not decrease) her compensation during its term. In addition, Ms. Carlise will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. Ms. Carlise is also entitled to participate in any other executive compensation plans adopted by the Board of Directors and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine (the “Share Awards”). The Company is required to pay or to reimburse Ms. Carlise for all reasonable out-of-pocket expenses actually incurred or paid by Ms. Carlise in the course of her employment, consistent with the Company’s wholly owned subsidiary Orbital Satcom Corp.policy. Ms. Carlise shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and Mr. Phipps, terminated angroup health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior Employees. The employment agreement between them dated February 19, 2015 pursuant to which Mr. Phipps was employedmay be terminated based on death or disability of the executive, for cause or without good reason, for cause or with good reason, and as Presidenta result of Orbital Satcomthe change of control of the Company. The employment agreement also contains certain provisions that are customary for an annual base salary of $180,000. The other termsagreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Compensation Committee of the Board of Directors of Orbsat Corp, the Company entered into an amendment to the current employment agreement. The Amendment for Ms. Carlise amends her Employment Agreement in order to, among other things, change Ms. Carlise’s title to “Chief Accounting Officer, Secretary and Treasurer.
Lease Agreement
Effective July 24, 2019, a three-year lease was signed for 2,660 square feet for £25,536 annually, for our facilities in Poole, England for £2,128 per month, or $2,717 per month at the yearly average conversion rate of 1.276933, or $2,738 using exchange rate close at December 31, 2020 of 1.286618. The lease has been renewed until July 23, 2022.
On June 21, 2021, the Company entered into a lease agreement for office space in Aventura, FL. The term of the lease commenced on June 23, 2021 and has a minimum six month term. The monthly rent for this office space is $1,210. The lease agreement can be terminated with 60 days’ notice.
Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any leases classified as financing leases.
At June 30, 2021, the Company had current and long-term operating lease liabilities of $30,304 and $6,703, respectively, and right of use assets of $40,130.
Net rent expense for the six months ended June 30, 2021 and 2020 were $18,933 and $15,891, respectively.
Litigation
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed all compensation payable under his employment agreement executed in June 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or compensation relating to his prior service with the Company, are identicalor arising under any employment agreement. The Company believes it has adequate defenses to the termsany such claims. The Company has determined to initiate litigation against Mr. Seifert asserting a number of Mr. Phipps’claims including, but not limited to, rescission of the employment agreement, fraud in the inducement in connection with Orbital Satcom described above.the execution of the employment agreement, and breach of the fiduciary duties of good faith and loyalty. The Company does not expect to seek substantial monetary relief in the litigation.
Litigation
From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results.
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ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11– DERIVATIVE LIABILITY15 - CONCENTRATIONS
In June 2008 a FASB approved guidance related to the determination of whether a freestanding equity-linked instrument should be classified as equity or debt under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Stock. The adoption of this requirement will affect accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price (“down-round” provisions). Warrants with such provisions are no longer recorded in equity and are reclassified as a liability.Customers:
Instruments with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.
In connection with the issuance of its 6% convertible debentures and related warrants, the Company has determined that the terms of the convertible warrants include down-round provisions under which the exercise price could be affected by future equity offerings. Accordingly, the warrants areAmazon accounted for as liabilities at the date of issuanceapproximately 64.6% and adjusted to fair value through earnings at each reporting date. On May 17, 2016, the Company entered into exchange agreements with holders57.5% of the Company’s outstanding convertible notes inrevenues during the amount of $504,168 originally issued on December 28, 2015 (the “Notes”) pursuant to which the Notes were cancelledsix months ended June 30, 2021 and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Convertible Preferred Stock. Upon the conversion2020, respectively. No other customer accounted for 10% or more of the Series G Convertible Preferred Stock, additional paid in capital increased by $649,662 from the decrease in the Notes payable of $504,168, decrease in derivative liabilities of $146,502 and increase in Series G Convertible Preferred Stock of $1,008.Company’s revenues for either period.
Suppliers:
The Notes were accounted forfollowing table sets forth information as liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. The Company recorded amortization for the discount to the Notes of $0 and $602,515 at September 30, 2017 and December 31, 2016. As of September 30, 2017, and December 31, 2016, the Company has an unamortized discount balance of $0. The Company has recognized derivative liabilities of $0 at September 30, 2017 and December 31, 2016, respectively. The gain (loss) resulting from the decrease (increase) in fair value of this convertible instrument was $422,974 for the year ended December 31, 2016. The Company has recognized derivative liabilities for related warrants of $0 and $1,237 at September 30, 2017 and December 31, 2016, respectively. The gain resulting from the decrease in fair value of this convertible instrument was $1,237 and $3,119 for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. On May 19, 2017, the related warrant expired.
| Conversion feature derivative liability | Warrant liability | Total | ||||||||||
| Balance at January 1, 2016 | $ | 614,035 | $ | 4,356 | $ | 618,391 | ||||||
| Change in fair value included in earnings | (422,974 | ) | (3,119 | ) | (426,093 | ) | ||||||
| Net effect on additional paid in capital | (191,061 | ) | - | (191,061 | ) | |||||||
| Balance at December 31, 2016 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance at September 30, 2017 | $ | - | $ | - | $ | - | ||||||
NOTE 12 - CONCENTRATIONS
Customers:
No customersupplier that accounted for 10% or more of the Company’s revenues duringpurchases for the threesix months ended SeptemberJune 30, 20172021 and 2016.2020.
SCHEDULE OF CONCENTRATION RISK
| June 30, 2021 | June 30, 2020 | |||||||||||||||
| Globalstar Europe | $ | 445,615 | 18.7 | % | $ | 213,656 | 10.2 | % | ||||||||
| Garmin | $ | 521,219 | 21.9 | % | $ | 277,725 | 13.2 | % | ||||||||
| Network Innovations | $ | 434,875 | 18.3 | % | $ | 518,711 | 24.6 | % | ||||||||
| Cygnus Telecom | $ | 407,311 | 17.16 | % | $ | 275,595 | 13.1 | % | ||||||||
Suppliers:
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the three months ended SeptemberJune 30, 20172021 and 2016.2020.
| June 30, 2021 | June 30, 2020 | |||||||||||||||
| Globalstar Europe | $ | 152,393 | 8.1 | % | $ | 75,477 | 8.1 | % | ||||||||
| Garmin | $ | 284,975 | 15.1 | % | $ | 118,115 | 12.7 | % | ||||||||
| Network Innovations | $ | 152,471 | 8.1 | % | $ | 184,764 | 19.8 | % | ||||||||
| Cygnus Telecom | $ | 274,792 | 14.6 | % | $ | 137,068 | 14.7 | % | ||||||||
Geographic:
The following table sets forth revenue as to each geographic location, for the six months ended June 30, 2021 and 2020:
SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION
| June 30, 2021 | June 30, 2020 | |||||||||||||||
| Europe | $ | 2,462,148 | 70.0 | % | $ | 1,700,813 | 63.3 | % | ||||||||
| North America | 709,797 | 20.2 | % | 748,354 | 27.8 | % | ||||||||||
| South America | 15,839 | 0.5 | % | 14,404 | 0.5 | % | ||||||||||
| Asia & Pacific | 290,582 | 8.3 | % | 198,680 | 7.4 | % | ||||||||||
| Africa | 40,142 | 1.1 | % | 26,106 | 1.0 | % | ||||||||||
| $ | 3,518,508 | $ | 2,688,357 | |||||||||||||
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The following table sets forth revenue as to each geographic location, for the three months ended June 30, 2021 and 2020:
| June 30, 2021 | June 30, 2020 | |||||||||||||||
| Europe | $ | 1,430,559 | 70.5 | % | $ | 708,873 | 58.1 | % | ||||||||
| North America | 395,832 | 19.5 | % | 385,408 | 31.6 | % | ||||||||||
| South America | 7,825 | 0.4 | % | 3,599 | 0.3 | % | ||||||||||
| Asia & Pacific | 182,985 | 9.0 | % | 104,877 | 8.6 | % | ||||||||||
| Africa | 12,022 | 0.6 | % | 17,497 | 1.4 | % | ||||||||||
| $ | 2,029,223 | $ | 1,220,254 | |||||||||||||
NOTE 16 – SUBSEQUENT EVENTS
| September 30, 2017 | September 30, 2016 | |||||||||||||||
| Cygnus Telecom | $ | 357,846 | 9.7 | % | $ | 383,922 | 13.6 | % | ||||||||
| Delorme | $ | 204,253 | 5.5 | % | $ | 299,113 | 10.6 | % | ||||||||
| Globalstar Europe | $ | 489,026 | 13.3 | % | $ | 412,621 | 14.6 | % | ||||||||
| Network Innovations | $ | 1,468,253 | 39.8 | % | $ | 1,139,080 | 40.4 | % | ||||||||
On July 6, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $42,500.
On July 8, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $2,475,000.
On July 12, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $10,000.
On July 13, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $49,265.
Also, on July 13, 2021, Orbsat Corp announced that its Global Telesat Communications (“GTC”) unit has entered into an agreement with Alibaba.com, the B2B (Business-to-Business) e-commerce website owned and operated by Alibaba Group Holding Limited, also known as Alibaba Group (NYSE: BABA; HKEX: 9988), a Chinese multinational technology company specializing in e-commerce, retail, internet, and technology. GTC will be a Gold-level Supplier on Alibaba.com, the world’s largest Business-to-Business (B2B) e-commerce website.
Under the agreement, GTC significantly expands its 24/7/365 e-commerce presence with the launch of its latest global storefront. Orbsat expects to launch its new storefront during the third quarter with an extensive range of satellite IoT and connectivity products. These will include Orbsat’s specialized satellite tracking products, some of which operate using the Company’s many ground station based network processors, and can be used to track and monitor the location of cars, trucks, trailers, boats, containers, animals, and other remote assets. Orbsat’s full catalog of 500+ products and connectivity services will be available on Alibaba.com by the start of the first quarter of 2022. The Company will pay an annual fee of $ under the agreement. The agreement will continue on an year-to-year basis.
On July 14, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $667,775.
On July 15, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $975,000.
On July 19, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $5,000.
On July 22, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $25,000.
On August 2, 2021, the Company issued shares of common stock, for the exercise of warrants, at an exercise price of $5.00, for cash consideration of $400,000.
On August 7, 2021, on the approval and recommendation of the Compensation Committee of the Board, the Company entered into amendments (each an “Amendment”) to the current employment agreements (each, an “Employment Agreement”) of Charles M. Fernandez, the Company’s Executive Chairman and Chief Executive Officer; David Phipps, a Director and the Company’s President and the Chief Executive Officer of Global Operations; Sarwar Uddin, the Company’s Chief Financial Officer; and Theresa Carlise, the Company’s Chief Accounting Officer, Treasurer and Secretary.
The Amendment for Mr. Fernandez amends his Employment Agreement in order to, among other things, increase Mr. Fernandez’s compensation by (i) providing for medical plan coverage for Mr. Fernandez and his family at the expense of the Company, and (ii) providing for an auto allowance $1,000 per month. The Amendment for Mr. Phipps amends his Employment Agreement in order to, among other things, (i) change Mr. Phipps’ title to “President of Orbsat Corp and Chief Executive Officer of Global Operations” and (ii) increasing Mr. Phipps’ compensation by providing for an auto allowance $1,000 a month. The Amendment for Mr. Uddin amends his Employment Agreement in order to, among other things, increase Mr. Uddin’s compensation by providing for an allowance of $600 per month for the payment of medical plan coverage for Mr. Uddin and his family. The Amendment for Ms. Carlise amends her Employment Agreement in order to, among other things, change Ms. Carlise’s title to “Chief Accounting Officer, Secretary and Treasurer.”
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NOTE 13 - SUBSEQUENT EVENTS
On November 3, 2017, we held a special meeting of our shareholders in Miami, Florida. At the special meeting, our shareholders voted to approve a reverse split of our common stock at a ratio of not less than 1 for 300 and not more than 1 for 800, within the discretion of the Board of Directors, at any time prior to December 31, 2017. 61,517,335 votes, or 61.78% of the shareholder voting power, voted to approve the proposal. 16,123,364 votes were cast against the proposal, with 482,540 votes abstaining.
The date of the reverse split, as well as the specific split ratio, will be announced when determined and approved by our Board of Directors.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONOPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis orand Plan of Operation,Financial Condition and Results of Operations,” and elsewhere in this quarterly report on Form 10-Q that do not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company’s products, as well as other factors, many or all of which may be beyond the Company’s control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.
You should read the following information in conjunction with our financial statements and related notes contained elsewhere in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance.
We encourage you to review our periodic reports filed with the SEC and included in the SEC’s EdgarEDGAR database, including the annual reportAnnual Report on Form 10-K filed for the year ended December 31, 2016,2020, filed on April 7, 2017.
Corporate Information
On January 22, 2015, the Company changed its name to “Orbital Tracking Corp.” from “Great West Resources, Inc.” pursuant to a merger with a newly-formed wholly owned subsidiary.
On March 28, 2014, the Company merged with a newly-formed wholly-owned subsidiary of the Company solely for the purpose of changing its state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of its common stock, and changing its name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014 the Company abandoned its efforts to enter the potash business.
The Company was originally incorporated in 1997 as a Florida corporation. On April 21, 2010, the Company merged with and into a newly-formed wholly-owned subsidiary for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to “Silver Horn Mining Ltd.” pursuant to a merger with a newly-formed wholly-owned subsidiary.
Global Telesat Communications Limited (“GTCL”) was formed under the laws of England and Wales in 2008. On February 19, 2015, the Company entered into a share exchange agreement with GTCL and all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly owned subsidiary of the Company.
For accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization of Orbital Tracking Corp. with Global Telesat Communications Limited considered the accounting acquirer,SEC on March 22, 2021, and the financial statementsCompany’s subsequent public filings with the SEC.
Corporate Information
We are a provider of the accounting acquirer became the financial statements of the registrant. The completion of the Share Exchange resulted in a change of control. The Share Exchange was accounted for as a reverse acquisition and re-capitalization. The GTCL Shareholders obtained approximately 39% of voting control on the date of Share Exchange. GTCL was the acquirer for financial reporting purposes and the Orbital Tracking Corp. was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historical results of GTCL and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.
The Company is a distributor, developer and reseller of satellite enabled communicationssatellite-based hardware, and provides products, airtime and related services to customers located both in the United States and internationally through its subsidiaries, US based Orbital Satcom Corp. (“Orbital Satcom”) and UK based Global Telesat Communications Limited (“GTCL”).internationally. We sell equipment and airtime for use on all of the major satellite networks including Globalstar, Inmarsat, Iridium and Thuraya. We specialize in offering a range of satellite enabled personalThuraya and asset tracking products and provide an advanced mapping portal for customers using our range of GSM and satellite based GPS tracking devices. Additionally, we operate a short-term rental service for customers who requiredesire to use of our equipment for a limited time without the up-front expense of purchasing hardware.
period. Our acquisition of GTCL in February 2015 expanded our global satellite basedsatellite-based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts which entitle us to transmit GPS tracking coordinates and other information at preferential rates through one ofcontracts.
COVID-19 Update
In March 2020, the world’s largest commercial satellite networks.
We now have a physical presence inWorld Health Organization declared the UK and Miami, as well as our online storefront presence in more than 10 countries, and have in excess of 20,000 customers located in almost 80 countries across every continent in the world. Our customers include businesses, U.S. and foreign governments, non-governmental and charitable organizations, military users and private individuals located all over the world.
Recent Transactions
Acquisition of Global Telesat and Related Transactions
On February 19, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series E Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series E Convertible Preferred Stock. Pursuant to the Series E Certificate of Designation, the Company designated 8,746,000 shares of its blank check preferred stock as Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the eventoutbreak of a liquidation, dissolution or winding upnovel coronavirus (“COVID-19”) a global pandemic prompting government-imposed quarantines, suspension of the Company, the holderin-person attendance of the Series E Convertible Preferred Stock would have preferential paymentacademic programs, and distribution rights over any other class or seriescessation of capital stock that provide for Series E Convertible Preferred Stock’s preferential paymentcertain travel and over our common stock.business closures. The Series E Convertible Preferred is convertible into ten (10) shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Convertible Preferred Stock to the extent that,United States has entered a recession as a result of such conversion, the holder beneficially owns more than 4.99%,COVID-19 pandemic, which may prolong and exacerbate the negative impact on us. Although we expect the availability of vaccines and various treatments with respect to COVID-19 to have an overall positive impact on business conditions in the aggregate over time, the exact timing of these positive developments is uncertain. In December 2020, the United States began distributing two vaccines that, in addition to other vaccines under development, are expected to help to reduce the spread of the issuedcoronavirus that causes COVID-19 once they are widely distributed. If the vaccines prove less effective than currently understood by the scientific community and outstandingthe United States Food and Drug Administration, or if there are problems with the acceptance, availability, timing or other difficulties with widely distributing the vaccines, the pandemic may last longer, and could continue to impact our business for longer, than we currently expect. In response to COVID-19, governmental authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter in place orders and recommendations to practice social distancing. Although many governmental measures have had specific expiration dates, some of those measures have already been extended more than once, and there is considerable uncertainty regarding the duration of such measures and the implementation of any potential future measures, especially if cases increase across the United States, with the potential for additional challenges resulting from the emergence of new variants of COVID-19, some of which may be more transmissible than the initial strain. Such measures have impacted, and may continue to affect, our workforce, operations, suppliers and customers. We reduced the size of our workforce following the onset of COVID-19 and may need to take additional actions to further reduce the size of our workforce in the future; such reductions incur costs, and we can provide no assurance that we will be able to rehire our workforce in the event our business experiences a subsequent recovery. We took steps to curtail our operating expenses and conserve cash. We may elect or need to take additional remedial measures in the future as the information available to us continues to develop, including with respect to our workforce, relationships with our third-party vendors, and our customers. There is no certainty that the remedial measures we have implemented to date, or any additional remedial steps we may take in the future, will be sufficient to mitigate the risks posed by COVID-19. Further, such measures could potentially materially adversely affect our business, financial condition and results of operations and create additional risks for us. Any escalation of COVID-19 cases across many of the markets we serve could have a negative impact on us. Specifically, we could be adversely impacted by limitations on our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring our stores to close or employees to remain at home; limitation of carriers to deliver our product to customers; product shortages; limitations on the ability of our customers to conduct their business and purchase our products and services; and limitations on the ability of our customers to pay us in a timely manner. These events could have a material, adverse effect on our results of operations, cash flows and liquidity.
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The ultimate magnitude of COVID-19, including the full extent of the material negative impact on our financial and operational results, will depend on future developments, such as the duration and severity of the pandemic, the extent of any additional increases in cases across the United States, and the related length of its impact on the global economy, as well as the timing and availability of effective medical treatments and vaccines, which remain uncertain and cannot be predicted at this time. The resumption of our normal business operations may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers and/or third-party service providers. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not currently ascertainable. Due to the daily evolution of the COVID-19 pandemic and the responses to curb its spread, we cannot predict the full impact of the COVID-19 pandemic on our business and results of operations, but our business, financial condition, results of operations and cash flows have already been materially adversely impacted, and we anticipate they will continue to be adversely affected by the COVID-19 pandemic and its negative effects on global economic conditions. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a variety of factors, such as any increase in COVID-19 infections. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its national and, to some extent, global economic impact, including the current recession and any recession that may occur in the future.
The success of our business depends on our global operations, including our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced shortages in inventory due to manufacturing issues, a reduction in the volume of sales in some parts of our business, such as rental sales and direct website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the six months ended June 30, 2021 and the year ended December 31, 2020 reflect this impact; however, we expect that this trend may continue and the full extent of the impact is unknown. In recent months, some governmental agencies in the US and Europe, where we produce the largest percentage of our sales, have lifted certain restrictions. However, if customer demand continues to be low, our future equipment sales, subscriber activations and sales margin will be impacted. We have implemented several measures to minimize the impact on our operations and sustain our liquidity position, including receiving support through the US payroll protection program loan (“PPP”), a low interest, fixed rate loan provided under the UK’s Coronavirus Business Interruption Loan (“CBILS”) and the deferral of certain UK taxes.
Recent Events
As of June 30, 2021, there were 50,000,000 shares of common stock calculated immediately after giving effect to the issuance ofauthorized and 5,476,918 shares of common stock upon the conversion of the Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series E Convertible Preferred Stock entitles the holder to cast ten (10) votes per share of Series E Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.issued and outstanding.
On February 19, 2015, the Company entered into a share exchange agreement with Global Telesat Communications Limited, a Private Limited Company formed under the laws of England and Wales (“GTCL”) and all of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly issued Series E Convertible Preferred Stock of the Company (the “Series E Preferred Stock”) with each share of Series E Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.
Also on February 19, 2015, David Phipps, the founder, principal owner and sole director of GTCL and the former founder and president of GTC, was appointed President of Orbital Satcom. Following the transaction, Mr. Phipps was appointed Chief Executive Officer and Chairman of2021, the Board of Directors of the Company. The acquisition of GTCL expands the Company’s global satellite based business and enables the Company to operate as a vertically integrated satellite services business with experienced management operating from additional locations in Poole, England in the United Kingdom and Aventura, Florida.
On February 19, 2015, the Company issued to Mr. Rector, the former Chief Executive Officer, Chief Financial Officer and director of the Company, 850,000 shares of common stock and a seven year immediately vested option to purchase 2,150,000 shares of common stock at a purchase price of $0.05 per share as compensation for services provided to the Company.
On February 19, 2015, the Company soldunanimously adopted an aggregate of 550,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $1,100,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share, with each share convertible into ten (10) shares of common stock. The Company sold 15,000 units consisting of an aggregate of 600,000 shares of common stock and 535,000 units consisting of an aggregate of 2,140,000 shares of Series C Convertible Preferred Stock.
On February 19, 2015, the Company issued an aggregate of 1,675,000 shares of common stock to certain current consultants, former consultants and employees. These shares consist of (i) 250,000 shares of common stock issued to a consultant as compensation for services relating to the provision of satellite tracking hardware and related services, sales and lead generation, valued at $12,500 (ii) 1 million shares of common stock issued to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property, valued at $50,000 (iii) 250,000 shares of common stock, subject to a one year lock up, issuedamendment to the Company’s controller, valued at $12,500 and (iv) 175,000 sharesArticles of commonIncorporation to effect, a reverse stock issued to MJI in full satisfaction of outstanding debts of $175,000. MJI agreed to sell only up to 5,000 shares per day and the Company has a nine month option to repurchase these sharessplit at a purchase priceratio of $0.75 per share.
GlobalStar License Acquisition
On October 13, 2015, the Company through its wholly owned subsidiary, Orbital Satcom Corp, purchased from World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp the “Globalstar” license and equipment, which it had previously leased. On December 10, 2014, the Company, entered into a License Agreement with World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp, by which the Company had an irrevocable non-exclusive license to use certain equipment, consisting of Appliques for a term of ten years. Appliques are demodulator and RF interfaces located at various ground stations for gateways. The Company issued 2,222,222 common shares, valued at $1 per share based on the quoted trading price on date of issuance, or $2,222,222. The company reflected the license as an asset on its balance sheet with a ten-year amortization, the term of the license. On October 13, 2015, the Company acquired the license for additional consideration of $125,000 in cash. The Company valued the asset at $2,160,016, which is the unamortized balance of the Appliques License, $2,043,010 plus the consideration of $125,000.
December 2015 Financings
On December 21, 2015, the Company entered into a Placement Agent Agreement with Chardan Capital Markets LLC, as Agent, pursuant to which the Placement Agent agreed to serve as the non-exclusive placement agent for the Company in connection with any private placement from December 21, 2015 through January 15, 2017. The Company agreed to pay the Placement Agent a cash fee of $50,000 and issue the Placement agent 250,000 shares of common stock following the issuance of at least $900,000 of securities prior to the expiration of the term of the Placement Agent Agreement. On December 28, 2015, upon closing of the note purchase and Series F subscription agreements, the Company paid the respective fees and issued the common shares.
On December 28, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series F Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series F Convertible Preferred Stock. Pursuant to the Series F Certificate of Designation, the Company designated 1,100,000 shares of its blank check preferred stock as Series F Convertible Preferred Stock. Each share of Series F Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series F Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series F Convertible Preferred Stock’s preferential payment and over our common stock. The Series F Convertible Preferred is convertible into one (1) share of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series F Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F Convertible Preferred Stock. Each share of Series F Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series F Convertible Preferred Stock entitles the holder to cast one (1) vote per share of Series F Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.
On December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $550,000 of shares of Series F convertible preferred stock at a purchase price of $0.50 per share. The Preferred F Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. Subject to certain specified exceptions, in the event the Company issues securities at a per share price(i) no less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance.
On December 28, 2015, the Company entered into separate note purchase agreements with accredited investors relating to the issuance and sale of an aggregate of $605,000 in principal amount of original issue discount convertible notes for an aggregate purchase price of $550,000.
The Notes mature on December 28, 2017. The Company must repay 1/24th of the principal of the Notes each month commencing January 18, 2016. The Notes do not bear interest except that all overdue and unpaid principal bears interest at a rate equal to the lesser of 18% per year or the maximum rate permitted by applicable law. The Notes are convertible into common stock at the option of the holder at a conversion price of $1.00, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events; provided however, that the principal and interest, if any, on the Notes may not be converted to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Notes. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of one year from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Notes with a conversion price equal to the lower price issuance.
Pursuant to the Subscription Agreement and Note Purchase Agreement, the Company agreed to use its reasonable best efforts to effectuate the increase of its authorized shares of common stock from 200,000,000 shares of common stock to 750,000,000 shares of common stock on or prior to January 31, 2016. The Company’s shareholders on March 5, 2016, approved the increase in authorized common and preferred shares. $350,000 of the proceeds from the sale of Preferred F Shares and the Notes are intended to be utilized for public relations and expenses associated with publications, reports and communications with shareholders and others concerning the company’s business. The Subscription Agreement provides the purchasers of the Preferred F Shares with a 100% right of participation in all future securities offerings of the Company, subject to customary exceptions.
On May 17, 2016, the Company entered into exchange agreements with holders of the Company’s outstanding $504,168 convertible notes originally issued on December 28, 2015, pursuant to which the Notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Preferred Stock.
The terms of the shares of Series G Preferred Stock are set forth in the Certificate of Designation of Series G Preferred Stock as filed with the Secretary of State of the State of Nevada. The Series G COD authorizes 10,090,000 Preferred G Shares. The Preferred G Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of1-for-2 shares of Common Stock, upon conversionand (ii) no more than 1-for-5 shares of Common Stock, the Preferred G Shares. Each Preferred G Share entitles the holderexact ratio to vote on all matters voted on by holders of common stock as a single class. with respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation. Subject to certain specified exceptions,be determined in the event the Company issues securities at a per share price less than the conversion price prior to December 28, 2016, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred G Shares with a conversion price equal to the lower price issuance.
The exchanging holders, GRQ Consultants Inc. 401K, Michael Brauser and Intracoastal Capital LLC, are each holders of over 5% of a class of the Company’s voting securities.
Key Compensation Arrangements
On December 28, 2015, the Company and Theresa Carlise, its Chief Financial Officer, amended her employment agreement, dated June 9, 2015. Pursuant to the Amendment, which is effective December 1, 2015, the term of Ms. Carlise’s employment was extended to December 1, 2016 from June 9, 2016, her annual salary was increased to $140,000 from $72,000 and she agreed to devote her full business time to the Company. The term of the Original Agreement, as amended by the Amendment, shall automatically extend for additional terms of one year each, unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the initial term or the then current renewal term, as applicable.
Also on December 28, 2015, the Company issued Ms. Carlise options to purchase up to 500,000 shares of common stock and issued Hector Delgado, a director of the Company, options to purchase up to 200,000 shares of common stock. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the Plan. The options have an exercise price of $0.05 per share, vest immediately, and have a term of ten years.
On January 15, 2016, the Company engaged IRTH Communications LLC., for a term of 12 months to provide investor relations, public relations, internet development, communication and consulting services. As consideration for its services, IRTH will receive from the Corporation a monthly fee of $7,500 and as a single one-time retainer payment, $100,000 worth of shares of the Company’s common stock; calculated by the average closing price of the Company’s common stock on its principal exchange for the 10 (ten) trading days immediately prior to the execution of this Agreement; which shares shall be Restricted Securities, pursuant to the provisions of Rule 144. As additional compensation, in the event the Company, during or within two (2) years after the term of this Agreement, receives investment monies (debt, equity or a combination thereof) from investor(s) introduced to the Company by IRTH as described herein, Company agrees to pay IRTH a finder’s fee equal to three percent (3%) of all gross monies invested by investor(s) and received by Company.
On February 11, 2016, the Company issued 136,612 shares of its common stock, valued at $0.60 per share, or $81,967, to IRTH Communications LLC for services, as disclosed above.
On March 3, 2016, the Company entered into an Executive Employment Agreement with David Phipps, its Chairman, President and Chief Executive Officer, effective January 1, 2016. Under the Employment Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President, and receive an annual base salary equal to the sum of $144,000 and £48,000. Mr. Phipps is also eligible for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. Also on March 3, 2016 and effective January 1, 2016, the Corporation’s wholly owned subsidiary Orbital Satcom Corp. and Mr. Phipps terminated an employment agreement between them dated February 19, 2015 pursuant to which Mr. Phipps was employed as President of Orbital Satcom for an annual base salary of $180,000. The other terms of the Original Agreement are identical to the terms of the Employment Agreement. Mr. Phipps remains the President of Orbital Satcom.
On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise, 1,250,000 options to Hector Delgado, its Director and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. All of the options are fully vested and have an exercise price of $0.01 per share and a term of 10 years.
Series H Preferred Stock Financing
On October 26, 2016, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of $350,000, out of a maximum of $800,000, of shares of Series H Preferred Stock at a purchase price of $4.00 per share. The initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H COD. The Company is prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock. Each Series H Preferred Stock entitles the holder to cast one vote per share of Series H Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Preferred Series C, Preferred Series G and Preferred Series H, as well as antidilution rights. Certain shareholders have waived their right to adjustment, equal treatment, most favored nations and other rights to which they were entitled pursuant to the Prior Offerings, including without limitation, certain rights granted to holders of our Series C Preferred Stock, Series F Preferred Stock and G Preferred Stock. The Company was required to issue 550,000 shares of its Preferred Series C, which is convertible into 5,500,000 shares of the Company’s common stock and 114,944 shares of Preferred Series I, which is convertible into 11,494,400 shares of the Company’s common stock. Preferred Series I was issued to certain holders in lieu of Preferred Series G and Preferred Series H.
Series J Preferred Stock Financing
On May 31, 2017, the Company entered into separate subscription agreements with accredited investors relating to the issuance of shares of Series J Preferred Stock at a purchase price of $10.00 per share for sale of $500,000 proceeds and settlement of $46,694 accounts payable. The Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J COD. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.
In connection with the Series J Offering, the Company obtained the consent of certain shareholders, as required under the agreements entered into by the Company and issued shares pursuant to applicable anti-dilution obligations. The Company is required to issue to certain prior investors of Series G Preferred Stock additional shares of Series G Preferred Stock, which would be convertible into an aggregate of 38,805,668 shares of the Company’s common stock. However, in lieu of issuing such additional shares of Series G Preferred Stock, the Company will create a new series of preferred stock, to be designated as “Series K Preferred Stock” and will issue to such holders of Series G Preferred Stock an aggregate of 388,057 shares of Series K Preferred Stock, each of which shall be convertible into 100 shares of the Company’s common stock. In addition, in order to proceed with the Series J Offering, the Company agreed to issue additional shares of Series F Preferred Stock and Series H Preferred Stock to certain prior investors. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series H Preferred Stock, the Company issued to such holders of Series F Preferred Stock and Series H Preferred Stock an aggregate of 701,832 shares of Series K Preferred Stock, each of which are convertible into 100 shares of the Company’s common stock, or 70,183,243 shares. In addition, certain creditors of the Company were also entitled to anti-dilution protection from issuances and as a result such creditors were, at the closing of the Series J Offering, issued an aggregate of 76,762 shares of Series K Preferred Stock convertible into 7,676,241 shares of common stock in full satisfaction of payments owed to them.
The following table describes the capital raised for the periods as described above:
| Date | Units | Stated Value | Total Proceeds | Common Equivalents | Anti-Dilution Issuances | Total Common Equivalents | ||||||||||||||||||||||
| Preferred Series C | 2/19/2015 | 550,000 | $ | 2.00 | $ | 1,100,000 | 22,000,000 | 5,500,000 | 27,500,000 | |||||||||||||||||||
| Preferred Series F | 12/28/2015 | 1,099,998 | $ | 0.50 | $ | 550,000 | 1,099,998 | 53,899,902 | 54,999,900 | |||||||||||||||||||
| Preferred Series G | 5/17/2016 | 10,083,351 | $ | 0.05 | $ | 504,168 | 10,083,351 | 40,333,449 | 50,416,800 | |||||||||||||||||||
| Preferred Series H | 10/31/2016 | 87,500 | $ | 4.00 | $ | 350,000 | 8,750,000 | 26,250,000 | 35,000,000 | |||||||||||||||||||
| Preferred Series J | 5/31/2017 | 50,000 | $ | 10.00 | $ | 500,000 | 5,000,000 | - | 5,000,000 | |||||||||||||||||||
| $ | 3,004,168 | 46,933,349 | 125,983,351 | 172,916,700 | ||||||||||||||||||||||||
Reverse Stock Split
On November 3, 2017, we held a special meeting of our shareholders in Miami, Florida. At the special meeting, our shareholders voted to approve a reverse split of our common stock at a ratio of not less than 1 for 300 and not more than 1 for 800, within thesole discretion of the Board of Directors, at any time before August 31, 2021. The Board of Directors has obtained (by written consent) the approval of the Company’s stockholders who, in the aggregate, own 2,686,337 shares of Common Stock, or 63.5% of the outstanding shares of Common Stock of the Company prior to December 31, 2017. 61,517,335 votes, or 61.78%the Reverse Split Action.
On January 12, 2021, the Company issued an aggregate of 30,000 common stock upon the conversion of $30,000 of its convertible debt, at the conversion rate of $1.00 per share.
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On February 23, 2021, the Company issued an aggregate of 80,289 common stock upon the conversion of $80,289 of its convertible debt, at the conversion rate of $1.00 per share.
On February 23, 2021, the Company issued an aggregate of 120,000 common stock upon the conversion of $150,000 of its convertible debt, at the conversion rate of $1.25 per share.
On February 23, 2021, the Company issued an aggregate of 1,000 common stock for services in the amount of $14,200.
On March 1, 2021, the Company issued an aggregate of 149,532 common stock upon the conversion of $149,532 of its convertible debt, at the conversion rate of $1.00 per share.
On March 1, 2021, the Company issued an aggregate of 38,616 common stock upon the conversion of $48,270 of its convertible debt, at the conversion rate of $1.25 per share.
On March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock split not to exceed 1 for 5 reverse stock split. A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13, 2021. The Company’s Board of Directors subsequently approved a 1-for-5 reverse stock split. The Company has filed a Certificate of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common stock, at a ratio of 1-for-5. The effective time of the shareholder voting power, votedreverse stock split was 12:01 a.m. ET on May 28, 2021. The Company’s common stock began trading on a split-adjusted basis commencing upon market open on May 28, 2021. The common stock has been assigned a new CUSIP number, 68557F 209. The warrants were assigned the CUSIP number, 68557F 118. No fractional shares of common stock will be issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to approvereceive a fractional share received a whole share.
On May 20, 2021, the proposal. 16,123,364 votesCompany issued an aggregate of 29,800 common stock upon the conversion of $29,800 of its convertible debt, at the conversion rate of $1.00 per share.
On May 27, 2021, the Company issued an aggregate of 897,231 common stock upon the conversion of $1,156,377 of its convertible debt, at a weighted average conversion rate of $1.28
Listing on the Nasdaq Capital Market
On Nasdaq on May 28, 2021, our common stock and Warrants commenced trading on Nasdaq under the symbols “OSAT” and “OSATW,” respectively.
June Public Offering
On May 28, 2021, Company, entered into an Underwriting Agreement with Maxim Group LLC (the “Underwriter”) pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the June Offering) 2,880,000 units consisting of one share of common stock and one warrant exercisable for one share of common stock at a public offering price of $5.00 per unit (after giving effect to a 1-for-5 reverse stock split, discussed above) for aggregate gross proceeds of approximately $14,400,000 before deducting underwriting discounts, commissions, and other offering expenses. The common stock and warrants were cast againstimmediately separable and were issued separately. The common stock and warrants began trading on the proposal, with 482,540 votes abstaining.Nasdaq Capital Market, on May 28, 2021, under the symbols “OSAT” and “OSATW,” respectively. In addition, the Company granted the Underwriter a 45-day option to purchase an additional 432,000 shares of common stock and/or warrants to purchase up to an aggregate of 432,000 shares of common stock, in any combination thereof, at the public offering price per security, less the underwriting discounts and commissions, to cover over-allotments, if any. The June Offering closed on June 2, 2021.
In connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and purchased an additional 432,000 warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon the exercise in full of the balance of its over-allotment option, purchased 432,000 additional shares of the common stock for additional gross proceeds to the Company of $2,155,680.
We have issued to the Underwriter warrants to purchase up to a total of 144,000 shares of common stock (5% of the shares of common stock included in the Units, excluding the over-allotment, if any) (the “Underwriter Warrants”). The Underwriter Warrants are exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective date of the reverse split, as well asregistration statement, and expire five years from the specific split ratio,effective date of the offering, which period is in compliance with FINRA Rule 5110(e). The Underwriter Warrants are exercisable at a per share price equal to $5.50 per share, or 110% of the public offering price per unit in the offering. The Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement. In addition, the warrants provide for certain piggyback registration rights. The piggyback registration rights provided will not be greater than five years from the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the Underwriter Warrants. The exercise price and number of shares issuable upon exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
On June 10, 2021, the Company issued 1,000 shares of common stock, for the exercise of 1,000 warrants, at an exercise price of $5.00, for cash consideration of $5,000.
Enterprise Resource Planning System (ERP)
On August 10, 2021, the Company signed an agreement with NetSuite to purchase and implement an enterprise resource planning ERP system to replace our legacy business applications. The new ERP platform will provide better support for our changing business needs and plans for future growth. The project includes software, external implementation assistance, testing, training, and support. The entire cost of the ERP software and implementation will be announced when determineddeferred until 2022. We anticipate that approximately 40% of the cost will be expensed in the period incurred and approved by our Board of Directors.60% will be capitalized and depreciated over its useful life.
Results of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20172021, compared to the Three and NineSix Months Ended SeptemberJune 30, 20162020
Revenue.Revenue. Net Sales for the three and ninesix months ended SeptemberJune 30, 20172021, consisted primarily of sales of satellite phones, tracking devices, accessories and airtime plans. For the six months ended June 30, 2021, revenues generated were $3,417,688 compared to $2,688,357 of revenues for the six months ended June 30, 2020, an increase in total revenues of $729,331 or 27.14%. Total net sales for Global Telesat Communications Ltd. were $2,398,012 for the six months ended June 30, 2021, as compared to $1,666,937 for the six months ended June 30, 2020, an increase of $731,075 or 43.9%. Total net sales for Orbital Satcom Corp. were $1,018,776 for the six months ended June 30, 2021, as compared to $1,021,420, for the six months ended June 30, 2020, a decrease of $2,642 or 0.2%. The Company attributes the changes in revenue to new product lines and significant increases in US Amazon sales, offset by the change in exchange rates from GBP:USD.
Net sales for the three months ended June 30, 2021, consisted primarily of sales of satellite phones, tracking devices, accessories and airtime plans. For the three months ended SeptemberJune 30, 2017,2021, revenues generated were approximately $1,588,466$1,956,260 compared to approximately $1,299,373$1,220,254 of revenues for the three months ended SeptemberJune 30, 2016, an2020, a increase in total revenues of $289,093$736,005 or 22.3%60.3%. SalesTotal net sales for the nine months ended September 30, 2017Global Telesat Communications Ltd. were $4,547,491 compared to approximately $3,783,230 of revenues during the nine months ended September 30, 2016, a $764,261 increase in total revenues or 20.2%. The Company attributes the increases in revenue to an increase in recurring revenue related customer and the introduction of new product lines, offset by exchange rate variances as described above.
Cost of Sales.During the three months ended September 30, 2017, cost of revenues increased to $1,240,654 compared to $1,035,278$1,392,322 for the three months ended SeptemberJune 30, 2016,2021, as compared to $716,820 for the three months ended June 30, 2020, an increase of $205,376$675,502 or 19.8%94.3%. ForTotal net sales for Orbital Satcom Corp. were $563,938 for the ninethree months ended SeptemberJune 30, 2017, cost of revenues increased to $3,589,5372021 as compared to $2,935,631$503,434, for the ninethree months ended SeptemberJune 30, 2016,2020, an increase of $653,906$60,504 or 22.3%12.0%.
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Cost of Sales. During the six months ended June 30, 2021, cost of sales increased to $2,438,681 compared to $2,082,664, for the six months ended June 30, 2020, an increase of $356,017 or 17.09%. Gross profit margins during the threesix months ended SeptemberJune 30, 20172021 were 21.9%28.65% as compared to 20.3%22.53% for the comparable period in the prior year. During the ninethree months ended SeptemberJune 30, 2017, gross2021, cost of sales increased to $1,414,770 compared to $962,562, for the three months ended June 30, 2020, an increase of $452,208 or 46.98%. Gross profit margins during the three months ended June 30, 2021, were 21.1%27.69% as compared to 22.4%21.12% for the comparable period in the prior year. As indicated by the results for the three and six months, our sales margins have increased by 6.57% and 6.12%, respectively. However, we cannot be certain that we can maintain the increased margin levels. The increase is primarily due to a greater percentage of high margin sales in the second quarter ended June 30, 2021, as compared to the same period in 2020, as well to as an increase in margins on certain sales that resulted from customers bearing value added tax (VAT) that was previously borne by the Company.
Operating Expenses. Total operating expenses for the six months ended June 30, 2021 were $1,827,272, an increase of $841,096 or 85.29%, from total operating expenses for the six months ended June 30, 2020 of $986,177. Total operating expenses for the three months ended June 30, 2021 were $1,090,826, an increase of $643,890 or 144.07%, from total operating expenses for the three months ended June 30, 2020 of $446,936. Factors contributing to the decrease are described below.
Selling, general and administrative expenses were $443,696 and $304,171 for the six months ended June 30, 2021 and 2020, respectively, an increase of $139,525 or 45.87%. Selling, general and administrative expenses were $282,006 and $146,965 for the three months ended June 30, 2021 and 2020, respectively, an increase of $135,041 or 91.89%. The increase, for the three and six months ended June 30, 2021, is attributable to certain SG&A expenses such bank charges, credit card fees, Amazon fees, and shipping charges that fluctuate with sales volatility.
Salaries, wages and payroll taxes were $687,712 and $346,046 for the six months ended June 30, 2021 and 2020, respectively, an increase of $341,666, or 98.73%. Salaries, wages and payroll taxes were $479,538 and $150,404 for the three months ended June 30, 2021, and 2020, respectively, an increase of $329,134, or 218.83%. The increase is a result of executive management adjusted salaries, increased regular staff, and the payment of executive bonuses related to successful up-listing to Nasdaq approved by the board, for the three and six months ended June 30, 2021.
Professional fees were $548,916 and $191,665 for the six months ended June 30, 2021 and 2020, respectively, an increase of $357,251, or 186.39%. Professional fees were $256,034 and $76,776 for the three months ended June 30, 2021 and 2020, respectively, an increase of $179,258, or 233.48%. The increase during the three and six months ended June 30, 2021 as compared to the same period in 2020, is attributable to an increase in board members, increased investor relations and other professional fees to assist in capital raising efforts as well as up-listing to Nasdaq.
Depreciation and amortization expenses were $146,948 and $144,295 for the six months ended June 30, 2021 and 2020, respectively, an increase of $2,653 or 1.84%. Depreciation and amortization expenses were $73,248 and $72,791 for the three months ended June 30, 2021 and 2020, respectively, an increase of $457 or 0.63%. The increase was primarily attributable to the addition of fixed assets offset by fully amortized assets, as compared to the same period in the prior year.
We expect our costexpenses in each of revenuesthese areas to continue to increase during fiscal 20172021 and beyond as we expand our operations and begin generating additional revenues under our current business. However,Similarly, we are unable at this time to estimate the amount of the expected increases. Gross margins reacted negatively with
Total Other (Income) Expense. Our total other expense (income) were $1,413,271 compared to $(122,190) during the devaluation of GBP against US$ following the BREXIT vote and in order to remain competitive we had to maintain product pricing. In addition, we attracted new reseller customers who buy in larger quantities at lower margins.
Operating Expenses.Total operating expenses for the threesix months ended SeptemberJune 30, 2017 were $574,971, an increase of $3,174, or 0.6%, from total operating expenses for the three months ended September 30, 2016 of $571,797. For the nine months ended September 30, 2017 total operating expenses were $2,226,923, as compared to $2,058,131, for the same period in 2016, an increase of $168,792 or 8.2%. Factors contributing to the increase are described below.
Selling, general2021 and administrative expenses were $158,312 and $150,024 for the three months ended September 30, 2017 and 2016,2020, respectively, an increase of $8,288$1,535,461 or 5.5%1,256.62%. For the nine months ended September 30, 2017, selling, general and administrative expenses were $456,935 as compared to $456,881, an increase of $54 or 0.01%. The increase for the three and nine months ended September 30, 2017, was due to lower exchange rates in the current period offset by variable expenses which increase as revenue increases.
Salaries, wages and payroll taxes were $178,762 and $158,720, for the three months ended September 30, 2017 and 2016, respectively, an increase of $20,042, or 12.6%. For the nine months ended September 30, 2017, salaries, wages and payroll taxes were $513,349 as compared to $503,556, an increase of $9,793, or 1.9%, for the same period in the prior year. For the three and nine months ended September 30, 2017, the increase is attributable to an increase in compensation as a result of additional employees, offset by the decrease in the exchange rate.
Stock based compensationwas $0 and $600,000 for the three and nine months ended September 30, 2017, as compared to $0 for the three and nine months ended September 30, 2016. On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. All of the options are fully vested and have an exercise price of $0.01 per share and a term of 10 years.
Professional fees were $163,754 and $192,834 for the three months ended September 30, 2017 and 2016, respectively, a decrease of $29,080, or 15.1%. For the nine months ended September 30, 2017, professional fees were $432,320 as compared to $881,318, a decrease of $448,998 or 51.0% from the nine months ended September 30, 2016. The decrease was primarily attributable to the Company’s decrease of investor relation fees from the same period in the prior year.
Depreciation and amortizationexpenses were $74,143 and $70,219 for the three months ended September 30, 2017 and 2016, respectively, an increase of $3,924 or 5.6%. For the nine months ended September 30, 2017 depreciation and amortization expenses were $224,319 as compared to $216,375, an increase of $7,944, or 3.7% from the same period in the prior year. For the three and nine months, the increase in depreciation is proportionately related to an increased in website development, which has a shorter useful life and an increase in computer equipment, respectively.
We expect our expenses in each of these areas to continue to increase during fiscal 2017 and beyond as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.
Total Other (Income) Expense. Our total other (income) expenses were $38,540expense was $909,058 compared to $30,970income of $(215,810) during the three months ended SeptemberJune 30, 20172021 and 2016 respectively, an2020, respectively. The increase of $7,570. Our total other (income) expenses were $2,340,370in the three and six months ended June 30, 2021, as compared to $241,932 during the nine months ended September 30, 2017 and 2016 respectively, an increase of $2,098,438. The increaseprior year, is primarily attributable to increased in interest expense $940,907 and $1,461,601, respectively, relating the expense of $2,308,981 related tobeneficial conversion feature for the Series J Preferred stock issuance, for price protection to certain Subscribers of Preferred Series F, Preferred Series G and Preferred Series H. The additional issuance for price protection, while expensed as other expense, also results as an increase to additional paid in capital.
convertible debt.
Net Income (Loss)Loss
. We recorded net loss before income tax of $265,699,$1,458,394 and $2,261,536 for the three and six months ended SeptemberJune 30, 20172021 as compared to a net lossincome of $338,672, for the three months ended September 30, 2016. We recorded net loss before income tax of $3,609,339, for the nine months ended September 30, 2017 as compared to$26,566 and a net loss of $1,452,463,$258,294, for the ninethree and six months ended SeptemberJune 30, 2016.2020. The increase in netthe loss is a result of the factors as described above.
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Comprehensive Gain (Loss) Income
. We recorded a gainloss for foreign currency translation adjustments for the three and six months ended SeptemberJune 30, 20172021 of $14,345 and 2016, of $18,485 and $19,888, respectively.$12,734. For the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2020 we recorded a gain of $32,926$5,602 and $17,513, respectively. The fluctuationsa loss of the increase are primarily attributed to the increase recognized due to exchange rate variances.$8,866.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At SeptemberJune 30, 2017,2021, we had a cash balance of $268,216.$14,415,649. Our working capital is $161,769a positive $14,118,502 at SeptemberJune 30, 2017.2021.
Our current assets at SeptemberJune 30, 20172021 increased by approximately 80.9%$14,932,625 or 1,088% from December 31, 20162020 and included cash, accounts receivable, VAT receivable, prepaid expenses, unbilled revenue, inventory prepaid and other current assets.
Our current liabilities at SeptemberJune 30, 20172021 increased by 78.9%$670,065 or 44.18% from December 31, 20162020 and included our accounts payable, derivative liabilities, due to related party, and deferred revenueprovision for income taxes, contract liabilities, lease liabilities and other liabilities in the ordinary course of our business.
Our recent sourcesAt June 30, 2021, the Company had an accumulated deficit of financing$16,140,089, positive working capital of approximately $14,118,502 and net loss of approximately $2,261,536 during the six months ended June 30, 2021. For the year ended December 31, 2020, the auditors’ opinion contained a going concern paragraph, which stated that the Company had an accumulated deficit of $13,878,553, negative working capital of $567,022 and net loss of $2,763,375, during the year ended December 31, 2020. As of the date of this report, the Company’s existing cash resources and existing borrowing availability are discussedsufficient to support planned operations for the next 12 months. As a result, management believes that the Company’s existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
These financial statements have been prepared by management in more detail under “Recent Transactions,” above. Growingaccordance with GAAP and operating our businessthis basis assumes that the Company will require significant cash outlays, liquidity reservescontinue as a going concern, which contemplates the realization of assets and capital expendituresthe satisfaction of liabilities and commitments to respond to business challenges, including developing or enhancing new or existing products.in the normal course of business. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Operating Activities
Net cash flows used in by operating activities for the ninesix months ended SeptemberJune 30, 20172021 amounted to $356,133$1,270,837 and were primarily attributable to our net loss of $3,609,339,$2,261,536, total amortization expense of $18,750,$12,500 and depreciation of $205,569, imputed interest$134,448, amortization of $446,discount on debt of $1,425,365, amortization of right to use of $15,476 gain on extinguishment of debt of $20,832, stock based compensation of $600,000, preferred price based stock protection expense of $2,308,981, amortization of prepaid expense for stock based compensation for services of $121,096 offset by change in fair value of derivative liabilities of $1,237$14,200 and net change in assets and liabilities of $399,$590,459, primarily attributable to an increase in accounts receivable of $411,498,$158,079, an increase in inventory of $62,721,$790,536, an increase in unbilled revenue of $11,346,$10,171, an increase in prepaid expenseVAT receivable of $101,034,$279,215, an increase in other current assets of $29,827,$3,664, increase in accounts payable of $491,916$662,022, an increase in contract liabilities of $4,469, a decrease in lease liabilities of $15,512, and an increase in deferred revenueprovision for income taxes of $124,111.$227.
Net cash flows used inprovided by operating activities for the ninesix months ended SeptemberJune 30, 20162020 amounted to $772,935$47,890 and were primarily attributable to our net loss of $1,452,463,$258,294, total amortization expense of $18,750,$12,500 and depreciation of $131,795, amortization of dept discount $602,515, depreciationon debt of $197,625, imputed interest$128,702 gain on extinguishment of $912, issuancedebt of common stock for prepaid services of $164,608 and offset by change in fair value of derivative liabilities of $425,790$269,261 and net change in assetassets and liabilities of $120,908,$283,285, primarily attributable to an increasea decrease in accounts receivable of $28,139, increase$91,738, a decrease in inventory of $99,202,$7,877, decrease in prepaid expenses of $14,506, a decrease in unbilled revenue of $17,415,$11,114, a decrease in prepaid expenseright of $115,359, increaseuse of $19,163, a decrease in other current assets of $1,909,$72,392, increase in accounts payable of $131,321 and an$109,681, a decrease in deferred revenuecontract liabilities of $13,937.$5,493, a decrease in lease liabilities of $17,200, and a decrease in provision for income taxes of $1,330.
Investing Activities
Net cash flows used in investing activities were $20,676$27,248 and $34,967$26,159 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. WeDuring the six months ended June 30, 2021 and June 30, 2020, we purchased property and equipment of $20,676 during the nine months ended September 30, 2017. We purchased property$27,248 and equipment of $34,967 during the nine months ended September 30, 2016.$26,159, respectively.
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Financing Activities
Net cash flows provided by (used in) financing activities were $500,438 and ($43,027)$14,997,706 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,were for, proceeds from; a convertible note payable of $350,000, related party payable of $114,981, the June Offering, of $14,649,573, proceeds of warrant exercise of $5,000 which was offset by repayments of notes payable for $121,848.
Net cash flows provided by financing activities were $225,201 and $602,691, for the six months ended June 30, 2020 and 2019, respectively. Net cash flows provided by financing activities were $500,438$225,201 for the ninesix months ended SeptemberJune 30, 20172020 and were for proceeds from sale of preferred stock for $500,000 and proceeds from to a related party of $438. Net cash used in financing activities were repayments of convertible notes payable of $100,834 and proceeds from related party payable of $57,807, respectively$58,917, proceeds from convertible notes payable of $157,500, proceeds from note payable provided by the US Payroll Protection Program (“PPP”) of $20,832 and offset by repayments of line of credit for $12,048.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have
| ● | an obligation under a guarantee contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors |
| ● | a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets, |
| ● | any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or |
| ● | any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. |
Critical Accounting Policies and Estimates
Critical accounting estimates are those that management deems to be most important to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified our critical accounting estimates which are discussed below.
Use of Estimates
The preparation ofIn preparing the consolidated financial statements, in conformity with generally accepted accounting principles requires management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities disclosuresas of contingent assets and liabilities at the date of the statements of financial statementscondition, and revenuerevenues and expenses duringfor the reporting period.years then ended. Actual results couldmay differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
Basis of Presentation and Principles of Consolidation
The Company’s significant estimatesconsolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat Communications Ltd. All material intercompany balances and transactions have been eliminated in consolidation.
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Accounts Receivable
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are offset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2021, and 2020, there is an allowance for doubtful accounts of $15,782 and $14,155, respectively.
Inventories
Inventories are valued at the lower of cost or net realizable value, using the first-in first-out cost method. The Company assesses the valuation of stockits inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based charges,on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the valuationcarrying value of derivativesinventories is recorded to cost of goods sold.
Research and Development
The Company accounts for research and development costs in accordance with the valuation of inventory reserves.Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. For the six months ended June 30, 2021 and 2020, there were no additional expenditures on research and development.
Effect of Exchange Rate on ResultsForeign Currency Translation
The Company’s reporting currency is USU.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and ninesix months ended SeptemberJune 30, 20172021, closing rate at 1.302401.382800 US$: GBP, quarterly average rate at 1.397146 US$: GBP and yearly average rate at 1.388107 US$: GBP, for the six months ended June 30, 2020, closing rate at 1.245481 US$: GBP, quarterly average rate at 1.281097 US$: GBP, for the year ended 2020 closing rate at 1.3665 US$: GBP, average rate at 1.277791.286618 US$: GBP and 1.25801 US$: GBP. For the three and nine months ended September 30, 2016 closing rate at 1.3311 US$: GBP, average rate at 1.43544 US$: GBP and 1.43414 US$: GBP and for the year ended 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$ GBP.
Global Telesat Communications LTD, (GTCL) represents 67.4% of total company sales for the nine months ended September 30, 2017 and as such, currency rate variances have an impact on results. For the nine months ended September 30, 2017 the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.39353 to 1.27500. Had the yearly average rate remained, sales for the nine months would have been higher by $287,576. GTCL comparable sales in GBP, its home currency, increased 21% or £425,714, from £2,000,471 to £2,426,185, for the nine months ended September 30, 2017 as compared to September 30, 2016.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2017, and the results of operations and cash flows for the nine months ended September 30, 2017 have been included. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
Accounts Receivable
The Company extends credit to its customers based upon a written credit policy. Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate for the amount of probable credit losses in the Company’s existing accounts receivable. The Company establishes an allowance of doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Receivable balances are reviewed on an aged basis and account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not require collateral on accounts receivable. As of September 30, 2017, and December 31, 2016, there is an allowance for doubtful accounts of $427 and $6,720.
Accounting for Derivative Instruments
Derivatives are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates
Research and Development
Research and Development (“R&D”) expenses are charged to expense when incurred. The Company has consulting arrangements which are typically based upon a fee paid monthly or quarterly. Samples are purchased that are used in testing, and are expensed when purchased. R&D costs also include salaries and related personnel expenses, direct materials, laboratory supplies, equipment expenses and administrative expenses that are allocated to R&D based upon personnel costs.
Foreign Currency Translation
The Company’s reporting currency is US Dollars. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, (Great British Pound) GTCL as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferred as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and nine months ended September 30, 2017 closing rate at 1.3399 US$: GBP, average rate at 1.30842 US$: GBP and 1.27500 US$: GBP. For the three and nine months ended September 30, 2016 closing rate at 1.29820 US$: GBP, average rate at 1.31320 US$: GBP and 1.39353 US$: GBP and for the year ended 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$ GBP.
Revenue Recognition and Unearned Revenue
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties.
The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
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RevenueThe Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is recognizedapplied to contracts when allit is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the following criteria have been met:transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
InWe recognize revenue in accordance with ASC 605-25,Accounting Standards Codification (“ASC”) 606, Revenue Recognition: Narrow-Scope Improvements and Practical Expedient—Multiple-Element Arrangements,based, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the termsfinancial statements and conditionsrelated disclosures.
The Company provides product warranties with varying lengths of time and terms. The product warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations. The Company has historically experienced a low rate of product returns under the warranty program.
A variety of technical services can be contracted by our customers for a designated period of time. The service contracts allow customers to call the Company for technical support, replace defective parts and to have onsite service provided by the Company’s third-party contract service provider. The Company records revenues for contract services at the amount of the product arrangements,service contract, but such amount is deferred at the beginning of the service term and amortized prorated over the life of the contract.
The Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.
Contract liabilities is shown separately in the condensed consolidated balance sheets as current liabilities. At June 30, 2021, we had contract liabilities of approximately $41,173. At December 31, 2020, we had contract liabilities of approximately $36,704.
Property and Equipment
Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.
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The estimated useful lives of property and equipment are generally as follows:
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Rental equipment | 4 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods ended SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
Fair value of financial instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2016 to September 30, 2017:
| Conversion feature derivative liability | Warrant liability | Total | ||||||||||
| Balance at January 1, 2016 | $ | 614,035 | $ | 4,356 | $ | 618,391 | ||||||
| Change in fair value included in earnings | (422,974 | ) | (3,119 | ) | (426,093 | ) | ||||||
| Net effect on additional paid in capital | (191,061 | ) | - | (191,061 | ) | |||||||
| Balance at December 31, 2016 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance at September 30, 2017 | $ | - | $ | - | $ | - | ||||||
The Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
Share-Based Payments
Compensation cost relating to share basedshare-based payment transactions are recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).
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Recent Accounting Pronouncements
In November 2018, the FASB amended Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 with ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective for us on January 1, 2019, however the Company doesdid not believehave any leases that any recentlymet the criteria as established above, until July 24, 2019, when the Company entered into a three-year lease for its UK office and warehouse for annual rent of £25,536 or GBP: USD using exchange rate close for the six months ended June 30, 2021, for liability of 1.3828 or $35,311. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
At June 30, 2021, the Company had current and long-term operating lease liabilities of $30,484 and $6,703, respectively, and right of use assets of $40,130.
Other accounting standards that have been issued accounting pronouncements willor proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial statements.condition, results of operations, cash flows or disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.
ITEM 3. QUANTITATIVE4. CONTROLS AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISKPROCEDURES
As a smaller reporting company,We maintain disclosure controls and procedures, as such term is defined in Rule 12b-2 ofRules 13a-15(e) and 15d-15(e) under the Exchange Act, wethat are notdesigned to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the informationobjectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Under the supervision and with the participation of our management, we conducted an evaluation, as of June 30, 2021, of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon our evaluation, our management, including our principal executive officer and principal financial officer, has concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective due to our limited internal audit functions and lack of ability to have multiple levels of transaction review.
The Company intends to address the foregoing deficiency by this Item.upgrading its accounting software to an ERP (“Enterprise Resource Planning”), a cloud-based solution, which would add the necessary controls to manage day to day activities such as accounting, procurement, project management, risk management and compliance as well as to automate the consolidation process of its entities, adding a level of reliability to the Company’s financial reporting. The Company proposes to add personnel to address the lack of ability to have multiple level transaction review. Management is addressing these steps immediately and has executed an agreement on August 11, 2021, to start implementation of replacing its current software to an ERP cloud-based solution. Management anticipates being fully operational by the second quarter of 2022.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the six months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 4. CONTROLS AND PROCEDURES.
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the nine months ending September 30, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon our evaluation regarding the fiscal quarter ended September 30, 2017, our management, including our principal executive officer and principal financial officer, has concluded that our disclosure controls and procedures were ineffective due to our limited internal audit functions and lack of ability to have multiple levels of transaction review. The Company has been actively addressing the evaluation and is pursuing upgrading its accounting software.
Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in this quarterly report on Form 10-Q has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to develop procedures to address them to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed all compensation payable under his employment agreement executed in June 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or compensation relating to his prior service with the Company, or arising under any employment agreement. The Company believes it has adequate defenses to any such claims. The Company has determined to initiate litigation against Mr. Seifert asserting a number of claims including, but not limited to, rescission of the employment agreement, fraud in the inducement in connection with the execution of the employment agreement, and breach of the fiduciary duties of good faith and loyalty. The Company does not expect to seek substantial monetary relief in the litigation.
ITEM 1A. RISK FACTORS
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which we filed with the SEC on March 22, 2021, and in the registration statement and related amendments and supplements (including prospectus supplements) relating to the June Offering.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered securitiesOn March 5, 2021, the Company entered into a Note Purchase Agreement by and between the Company and one individual accredited investor (the “Noteholder”) where the Company sold a convertible promissory note with a principal amount of $350,000 (the “March 2021 Note”). The Noteholder has an optional right of conversion such that the Noteholder may elect to convert his Note, in whole or in part, outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined by usdividing the indebtedness under the March 2021 Note by a price equal to the lesser of (a) $1.50 per share, and (b) a 30% discount to the price of the common stock in the qualified transaction, subject to certain adjustments. Following an event of default, the conversion price will be adjusted to be equal to the lower of: (i) the then applicable conversion price or (ii) the price per share of 85% of the lowest traded price for the Company’s common stock during the quarter ended September 30, 2017, that15 trading days preceding the relevant conversion. In addition, subject to the ownership limitations, if a qualified transaction is completed, without further action from the Noteholder, on the closing date of the qualified transaction, 50% of the principal amount of this March 2021 Note and all accrued and unpaid interest shall be converted into Company common stock at a conversion price equal to the 30% discount to the offering price in such qualified transaction, which price shall be proportionately adjusted for stock splits, stock dividends or similar events. A “qualified transaction” refers the completion of the public offering of the Company’s securities stock with gross proceeds of at least $10,000,000 pursuant to which the Company’s securities become registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, or a merger with a company listed on the Nasdaq or Canadian stock exchanges, as amended. The Company’s issuance of the March 2021 Note was made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. On May 27, 2021, 100,00 common shares were issued for the convertible debt for a value of $350,000, at conversion rate of $3.50.
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On May 20, 2021, the Company issued an aggregate of 29,800 common stock upon the conversion of $29,800 of its convertible debt, at the conversion rate of $1.00 per share.
Additionally on May 27, 2021, 897,231 common shares were issued for convertible debt, for a value of $1,156,377, at a weighted average conversion rate of $1.28
On June 10, 2021, the Company issued 1,000 shares of common stock, for the exercise of 1,000 warrants, at an exercise price of $5.00, for cash consideration of $5,000.
These shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not otherwise disclosed by us ininvolve a Current Report on Form 8-K.public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
None.
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| + | Management contract or compensatory plan. |
* Filed herein
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: | ||
| By: | /s/ | |
Chief Executive Officer and Chairman
| ||
| (principal executive officer) | ||
| /s/ | ||
Chief Financial Officer | ||
| ( | ||
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