UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020March 31, 2021
OR
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________to _______________.
Commission File Number 000-25097
ORBSAT CORP
(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
ORBITAL TRACKING CORP.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check 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 [X] No [ ]
Indicate by check whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [X] | Smaller reporting company [X] |
| 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 by Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
| Class | Outstanding at | |
| Common Stock, $0.0001 par value |
FORM 10-Q
INDEX
| i |
The Company’s unaudited financial statements for the ninethree months ended September 30, 2020March 31, 2021 and for comparable periods in the prior year are included below. The financial statements should be read in conjunction with the notes to financial statements that follow.
FKA: ORBITAL TRACKING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
| September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 817,013 | $ | 75,362 | $ | 559,282 | $ | 728,762 | ||||||||
| Accounts receivable, net | 162,614 | 244,353 | 271,207 | 177,031 | ||||||||||||
| Inventory | 501,946 | 366,298 | 600,912 | 361,422 | ||||||||||||
| Unbilled revenue | 75,174 | 76,051 | 77,623 | 75,556 | ||||||||||||
| Prepaid expenses | 1,784 | 18,596 | 1,784 | 1,784 | ||||||||||||
| Other current assets | 38,986 | 96,786 | 47,107 | 27,912 | ||||||||||||
| Total current assets | 1,597,517 | 877,446 | 1,557,915 | 1,372,467 | ||||||||||||
| Property and equipment, net | 1,170,621 | 1,341,187 | 1,039,173 | 1,106,164 | ||||||||||||
| Right of use | 59,906 | 83,679 | 48,043 | 55,606 | ||||||||||||
| Intangible assets, net | 106,250 | 125,000 | 93,750 | 100,000 | ||||||||||||
| Total assets | $ | 2,934,294 | $ | 2,427,312 | $ | 2,738,881 | $ | 2,634,237 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,102,472 | $ | 1,164,217 | $ | 1,166,865 | $ | 1,052,603 | ||||||||
| Contract liabilities | 40,427 | 41,207 | 31,547 | 36,704 | ||||||||||||
| Note payable – current portion | 134,868 | 58,255 | 121,848 | |||||||||||||
| Related party payable | 32,182 | 51,071 | ||||||||||||||
| Line of credit | 4,798 | 24,483 | ||||||||||||||
| Note payable Coronavirus loans– current portion | 70,782 | 41,831 | ||||||||||||||
| Due to related party | 101,834 | 102,060 | ||||||||||||||
| Lease liabilities - current | 28,489 | 29,237 | 30,385 | 30,125 | ||||||||||||
| Provision for income taxes | 21,297 | 21,856 | 19,121 | 18,957 | ||||||||||||
| Stock subscription payable | 25,000 | - | ||||||||||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | 112,397 | 112,397 | ||||||||||||
| Total current liabilities | 1,501,930 | 1,444,468 | 1,591,186 | 1,516,525 | ||||||||||||
| Long term liabilities: | ||||||||||||||||
| Convertible debt, net of discount, unamortized, $1,051,382 and $635,333, respectively | 101,029 | 169,667 | ||||||||||||||
| Note payable | 330,887 | 121,848 | ||||||||||||||
| Convertible debt, net of discount, unamortized, $924,199 and $1,084,944, respectively | 261,977 | 209,323 | ||||||||||||||
| Note payable Coronavirus loans– long term | 294,625 | 320,626 | ||||||||||||||
| Lease liabilities – long term | 28,667 | 51,620 | 14,725 | 22,574 | ||||||||||||
| Total Liabilities | 1,962,513 | 1,787,603 | 2,162,513 | 2,069,048 | ||||||||||||
| Stockholders’ Equity: | ||||||||||||||||
| Preferred Stock, $0.0001 par value; 3,333,333 shares authorized | ||||||||||||||||
| Common stock, ($0.0001 par value; 50,000,000 shares authorized, 3,564,299 shares issued and outstanding as of September 30, 2020 and 121,216 outstanding at December 31, 2019, respectively) | 356 | 12 | ||||||||||||||
| Preferred Stock, $0.0001 par value; 3,333,333 shares authorized, 0 shares issued and outstanding | - | - | ||||||||||||||
| Common stock, ($0.0001 par value; 50,000,000 shares authorized, 6,177,203 shares issued and outstanding as of March 31, 2021 and 4,080,017 outstanding at December 31, 2020, respectively) | 617 | 408 | ||||||||||||||
| Additional paid-in capital | 13,467,340 | 11,757,027 | 15,298,667 | 14,486,166 | ||||||||||||
| Accumulated (deficit) | (12,473,923 | ) | (11,115,178 | ) | (14,681,695 | ) | (13,878,553 | ) | ||||||||
| Accumulated other comprehensive (income) loss | (21,992 | ) | (2,152 | ) | ||||||||||||
| Accumulated other comprehensive income | (41,221 | ) | (42,832 | ) | ||||||||||||
| Total stockholders’ equity | 971,781 | 639,709 | 576,368 | 565,189 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 2,934,294 | $ | 2,427,312 | $ | 2,738,881 | $ | 2,634,237 | ||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHNSIVECOMPREHENSIVE LOSS
| Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | |||||||||||||
| Net sales | $ | 1,475,393 | $ | 1,746,525 | $ | 4,163,750 | $ | 4,453,906 | ||||||||
| Cost of sales | 1,076,929 | 1,366,008 | 3,159,593 | 3,553,351 | ||||||||||||
| Gross profit | 398,464 | 380,517 | 1,004,157 | 900,555 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and general administrative | 182,813 | 210,600 | 486,984 | 522,352 | ||||||||||||
| Salaries, wages and payroll taxes | 196,629 | 176,762 | 542,675 | 536,504 | ||||||||||||
| Stock based compensation | 130,400 | - | 130,400 | - | ||||||||||||
| Professional fees | 289,296 | 126,565 | 480,961 | 447,908 | ||||||||||||
| Depreciation and amortization | 73,697 | 69,109 | 217,992 | 203,234 | ||||||||||||
| Total operating expenses | 872,835 | 583,036 | 1,859,012 | 1,709.998 | ||||||||||||
| Loss before other expenses and income taxes | (474,371 | ) | (202,519 | ) | (854,855 | ) | (809,443 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Change in fair value of derivative instruments, net | - | - | - | 69,677 | ||||||||||||
| Other income | (268 | ) | - | (31,793 | ) | - | ||||||||||
| Gain on debt extinguishment | - | - | (269,261 | ) | (134,677 | ) | ||||||||||
| Interest earned | (67 | ) | (812 | ) | (80 | ) | (1,576 | ) | ||||||||
| Interest expense | 641,460 | 81,121 | 797,807 | 211,344 | ||||||||||||
| Foreign currency exchange rate variance | (15,045 | ) | 18,131 | 7,217 | 41,238 | |||||||||||
| Total other (income) expense | 626,080 | 98,440 | 503,890 | 186,006 | ||||||||||||
| Net loss before income (loss) tax expense | $ | (1,100,451 | ) | $ | (300,959 | ) | $ | (1,358,745 | ) | $ | (995,449 | ) | ||||
| Provision for income taxes | - | (12 | ) | - | 745 | |||||||||||
| Net income (loss) | (1,100,451 | ) | (300,947 | ) | (1,358,745 | ) | (996,194 | ) | ||||||||
| Comprehensive Income: | ||||||||||||||||
| Net income (loss) | (1,100,451 | ) | (300,947 | ) | (1,358,745 | ) | (996,194 | ) | ||||||||
| Foreign currency translation adjustments | 5,602 | (494 | ) | (19,840 | ) | (893 | ) | |||||||||
| Comprehensive income (loss) | $ | (1,094,849 | ) | $ | (301,441 | ) | $ | (1,378,585 | ) | $ | (997,087 | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding – basic & diluted | 773,170 | 119,876 | 495,133 | 91,359 | ||||||||||||
| Basic and diluted net (loss) per share | $ | (1.42 | ) | $ | (2.51 | ) | $ | (2.74 | ) | $ | (10.90 | ) | ||||
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Net sales | $ | 1,461,428 | $ | 1,468,103 | ||||
| Cost of sales | 1,023,911 | 1,120,102 | ||||||
| Gross profit | 437,517 | 348,001 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 161,690 | 157,206 | ||||||
| Salaries, wages and payroll taxes | 208,174 | 195,642 | ||||||
| Professional fees | 292,882 | 114,889 | ||||||
| Depreciation and amortization | 73,700 | 71,504 | ||||||
| Total operating expenses | 736,446 | 539,241 | ||||||
| Loss before other expenses and income taxes | (298,929 | ) | (191,240 | ) | ||||
| Interest expense | 520,694 | 91,253 | ||||||
| Foreign currency exchange rate variance | (16,481 | ) | 2,367 | |||||
| Total other expenses | 504,213 | 93,620 | ||||||
| Net loss | $ | (803,142 | ) | $ | (284,860 | ) | ||
| Comprehensive Income: | ||||||||
| Net loss | $ | (803,142 | ) | $ | (284,860 | ) | ||
| Foreign currency translation adjustments | 1,611 | (9,194 | ) | |||||
| Comprehensive loss | $ | (801,531 | ) | $ | (294,054 | ) | ||
| Net loss Per Share - Basic & Diluted | $ | (0.16 | ) | (2.43 | ) | |||
| Weighted average common shares outstanding - Basic & Diluted | 4,926,175 | 121,216 | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
ORBITAL TRACKING CORP.ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the NineThree Months Ended September 30, 2020March 31, 2021
Preferred Stock - Series A | Preferred Stock - Series B | Preferred Stock - Series C | ||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance, December 31, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
| Issuance common stock from convertible debt | - | - | - | - | - | - | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
For the NineThree Months Ended September 30, 2019March 31, 2020
| Preferred Stock - Series A | Preferred Stock - Series B | Preferred Stock - Series C | ||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance, December 31, 2018 | - | $ | - | 222 | $ | - | 127,578 | $ | 12 | |||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | - | - | - | - | ||||||||||||||||||
| Preferred shares converted to note payable | - | - | - | - | (123,526 | ) | (12 | ) | ||||||||||||||||
| Preferred shares converted to common | - | - | (222 | ) | - | (4,052 | ) | |||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2019 | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP. AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30, 2020
Preferred Stock - Series A | Preferred Stock - Series B | Preferred Stock - Series C | |||||||||||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | ||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2019
|
| |||||||||||||||||||||||
| - | - | - | - | - | - | |||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the NineThree Months Ended September 30, 2020March 31, 2021
Preferred Stock - Series D |
| Preferred Stock - Series E | Preferred Stock - Series F | ||||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | |||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| Balance, December 31, | - | $ | - | - | $ | - | - | $ | - | ||||||||||||||||||||||||
| Issuance common stock from convertible debt | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | $ | - | $ | - | |||||||||||||||||||||||
For the Nine Months Ended September 30, 2019
| Preferred Stock - Series D | Preferred Stock - Series E | Preferred Stock - Series F | ||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance, December 31, 2018 | 192,807 | $ | 19 | 344,947 | $ | 34 | 23,333 | $ | 2 | |||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | - | - | - | - | ||||||||||||||||||
| Preferred shares converted to note payable | (147,577 | ) | (15 | ) | - | - | - | - | ||||||||||||||||
| Preferred shares converted to common | (45,230 | ) | (4 | ) | (344,947 | ) | (34 | ) | (23,333 | ) | (2 | ) | ||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2019 | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30,March 31, 2020
Preferred Stock - Series D | Preferred Stock - Series E | Preferred Stock -
|
Series F | |||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||
| - | - | - | ||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2019
| - | - | - | ||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | $ | - | $ | - | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the NineThree Months Ended September 30, 2020March 31, 2021
Preferred Stock - Series G |
| Preferred Stock - Series H | Preferred Stock - Series I | |||||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| Balance, December 31, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||
| Issuance common stock from convertible debt | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||
For the Nine Months Ended September 30, 2019
| Preferred Stock - Series G | Preferred Stock - Series H | Preferred Stock - Series I | ||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance, December 31, 2018 | 346,840 | $ | 35 | 916 | $ | - | 3,274 | $ | - | |||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | - | - | - | - | ||||||||||||||||||
| Preferred shares converted to note payable | (346,840 | ) | (35 | ) | (916 | ) | - | (3,274 | ) | - | ||||||||||||||
| Preferred shares converted to common | - | - | - | - | - | - | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2019 | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30,March 31, 2020
Preferred Stock -
|
| Preferred Stock - Series | Preferred Stock - Series I | |||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||
For the Three Months Ended September 30, 2019
| - | - | - | - | - | - | |||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the NineThree Months Ended September 30, 2020March 31, 2021
Preferred Stock - Series J | Preferred Stock - Series K | Preferred Stock - Series L | |||||||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
| Balance, December 31, | - | $ | - | - | $ | - | - | $ | - | ||||||||||||||||||||||||||
| Issuance common stock from convertible debt | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | ||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2019
| Preferred Stock – Series J | Preferred Stock – Series K | Preferred Stock – Series L | ||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance, December 31, 2018 | 4,313 | $ | - | 77,124 | $ | 8 | 2,000 | $ | - | |||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | - | - | ||||||||||||||||||||
| Preferred shares converted to note payable | (4,296 | ) | - | (70,571 | ) | (7 | ) | (2,000 | ) | - | ||||||||||||||
| Preferred shares converted to common | (17 | ) | - | (6,553 | ) | (1 | ) | - | - | |||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, September 30, 2019 | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30,March 31, 2020
| Preferred Stock – Series J | Preferred Stock –
| Preferred Stock – Series L | |||||||||||||||||||||||||||||
| $0.0001 Par Value | $0.0001 Par Value | $0.0001 Par Value | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | ||||||||||||||||||||||
For the Three Months Ended September 30, 2019
|
| |||||||||||||||||||||||
| - | - | - | - | - | - | |||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | ||||||||||||||||||
| Balance, | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the NineThree Months Ended September 30, 2020March 31, 2021
| Common Stock | Additional | Common Stock | Additional | |||||||||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | $0.0001 Par Value | Paid in | Accumulated | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Shares | Amount | Capital | Deficit | |||||||||||||||||||||||||
| Balance, December 31, 2019 | 121,216 | $ | 12 | $ | 11,757,027 | $ | (11,115,178 | ) | ||||||||||||||||||||||||
| Balance, December 31, 2020 | 4,080,017 | $ | 408 | $ | 14,486,166 | $ | (13,878,553 | ) | ||||||||||||||||||||||||
| Issuance common stock from convertible debt | 2,988,283 | 298 | 585,291 | - | 2,092,186 | 209 | 457,882 | - | ||||||||||||||||||||||||
| Beneficial conversion feature of convertible debt | - | 898,918 | - | - | - | 340,420 | - | |||||||||||||||||||||||||
| Issuance common stock for options exercised | 429,800 | 43 | 32,957 | - | ||||||||||||||||||||||||||||
| Fair value of options granted | - | 130,400 | - | |||||||||||||||||||||||||||||
| Stock based compensation | 25,000 | 3 | 62,748 | - | 5,000 | 0 | 14,200 | |||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Net loss | - | - | - | (1,358,745 | ) | - | - | - | (803,142 | ) | ||||||||||||||||||||||
| Balance, September 30, 2020 | 3,564,299 | $ | 356 | $ | 13,467,340 | $ | (12,473,923 | ) | ||||||||||||||||||||||||
| Balance, March 31, 2021 | 6,177,203 | $ | 617 | $ | 15,298,667 | $ | (14,681,695 | ) | ||||||||||||||||||||||||
For the NineThree Months Ended September 30, 2019March 31, 2020
| Common Stock | Additional | |||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | ||||||||||||||
| Shares | Amount | Capital | Deficit | |||||||||||||
| Balance, December 31, 2018 | 62,435 | $ | 6 | $ | 11,120,192 | $ | (9,735,422 | ) | ||||||||
| Beneficial conversion feature of convertible debt | - | - | 805,000 | - | ||||||||||||
| Common issued for post-split adjustments | 1,687 | - | - | - | ||||||||||||
| Preferred shares converted to note payable | - | - | (168,200 | ) | - | |||||||||||
| Preferred shares converted to common | 35,473 | 4 | 36 | - | ||||||||||||
| Exercise of options to common | 21,621 | 2 | (2 | ) | - | |||||||||||
| Comprehensive loss | - | - | - | - | ||||||||||||
| Net loss | - | - | - | (996,194 | ) | |||||||||||
| Balance, September 30, 2019 | 121,216 | $ | 12 | $ | 11,757,027 | $ | (10,731,617 | ) | ||||||||
| Common Stock | Additional | |||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | ||||||||||||||
| Shares | Amount | Capital | Deficit | |||||||||||||
| Balance, December 31, 2019 | 121,216 | $ | 12 | $ | 11,757,027 | $ | (11,115,178 | ) | ||||||||
| Issuance common stock from convertible debt | 113,260 | 11 | 11,315 | - | ||||||||||||
| Comprehensive loss | - | - | - | - | ||||||||||||
| Net loss | - | - | - | (284,860 | ) | |||||||||||
| Balance, March 31, 2020 | 234,476 | $ | 23 | $ | 11,768,342 | $ | (11,400,038 | ) | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30, 2020March 31, 2021
| Common Stock | Additional | |||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | ||||||||||||||
| Shares | Amount | Capital | Deficit | |||||||||||||
| Balance, June 30, 2020 | 255,329 | $ | 25 | $ | 11,771,769 | $ | (11,373,472 | ) | ||||||||
| Issuance common stock from convertible debt | 2,854,170 | 285 | 570,549 | - | ||||||||||||
| Beneficial conversion feature of convertible debt | - | 898,918 | - | |||||||||||||
| Issuance common stock for options exercised | 429,800 | 43 | 32,957 | - | ||||||||||||
| Fair value of options granted | - | 130,400 | - | |||||||||||||
| Stock based compensation | 25,000 | 3 | 62,748 | - | ||||||||||||
| Comprehensive loss | - | - | - | - | ||||||||||||
| Net loss | - | - | - | (1,100,451 | ) | |||||||||||
| Balance, September 30, 2020 | 3,564,299 | $ | 356 | $ | 13,467,340 | $ | (12,473,923 | ) | ||||||||
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, December 31, 2020 | $ | (42,832 | ) | $ | 565,188 | |||
| Issuance common stock from convertible debt | - | 458,091 | ||||||
| Beneficial conversion feature of convertible debt | - | 340,420 | ||||||
| Stock based compensation | - | 14,200 | ||||||
| Comprehensive gain | 1,611 | 1,611 | ||||||
| Net loss | - | (803,142 | ) | |||||
| Balance, March 31, 2021 | $ | (41,221 | ) | $ | 576,368 | |||
For the Three Months Ended September 30, 2019March 31, 2020
| Common Stock | Additional | |||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | ||||||||||||||
| Shares | Amount | Capital | Deficit | |||||||||||||
| Balance, June 30, 2019 | 117,683 | $ | 12 | $ | 11,757,027 | $ | (10,430,670 | ) | ||||||||
| Beneficial conversion feature of convertible debt | 1,687 | - | - | - | ||||||||||||
| Preferred shares converted to note payable | - | - | - | - | ||||||||||||
| Preferred shares converted to common | 1,840 | - | - | - | ||||||||||||
| Comprehensive loss | ||||||||||||||||
| Net loss | - | - | - | (300,947 | ) | |||||||||||
| Balance, September 30, 2019 | 121,216 | $ | 12 | $ | 11,757,027 | $ | (10,731,617 | ) | ||||||||
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, December 31, 2019 | $ | (2,152 | ) | $ | 639,709 | |||
| Issuance common stock from convertible debt | - | 11,326 | ||||||
| Exercise of options to common | - | - | ||||||
| Comprehensive loss | (9,194 | ) | (9,194 | ) | ||||
| Net loss | - | (284,860 | ) | |||||
| Balance, March 31, 2020 | $ | (11,346 | ) | $ | 356,981 | |||
See accompanying notes to unaudited condensed consolidated financial statements.
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2020
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, December 31, 2019 | $ | (2,152 | ) | $ | 639,709 | |||
| Issuance common stock from convertible debt | - | 585,589 | ||||||
| Beneficial conversion feature of convertible debt | - | 898,918 | ||||||
| Issuance common stock for options exercised | - | 33,000 | ||||||
| Fair value of options granted | - | 130,400 | ||||||
| Stock based compensation | - | 62,750 | ||||||
| Comprehensive loss | (19,840 | ) | (19,840 | ) | ||||
| Net loss | - | (1,358,745 | ) | |||||
| Balance, September 30, 2020 | $ | (21,992 | ) | $ | 971,781 | |||
For the Nine Months Ended September 30, 2019
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, December 31, 2018 | $ | (6,172 | ) | $ | 1,378,715 | |||
| Beneficial conversion feature of convertible debt | - | 805,000 | ||||||
| Preferred shares converted to note payable | - | (168,271 | ) | |||||
| Preferred shares converted to common | - | - | ||||||
| Comprehensive loss | (893 | ) | (893 | ) | ||||
| Net loss | - | (996,194 | ) | |||||
| Balance, September 30, 2019 | $ | (7,065 | ) | $ | 1,018,357 | |||
See accompanying notes to unaudited condensed consolidated financial statements.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended September 30, 2020
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, June 30, 2020 | $ | (11,018 | ) | $ | 387,304 | |||
| Issuance common stock from convertible debt | - | 570,834 | ||||||
| Beneficial conversion feature of convertible debt | - | 898,918 | ||||||
| Issuance common stock for options exercised | - | 33,000 | ||||||
| Fair value of options granted | - | 130,400 | ||||||
| Stock based compensation | - | 62,750 | ||||||
| Comprehensive loss | (10,974 | ) | (10,974 | ) | ||||
| Net loss | - | (1,100,451 | ) | |||||
| Balance, September 30, 2020 | $ | (21,992 | ) | $ | 971,781 | |||
For the Three Months Ended September 30, 2019
| Comprehensive | Stockholders’ | |||||||
| Income (Loss) | Equity | |||||||
| Balance, June 30, 2019 | $ | (6,571 | ) | $ | 1,319,798 | |||
| Beneficial conversion feature of convertible debt | - | - | ||||||
| Preferred shares converted to note payable | - | - | ||||||
| Preferred shares converted to common | - | - | ||||||
| Comprehensive loss | (494 | ) | (494 | ) | ||||
| Net loss | - | (300,947 | ) | |||||
| Balance, September 30, 2019 | $ | (7,065 | ) | $ | 1,018,357 | |||
See accompanying notes to unaudited condensed consolidated financial statements.
FKA: ORBITAL TRACKING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED
| September 30, 2020 | September 30, 2019 | March 31, 2021 | March 31, 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (1,358,745 | ) | $ | (996,194 | ) | $ | (803,142 | ) | $ | (284,860 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||||
| Depreciation expense | 199,242 | 184,484 | 67,450 | 65,254 | ||||||||||||
| Amortization of intangible asset | 18,750 | 18,750 | 6,250 | 6,250 | ||||||||||||
| Amortization of right to use | 23,773 | 2,196 | 7,563 | 11,939 | ||||||||||||
| Amortization of convertible debt, net | 501,164 | 74,837 | ||||||||||||||
| Stock based compensation | 62,750 | - | 14,200 | - | ||||||||||||
| Fair value of options exercised | 33,000 | - | ||||||||||||||
| Fair value of options granted | 130,400 | - | ||||||||||||||
| Amortization of convertible debt discount | 752,130 | 211,330 | ||||||||||||||
| Change in fair value of derivative liabilities | - | 69,677 | ||||||||||||||
| Convertible debt issued for services | - | 113,000 | ||||||||||||||
| Gain on debt extinguishment | (269,261 | ) | (134,677 | ) | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | 81,739 | (74,915 | ) | (94,176 | ) | 72,045 | ||||||||||
| Inventory | (135,648 | ) | (179,186 | ) | (239,490 | ) | (77,686 | ) | ||||||||
| Unbilled revenue | 877 | 19,087 | (2,067 | ) | 5,368 | |||||||||||
| Prepaid expense | 16,812 | (35,789 | ) | - | 12,652 | |||||||||||
| Other current assets | 57,800 | (39,505 | ) | (19,195 | ) | 76,609 | ||||||||||
| Accounts payable and accrued liabilities | (61,747 | ) | 217,680 | 114,261 | 120,709 | |||||||||||
| Lease liabilities | (21,562 | ) | (4,811 | ) | (7,589 | ) | (11,939 | ) | ||||||||
| Provision for income taxes | (1,330 | ) | 333 | 164 | (1,330 | ) | ||||||||||
| Contract liabilities | (780 | ) | 25,356 | (5,157 | ) | (5,136 | ) | |||||||||
| Net cash used in operating activities | (471,800 | ) | (603,183 | ) | ||||||||||||
| Net cash (used in) provided by operating activities | (459,764 | ) | 64,712 | |||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Purchase of property and equipment | (30,752 | ) | (51,414 | ) | (459 | ) | (10,933 | ) | ||||||||
| Net cash used in investing activities | (30,752 | ) | (51,414 | ) | (459 | ) | (10,933 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Repayments of note payable, related party, net | (18,889 | ) | (20,856 | ) | (226 | ) | 20,536 | |||||||||
| Repayments from line of credit | (19,685 | ) | - | |||||||||||||
| Repayments from note payable | - | (46,422 | ) | |||||||||||||
| Repayments from convertible notes payable | - | (87,778 | ) | |||||||||||||
| Proceeds from note payable | 343,907 | - | ||||||||||||||
| Proceeds of convertible notes payable | 958,000 | 757,000 | ||||||||||||||
| Repayments of notes payable | (60,643 | ) | (7,226 | ) | ||||||||||||
| Proceeds of convertible debt | 350,000 | - | ||||||||||||||
| Net cash provided by financing activities | 1,263,333 | 601,944 | 289,131 | 13,310 | ||||||||||||
| Effect of exchange rate on cash | (19,130 | ) | 998 | 1,611 | (4,373 | ) | ||||||||||
| Net increase (decrease) in cash | 741,651 | (51,656 | ) | |||||||||||||
| Net (decrease) increase in cash | (169,481 | ) | 62,716 | |||||||||||||
| Cash beginning of period | 75,362 | 142,888 | 728,762 | 75,362 | ||||||||||||
| Cash end of period | $ | 817,013 | $ | 91,232 | $ | 559,282 | $ | 138,078 | ||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||
| Cash paid during the period for | ||||||||||||||||
| Interest | $ | - | $ | 20,270 | $ | - | $ | - | ||||||||
| Income tax | $ | - | $ | - | ||||||||||||
| Non-cash adjustments during the period for | ||||||||||||||||
| Beneficial conversion feature on convertible debt | $ | 898,918 | $ | 805,000 | $ | 340,420 | $ | 74,837 | ||||||||
| Long term debt issued in exchange for preferred stock | $ | - | $ | 168,270 | ||||||||||||
| Conversion of convertible debt into common shares | $ | 585,589 | $ | - | $ | 458,091 | $ | 11,326 | ||||||||
| Obtaining right of use asset for lease liability | $ | 59,906 | $ | 86,377 | $ | - | $ | 11,939 | ||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
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 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 ninethree months ending September 30, 2020,March 31, 2021, are not necessarily indicative of the results for the remainder of the fiscal year. The consolidated financial statements as of December 31, 2019,2020, 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 Orbsat Corp F/K/A/ Orbital Tracking Corp. (the “Company”) for the year ended December 31, 2019,2020, which are contained in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.22, 2021. The consolidated balance sheet as of December 31, 20192020 was derived from those financial statements.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat Communications Ltd. All material intercompany balances and transactions have been eliminated in consolidation.
.
Description of Business
Orbsat Corp (the “Company”) was formerly Great West Resources, Inc., a Nevada corporation. The Company is a provider of satellite-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-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.
A wholly-owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”), a Nevada corporation was formed on November 14, 2014.
On March 28, 2014, the Company merged with and into a wholly-owned subsidiary of the Company (“Great West”) solely for the purpose of changing its state of incorporation to Nevada from Delaware (the “Reincorporation”), 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 mining and exploration business. All references in the audited consolidated financial statements and notes thereto have been retroactively restated to reflect the reverse stock split of 1:150.
On the effective date of the merger:
(a) Each share of the Company’s common stock issued and outstanding immediately prior to the effective date changed and converted into 1/150th fully paid and non-assessable shares of Great West common stock;
(b) Each share of the Company’s Series A preferred stock issued and outstanding immediately prior to the effective date changed and converted into 1/150th fully paid and non-assessable shares of the Great West Series A preferred stock;
(c) Each share of the Company’s Series D preferred stock issued and outstanding immediately prior to the effective date changed and converted into 1/150th fully paid and non-assessable shares of the Great West Series B preferred stock;
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(d) All options to purchase shares of the Company’s common stock issued and outstanding immediately prior to the effective date changed and converted into equivalent options to purchase 1/150th of a share of Great West common stock at an exercise price of $0.0001 per share;
(e) All warrants to purchase shares of the Company’s common stock issued and outstanding immediately prior to the effective date changed and converted into equivalent warrants to purchase 1/150th of a share of Great West common stock at 150 times the exercise price of such converted warrants; and
(f) Each share of Great West common stock issued and outstanding immediately prior to the effective date were canceled and returned to the status of authorized but unissued Great West common stock.
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 was accounted for as a reverse acquisition and has been treated as a recapitalization of the Company with GTCL considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements of the registrant. The completion of the Share Exchange resulted in a change of control. The Share Exchange was accounted for as a reverse acquisition and re-capitalization. The GTCL shareholders obtained approximately 39% of voting control on the date of Share Exchange. GTCL was the acquirer for financial reporting purposes and the Company was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historical results of 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. See Note 12 - Stockholders Equity.
On August 19, 2019, we effected a reverse split in 1-for-15 ratio as applied to our common stock and preferred stock, as well as the number of authorized shares for both classes. As of December 31, 2019, we had 121,216 shares issued and outstanding post-split. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the most recently completed reverse split. See Note 12 - Stockholders Equity.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
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. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Accounts receivable and allowance for doubtful accounts
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are offset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30,March 31, 2021, and 2020, and 2019, there is an allowance for doubtful accounts of $14,749$0 and $0,$5,300, respectively.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are valued at the lower of cost or net realizable value, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
Prepaid expenses
Prepaid expenses amounted to $1,784 and $18,596,$1,784, at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Prepaid expenses include prepayments in cash for accounting fees, prepayments in equity instruments and license fees which are being amortized over the terms of their respective agreements and product costs associated with deferred revenue. The current portion consists of costs paid for future services which will occur within a year.
Foreign Currency Translation
The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and nine months ended September 30, 2020,March 31, 2021, closing rate at 1.29231.3783 US$: GBP, quarterly average rate at 1.293173 US$: GBP and yearly average rate at 1.2717131.379068 US$: GBP, for the three and nine months ended September 30, 2019,March 31, 2020, closing rate at 1.2698001.245481 US$: GBP, quarterly average rate at 1.2937931.281097 US$: GBP, and yearly average rate of 1.285336, for the year ended 20192020 closing rate at 1.32621.3665 US$: GBP, average rate at 1.2769331.286618 US$: GBP.
Revenue Recognition and Unearned Revenue
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred.
The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
ORBSAT 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 applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.
Contract liabilities is shown separately in the unaudited consolidated balance sheets as current liabilities. At September 30, 2020March 31, 2021 and December 31, 2019,2020, we had contract liabilities of $40,427$31,547 and $41,207,$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.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 $50,000,$0, during the ninethree months ended September 30, 2020March 31, 2021 and for the year ended December 31, 2019,2020, respectively.
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:
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Rental equipment | 4 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Depreciation expense for the three months ended September 30,March 31, 2021 and 2020 were $67,450 and 2019 were $67,447 and $62,859, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 were $199,242 and $184,484,$65,254, 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 September 30,March 31, 2021 and March 31, 2020, and September 30, 2019, respectively.
Accounting for Derivative Instruments
Derivatives are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market-based pricing models incorporating readily observable market data and requiring judgment and estimates.
The Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of $0.
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold is measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement,” which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Leases
Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
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.
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. On February 19, 2015, the Company issued 444 of its common stock, par value $0.0001, at $112.61 per share, or $50,000, to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property. For the year ended December 31, 2019, the Company recorded an impairment charge of $50,000 for the above-mentioned other asset, due to the delay in its launch to our existing product lines. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, there were no additional expenditures on research and development.
Earnings per Common Share
Net income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded.
The following are dilutive common stock equivalents during the nine monthsquarter ended:
September 30, 2020 | September 30, 2019 | March 31, 2021 | March 31, 2020 | |||||||||||||
| Convertible notes payable | 5,762,056 | (1) | 8,050,000 | (2) | ||||||||||||
| Convertible notes payable (1) | 4,368,486 | 7,936,740 | ||||||||||||||
| Stock Options | 39,044 | 39,044 | 3,000,044 | 39,044 | ||||||||||||
| Stock Warrants | 4,000 | 4,000 | 4,000 | 4,000 | ||||||||||||
| Total | 5,805,100 | 8,093,044 | 7,372,530 | 7,979,784 | ||||||||||||
(1) 4,368,486 and 7,936,740 shares of our common stock issuable upon conversion of $1,186,176 and $793,674 of Convertible Notes Payable as of March 31, 2021 and 2020, | ||
On June 15, 2020, Orbsat Corp (the “Company”) and the holders of the majority convertible promissory notes sold by the Company in the May 2019 private offering agreed to amend certain terms and provisions of the Note Purchase Agreement dated as of May 13, 2019 (the “NPA”) and related convertible promissory notes (the “Notes”) consistent with the terms of such instruments as follows, to amend Section 3(a) of the Notes to change the “Conversion Price” from $0.10 per share to $0.20 per share; to amend Section 4 the beneficial ownership limitation upon conversion of the Notes from 4.99% to 9.99%, as described further in Note 10.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 30, 2019, the Company exchanged preferred shares to promissory notes and is treated as extinguishment of preferred shares. In accordance with ASC 260-10-S99, such extinguishment on preferred shares considered as redemptions of preferred shares and the difference between the fair value of the consideration and the carrying amount of the preferred shares will adjust the net income (loss) available to common stockholders in the calculation of earnings per shares. The following are the adjustment to the net income (loss) available to common stockholders during the period ended:
| Nine Months Ended September 30, 2020 | Year Ended December 31, 2019 | |||||||
| Net loss | $ | (1,358,745 | ) | $ | (1,379,756 | ) | ||
| Preferred shares redemption adjustment | $ | - | $ | 201,924 | ||||
| Net loss available to common shareholders | $ (1, 358,745 ) | $ | (1,177,832 | ) | ||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||
| Weighted number of common shares outstanding – basic & diluted | 495,133 | 106,175 | ||||||
| Loss applicable to common shareholders per share | $ | (2.74 | ) | $ | (11.09 | ) | ||
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.
Recent Accounting Pronouncements
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective in the first quarter of fiscal 2019. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of ModificationRecent Accounting Pronouncements(ASU 2016-09), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of 0. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 and did not have a material impact on the Company’s financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU are applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018, and interim periods within those periods.
On December 22, 2017 the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “TCJA”). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its consolidated financial statements.
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 did not have any leases that met the criteria as established above, until July 24, 2019, when the Company entered into a three yearthree-year lease for its UK office and warehouse for annual rent of £25,536 or GBP:USD using exchange rate close for the ninethree months ended September 30, 2020, GBP:USD 1.292300March 31, 2021, for liability of 1.3783 or $33,000.$35,196. 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 September 30, 2020,March 31, 2021, the Company had current and long-term operating lease liabilities of $28,489$30,385 and $28,667,$14,725, respectively, and right of use assets of $59,906.$48,043.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
| 18 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At September 30, 2020,March 31, 2021, the Company had an accumulated deficit of $12,473,923, positive$14,681,695, negative working capital of $95,587$33,271 and net loss of $1,358,745$803,142 during the ninethree months ended September 30, 2020.March 31, 2021. 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. Without additional capital, we will be unable to achieve our business objectives, and may be forced to curtail our operations, reduce headcount, and/or temporarily cease our operations until requisite capital is secured. The 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 - INVENTORIES
At September 30, 2020March 31, 2021 and December 31, 2019,2020, inventories consisted of the following:
| September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
| Finished goods | $ | 501,946 | $ | 366,298 | $ | 600,912 | $ | 361,422 | ||||||||
| Less reserve for obsolete inventory | - | - | - | - | ||||||||||||
| Total | $ | 501,946 | $ | 366,298 | $ | 600,912 | $ | 361,422 | ||||||||
For the ninethree months ended September 30, 2020March 31, 2021 and the year ended December 31, 2019,2020, the Company did not make any change for reserve for obsolete inventory.
NOTE 4 – PREPAID EXPENSES
Prepaid expenses amounted to $1,784 at September 30, 2020March 31, 2021 and $18,596 at December 31, 2019, respectively.2020. Prepaid expenses include prepayments in cash for accounting fees, prepayments in equity instruments, which are being amortized over the terms of their respective agreements, as well as cost associated with certain contract liabilities. The current portion consists of costs paid for future services which will occur within a year.
NOTE 5 - PROPERTY AND EQUIPMENT
At September 30, 2020March 31, 2021 and December 31, 2019,2020, property and equipment, net of fully depreciated assets, consisted of the following:
| September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
| Office furniture and fixtures | $ | 9,809 | $ | 10,066 | $ | 6,525 | $ | 6,470 | ||||||||
| Computer equipment | 37,510 | 47,646 | 33,547 | 33,361 | ||||||||||||
| Rental equipment | 60,905 | 75,470 | 48,603 | 48,187 | ||||||||||||
| Appliques | 2,160,096 | 2,160,096 | 2,160,096 | 2,160,096 | ||||||||||||
| Website development | 66,452 | 36,279 | 69,578 | 69,149 | ||||||||||||
| 2,318,349 | 2,317,263 | |||||||||||||||
| Less accumulated depreciation | (1,164,151 | ) | (988,370 | ) | (1,279,176 | ) | (1,211,099 | ) | ||||||||
| Total | $ | 1,170,621 | $ | 1,341,187 | $ | 1,039,173 | $ | 1,106,164 | ||||||||
Depreciation expense was $67,450 and $65,254 for the three months ended September 30,March 31, 2021 and 2020, and 2019 were $67,447 and $62,859, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 were $199,242 and $184,484, respectively.
NOTE 6 – INTANGIBLE ASSETS
On December 10, 2014, the Company entered the satellite voice and data equipment sales and service business through the purchase of certain contracts from Global Telesat Corp. (“GTC”). These contracts permit the Company to utilize the Globalstar, Inc. and Globalstar LLC (collectively, “Globalstar”) mobile satellite voice and data network. The purchase price for the contracts of $250,000 was paid by the Company under an asset purchase agreement by and among the Company, its wholly owned subsidiary, Orbital Satcom, GTC and World Surveillance Group, Inc.
| 19 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Included in the purchased assets are: (i) the rights and benefits granted to GTC under each of the Globalstar Contracts, subject to certain exclusions, (ii) account and online access to the Globalstar Cody Simplex activation system, (iii) GTC’s existing customers who are serviced pursuant to the Globalstar Contracts (only as to their business directly and exclusively related to the Globalstar Contracts), and (iv) all of GTC’s rights and benefits directly and exclusively related to the Globalstar Contracts.
Amortization of customer contracts are included in depreciation and amortization. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, the Company amortized $18,750,$6,250, respectively. Future amortization of intangible assets is as follows:
| 2020 | $ | 6,250 | ||||||
| 2021 | 25,000 | $ | 18,750 | |||||
| 2022 | 25,000 | 25,000 | ||||||
| 2023 | 25,000 | 25,000 | ||||||
| 2024 and thereafter | 25,000 | |||||||
| 2024 | 25,000 | |||||||
| Total | $ | 106,250 | $ | 93,750 | ||||
On February 19, 2015, the Company issued 444 of its common stock, par value $0.0001, at $112.50 per share, or $50,000, to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property. For the year ended December 31, 2019, the Company recorded an impairment charge of $50,000 for the above-mentioned other asset, due to the delay in its launch to our existing product lines. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, 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:
| September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
| Accounts payable | $ | 773,807 | $ | 901,244 | $ | 927,309 | $ | 747,476 | ||||||||
| Rental deposits | 11,146 | 14,381 | 10,854 | 10,761 | ||||||||||||
| Customer deposits payable | 47,905 | 46,089 | 52,298 | 53,570 | ||||||||||||
| Accrued wages & payroll liabilities | 453 | 1,965 | 6,850 | 1,913 | ||||||||||||
| Property tax payable | - | 2,770 | ||||||||||||||
| VAT liability & sales tax payable | 100,232 | 64,051 | (31,290 | ) | 50,453 | |||||||||||
| Pre-merger accrued other liabilities | 65,948 | 65,948 | 65,948 | 65,948 | ||||||||||||
| Accrued interest | 80,481 | 35,462 | 112,396 | 99,982 | ||||||||||||
| Accrued other liabilities | 22,500 | 32,307 | 22,500 | 22,500 | ||||||||||||
| Total | $ | 1,102,472 | $ | 1,164,217 | $ | 1,166,865 | $ | 1,052,603 | ||||||||
NOTE 8 – LINE OF CREDIT
On October 9, 2019, Orbital Satcom Corp., entered into a short-term loan agreement for $29,000, with Amazon. The one-year term loan is paid monthly, has an interest rate of 9.72%, with late payment penalty interest of 11.72%. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, the Company recorded interest expense of $725$0 and $0,$467, respectively. The short-term line of credit balance as of September 30, 2020March 31, 2021 and December 31, 2019,2020, was $4,798$0 and $24,483, respectively.$0.
| 20 |
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 a 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 fiscal yearperiods ended March 31, 2021 and December 31, 2019,2020, the Company repaid $46,422$60,643 and $0 of the notes, leaving a balance of $58,255 and $121,848, respectively as long-termshort-term notes payable. For the three months ended September 30, 2020 and 2019, the Company recorded interest of $1,843 and $1,843, respectively. For the nine months ended September 30, 2020 and 2019,March 31, 2021, the Company recorded interest in relation to the note of $5,488 and $3,065, respectively. As of September 30, 2020, the company reclassified the note from long term to short term, resulting in current portion of notes payable of $121,848.$1,594.
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 May 14, 2019 (the “Issue Date”),March 5, 2021, the Company entered into a Note Purchase Agreement (the “NPA”“March 2021 NPA”) by and amongbetween the Company and the lenders set forth on the lender schedule to the NPAone individual accredited investor (the “Lenders”), as amended by that certain Amendment to Note Purchase Agreement (the “Amendment,” and, together with the NPA, the “Agreement”) by and among the Company and the Lenders. In total, pursuant to the Agreement, the Company issued an aggregate principal amount of $805,000 of its convertible promissory notes (the “Notes”).
The Notes bear interest at a rate of 6% per annum, simple interest, and mature on the third anniversary of the Issue Date (the “Maturity Date”), to the extent that the Notes and the principal amounts and any interest accrued thereunder (the “Indebtedness”) have not been converted into shares of common stock of the Company. Interest on the Notes will accrue on a simple interest, non-compounded basis and will be added to the principal amounts on the Maturity Date or such earlier date as may be due upon an Event of Default (as defined below), at which time all Indebtedness will be due and payable, unless earlier converted into Conversion Shares (as defined below). In the event that any amount due under the Notes 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 not pre-pay or redeem the Notes other than as required by the Agreement. The Notes are general, unsecured obligations of the Company. The proceeds of the Notes will be used to repay certain outstanding indebtedness of the Company and for general corporate purposes. For the three months ended September 30, 2020, the Company recorded simple interest expense of $11,191 and $0, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded simple interest expense of $34,452 and $87,779, respectively.
The holders of the Notes (the “Holders”) have an optional right of conversion. A Holder may elect to convert its Note, and all of the Indebtedness outstanding as of such time, into the number of fully paid and non-assessable shares of Common Stock (the “Conversion Shares”) as determined by dividing the Indebtedness by $0.10, subject to certain adjustments, but excluding adjustment for a reserve stock split of no more than 1:20 contemplated by the Company at the Issue Date. The optional right of conversion is subject to a beneficial ownership limitation of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion.
The Agreement contains customary representations and warranties and customary affirmative and negative covenants. These covenants include, among other things, certain limitations on the ability of the Company to: (i) pay dividends on its capital stock; (ii) make distributions in respect of its capital stock; (iii) acquire shares of capital stock; and, (iv) sell, lease or dispose of assets. Pursuant to the Agreement, the Holders are granted demand registration rights and pre-emptive rights as set forth in the Agreement. The Agreement 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, a majority of the Holders may accelerate the maturity of the Indebtedness.
On June 15, 2020, Orbsat Corp (the “Company”) and the holders of the majority convertible promissory notes sold by the Company in the May 2019 private offering agreed to amend certain terms and provisions of the Note Purchase Agreement dated as of May 13, 2019 (the “NPA”) and related convertible promissory notes (the “Notes”) consistent with the terms of such instruments as follows:
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In comparison to the fair market value of the common stock on May 14, 2019, and the fixed effective conversion rate of $0.10 per common share, the lesser amount of the conversion feature or debt was $805,000 and presented a beneficial conversion feature. Thus, the Company recorded a discount on the debt of $805,000 with a corresponding increase to additional paid in capital. For the year ended December 31, 2019, we amortized the discount on the debt, to interest expense of $169,668, resulting in a balance of unamortized discount notes payable of $635,333.
On June 15, 2020, the change in conversion price from $0.10 to $0.20, 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 three months ended September 30, 2020, the Company amortized the discount on the debt, to interest expense of $348,563, resulting in a balance of unamortized discount notes payable of $427,329.
On August 21, 2020, Orbsat Corp (the “Company”) entered into a Note Purchase Agreement (the “NPA2”) by and among the Company and certain lenders set forth on the lender schedule to the NPA2 (the “Lenders”“Lender”). Pursuant to the terms of the NPA2,March 2021 NPA, the Company sold an aggregatea convertible promissory note with a principal amount of $933,000 of its convertible promissory notes$350,000 (the “Notes”“March 2021 Note”). The Notes areMarch 2021 Note is a general, unsecured obligationsobligation of the Company and bearbears simple interest at a rate of 6%7% per annum, and maturematures on the third anniversary of the date of issuance (the “Maturity Date”), to the extent that the NotesMarch 2021 Note and the principal amountsamount 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 NotesMarch 2021 Note is not paid as and when due, such amountsamount 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 NotesMarch 2021 Note other than as required by the Agreement. The Note holdersNoteholder 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 outstanding indebtedness by $0.20, subjectunder the March 2021 Note price equal to certain adjustments. This optional rightthe lesser of conversion is subject(a) $1.50 per share, and (b) a 30% discount to a beneficial ownership limitation of 9.99%the price of the numbercommon stock in the qualified transaction. Following an event of sharesdefault, 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 outstanding immediately after giving effectduring the 15 trading days preceding the relevant conversion. In addition, subject to the share issuance upon conversion. The holdersownership limitations, if a qualified transaction is completed, without further action from the Noteholder, on the closing date of the Notes arequalified 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 demand registration rights and pre-emptive rights. In addition, the NPA2March 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. Upon the occurrence of an event of default, a majorityThe Company’s issuance of the Holders may accelerateMarch 2021 Note under the maturityterms of the Indebtedness.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 closinginvestor 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 took place on August 21, 2020.proceeds for working capital and general corporate purposes. As of March 31, 2021, the balance of the March 2021 Note is $350,000 which could convert into approximately 233,333 shares of common stock.
In comparison to the fair market valueThe balances of the common stock on August 21, 2020, and the fixed effective conversion rate of $0.20 per common share, the lesser amountCompany’s convertible notes payable consist of the conversion feature or debt was $898,918 and presented a beneficial conversion feature. Thus, the Company recorded a discount on the debt of $898,918 with a corresponding increase to additional paid in capital. following:
| March 31, 2021 | December 31, 2020 | |||||||
| May 2019 Notes | $ | 409,809 | $ | 462,085 | ||||
| August 2020 Notes | 380,638 | 588,182 | ||||||
| December 2020 Notes | 45,729 | 244,000 | ||||||
| March 2021 Notes | 350,000 | - | ||||||
| 1,186,176 | 1,294,267 | |||||||
| Debt Discount | (924,199 | ) | (1,084,944 | ) | ||||
| Total | $ | 261,977 | $ | 209,323 | ||||
For the three months ended the CompanyMarch 31, 2021 and 2020, we amortized the discount on the debt, to interest expense of $274,865, resulting in a balance of unamortized discount notes payable of $624,053.$501,164 and $74,837.
For the ninethree months ended September 30,March 31, 2021 and 2020, the Holders converted a total of $585,589$458,091 and $11,315 of the convertible debt to 2,092,186 and 113,260 shares of common stock into 2,988,283 common shares, 120,676 at the conversion rate of $0.10 per share and 2,867,607 common shares at the conversion rate of $0.20 per share. The balance of the convertible notes at September 30, 2020, net of unamortized discount of $1,051,382, is $101,029.shares.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 CORONAVIRUS LOANS
On May 8, 2020, Orbsat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan is for $20,832 and has a term of 2 years, of which the first 6 months are deferred at an interest rate of 1%. As of September 30, 2020,March 31, 2021, the Company has recorded $13,020$19,096 as current portion of notes payable and $7,812$1,736 as notes payable long term. In May 2021, the Company applied for forgiveness of the full amount due on the PPP loan.
On April 20, 2020, the Board of Directors of Orbsat Corp (the “Company”),the Company, approved for its wholly owned UK subsidiary, Global Telesat Communications LTD (“GTC”), to apply for a Coronavirus Interruption Loan, offered by the UK government, for an amount up to £250,000. On July 16, 2020 (the “Issue Date”), GTC, entered into a Coronavirus Interruption Loan Agreement (“Debenture”) by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £250,000, or USD$313,875344,575 at an exchange rate of GBP:USD of 1.2555.1.3783. The Debenture bears interest beginning July 16, 2021, at a rate of 3.99% per annum over the Bank of England Base Rate (0.1% as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of 6 years from the date of drawdown, July 15, 2026, the “Maturity Date”. The first repayment of £4,166.67£4,167 (exclusive of interest) will be made 13 month(s) after July 16, 2020. Voluntary prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the Limitlimit or, if less, the balance of the debenture. The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to be used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of March 31, 2021, the Company has recorded $51,686 as current portion of notes payable and $292,889 as notes payable long term.
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 favor of an amendment to its Articles of Incorporation to increase the total number of shares of authorized capital stock to 800,000,000 shares consisting of (i) 750,000,000 shares of common stock and (ii) 50,000,000 shares of preferred stock from 220,000,000 shares consisting of (i) 200,000,000 shares of common stock and (ii) 20,000,000 shares of preferred stock.
Effective March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. All share and per share information in the accompanying 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, $0.0001 par value per share, and the Company’s preferred stock, $0.0001 par value per share, (ii) a reduction in the number of authorized shares of common stock in direct proportion to the Reverse Split (i.e. from 750,000,000 shares to 50,000,000 shares), and (iii) a reduction in the number of authorized shares of preferred stock in direct proportion to the Reverse Split (i.e. from 50,000,000 shares to 3,333,333 shares). No fractional shares will be issued in connection with the Reverse Split. Stockholders who otherwise would be entitled to receive fractional shares of common stock or preferred stock, as the case may be, will have the number of post-Reverse Split shares to which they are entitled rounded up to the nearest whole number of shares. No stockholders will receive cash in lieu of fractional shares. The Reverse Split was approved by FINRA on August 19, 2019.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The authorized capital of the Company consists of 50,000,000 shares of common stock, par value $0.0001 per share and 3,333,333 shares of preferred stock, par value $0.0001 per share, as of September 30, 2020.March 31, 2021.
Preferred Stock
As of September 30, 2020,March 31, 2021, there were 3,333,333 shares of Preferred Stock authorized.
On December 5, 2017, pursuant to the approval of our board of directors and a majority of the shareholders in each class, we amended the Certificates of Designation for our Series C, D, E, H, I, J, and K Preferred Stock. The amendments changed the conversion rights of these classes of preferred stock such that the Maximum Conversion as defined in each such Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.
On May 20, 2019, following the approval on May 14, 2019, of the board of directors the Company and a majority of the shareholders of the Series E preferred stock, the Company filed an Amended and Restated Certificate of Designations for the Company’s Series E preferred stock. The amendments had the effect of changing the conversion rights such that the 9.99% blocker was eliminated.
On July 12, 2019, pursuant to the approval of our board of directors and a majority of the shareholders in each class, we amended the Certificates of Designation for our Series E, I and L Preferred Stock. The amendments had the effect of authorizing the Company’s Board to require the conversion of the Series E, I and L preferred stock into common stock of the Company at the then-applicable conversion ratio, without the approval of any holders of Series E, I and L preferred stock.
Also on July 12, 2019, the Company filed Certificates of Withdrawal of Certificate of Designations for the Company’s Series A, B, C, D, F, G, H and J preferred stock, pursuant to which the Series A, B, C, D, F, G, H and J preferred stock was cancelled.
On July 15, 2019, the Company filed a Certificate of Withdrawal of Certificate of Designations (the “Series K Certificate”) for the Company’s Series K preferred stock, pursuant to which the Series K preferred stock was cancelled.
On July 18, 2019, the Company filed Certificates of Withdrawal of Designations for the Company’s Series E, I and L preferred stock, pursuant to which the Series E, I and L preferred stock was cancelled.
As of September 30, 2020,March 31, 2021, there were no shares of Series A, B, C, D, E, F, G, H, I, J, K and L convertible preferred stock authorized, and no shares issued and outstanding.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
As of September 30, 2020,March 31, 2021, there were 50,000,000 shares of common stock authorized and 3,564,2996,177,203 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 2,686,337 shares of Common Stock, or 63.5% of the outstanding shares of Common Stock of the Company prior to the Reverse Split Action.
On January 30, 2020,12, 2021, the Company issued an aggregate of 18,147150,000 common stock upon the conversion of $1,815 of its convertible debt, at the conversion rate of $0.10 per share.
On January 31, 2020, the Company issued an aggregate of 18,147 common stock upon the conversion of $1,815 of its convertible debt, at the conversion rate of $0.10 per share.
On February 10, 2020, the Company issued an aggregate of 25,421 common stock upon the conversion of $2,542 of its convertible debt, at the conversion rate of $0.10 per share.
On February 11, 2020, the Company issued an aggregate of 23,580 common stock upon the conversion of $2,358 of its convertible debt, at the conversion rate of $0.10 per share.
On February 18, 2020, the Company issued an aggregate of 13,192 common stock upon the conversion of $1,319 of its convertible debt, at the conversion rate of $0.10 per share.
On February 19, 2020, the Company issued an aggregate of 4,468 common stock upon the conversion of $446 of its convertible debt, at the conversion rate of $0.10 per share.
On March 9, 2020, the Company issued an aggregate of 10,305 common stock upon the conversion of $1,031 of its convertible debt, at the conversion rate of $0.10 per share.
On April 17, 2020, the Company issued an aggregate of 7,046 common stock upon the conversion of $705 of its convertible debt, at the conversion rate of $0.10 per share.
On April 22, 2020, the Company issued an aggregate of 370 common stock upon the conversion of $37 of its convertible debt, at the conversion rate of $0.10 per share.
On June 22, 2020, the Company issued an aggregate of 13,437 common stock upon the conversion of $2,687$30,000 of its convertible debt, at the conversion rate of $0.20 per share.
On July 8, 2020,February 23, 2021, the Company issued an aggregate of 1,095401,446 common stock upon the conversion of $219$80,289 of its convertible debt, at the conversion rate of $0.20 per share.
On July 16, 2020, the Company’s Board of Directors approved and the Company entered into a 12-month consulting agreement (“Consulting Agreement”) with an unrelated third-party for capital raising advisory services and business growth and development services, with the term renewable upon mutual consent of the parties. Upon signing of the Consulting Agreement, the Company agreed to issue 20,000 restricted shares of its common stock to the consultant (the “Consulting Shares”), 5,000 additional restricted shares of common stock to be issued quarterly until the consultant may receive cash compensation for its services, which will be determined, upon completion of certain milestones, by the Company’s CEO.
On JulyFebruary 23, 2020,2021, the Company issued an aggregate of 2,342600,000 common stock upon the conversion of $468$150,000 of its convertible debt, at the conversion rate of $0.25 per share.
On February 23, 2021, the Company issued an aggregate of 5,000 common stock for services in the amount of $14,200.
On March 1, 2021, the Company issued an aggregate of 747,658 common stock upon the conversion of $149,532 of its convertible debt, at the conversion rate of $0.20 per share.
On August 26, 2020,March 1, 2021, the Company issued an aggregate of 586,000193,082 common stock upon the conversion of $117,200$48,270 of its convertible debt, at the conversion rate of $0.20$0.25 per share.
| 24 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On September 1, 2020, the Company issued an aggregate of 148,424 common stock upon the conversion of $29,685 of its convertible debt, at the conversion rate of $0.20 per share.
On September 2, 2020, the Company issued an aggregate of 21,753 common stock upon the conversion of $4,351 of its convertible debt, at the conversion rate of $0.20 per share.
On September 8, 2020, the Company issued an aggregate of 167,998 common stock upon the conversion of $33,600 of its convertible debt, at the conversion rate of $0.20 per share.
On September 10, 2020, the Company issued an aggregate of 572,285 common stock upon the conversion of $114,457 of its convertible debt, at the conversion rate of $0.20 per share.
On September 11, 2020, the Company issued an aggregate of 75,000 common stock upon the conversion of $15,000 of its convertible debt, at the conversion rate of $0.20 per share.
On September 14, 2020, the Company issued an aggregate of 331,472 common stock upon the conversion of $66,294 of its convertible debt, at the conversion rate of $0.20 per share.
On September 15, 2020, the Company issued an aggregate of 67,647 common stock upon the conversion of $13,529 of its convertible debt, at the conversion rate of $0.20 per share.
On September 16, 2020, the Company issued an aggregate of 151,373 common stock upon the conversion of $30,275 of its convertible debt, at the conversion rate of $0.20 per share.
On September 17, 2020, the Company issued an aggregate of 165,985 common stock upon the conversion of $33,197 of its convertible debt, at the conversion rate of $0.20 per share.
On September 21, 2020, the Company issued an aggregate of 28,901 common stock upon the conversion of $5,780 of its convertible debt, at the conversion rate of $0.20 per share.
On September 22, 2020, the Company issued an aggregate of 275,026 common stock upon the conversion of $55,005 of its convertible debt, at the conversion rate of $0.20 per share.
On September 30, 2020, the Company issued an aggregate of 216,199 common stock upon the conversion of $43,240 of its convertible debt, at the conversion rate of $0.20 per share.
Stock Options
2018 Incentive Plan
On June 14, 2018, our Board of Directors approved the 2018 Incentive Plan (the “Plan”). The 2014 Equity Incentive Plan was closed and superseded by the 2018 Incentive Plan. The purpose of the Plan is to provide a means for the Company to continue to attract, motivate and retain management, key employees, consultants and other independent contractors, and to provide these individuals with greater incentive for their service to the Company by linking their interests in the Company’s success with those of the Company and its shareholders. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that; are not in connection with the offer and sale of the Company’s securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s securities. The Plan shall be administered by the Board or its Compensation Committee and may grant Options designated as Incentive Stock Options or Nonqualified Stock Options. The Plan provides that up to a maximum of 66,667 shares of the Company’s common stock (subject to adjustment) are available for issuance under the Plan. Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Incentive Stock Option shall not exceed ten years, and in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, shall not exceed five years. Any portion of an Option that is not vested and exercisable on the date of a Participant’s Termination of Service shall expire on such date. In the event of a Change in Control; all outstanding Awards, other than Performance Shares and Performance Units, shall become fully and immediately exercisable, and all applicable deferral and restriction limitations or forfeiture provisions shall lapse, immediately prior to the Change in Control and shall terminate at the effective time of the Change in Control; provided, however, that with respect to a Change in Control that is a Company Transaction, such Awards shall become fully and immediately exercisable, and all applicable deferral and restriction limitations or forfeiture provisions shall lapse, only if and to the extent such Awards are not converted, assumed or replaced by the Successor Company.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The exercise price of an Incentive Stock Option shall be at least 100% of the Fair Market Value of the Common Stock on the Grant Date, and in the case of an Incentive Stock Option granted to a Participant who owns more than 10% of the total combined voting power of all classes of the stock of the Company or of its parent or subsidiary corporations (a “Ten Percent Stockholder”), shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date. As of December 31, 2018, Mr. David Phipps, is a Ten Percent Stockholder. The determination of more than 10% ownership shall be made in accordance with Section 422 of the Code. To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which a Participant’s Incentive Stock Options become exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option.
On June 14, 2018, we issued 18,333 new stock options to our executives and directors under the 2018 Incentive Plan. All options issued have an exercise price of $22.50 per share, with the exception of David Phipps, a Ten Percent Stockholder, whose exercise price is $24.00, vest in equal quarterly instalments starting July 1, 2018 over the next two years and expire on July 1, 2021. For the year ended December 31, 2018, the amount of vested options was 4,583. On July 1, 2018, 2,292 options were fully vested and valued on the vesting date at approximately $20.70 per option or a total of $47,422 using a Black-Scholes option pricing model with the following assumptions: strike price of 22.50 stock price of $20.70 per share (based on the market price at close on July 1, 2018) volatility of 718%, expected term of 3 years, and a risk-free interest rate of 2.69%. On October 1, 2018, an additional 2,292 options were fully vested and valued on the vesting date at approximately $20.70 per option or a total of $47,422 using a Black-Scholes option pricing model with the following assumptions: stock price of $20.70 per share (based on the market price close at grant date on June 14, 2018) volatility of 607%, expected term of 3 years, and a risk-free interest rate of 2.64%. In reference to this grant, the company recorded stock-based compensation of $81,698 for the year ended December 31, 2018.
On December 18, 2018, the Company cancelled the unvested portion of options previously granted on June 14, 2018, under the 2018 Incentive Plan totaling 13,750. The grants cancelled will be returned to the Plan.
The number of options cancelled to our officers and directors were as follows:
In addition, we cancelled options to purchase a total of (5,000) shares to two key employees.
On December 18, 2018, we issued 55,417 new stock options to our executives and directors under the 2018 Incentive Plan. All options issued have an exercise price of $2.25 per share, with the exception of David Phipps, a Ten Percent Stockholder, whose exercise price is $2.55, are fully vested and expire on December 17, 2023. The options were valued on the grant date at approximately $2.25 per option or a total of $124,674 using a Black-Scholes option pricing model with the following assumptions: strike price of $2.25 stock price of $2.25 per share (based on the market price at close on December 17, 2018) volatility of 773%, expected term of 5 years, and a risk-free interest rate of 2.69%.
On January 18, 2019, David Phipps exercised 21,667 options via a cashless exercise. Additionally, on January 18, 2019, two employees exercised 18,333 options through a cashless exercise. The Company withheld newly acquired shares pursuant to the exercise of the Option. The amount of common stock issued is calculated by using [Number of Options Exercising] minus [Exercise Price] * [Number of Options Exercising] divided by [Prior Close OSAT Market Price]. As a result of the exercise 21,619 shares of common stock were issued.
| Options Exercised | Exercise Price | Market Price | Shares withheld as Payment | Common Stock Issued | ||||||||||||||||
| David Phipps | 21,667 | $ | 2.55 | $ | 5.25 | 10,524 | 11,143 | |||||||||||||
| Other | 18,333 | $ | 2.25 | $ | 5.25 | 7,857 | 10,476 | |||||||||||||
| 40,000 | 18,381 | 21,619 | ||||||||||||||||||
2020 Incentive Plan
On August 21, 2020, the Company’s Board of Directors approved and adopted the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The purpose of the 2020 Plan is to provide a means for the Company to continue to attract, motivate and retain management, key employees, directors and consultants. The 2020 Plan provides that up to a maximum of 2,250,000 shares of the Company’s common stock, subject to adjustment, are available for issuance under the 2020 Plan. A copy of the 2020 Plan is filed as Exhibit 10.2 to this Form 8-K and is incorporated by reference herein.
Following the adoption of the 2020 Plan, the Board approved issuances of certain stock options to its executives, directors and employees under the 2020 Plan. Specifically, the stock options issued to David Phipps, CEO (400,000), Theresa Carlise, former CFO (71,000) and Hector Delgado, a Board member (21,000), all have an exercise price of $0.20 per share, respectively, fully vest upon issuance and expire on August 20, 2030. In addition, the Board approved additional 160,000 stock options to the Company’s 7 key employees, on the same terms as those issued to the Company’s officers and director.
On August 25, 2020, David Phipps exercised 400,000 options via a cashless exercise. Additionally, on August 25, 2020, two employees exercised 110,000 options through a cashless exercise. The Company withheld newly acquired shares pursuant to the exercise of the Option. The amount of common stock issued is calculated by using [Number of Options Exercising] minus [Exercise Price] * [Number of Options Exercising] divided by [Prior Close OSAT Market Price]. As a result of the exercise 408,000 shares of common stock were issued.
| Options Exercised | Exercise Price | Market Price | Shares withheld as Payment | Common Stock Issued | ||||||||||||||||
| David Phipps | 400,000 | $ | 0.20 | $ | 0.25 | 80,000 | 320,000 | |||||||||||||
| Other | 110,000 | $ | 0.20 | $ | 0.25 | 22,000 | 88,000 | |||||||||||||
| 510,000 | 102,000 | 408,000 | ||||||||||||||||||
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Options Issued Outside of Plan
On February 19, 2015, the Company issued to Mr. Rector, the former Chief Executive Officer, Chief Financial Officer and director of the Company, a seven-year option to purchase 956 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $112.50 per share, were fully vested on the date of grant and shall expire in February 2022. The 956 options were valued on the grant date at approximately $112.50 per option or a total of $107,500 using a Black-Scholes option pricing model with the following assumptions: stock price of $112.50 per share (based on the sale of common stock in a private placement), volatility of 380%, expected term of 7 years, and a risk-free interest rate of 1.58%. In connection with the stock option grant, the Company recorded stock-based compensation for the year ended December 31, 2015 of $107,500, respectively.
On December 28, 2015, the Company issued Ms. Carlise, Chief Financial Officer, a ten-year option to purchase 222 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $112.50 per share, were fully vested on the date of grant and shall expire in December 2025. The 222 options were valued on the grant date at approximately $2,925.29 per option or a total of $650,000 using a Black-Scholes option pricing model with the following assumptions: stock price of 2,925.29 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 year ended December 31, 2015 of $650,000, respectively.
Also, on December 28, 2015, the Company issued Mr. Delgado, its Director, a ten-year option to purchase 89 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $112.50 per share, were fully vested on the date of grant and shall expire in December 2025. The 89 options were valued on the grant date at approximately $2,925.73 per option or a total of $260,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $2,925.73 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 year ended December 31, 2015 of $260,000, respectively.
On December 16, 2016, the Company issued options to Mr. Phipps, to purchase up to 4,444 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 $122.50 per share, vest immediately, and have a term of ten years. The 4,444 options were valued on the grant date at approximately $42.75 per option or a total of $190,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $42.75 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.
On May 26, 2017, the Company issued 2,222 options to Mr. Phipps, 1,667 options to Theresa Carlise, 556 options to Hector Delgado, its Director and 8,889 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 $122.50 per share, vest immediately, and have a term of ten years. The 13,333 options were valued on the grant date at approximately $45.00 per option or a total of $600,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $45.00 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, for the years ended December 31, 2017, the Company recorded stock-based compensation of $600,000. For the year ended December 31, 2019 and 2018 the Company recorded stock-based compensation of $219,518 and $0, respectively.
Following the adoption of the 2020 Plan, the Board approved issuances of certain stock options to its executives, directors and employees under the 2020 Plan. Specifically, the stock options issued to David Phipps, CEO (400,000), Theresa Carlise, CFO (71,000) and Hector Delgado, a Board member (21,000), all have an exercise price of $0.20 per share, respectively, fully vest upon issuance and expire on August 20, 2030. In addition, the Board approved additional 160,000 stock options to the Company’s 7 key employees, on the same terms as those issued to the Company’s officers and director. The Company uses the Black-Scholes Model to calculate the fair value of its options. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. Management determined the expected volatility was 496.13%, a risk free rate of interest between 0.13%, and contractual lives of the options of ten years. In connection with the stock option grant, for the three months ended September 30, 2020, the Company recorded a charge for the fair value of options granted of $130,400.
Stock options outstanding at September 30, 2020, as disclosed in the below table, have approximately $276,212 of intrinsic value at the end of the period.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company’s outstanding stock options and changes during the ninethree months ended September 30, 2020March 31, 2021 is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2020 | 39,044 | $ | 17.49 | 5.16 | ||||||||
| Granted | 817,000 | 0.20 | 9.90 | |||||||||
| Exercised | (531,000 | ) | 0.20 | 9.89 | ||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Balance outstanding at September 30, 2020 | 325,044 | $ | 2.28 | 9.25 | ||||||||
| Options exercisable at September 30, 2020 | 325,044 | $ | 2.28 | 9.25 | ||||||||
Stock Options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | 3,000,044 | $ | 0.47 | 9.91 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Balance outstanding at March 31, 2021 | 3,000,044 | $ | 0.47 | 9.66 | ||||||||
| Options exercisable at March 31, 2021 | 3,000,044 | $ | 0.47 | 9.66 | ||||||||
A summary of the status of the Company’s outstanding warrants and changes during the ninethree months ended September 30, 2020March 31, 2021 is as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||||||
| Balance at January 1, 2020 | 4,000 | $ | 60.00 | 0.62 | ||||||||||||||||||||
| Balance at January 1, 2021 | 4,000 | $ | 60.00 | 0.37 | ||||||||||||||||||||
| Granted | - | - | - | - | - | - | ||||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Forfeited | - | - | - | - | - | - | ||||||||||||||||||
| Cancelled | - | - | - | - | - | - | ||||||||||||||||||
| Balance outstanding and exercisable at September 30, 2020 | 4,000 | $ | 60.00 | 0.62 | ||||||||||||||||||||
| Balance outstanding and exercisable at March 31, 2021 | 4,000 | $ | 60.00 | 0.37 | ||||||||||||||||||||
As of September 30, 2020,March 31, 2021, and December 31, 2019,2020, there were 4,000 warrants outstanding, respectively.
NOTE 13 - RELATED PARTY TRANSACTIONS
As of September 30, 2020,March 31, 2021, the accounts payable due to related party includes advances for inventory and services due to David Phipps of $24,062,$91,334, accrued director fees of $5,000 due to Hector Delgado Directorand accrued salary and expenses due to Theresa CarliseThomas Seifert of $3,120.$10,500. Total related party payments due as of September 30, 2020March 31, 2021 and December 31, 20192020 are $32,182$101,834 and $51,071,$102,060, respectively. Those related party payable are non-interest bearing and due on demand.
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 $34,163 at an exchange rate of 1.3665, with interest at 5.50% over Bank of England’s base rate or current rate of 6.25% variable. The advance is guaranteed by David Phipps, the Company’s Chief Executive Officer. The Company has an American Express account for Orbital Satcom Corp. and an American Express account for GTCL, both in the name of David Phipps who personally guarantees the balance owed.
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 $58,149$19,699 and $46,116$24,741 for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
COVID-19
OnIn March 11, 2020, the World Health Organization announced that infectionsdeclared the outbreak of thea novel Coronavirus (COVID-19) had becomecoronavirus (“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 success of our business depends on March 13, the U.S. President announcedour global operations, including our supply chain and consumer demand, among other things. As a National Emergency relatingresult of COVID-19, we have experienced shortages in inventory due to the disease. There ismanufacturing issues, a possibility of continued widespread infectionreduction in the United Statesvolume of sales in some parts of our business, such as rental sales and abroad, withdirect website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, butyear ended December 31, 2020 reflect this impact; however, we expect that itthis trend may materially affect our business, financial conditioncontinue and results of operations. Thethe full extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirusimpact 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 actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and resultsdeferral of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.certain UK taxes.
The Company may incur significant delays and/or expenses in addition to, impairing its ability to secure additional financing, relating to the worldwide COVID-19 (coronavirus) pandemic. It is presently unknown whether and to what extent the Company’s supply chains may be further affected if the pandemic persists for an extended period of time. The Company may incur significant delays or expenses relating to such events outside of its control, which could have a material adverse impact on its business, operating results and financial condition. The Company’s reliance on securing additional capital for its public company expenses may be impaired due to the effect on the U.S. financial markets. The inability to obtain appropriate financing, may affect its compliance requirements as a public company. The Company has been using its working capital from its operating subsidiaries, to support its public company expenses. The continued drain on its working capital have forced the Company to incur cutbacks, which may affect its future operating revenue as well as, its ability to continue operations.
Employment Agreements
On June 14, 2018,March 11, 2021, the Company entered into a two (2) year Employment Agreement (the “Phipps Agreement”) with Mr.Company’s Board of Directors approved and adopted the terms and provisions of employment agreements for David Phipps, with an automatic one (1) year extension. Under the Phipps Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer, and President andThomas Seifert, the Company’s Chief Financial Officer.
The initial term of Mr. Phipps’ employment is one year commencing on March 11, 2021 which term will receive anbe automatically extended for additional one-year terms thereafter unless terminated by the Company or the executive by written notice. CEO’s annual base salary equalcompensation is an aggregate of $180,000 payable by the Company and £50,000 (or approximately $70,000) payable through the Company’s wholly owned subsidiary, Global Telesat Communications Ltd., subject to periodic review and modification by the Board upon occurrence of material events relating to the sumCompany’s financial and business performance, including, without limitation, the Company’s listing of $170,000 and £48,000 to be paid through our operating subsidiary, GTCL. For the year ended December 31, 2018, the £48,000 equivalent to USD is $62,219 and the yearly conversion rate is 1.296229. Theits capital stock on a national securities exchange. Mr. Phipps Agreement provides for a performance bonus based on exceeding our annual revenue goals and on our ability to attract new investment. The Phipps Agreement also provides for medical plan coverage, an auto allowance, paid vacation, and discretionary stock grants and option awards. In the event of termination without cause, termination as a result of a change in control, or resignation with good reason (as definedreceives additional compensation in the Phipps Agreement),form of an automobile allowance of $1,500 per month and private family medical insurance. In addition, Mr. Phipps will be entitled to a severance equal to twice his base salary, the immediate vesting of all unvested options, and other benefits. The Phipps Agreement terminates and supersedes the Original Phipps Agreement (as defined below) and any subsequent amendments, effective as of the June 14, 2018.
Previously the Company had a two-year Executive Employment Agreement with Mr. Phipps, effective January 1, 2016 (the “Original Phipps Agreement”). Under the Original Phipps Agreement, Mr. Phipps agreed to serve as the Company’s Chief Executive Officer and President and receivedreceive an annual base salary equal to the sum of $144,000 and £48,000, or $61,833 at the yearly conversion rate of 1.288190. Mr. Phipps was also eligible forcash bonus compensation in an amount equal to up to fifty (50%) percent150% of his then-current base salary if the Company meets or exceeds performance criteria to be adopted by the Compensation Committee ifof the Board, once established, and any or Board and equity awardsother additional bonuses as may be approved indetermined by the discretionBoard. Mr. Phipps is entitled to receive various other benefits if and to the extent available to the employees of the Compensation CommitteeCompany. The employment agreement may be terminated based on death or Board. On January 1, 2018,disability of the Original Phipps Agreement automatically renewedexecutive, for another year.
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.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Also,The initial term of Mr. Seifert’s employment is one year commencing on June 14, 2018, we entered into a new Employment Agreement (“Carlise Agreement”) with our Chief Financial Officer, Theresa Carlise. The Carlise Agreement is for a period of two (2) years, with an automatic one (1) year extension. Ms. Carlise’s base salary is $150,000 per year. The Carlise Agreement provides for performance bonuses based on exceeding our annual revenue goals and on our ability to attract new investment. The Carlise Agreement also provides for medical plan coverage, an auto allowance, paid vacation, and discretionary stock grants and option awards. In the event of termination without cause, termination as a result of a change in control, or resignation with good reason (as defined in the Carlise Agreement), Ms. CarliseMarch 11, 2021 which term will be entitled to a severance equal to twice her base salary, the immediate vesting of all unvested options, and other benefits. The Carlise Agreement terminates and supersedes the Original Carlise Agreement (as defined below) and any subsequent amendments, effective as of the June 14, 2018.
Prior to June 14, 2018, the Company had aautomatically extended for additional one-year agreement with Ms. Carlise, as its Chief Financial Officer, Treasurer and Secretary (the “Original Carlise Agreement”). The Original Carlise Agreement provided for an annual compensation of $140,000 as well as medical benefits. The Original Carlise Agreement was effective December 1, 2016 and had an automatic renewal clause pursuant to which the Original Carlise Agreement renews itself for another year, if not cancelledterms thereafter unless terminated by the Company previously. The Original Carlise Agreement had been automatically extended for an additional term of one year on December 1, 2017. In additionor the executive by written notice. CFO’s annual base compensation is $150,000 payable by the Company, subject to periodic review and modification by the base salary of $140,000 annually, Ms. Carlise was eligibleBoard’s Compensation Committee. Mr. Seifert will be entitled to receive an annual cash bonus in an amount equal to up to 150% of his base salary if the Company meets or exceeds performance criteria to be adopted by the Compensation Committee of the Board, of Directorsonce established, and shall be eligible for grants of awards under stock option orany other equity incentive plans of the Company.
On March 13, 2020, the Company and David Phipps and Theresa Carlise, the Company’s Chief Executive Officer and Chief Financial Officer, respectively, executed waivers of the provisions in their respective employment agreement requiring prior written notice of non-renewal to the other party. As a result, their respective employment terms with the Company will not be automatically extendedadditional bonuses as set forth in such employment agreements and will terminate as of June 14, 2020.
On August 13, 2020, the Company’s Board approved and authorized the continued employment of David Phipps and Theresa Carlise, as the Company’s Chief Executive Officer and Chief Financial Officer, respectively, for a 30-day period, commencing as of August 14, 2020 and terminating on September 13, 2020, which employment term may be extended as agreeddetermined by the Company and the respective executive officers on the substantially the sameBoard. Mr. Seifert also receives additional compensation and other material terms during the period of the continued employment as those set forth in their previous employment agreements. As previously disclosed, in March 2020, the Company and above-referenced executive officers executed waivers of the provisions in their respective employment agreement requiring prior written notice of non-renewal to the other party. As a result, their respective employment terms with the Company were not automatically extended as set forth in such employment agreements and terminated as of June 13, 2020. As previously disclosed on June 13, 2020, the Company renewed their respective agreements for 30 days, commencing on June 14 through July 13, 2020. Also, as previously disclosed on July 13, 2020, the Company renewed their respective agreements for 30 days, commencing on July 14 through August 13, 2020.
On September 11, 2020, the Company’s Board approved and authorized the continued employment of David Phipps and Theresa Carlise, as the Company’s Chief Executive Officer and Chief Financial Officer, respectively, for a 30-day period, commencing as of September 14, 2020 and terminating on October 13, 2020, which employment term may be extended as agreed by the Company and the respective executive officers on substantially the same compensation and other material terms during the period of the continued employment as those set forth in their previous employment agreements. As previously disclosed, in March 2020, the Company and above-referenced executive officers executed waivers of the provisions in their respective employment agreement requiring prior written notice of non-renewal to the other party. As a result, their respective employment terms with the Company were not automatically extended as set forth in such employment agreements and terminated as of June 13, 2020. As previously disclosed on June 13, 2020, the Company renewed their respective agreements for 30 days, commencing on June 14 through July 13, 2020. As previously disclosed on July 13, 2020, the Company renewed their respective agreements for another 30 days, commencing on July 14 through August 13, 2020. As previously disclosed on August 14, 2020, the Company renewed their respective agreements for another 30 days, commencing on August 14 through September 13, 2020.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 14, 2020, the Board of Directors (the “Board”) of Orbsat Corp (the “Company”) effected the following changes to the Company’s executive management:
(i) extended David Phipps’ (the Company’s Chief Executive Officer) employment with the Company for another 30-day period, commencing on October 14, 2020, with his respective compensation and other material terms during the such term to remain substantially the same as those set forth in the previous extensions to his employment agreement;
(ii) continued, following the October 16, 2020 expirationform of Theresa Carlise’s CFO employment agreement with the Company, to retain her services on a non-exclusive basis as the Company’s Comptroller to facilitate the CFO transition, for cash compensationan automobile allowance of $2,000/week. Ms. Carlise will be so engaged at the pleasure of the Board and her engagement may be terminated upon one week’s advance notice; and
(iii) to appoint Thomas Seifert as the Company’s Chief Financial Officer for a period of 12 months commencing on October 19, 2020, for cash compensation of $7,500/$750 per month and such additional equity compensation as the Board may determine in the future, subject$1,000 per month to periodic review and adjustment by the Board in its sole discretion. He will also be eligiblepurchase individual medical insurance. Mr. Seifert is entitled to receive various other benefits if and to the extent available to the employees of the Company.
On November 12, 2020, the Company’s Board approved and authorized the continued The employment of David Phipps, as the Company’s Chief Executive Officer, for a 90-day period, commencing as of November 13, 2020, which employment termagreement may be extended as agreed by the Company andterminated based on death or disability of the executive, officer on substantially the same compensationfor cause or without good reason, for cause or with good reason, and other material terms during the periodas a result of the continued employment as those set forth in his previous employment agreement. As previously disclosed, in March 2020, the Company and above-referenced executive officer executed a waiverchange of control of the provisions in hisCompany. The employment agreement requiring prior written noticealso contains certain provisions that are customary for agreements of non-renewal to the other party. As a result, his employment terms with the Company were not automatically extended as set forth in such employment agreementthis nature, including, without limitation, non-competition and terminated as of June 13, 2020. As previously disclosed on June 13, 2020, the Company renewed his agreement for 30 days, commencing on June 14 through July 13, 2020. As previously disclosed on July 13, 2020, the Company renewed his agreement for another 30 days, commencing on July 14 through August 13, 2020. As previously disclosed on August 14, 2020, the Company renewed his agreement for another 30 days, commencing on August 14 through September 13, 2020. As previously disclosed on October 14, 2020, the Company renewed his agreement for another 30 days, commencing on October 14 through November 13, 2020. On November 12, 2020, the Company renewed his agreement for another 90 days, commencing November 13, 2020.
Consulting Agreements
On May 13, 2019, the Company entered into two consulting agreements (each, a “Consulting Agreement” and together, the “Consulting Agreements”) with unrelated third parties to provide capital raising advisory services and business growth and development services, each for a term of nine months. In exchange for such services, each consultant will receive (i) a Note in the amount of $44,000 issued pursuant to the Agreement, (ii) a Note in the amount of $12,500 with a maturity of three years bearing interest at a rate of 6% per annum with an optional right of conversion, (iii) payment of a retainer ranging from $10,000 to $30,000, and (iv) monthly payments ranging from $5,000 to $10,000 for nine months. On August 29, 2019, one of the consulting agreements was extended for another three months to expire on February 13, 2020 and the other was extended on September 1, 2019 for another two months and expired on January 13, 2020. For the nine months ended September 30, 2020 and 2019, the Company recorded professional fees of $16,290 and $0, respectively, relating to the Consulting Agreements.non-solicitation covenants, indemnification provisions, etc.
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 $2,706$2,717 per month at the yearly average conversion rate of 1.271713,1.276933, or $2,822$2,738 using exchange rate close at December 31, 20192020 of 1.3262.1.286618. The lease has been renewed until July 23, 2022.
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.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities during the year ended DecemberAt March 31, 2019 was 6.00%, derived from borrowing rate, as obtained from the Company’s current lenders. Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of December 31, 2019, we have not recognized any impairment losses for our ROU assets.
We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
At September 30, 2020,2021, the Company had current and long-term operating lease liabilities of $28,489$30,385 and $28,667,$14,725, respectively, and right of use assets of $59,906.$48,043.
Future minimum lease payments under these leases are as follows, in thousands, (unaudited):
| Minimum | ||||
| Lease | ||||
| Years Ending December 31, | Payment | |||
| Remainder of 2020 | $ | 8,118 | ||
| 2021 | 32,472 | |||
| 2022 | 18,942 | |||
| Total undiscounted future non-cancellable minimum lease payments | 59,532 | |||
| Less: Imputed interest | - | |||
| Present value of lease liabilities | $ | 59,532 | ||
| Weighted average remaining term | 1.83 | |||
In the Company’s financial statements for periods prior to January 1, 2019, the Company accounts for leases under ASC 840, and provides for rent expense on a straight-line basis over the lease terms. Net rent expense for the ninethree months ended September 30,March 31, 2021 and 2020 were $6,384 and 2019 were $12,091 and $23,214,$8,075, respectively.
Litigation
From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results.
NOTE 15 - CONCENTRATIONS
Customers:
Amazon accounted for 60.1% and 57.6% of the Company’s revenues during the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, Amazon accounted for 64.9% and 63.6% of the Company’s revenues. No other customer accounted for 10% or more of the Company’s revenues for either period.
| 27 |
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONCENTRATIONS
Customers:
Amazon accounted for 53.6% and 56.6% of the Company’s revenues during the three months ended March 31, 2021 and 2020, respectively. No other customer accounted for 10% or more of the Company’s revenues for either period.
Suppliers:
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the nine months ended September 30, 2020 and 2019.
| September 30, 2020 | September 30, 2019 | |||||||||||||||
| Garmin | $ | 376,741 | 11.8 | % | $ | 490,564 | 15.1 | % | ||||||||
| Network Innovations | $ | 697,902 | 21.8 | % | $ | 1,032,647 | 31.8 | % | ||||||||
| Cygnus Telecom | $ | 376,741 | 13.2 | % | $ | 402,455 | 12.4 | % | ||||||||
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 September 30, 2020March 31, 2021 and 2019.2020.
| September 30, 2020 | September 30, 2019 | March 31, 2021 | March 31, 2020 | |||||||||||||||||||||||||||||
| Globalstar Europe | $ | 140,829 | 10.1 | % | $ | 136,661 | 12.0 | % | ||||||||||||||||||||||||
| Garmin | $ | 140,666 | 12.5 | % | $ | 188,383 | 18.1 | % | $ | 236,243 | 16.9 | % | $ | 131,266 | 11.4 | % | ||||||||||||||||
| Network Innovations | $ | 167,300 | 14.9 | % | $ | 385,204 | 36.9 | % | $ | 129,931 | 9.3 | % | $ | 334,292 | 28.9 | % | ||||||||||||||||
| Cygnus Telecom | $ | 141,364 | 12.6 | % | $ | 125,420 | 12.0 | % | $ | 132,519 | 9.5 | % | $ | 136,761 | 11.8 | % | ||||||||||||||||
| Satcom Global | $ | 123,435 | 11.0 | % | $ | 38,943 | 1.2 | % | $ | 239,805 | 17.2 | % | $ | 61,674 | 5.3 | % | ||||||||||||||||
Geographic:
The following table sets forth revenue as to each geographic location, for the nine months ended September 30, 2020 and 2019:
| September 30, 2020 | September 30, 2019 | |||||||||||||||
| Europe | $ | 2,749,781 | 66.0 | % | $ | 3,216,613 | 72.2 | % | ||||||||
| North America | 1,035,904 | 24.9 | % | 816,699 | 18.3 | % | ||||||||||
| South America | 20,510 | 0.5 | % | 33,841 | 0.8 | % | ||||||||||
| Asia & Pacific | 279,247 | 6.7 | % | 312,848 | 7.0 | % | ||||||||||
| Australia & Oceanic | 42,594 | 1.0 | % | 35,912 | 0.8 | % | ||||||||||
| Africa | 35,714 | 0.9 | % | 37,994 | 0.9 | % | ||||||||||
| $ | 4,163,750 | $ | 4,453,906 | |||||||||||||
The following table sets forth revenue as to each geographic location, for the three months ended September 30, 2020March 31, 2021 and 2019:2020:
| September 30, 2020 | September 30, 2019 | |||||||||||||||
| Europe | $ | 1,044,503 | 70.8 | % | $ | 1,132,882 | 64.9 | % | ||||||||
| North America | 290,065 | 19.7 | % | 479,463 | 27.5 | % | ||||||||||
| South America | 8,609 | 0.6 | % | 13,131 | 0.8 | % | ||||||||||
| Asia & Pacific | 101,244 | 6.9 | % | 100,380 | 5.7 | % | ||||||||||
| Australia & Oceanic | 21,655 | 1.5 | % | 12,141 | 0.7 | % | ||||||||||
| Africa | 9,317 | 0.6 | % | 8,528 | 0.5 | % | ||||||||||
| $ | 1,475,393 | $ | 1,746,525 | |||||||||||||
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| March 31, 2021 | March 31, 2020 | |||||||||||||||
| Europe | $ | 1,012,258 | 69.3 | % | $ | 999,191 | 68.1 | % | ||||||||
| North America | 308,072 | 21.1 | % | 355,781 | 25.0 | % | ||||||||||
| South America | 7,718 | 0.5 | % | 11,127 | 0.8 | % | ||||||||||
| Asia & Pacific | 105,932 | 7.3 | % | 93,504 | 6.6 | % | ||||||||||
| Africa | 27,448 | 1.9 | % | 8,500 | 0.6 | % | ||||||||||
| $ | 1,461,428 | $ | 1,468,103 | |||||||||||||
NOTE 16 - SUBSEQUENT EVENTS
On October 14, 2020, the Board of Directors (the “Board”) of Orbsat Corp (the “Company”) effected the following changes to the Company’s executive management:None.
(i) extended David Phipps’ (the Company’s Chief Executive Officer) employment with the Company for another 30-day period, commencing on October 14, 2020, with his respective compensation and other material terms during the such term to remain substantially the same as those set forth in the previous extensions to his employment agreement;
(ii) continued, following the October 16, 2020 expiration of Theresa Carlise’s CFO employment agreement with the Company, to retain her services on a non-exclusive basis as the Company’s Comptroller to facilitate the CFO transition, for cash compensation of $2,000/week. Ms. Carlise will be so engaged at the pleasure of the Board and her engagement may be terminated upon one week’s advance notice; and
(iii) to appoint Thomas Seifert as the Company’s Chief Financial Officer for a period of 12 months commencing on October 19, 2020, for cash compensation of $7,500/month, and such additional equity compensation as the Board may determine in the future, subject to periodic review and adjustment by the Board in its sole discretion. He will also be eligible to receive various other benefits if and to the extent available to the employees of the Company.
On November 3, 2020, the Company issued an aggregate of 30,305 common stock upon the conversion of $6,061 of its convertible debt, at the conversion rate of $0.20 per share.
On November 5, 2020, the Company issued an aggregate of 129,241 common stock upon the conversion of $25,848 of its convertible debt, at the conversion rate of $0.20 per share.
On November 6, 2020, the Company issued an aggregate of 56,700 common stock upon the conversion of $11,340 of its convertible debt, at the conversion rate of $0.20 per share.
On November 11, 2020, the Company issued an aggregate of 100,000 common stock upon the conversion of $20,000 of its convertible debt, at the conversion rate of $0.20 per share.
On November 12, 2020, the Company’s Board approved and authorized the continued employment of David Phipps, as the Company’s Chief Executive Officer, for a 90-day period, commencing as of November 13, 2020, which employment term may be extended as agreed by the Company and the executive officer on substantially the same compensation and other material terms during the period of the continued employment as those set forth in his previous employment agreement. As previously disclosed, in March 2020, the Company and above-referenced executive officer executed a waiver of the provisions in his employment agreement requiring prior written notice of non-renewal to the other party. As a result, his employment terms with the Company were not automatically extended as set forth in such employment agreement and terminated as of June 13, 2020. As previously disclosed on June 13, 2020, the Company renewed his agreement for 30 days, commencing on June 14 through July 13, 2020. As previously disclosed on July 13, 2020, the Company renewed his agreement for another 30 days, commencing on July 14 through August 13, 2020. As previously disclosed on August 14, 2020, the Company renewed his agreement for another 30 days, commencing on August 14 through September 13, 2020. As previously disclosed on October 14, 2020, the Company renewed his agreement for another 30 days, commencing on October 14 through November 13, 2020. On November 12, 2020, the Company renewed his agreement for another 90 days, commencing November 13, 2020.
On November 13, 2020, the Company issued an aggregate of 194,472 common stock upon the conversion of $38,894 of its convertible debt, at the conversion rate of $0.20 per share.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis and Plan of Financial Condition and Results of Operations,” and elsewhere in this quarterly report on Form 10-Q that do not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company’s products, as well as other factors, many or all of which may be beyond the Company’s control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.
You should read the following information in conjunction with our financial statements and related notes contained elsewhere in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance.
We encourage you to review our periodic reports filed with the SEC and included in the SEC’s EDGAR database, including the Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on March 30, 2020,22, 2021, and the Company’s subsequent public filings with the SEC.
Corporate Information
We are a provider of satellite-based hardware, airtime and related services both in the United States and internationally. We sell equipment and airtime for use on all of the major satellite networks including Globalstar, Inmarsat, Iridium and Thuraya and operate a short-term rental service for customers who desire to use our equipment for a limited time period. Our acquisition of GTCL in February 2015 expanded our global satellite-based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts.
COVID-19 Update
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic prompting government-imposed quarantines, suspension of in-person attendance of academic programs, and cessation of certain travel and business closures. The United States has entered a recession as a result of the COVID-19 pandemic, which may prolong and exacerbate the negative impact on us. Although we expect the availability of vaccines and various treatments with respect to COVID-19 to have an overall positive impact on business conditions in the aggregate over time, the exact timing of these positive developments is uncertain. In December 2020, the United States began distributing two vaccines that, in addition to other vaccines under development, are expected to help to reduce the spread of the coronavirus that causes COVID-19 once they are widely distributed. If the vaccines prove less effective than currently understood by the scientific community and the United States Food and Drug Administration, or if there are problems with the acceptance, availability, timing or other difficulties with widely distributing the vaccines, the pandemic may last longer, and could continue to impact our business for longer, than we currently expect. In response to COVID-19, governmental authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter in place orders and recommendations to practice social distancing. Although many governmental measures have had specific expiration dates, some of those measures have already been extended more than once, and there is considerable uncertainty regarding the duration of such measures and the implementation of any potential future measures, especially if cases increase across the United States, with the potential for additional challenges resulting from the emergence of new variants of COVID-19, some of which may be more transmissible than the initial strain. Such measures have impacted, and may continue to affect, our workforce, operations, suppliers and customers. We reduced the size of our workforce following the onset of COVID-19 and may need to take additional actions to further reduce the size of our workforce in the future; such reductions incur costs, and we can provide no assurance that we will be able to rehire our workforce in the event our business experiences a subsequent recovery. We took steps to curtail our operating expenses and conserve cash. We may elect or need to take additional remedial measures in the future as the information available to us continues to develop, including with respect to our workforce, relationships with our third-party vendors, and our customers. There is no certainty that the remedial measures we have implemented to date, or any additional remedial steps we may take in the future, will be sufficient to mitigate the risks posed by COVID-19. Further, such measures could potentially materially adversely affect our business, financial condition and results of operations and create additional risks for us. Any escalation of COVID-19 cases across many of the markets we serve could have a negative impact on us. Specifically, we could be adversely impacted by limitations on our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring our stores to close or employees to remain at home; limitation of carriers to deliver our product to customers; product shortages; limitations on the ability of our customers to conduct their business and purchase our products and services; and limitations on the ability of our customers to pay us in a timely manner. These events 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, 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 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.
| 30 |
Recent Events
As of June 30, 2020,March 31, 2021, there were 50,000,000 shares of common stock authorized and 255,3296,177,203 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 2,686,337 shares of Common Stock, or 63.5% of the outstanding shares of Common Stock of the Company prior to the Reverse Split Action.
On January 30, 2020,12, 2021, the Company issued an aggregate of 18,147150,000 common stock upon the conversion of $1,815 of its convertible debt, at the conversion rate of $0.10 per share.
On January 31, 2020, the Company issued an aggregate of 18,147 common stock upon the conversion of $1,815 of its convertible debt, at the conversion rate of $0.10 per share.
On February 10, 2020, the Company issued an aggregate of 25,421 common stock upon the conversion of $2,542 of its convertible debt, at the conversion rate of $0.10 per share.
On February 11, 2020, the Company issued an aggregate of 23,580 common stock upon the conversion of $2,358 of its convertible debt, at the conversion rate of $0.10 per share.
On February 18, 2020, the Company issued an aggregate of 13,192 common stock upon the conversion of $1,319 of its convertible debt, at the conversion rate of $0.10 per share.
On February 19, 2020, the Company issued an aggregate of 4,468 common stock upon the conversion of $446 of its convertible debt, at the conversion rate of $0.10 per share.
On March 9, 2020, the Company issued an aggregate of 10,305 common stock upon the conversion of $1,031 of its convertible debt, at the conversion rate of $0.10 per share.
On April 17, 2020, the Company issued an aggregate of 7,046 common stock upon the conversion of $705 of its convertible debt, at the conversion rate of $0.10 per share.
On April 22, 2020, the Company issued an aggregate of 370 common stock upon the conversion of $37 of its convertible debt, at the conversion rate of $0.10 per share.
On June 22, 2020, the Company issued an aggregate of 13,437 common stock upon the conversion of $2,687 of its convertible debt, at the conversion rate of $0.20 per share.
As of June 30, 2020, there were no shares of Series A, B, C, D, E, F, G, H, I, J, K and L Convertible Preferred Stock authorized, and no shares issued and outstanding.
On July 8, 2020, the Company issued an aggregate of 1,095 common stock upon the conversion of $219$30,000 of its convertible debt, at the conversion rate of $0.20 per share.
On July 16, 2020, the Company’s Board of Directors approved and the Company entered into a 12-month consulting agreement (“Consulting Agreement”) with an unrelated third-party for capital raising advisory services and business growth and development services, with the term renewable upon mutual consent of the parties. Upon signing of the Consulting Agreement, the Company agreed to issue 20,000 restricted shares of its common stock to the consultant (the “Consulting Shares”), 5,000 additional restricted shares of common stock to be issued quarterly until the consultant may receive cash compensation for its services, which will be determined, upon completion of certain milestones, by the Company’s CEO.
On JulyFebruary 23, 2020,2021, the Company issued an aggregate of 2,342401,446 common stock upon the conversion of $468 of its convertible debt, at the conversion rate of $0.20 per share.
On August 26, 2020, the Company issued an aggregate of 586,000 common stock upon the conversion of $117,200$50,289 of its convertible debt, at the conversion rate of $0.20 per share.
On September 1, 2020,February 23, 2021, the Company issued an aggregate of 148,424600,000 common stock upon the conversion of $29,685$150,000 of its convertible debt, at the conversion rate of $0.25 per share.
On February 23, 2021, the Company issued an aggregate of 5,000 common stock for services in the amount of $14,200.
On March 1, 2021, the Company issued an aggregate of 860,740 common stock upon the conversion of $172,148 of its convertible debt, at the conversion rate of $0.20 per share.
On September 2, 2020,March 1, 2021, the Company issued an aggregate of 21,75380,000 common stock upon the conversion of $4,351$20,000 of its convertible debt, at the conversion rate of $0.20$0.25 per share.
On September 8, 2020, the Company issued an aggregate of 167,998 common stock upon the conversion of $33,600 of its convertible debt, at the conversion rate of $0.20 per share.
On September 10, 2020, the Company issued an aggregate of 572,285 common stock upon the conversion of $114,457 of its convertible debt, at the conversion rate of $0.20 per share.
On September 11, 2020, the Company issued an aggregate of 75,000 common stock upon the conversion of $15,000 of its convertible debt, at the conversion rate of $0.20 per share.
On September 14, 2020, the Company issued an aggregate of 331,472 common stock upon the conversion of $66,294 of its convertible debt, at the conversion rate of $0.20 per share.
On September 15, 2020, the Company issued an aggregate of 67,647 common stock upon the conversion of $13,529 of its convertible debt, at the conversion rate of $0.20 per share.
On September 16, 2020, the Company issued an aggregate of 151,373 common stock upon the conversion of $30,275 of its convertible debt, at the conversion rate of $0.20 per share.
On September 17, 2020, the Company issued an aggregate of 165,985 common stock upon the conversion of $33,197 of its convertible debt, at the conversion rate of $0.20 per share.
On September 21, 2020, the Company issued an aggregate of 28,901 common stock upon the conversion of $5,780 of its convertible debt, at the conversion rate of $0.20 per share.
On September 22, 2020, the Company issued an aggregate of 275,026 common stock upon the conversion of $55,005 of its convertible debt, at the conversion rate of $0.20 per share.
On September 30, 2020, the Company issued an aggregate of 216,199 common stock upon the conversion of $43,240 of its convertible debt, at the conversion rate of $0.20 per share.
We had net cash used by operations of $471,793$459,764 during the ninethree months ended September 30, 2020.March 31, 2021. At September 30, 2020,March 31, 2021, we had anegative working capital of $98,191.approximately $33,271. Additionally, at September 30, 2020,March 31, 2021, we had an accumulated deficit of $12,450,262$14,681,695 and stockholder’s equity of $995,442.$576,368. These matters and our expected needs for capital investments required to support operational growth raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.
The Company may incur significant delays and/or expenses in addition to, impairing its ability to secure additional financing, relating to the worldwide COVID-19 (coronavirus) pandemic. Beginning in late 2019, there have been reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, closures of certain travel and businesses, which outbreak evolved into a worldwide pandemic in March 2020. It is presently unknown whether and to what extent the Company’s supply chains may be affected if the pandemic persists for an extended period of time. The Company may incur significant delays or expenses relating to such events outside of its control, which could have a material adverse impact on its business, operating results and financial condition. The Company’s reliance on securing additional capital for its public company expenses may be impaired due to the effect on the U.S. financial markets. The inability to obtain appropriate financing, may affect its compliance requirements as a public company. The Company has been using its working capital from its operating subsidiaries, to support its public company expenses. The continued drain on its working capital have forced the Company to incur cutbacks, which may affect its future operating revenue as well as, its ability to continue operations.
On April 1, 2020, the Company’s UK based subsidiary, GTCL furloughed 6 employees. Under the “Corona Virus Job Retention Scheme”, the furloughed employees will be paid through the Company, reimbursable in an amount equal to 80% of the employees’ wages thru the UK government until June 30, 2020. The Company has recorded the reimbursement of the 80% of wages, in the amount of $32,333, in salaries, in its statement of operations for the nine months ended September 30, 2020. On May 4, 2020, the Bournemouth, Christchurch and Poole Council, has awarded a grant of £25,000 to GTCL, under its COVID-19 relief scheme, “Retail, Leisure and Hospitality Relief”. The grant is not a loan and is not to be repaid and is reflected as other income on the Company’s statement of operations. Additionally, on May 5, 2020, the Bournemouth, Christchurch and Poole Council, waived the 2020 business rates for the period starting April 1, 2020 thru March 31, 2021, of approximately £13,224 or $17,101, at the quarterly average exchange rate at September 30, 2020 of 1.293173.
On May 8, 2020, Orbsat Corp was approved for the Payroll Protection Program (“PPP”) loan. The loan is for $20,832 and has a term of 2 years, of which the first 6 months are deferred at an interest rate of 1%. As of September 30, 2020, the Company has recorded $13,020 as current portion of notes payable and $7,812 as notes payable long term.
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 (“Debenture”) by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £250,000, or USD$313,875 at an exchange rate of GBP:USD of 1.2555. The Debenture bears interest at a rate of 3.99% per annum over the Bank of England Base Rate (0.1% as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of 6 years from the date of drawdown, July 15, 2026, the “Maturity Date”. The first repayment of £4,166.67 (exclusive of interest) will be made 13 month(s) after July 16, 2020. Voluntary prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the Limit or, if less, the balance of the debenture. The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to be used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand.
The Company anticipates that the continued demands for working capital needed to support its operation and therefore anticipates engaging in various capital raising efforts and cost-cutting measures, including, without limitation, temporary or permanent cutbacks to its personnel, curtailing portion(s) of its operations, etc., which measures are likely to adversely affect the Company’s future operations, revenue as well as its ability to continue its current operations. Even if we raise sufficient capital through equity or debt financing, strategic alliances or otherwise, there can be no assurances that the revenue or capital infusion will be sufficient to enable us to sustain our business to a level where it will be profitable or generate positive cash flow. Management’s plan to alleviate the substantial doubt about the Company’s ability to continue as a going concern include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings to eliminate inefficiencies in order to meet its anticipated cash requirements. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures, working capital, and other requirements. If we are unable to achieve these goals, our business would be jeopardized and the Company may not be able to continue.
On June 15, 2020, the Company’s Board approved and authorized continued employment of David Phipps and Theresa Carlise, as the Company’s Chief Executive Officer and Chief Financial Officer, respectively, for a 30-day period, commencing as of June 14, 2020, which employment term may be extended as agreed by the Company and the respective executive officers on the substantially the same compensation and other material terms during the period of the continued employment as those set forth in their previous employment agreements. As previously disclosed, in March 2020, the Company and above-referenced executive officers executed waivers of the provisions in their respective employment agreement requiring prior written notice of non-renewal to the other party. As a result, their respective employment terms with the Company were not automatically extended as set forth in such employment agreements and terminates as of June 14, 2020. On July 13, 2020, the Board extended their respective employments for another 30-day period. On August 13, 2020 and on September 11, 2020, the Board resolved to negotiate and, when prepared, enter into executive employment agreements David Phipps as the Company’s CEO and Theresa Carlise, the Company’s CFO, on substantially the same compensation and other material terms as those set forth in their previous employment agreements.
On October 14, 2020, the Board effected the following changes to the Company’s executive management:
(i) extended David Phipps’ (the Company’s Chief Executive Officer) employment with the Company for another 30-day period, commencing on October 14, 2020, with his respective compensation and other material terms during the such term to remain substantially the same as those set forth in the previous extensions to his employment agreement;
(ii) continued, following the October 16, 2020 expiration of Theresa Carlise’s CFO employment agreement with the Company, to retain her services on a non-exclusive basis as the Company’s Comptroller to facilitate the CFO transition, for cash compensation of $2,000/week. Ms. Carlise will be so engaged at the pleasure of the Board and her engagement may be terminated upon one week’s advance notice; and
(iii) to appoint Thomas Seifert as the Company’s Chief Financial Officer for a period of 12 months commencing on October 19, 2020, for cash compensation of $7,500/month, and such additional equity compensation as the Board may determine in the future, subject to periodic review and adjustment by the Board in its sole discretion. He will also be eligible to receive various other benefits if and to the extent available to the employees of the Company.
Results of Operations for the Three and Nine Months Ended September 30, 2020March 31, 2021 compared to the Three and Nine Months Ended September 30, 2019March 31, 2020
Revenue. Net Sales for the three and nine months ended September 30, 2020March 31, 2021, consisted primarily of sales of satellite phones, tracking devices, locator beacons, accessories and airtime plans. For the three months ended September 30, 2020,March 31, 2021, revenues generated were $1,475,393$1,461,428 compared to $1,746,525$1,468,103 of revenues for the three months ended September 30, 2019,March 31, 2020, a decrease in total revenues of $271,132$6,675 or 15.5%0.5%. Total sales for Global Telesat Communications Ltd. were $1,002,872$1,013,435 for the three months ended September 30, 2020,March 31, 2021, as compared to $1,103,619$953,820 for the three months ended September 30, 2019, a decreaseMarch 31, 2020, an increase of $100,747$59,615 or 9.1%6.3%. Total sales for Orbital Satcom Corp. were $472,521$447,993 for the three months ended September 30, 2020March 31, 2021 as compared to $642,906,$514,283, for the three months ended September 30, 2019,March 31, 2020, a decrease of $170,385$66,290 or 26.5%.
For the nine months ended September 30, 2020, revenues generated were $4,163,750 compared to $4,453,906 of revenues for the nine months ended September 30, 2020 and 2019, a decrease in total revenues of $290,156 or 6.5%. Total sales for Global Telesat Communications Ltd. were $2,677,039 for the nine months ended September 30, 2020, as compared to $3,128,211 for the nine months ended September 30, 2019, a decrease of $451,172 or 14.4%. The Company attributes this decrease to reduced recreational consumer demand as a result of lockdown measures imposed across Europe during much of the quarter. Total sales for Orbital Satcom Corp. were $1,486,711 for the nine months ended September 30, 2020 as compared to $1,325,695, for the nine months ended September 30, 2019, an increase of $161,016 or 12.5%12.9%. The Company attributes the increaseschanges in revenue to new product lines and significant increases in US e-commerceAmazon sales, offset by the decreasechange in exchange rates from GBP:USD.
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Cost of Sales. During the three months ended September 30, 2020,March 31, 2021, cost of revenuessales decreased to $1,076,929$1,023,911 compared to $1,366,008,$1,120,102, for the three months ended September 30, 2019,March 31, 2020, a decrease of $289,079$96,191 or 21.2%8.6%. Gross profit margins during the three months ended September 30, 2020March 31, 2021 were 27.0%29.9% as compared to 21.8% for the comparable period in the prior year. During the nine months ended September 30, 2020, cost of revenues decreased to $3,159,593 compared to $3,553,351, for the nine months ended September 30, 2019, a decrease of $393,758 or 11.1%. Gross profit margins during the nine months ended September 30, 2020 were 24.1% as compared to 20.2%23.7% for the comparable period in the prior year. As indicated by the results for the three and nine months ending September 30, 2020,quarter, our profitsales margins have increased by 5.2% and 3.9%6.2%. However, we cannot be certain that we can maintain the increased margin levels. We expect our costThe increase is primarily due to a greater percentage of revenueshigh margin sales in the first quarter ended March 31, 2021 as compared with sales growth to continue to increase during fiscal 2020 and beyond, as we expand our operations and begin generating additional revenues under our current business. However, to the extent costs will sosame period in 2020, as well to as an increase we are unable at this time to estimatein margins on certain sales that resulted from customers bearing value added tax (VAT) that was previously borne by the amount of the expected increases.Company.
Operating Expenses. Total operating expenses for the three months ended September 30, 2020,March 31, 2021 were $872,835,$736,446, an increase of $289,799$197,205 or 49.7%36.6%, from total operating expenses for the three months ended September 30, 2019,March 31, 2020 of $583,036. Total operating expenses for the nine months ended September 30, 2020, were $1,859,012, an increase of $149,014 or 8.7%, from total operating expenses for the nine months ended September 30, 2019, of $1,709,998$539,241. Factors contributing to the decrease are described below.
Selling, general and administrative expenses were $182,813$161,690 and $210,600$157,206 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $27,787$4,484 or 13.2%. Selling, general and administrative expenses were $486,984 and $522,352 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $35,368 or 6.8%2.9%. The increase, for the ninethree months ended September 30, 2020, areMarch 31, 2021, is attributable to certain SG&A expenses that fluctuate with sales volatility, offset by an increase in Amazon fees as a percentage of sales and a decrease in administrative expenses.volatility.
Salaries, wages and payroll taxes were $196,629$208,174 and $176,762,$195,642 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, an increase of $19,867,$12,532, or 11.2%. Salaries, wages and payroll taxes were $542,675 and $536,504, for the nine months ended September 30, 2020 and 2019, respectively, an increase of $6,171 or 1.1%6.4%. The decreaseincrease is a result of the Company’s UK subsidiary, GTCL, reductionan increase in staff furloughed asand part of the UK Coronavirus Job Retention Scheme. The Company furloughstime employees, and pays their full compensation and receives 80% of the paid wages through a grant as provided by the UK government, for the ninethree months ended September 30, 2020.March 31, 2021.
Professional fees were $289,296$292,882 and $126,565$114,889 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, an increase of $162,731,$177,993, or 128.6%. Professional fees were $480,961 and $447,908 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $33,053, or 7.4%154.9%. The increase during the three and nine months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, is attributable to professional fees see Note 14, Commitments and Contingencies,related to the potential listing of which agreements expiredthe Company’s common stock on February 13, 2020.the Nasdaq Capital Market.
Depreciation and amortization expenses were $73,697$73,700 and $69,109$71,504 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, an increase of $4,588$2,196 or 6.6%. Depreciation and amortization expenses were $217,992 and $203,234 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $14,758 or 7.3%3.1%. The increase was primarily attributable to the addition of fixed assets from the year ended December 31, 2019 of $70,194, and $30,758 for the nine months ended September 30, 2020, offset by fully amortized assets, as compared to the same period in the prior year.
We expect our expenses in each of these areas to continue to increase during fiscal 20202021 and beyond as we expand our operations and begin generating additional revenues under our current business. Similarly, we are unable at this time to estimate the amount of the expected increases.
Total Other (Income) Expense. Our total other (income) expense was $626,080expenses were $504,213 compared to $98,440$93,620 during the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, an increase in other expense of $527,640 or 536%. Our total other (income) expense was $503,890 compared to $186,006 during the nine months ended September 30, 2020 and 2019, respectively, an increase of other expense of $317,884$410,593 or 170.9%438.6%. The increase is attributable to extinguishment of debt of $269,261, other income of $31,793,an increase in interest expense $797,807related to non-cash charges associated with the Company’s convertible notes payable offset by interest earned of $80 and foreign currency exchange variance of $7,217.variance.
Net Loss. We recorded a net loss before income tax of $1,100,451$803,142 for the three months ended September 30, 2020March 31, 2021 as compared to a net loss of $300,959,$284,860, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, we recorded a net loss before income tax of $1,358,745 as compared to a net loss of $995,449 for the nine months ended September 30, 2019.March 31, 2020. The increase in the loss is a result of the factors as described above.
Comprehensive LossGain (Loss). We recorded a gain (loss) for foreign currency translation adjustments for the three and nine months ended September 30, 2020March 31, 2021 of $1,611 and 2019,a loss of $5,602 and $(494), and $(19,840) and $(893), respectively. The fluctuations of$9,194 for the increase/decrease are primarily attributed to the decrease recognized due to exchange rate variances.three months ended March 31, 2020.
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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 September 30, 2020,March 31, 2021, we had a cash balance of $817,013.$559,282. Our working capital is $95,587a negative $33,271 at September 30, 2020.March 31, 2021.
Our current assets at September 30, 2020March 31, 2021 increased 82%13.5% from December 31, 20192020 and included cash, accounts receivable, prepaid expenses, unbilled revenue, right of use, inventory and other current assets.
Our current liabilities at September 30, 2020March 31, 2021 increased 3.8%4.9% from December 31, 20192020 and included our accounts payable, due to related party, provision for income taxes, contract liabilities, current portion of notes payable, lease liabilities and other liabilities in the ordinary course of our business.
At September 30, 2020,March 31, 2021, the Company had an accumulated deficit of $12,473,923, positive$14,681,695, negative working capital of $95,587approximately $33,271 and net loss of $1,358,745approximately $803,142 during the ninethree months ended September 30,March 31, 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 $144,058 and net loss of $2,763,375 during the year ended December 31, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the audited 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. Without additional capital, we will be unable to achieve our business objectives, and may be forced to curtail our operations, reduce headcount, and/or temporarily cease our operations until requisite capital is secured. The 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.
Operating Activities
Net cash flows providedused by operating activities for the ninethree months ended September 30, 2020March 31, 2021 amounted to $471,800$459,764 and were primarily attributable to our net loss of $1,358,745,$803,142, total amortization expense of $18,750$6,250 and depreciation of $199,242,$67,450, amortization of discount on debt of $752,130, fair value$501,164, stock based compensation of options granted of $130,400, gain on extinguishment of debt of $269,261$14,200 and net change in assets and liabilities of $63,839,$253,249, primarily attributable to an increase in accounts receivable of $94,176, an increase in inventory of $239,490, an increase in unbilled revenue of $2,067, a decrease in right of use of $7,563, an increase in other current assets of $19,195, increase in accounts payable of $114,261, a decrease in contract liabilities of $5,157, a decrease in lease liabilities of $7,589, and an increase in provision for income taxes of $164.
Net cash flows provided by operating activities for the three months ended March 31, 2020 amounted to $64,712 and were primarily attributable to our net loss of $284,860, total amortization expense of $6,250 and depreciation of $65,254, amortization of discount on debt of $74,837 and net change in assets and liabilities of $191,292, primarily attributable to a decrease in accounts receivable of $81,739,$72,045, an increase in inventory of $135,648,$77,686, decrease in prepaid expenses of $16,812,$12,652, a decrease in unbilled revenue of $877,$5,368, a decrease in right of use of $11,939, a decrease in other current assets of $57,800, decrease$76,609, increase in accounts payable of $61,747,$120,709, a decrease in contract liabilities of $780,$5,136, a decrease in lease liabilities of $21,562,$11,939, and a decrease in provision for income taxes of $1,330.
Net cash flows used in operating activities for the nine months ended September 30, 2019 amounted to $603,183 and were primarily attributable to our net loss of $996,194, total amortization expense of $18,750 and depreciation of $184,484, amortization of discount on debt of $211,330, change in fair value of derivative liability of $69,677, amortization of right of use of $2,196, gain on debt extinguishment of $134,677, long term debt issued for services of $113,000 and net change in assets and liabilities of $66,939, primarily attributable to an increase in accounts receivable of $74,915, an increase in inventory of $179,186, increase in prepaid expenses of $35,789, decrease in unbilled revenue of $19,087, an increase in other current assets of $39,505, increase in accounts payable of $217,680, an increase in contract liabilities of $25,356 and an increase in provision for income taxes of $333.
Investing Activities
Net cash flows used in investing activities were $30,752$459 and $51,414,$10,933 for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively. During the ninethree months ended September 30,March 31, 2021 and March 31, 2020, and 2019, we purchased property and equipment of $30,752$459 and $51,414,$10,933, respectively.
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Financing Activities
Net cash flows provided by financing activities were $1,263,333 and $601,944,$289,131 for the ninethree months ended September 30, 2020 and 2019, respectively. Net cash flows provided by financing activities were $1,263,333 for the nine months ended September 30, 2020March 31, 2021 and were for proceeds from a convertible notes payable of $958,000, proceeds from note payable provided by the US Payroll Protection Program (“PPP”) of $20,832, proceeds from note payable of $323,075 and$350,000 which was offset by repayments toof notes payable for $60,643 and related party note payable of $18,888 and repayments of line of credit for $19,685.$226.
Net cash flows provided by financing activities were $601,944 for the ninethree months ended September 30, 2019March 31, 2020 were $13,130 for the three months ended March 31, 2020 and were for proceeds from convertible notesa related party payable of $757,000, repayments of convertible notes payable of $87,778, repayments of amounts owed to related parties of $20,856 and$20,536 which was offset by repayments of notes payable of $46,422.for $7,226.
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: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
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat Communications Ltd. All material intercompany balances and transactions have been eliminated in consolidation.
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Accounts receivable and allowance for doubtful accountsReceivable
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 September 30,March 31, 2021, and 2020, and 2019, there is an allowance for doubtful accounts of $15,749$0 and $0,$5,300, respectively.
Inventories
Inventories are valued at the lower of cost or net realizable value, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
Accounting for Derivative Instruments
Derivatives are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market-based pricing models incorporating readily observable market data and requiring judgment and estimates.
The Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
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. On February 19, 2015, the Company issued 444 of its common stock, par value $0.0001, at $112.61 per share, or $50,000, to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property. For the year ended December 31, 2019, the Company recorded an impairment charge of $50,000 for the above-mentioned other asset, due to the delay in its launch to our existing product lines. For the ninethree months ended September 30 30,March 31, 2021 and 2020, and 2019, there were no additional expenditures on research and development.
Foreign Currency Translation
The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and nine months ended September 30, 2020,March 31, 2021, closing rate at 1.29231.3783 US$: GBP, quarterly average rate at 1.2932 US$: GBP and yearly average rate at 1.27171.379068 US$: GBP, for the three and nine months ended September 30, 2019,March 31, 2020, closing rate at 1.26981.245481 US$: GBP, quarterly average rate at 1.29381.281097 US$: GBP, and yearly average rate of 1.2853, for the year ended 20192020 closing rate at 1.32621.3665 US$: GBP, average rate at 1.27691.286618 US$: GBP.
For the three and nine months ended September 30, 2020, Global Telesat Communications LTD, (GTCL) represents 66.2% and 63.9% of total company sales and as such, currency rate variances have an impact on results.
For the three months ended September 30, 2020, the net effect on revenues were impacted by the differences in exchange rate from quarterly average exchange of 1.2938 to 1.2853. Had the quarterly average rate remained at 1.2938, sales for the three months ended September 30, 2020 would have been higher by $2,304. GTCL comparable sales in GBP, its home currency, decreased 22.0% or £271,079, from £1,233,770 to £962,692, for the three months ended September 30, 2020 as compared to September 30, 2019.
For the nine months ended September 30, 2020, the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.2853 to 1.2717. Had the yearly average rate remained at 1.2583, sales for the nine months ended September 30, 2020 would have been higher by $4,369. GTCL comparable sales in GBP, its home currency, decreased 10.3% or £321,284, from £3,116,839 to £2,795,555, for the nine months ended September 30, 2020 as compared to September 30, 2019.
For the nine months ended September 30, 2019, GTCL represented 70.2% of total company sales and as such, currency rate variances have an impact on results. For the nine months ended September 30, 2019 the net effect on revenues were impacted negatively by the differences in exchange rate from yearly average exchange rate of 1.35130 to 1.27327. Had the yearly average rate remained, sales would have been higher by $191,712. GTCL comparable sales in GBP, its home currency, increased 3.7% or £86,535, from £2,370,301 to £2,456,836 for the nine months ended September 30, 2019 as compared to September 30, 2018.
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.
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, ): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
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 service contract, but such amount is deferred at the beginning of the service term and amortized ratably 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 September 30, 2020 and 2019,March 31, 2021, we had contract liabilities of approximately $118,449 and $45,057.$31,547. At December 31, 2019,2020, we had contract liabilities of approximately $41,207.$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.
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 September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Fair value of financial instruments
The Company adopted 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, 2020 to March 31, 2021:
| Conversion feature derivative liability | ||||
| Balance at January 1, 2020 | - | |||
| Derivative liability | - | |||
| Change in fair value included in earnings | - | |||
| Balance at March 31, 2020 | $ | - | ||
| Derivative Liability | - | |||
| Change in fair value included in earnings | - | |||
| Balance at March 31, 2021 | $ | - | ||
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-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).
Recent Accounting Pronouncements
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
ORBSAT CORP AND SUBSIDIARIES
FKA: ORBITAL TRACKING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective in the first quarter of fiscal 2019. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. There was no impact as a result of adopting this ASU on the financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2016-09), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of 0. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 and did not have a material impact on the Company’s financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU are applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018, and interim periods within those periods.
On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “TCJA”). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its consolidated financial statements.
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 did not have any leases that met the criteria as established above, until July 24, 2019, when the Company entered into a three yearthree-year lease for its UK office and warehouse for annual rent of £25,536 or GBP: USD using exchange rate close for the ninethree months ended September 30, 2020,March 31, 2021, for liability of GBP:USD 1.2923001.3783 or $33,000.$35,196. 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 September 30, 2020,March 31, 2021, the Company had current and long-term operating lease liabilities of $28,489$30,385 and $28,667,$14,725, respectively, and right of use assets of $59,906.$48,043.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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 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 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 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 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.
Under the supervision and with the participation of our management, we conducted an evaluation, as of September 30, 2020,March 31, 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 September 30, 2020,March 31, 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 the Company by upgrading its accounting software to aan 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 intendsproposes to add personnel to address the need forlack of ability to have multiple level transaction reviews.review.
Management intends to complete these steps in the near future, but in any event before the end of the 20202021 fiscal year. However, until additional capital is raised, no assurance can be made that the implementation of such remedial steps 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 three months ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 21, 2020,March 5, 2021, the Company entered into a Note Purchase Agreement (the “NPA”) by and amongbetween the Company and certain lenders set forth on the lender schedule to the NPAone individual accredited investor (the “Lenders”“Noteholder”). Pursuant to the terms of the NPA, where the Company sold an aggregatea convertible promissory note with a principal amount of $933,000 of its convertible promissory notes$350,000 (the “Notes”“March 2021 Note”). The Notes are general, unsecured obligations of the Company and bear simple interest at a rate of 6% per annum, and mature on the third anniversary of the date of issuance (the “Maturity Date”), to the extent that the Notes and the principal amounts 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 Notes 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 not pre-pay or redeem the Notes other than as required by the Agreement. The Note holders haveNoteholder has an optional right of conversion such that athe 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 dividing the outstanding indebtedness under the March 2021 Note by $0.20,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. This optional rightFollowing an event of default, the conversion is subjectprice will be adjusted to a beneficial ownership limitationbe equal to the lower of: (i) the then applicable conversion price or (ii) the price per share of 9.99%85% of the number of shares oflowest traded price for the Company’s common stock outstanding immediately after giving effectduring the 15 trading days preceding the relevant conversion. In addition, subject to the share issuance upon conversion. The holdersownership limitations, if a qualified transaction is completed, without further action from the Noteholder, on the closing date of the Notes are granted demand registration rights and pre-emptive rights. In addition, the 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. Upon the occurrence of an event of default, a majorityqualified transaction, 50% of the Holders may accelerateprincipal 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 maturity30% 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 Indebtedness. The closingpublic offering of this offering took placethe 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 August 21, 2020.the Nasdaq or Canadian stock exchanges, as amended. The Company’s issuance of the Notes under the terms of the NPAMarch 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 and Regulation D promulgated thereunder. The investors in the Notes were “accredited investors” (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 business development, investment in increased inventory and other strategic growth initiatives, including market expansion and personnel recruitment in North America.
On August 21, 2020, the Company’s Board of Directors approved and adopted the Company’s 2020 Equity Incentive Plan (the “Plan”). The purpose of the Plan is to provide a means for the Company to continue to attract, motivate and retain management, key employees, directors and consultants. The Plan provides that up to a maximum of 2,250,000 shares of the Company’s common stock, subject to adjustment, are available for issuance under the Plan. Following the adoption of the Plan, the Board approved issuances of certain stock options to its executives, directors and employees under the Plan. Specifically, the stock options issued to David Phipps, CEO (400,000), Theresa Carlise, former CFO (71,000) and Hector Delgado, a Board member (21,000), all have an exercise price of $0.20 per share, respectively, fully vest upon issuance and expire on August 20, 2030. In addition, the Board approved additional 160,000 stock options to the Company’s 7 key employees, on the same terms as those issued to the Company’s officers and director. Finally, the Board additionally approved restricted stock awards of 5,000 each to Theresa Carlise and Hector Delgado, as well as a total of 15,000 restricted shares to the Company’s 7 key employees.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
None.
| Management contract or compensatory plan. |
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: | ORBSAT CORP | |
| By: | /s/ David Phipps | |
| David Phipps | ||
| Chief Executive Officer and Chairman | ||
| (principal executive officer) | ||
| /s/ Thomas Seifert | ||
Chief Financial Officer, Treasurer and Secretary | ||
| (principal financial officer and principal accounting officer) | ||
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