As filed with the Securities and Exchange Commission on July 24 , 2017

 

Registration No. 333- 215681333-235947

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1Pre-effective Amendment No. 1 to

Amendment No. 1FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

ORBITAL TRACKING CORP.ORBSAT CORP

(Exact name of registrant as specified in its charter)

 

Nevada 4813 65-0783722
(State or other jurisdictionof (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)

 

18851 NE 29th Avenue, Suite 700

Aventura, FL 33180

(305)-560-5355

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

David Phipps

Chief Executive Officer

Orbital TrackingOrbsat Corp.

18851 NE 29th Avenue, Suite 700

Aventura, FL 33180

(305)-560-5355

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

Ralph V. De Martino, Esq.

Alec Orudjev, Esq.

Joe Laxague, Esq.

Schiff Hardin LLP

901 K Street, NW, Suite 700

Washington, DC 20001

Phone (202) 778-6400
Fax: (202) 778-6460

Laxague Law, Inc.

1 East Liberty, Suite 600

Reno, NV 89501

(775) 234-5221

Clayton E. Parker, Esq.

K&L Gates LLP

200 S. Biscayne Boulevard, Suite 3900

Miami, Florida 33131-2399

(305) 539-3300

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this Registration Statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [  ][X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[  ]

 

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 the 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 [  ] (Do not check if a smaller reporting company) [  ]

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 to Section 7(a)(2)(B) of the Securities Act. [  ]

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Securities to be Registered

  

Proposed

Maximum

Aggregate

Offering

Price(1)

$

  

Amount of

Registration

Fee (2)

$

 
Common stock, par value $0.0001 per share  $7,000,000  $811.30 
Total  $7,000,000  $811.30 

(1)Includes additional shares that the underwriters have the option to purchase pursuant to their option to purchase additional shares.
(2)Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”), based on the proposed maximum aggregate offering price.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securitiesThe selling stockholders may not be soldsell these securities pursuant to this prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY    , 2020

PROSPECTUS

8,050,000 Shares of Common Stock

Issuable upon Conversion of Convertible Promissory Notes

This prospectus relates to the resale, from time to time, by the selling stockholders identified in this prospectus under the caption “Selling Stockholders,” of up to 8,050,000 shares of our common stock they may acquire upon the conversion of convertible promissory notes issued in a private placement completed on May 13, 2019. The prices at which the selling stockholders may sell such shares will be determined by prevailing market prices or at prices that may be obtained in negotiated transactions.

We are not selling any shares under this prospectus and will not receive any proceeds from any sale or disposition by the selling stockholders of the shares covered by this prospectus. In addition, we will pay all fees and expenses incident to the registration of the resale of shares under this prospectus. The selling stockholders from time to time may offer and sell the shares held by them directly or through one or more underwriters, broker-dealers or agents on terms to be determined at the time of sale, as described in more detail in this prospectus under “Plan of Distribution.” No shares of our common stock may be sold without delivery of this prospectus describing the method and terms of the offering of such shares.

Our common stock is presently quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol “OSAT”. On January 10, 2020, the last reported sale price for our common stock on the OTCQB was $2.95 per share. The sale price for our common stock on the OTCQB may not be indicative of the market price of our common stock on a national securities exchange, if and when our common stock is accepted for listing on such an exchange.

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that you should consider before investing in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securitiesordetermined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is January    , 2020

TABLE OF CONTENTS

Page
About This Prospectus4
Prospectus Summary5
The Offering9
Summary Consolidated Financial Data9
Risk Factors11
Cautionary Note Regarding Forward-Looking Statements and Industry Data20
Use of Proceeds20
Selling Stockholders21
Price Range of Common Stock and Related Matters24
Dividend Policy24
Security Ownership of Certain Beneficial Owners and Management25

Executive Compensation

26
Certain Relationships and Related Party Transactions29
Description of Securities29
Plan of Distribution32
Legal Matters33
Experts33
Where You Can Find More Information33
Incorporation of Certain Information by Reference34
Index to Financial Statements35

ABOUT THIS PROSPECTUS

This prospectus relates to the resale by the selling stockholders identified in this prospectus under the caption “Selling Stockholders,” from time to time, of up to an aggregate of 8,050,000 shares of our common stock, par value $0.0001 per share, issuable upon conversion of certain outstanding convertible promissory notes. As described below under “Prospectus Summary—Private Placement Convertible Promissory Notes,” the shares of our common stock registered by this prospectus are issuable upon conversion of convertible promissory notes, up to 8,050,000 shares of our common stock, issued on May 13, 2019, all of which are convertible by the selling stockholders. We are not selling any shares of our common stock under this prospectus, and we will not receive any proceeds from the sale of shares of common stock offered hereby by the selling stockholders. The registration statement containing this prospectus, including the exhibits to the registration statement, provides additional information about us and the securities offered under this prospectus. The registration statement, including the exhibits, can be read on the SEC’s website or at the SEC offices mentioned under the heading “Where You Can Find More Information.”

You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different information, you should not rely on it. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUSSUBJECT TO COMPLETIONDATED JULY 21 , 2017

_________Shares

________ Common Stock

We are offering                          shares of our common stock.

Our common stock is presently quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol “TRKK”. We will apply to have our common stock listed on [The NASDAQ Capital Market] under the symbol “ ” and the closing of this offering is contingent upon the successful listing of our common stock on such market. No assurance can be given that our application will be approved. On July 20, 2017, the last reported sale price for our common stock on the OTCQB was $0.02 per share.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of information that you should consider before investing in our common stock.

Per ShareTotal
Public offering price
Underwriting discounts and commission (1)
Proceeds, before expenses, to us

(1)See section entitled “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters may also exercise their option to purchase up to an additional               shares from us, at the public offering price, less the underwriting discounts and commissions, for 45 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the shares will be made on or about _____, 2017.

ViewTrade Securities, Inc.

The date of this prospectus is _________, 2017

3

TABLE OF CONTENTS

Page
Prospectus Summary5
Risk Factors10
Cautionary Note Regarding Forward-Looking Statements and Industry Data19
Use of Proceeds20
Price Range of Common Stock and Related Matters21
Dividend Policy21
Capitalization22
Dilution23
Management’s Discussion and Analysis of Financial Condition and Results of Operations24
Business35
Management40
Security Ownership of Certain Beneficial Owners and Management44
Certain Relationships and Related Party Transactions52
Description of Securities55
Underwriting61
Legal Matters64
Experts64
Where You Can Find More Information64
Index to Financial Statements

You should rely only onassume that the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for,documents incorporated by reference herein and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information in this prospectus istherein are accurate only as of the date of this prospectus, regardless ofsuch information is presented. Neither the time of delivery of this prospectus ornor any sale of shares ofmade in connection with this prospectus, under any circumstances, create any implication that there has been no change in our common stock. Our business, financial condition, results of operations and prospects may have changedaffairs since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distributiondate of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

This prospectus may be supplemented from time to time to add, update or change information in any jurisdiction where actionthis prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for that purpose is required, other than in the United States. Persons outside the United States who come into possessionpurposes of this prospectus must inform themselves about, and observe any restrictions relating to the offering of the shares of common stock and the distributionextent that a statement contained in such prospectus modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus outside the United States.

4

is only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus.

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.

 

Unless the context otherwise requires, references to “we,” “our,” “us,” or the “Company” in this prospectus mean Orbital TrackingOrbsat Corp. on a consolidated basis with its wholly-owned subsidiaries.

 

Orbital Tracking Corp.Our Company

 

The Company is a distributor, developerOrbsat Corp provides services and reseller ofsolutions globally for commercial, government and individual users, enabling them to communicate, track assets and personnel, or request SOS assistance via satellite enabled communications hardwarefrom anywhere in the world. Our key services include satellite communication solutions, emergency location systems, high-speed satellite internet, global asset and providespersonnel monitoring, customized ground station systems and custom product design. We provide these products airtime and related services to customers located both in the United States and internationally through itsour subsidiaries, U.S. based Orbital Satcom Corp. (“Orbital Satcom”) and U.K .U.K. basedGlobal Telesat Communications Limited(“GTCL”).

We sell equipmentsupport the increasing demand for on-demand connectivity with products and airtime for use on all majorservices developed to deliver voice, high-speed data and IoT solutions globally via leading commercial satellite networks includingnetwork operators such as Globalstar, Inmarsat, Iridium and Thuraya. Our solutions connect businesses to their remote assets or lone workers via satellite to deliver increased visibility and operational efficiency. We specialize in offeringoffer a broad range of asset monitoring and control solutions, including sophisticated hardware and an advanced cloud-based mapping platform. Our satellite enabled personalemergency search and asset tracking productsrescue solutions are instrumental in providing reassurance and provide an advanced mapping portal for customers using our rangepeace of GSMmind, and satellite based GPS tracking devices. Additionally, we operate a short-term rental service for customers who require use of our equipment for a limited time withoutultimately saving lives across the up-front expense of purchasing hardware.

world, on land or at sea.

 

Our acquisition of GTCL in February 2015 expanded our global satellite basedsatellite-based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts which entitle us to transmit GPS tracking coordinates and other information at preferential rates through one of the world’s largest commercial satellite networks.

 

We now have a physical presence in the U.K and Miami,the U.S, as well as ouran online storefront presence in more than 10 countries and have in excess of 20,00035,000 customers located in almost 80160 countries across every continent in the world. Our customers include businesses, U.S. and foreign governments, non-governmental and charitable organizations, military users and private individuals located all over the world.

 

MSS Products

 

Through GTCL, we believe we are one of the leading providers in Europe of Mobile Satellite Solutions (MSS) including satellite trackers, satellite phones, mobile broadband Wi-Fi hotspots and terminals. By enabling wireless communications in areas not served or underserved by terrestrial wireless networks, or in circumstances where terrestrial networks are not operational due to natural or man-made disasters, we seek to meet our customers’ increasing desire for connectivity anywhere in the world.

Our MSS products rely on satellite networks for voice, data and tracking connectivity and thus are not reliant on cell towers or other local infrastructure. As a result, our MSS solutions are suitable for recreational travelers and adventurers, government and military users, and corporations and individuals wishing to communicate from remote locations, or in the event of an emergency such as a power outage, hurricane or other natural disaster during which regular cell phone, telephone and internet service may not be available. We purchase these products directly from the manufacturers or distribution partners and sell them directly to end users and a growing base of resellers that we have around the world.

 

Our principal focus is on growing our existing satellite basedsatellite-based hardware, airtime and related services, specifically services attracting recurring revenue for the Company. Additionally, w ewe are developing our own dual mode tracking device for use by retail, corporate and governmental customers worldwide which we hope will further increase future revenue.

 

Satellite Communications Services

 

As a result of the purchase of contracts and assets from Global Telesat Corp. (“GTC”) in December 2014, we commenced providing satellite communications services globally via satellite over Globalstar’s satellite based simplex data network. We provide this service through our Orbital Satcom and GTCGTCL subsidiaries. Our rights under the purchased contracts allow us to have preferred pricing arrangements with Globalstar for each account used during the term of contracts. We then offer our customers a range of prepaid and monthly fee satellite communications airtime options.

The simplex service is a one-way burst data transmission from a commercial simplex device over the Globalstar network that can be used to track and monitor assets. We can use each simplex or one-way transmission account to transmit an unlimited number of locational or status messages from tracking devices used anywhere within the Globalstar simplex coverage area. At the heart of the simplex service is a demodulator and RF interface, called an applique, which is located at a Globalstar gateway. The gateways equipped with appliques, many of which are owned by us, provide coverage for simplex  tracking devices over vast areas of the globe. The applique receives and collates messages from all simplex tracking devices transmitting over the Globalstar network. Simplex tracking devices consist of a telemetry unit, an application specific sensor, a battery and optional global positioning functionality. The small size of the devices makes them attractive for use in tracking asset shipments, monitoring unattended remote assets, trailer tracking and mobile security together with lone worker or recreational user safety.

 

Aside from providing services over Globalstar’s simplex datasatellite network, we are, through GTCL and Orbital Satcom, an authorized reseller of Globalstar’s two-waysatellite voice, data and data transmissions service, called the duplex service, and simplex and duplex satellite telecommunicationsIoT communications services offered by other leading networks such as Iridium, Inmarsat and Thuraya. We offer a range of prepaid and monthly contract satellite communications airtime options from these network providers. We typically pay the network providers a monthly access fee per subscriber, as well as usage fees for airtime minutes used by our subscribers. This is a rapidly growing market and we believe we are well positioned to take advantage of this growth. Our customers are in industries such as maritime, aviation, government/military, emergency/humanitarian services, mining, forestry, oil and gas, heavy equipment, transportation and utilities as well as recreational users. We are focused on growing and diversifying our customer base, increasing our product range and making maximum use of our preferred pricing arrangements with Globalstar, which are long term contracts that currently generate approximatelyless than 5% of our annual revenue.

 

Online Storefronts

 

We operate two mobile friendly e-commerce websites through our Orbital Satcom and GTCL subsidiaries which offer a range of MSS products and solutions. These websites produce sales and attract enquiries from customers and potential customers from all around the world. Over the long term, we plan to develop additional country-specific websites or offer translation options on our existing websites to target customers in South America, Asia and Europe where we anticipate there will be substantial further demand for our products.

 

In addition to our two main e-commerce websites, we make portable satellite voice, data and tracking solutions easier to find and buy online through our various third-party e-commerce storefronts offered bysuch as Amazon, eBay, SearsWalmart and Walmart.NewEgg. We currently have storefronts in the UK, US, Germany, France, Spain, Italy, Mexico, Japan and Canada. We have invested in personnel to translate our listings correctly in the different countries we are represented in and are regularly improving and increasing our listings on all Amazone-commerce sites. We currently have more than 1,000 product listings on all third-party sites and invest in inventory to hold at Amazon’s various warehouses around the world to ensure that orders are shipped and received by customers as quickly as possible. The products include handheld satellite phones, personal and asset tracking devices, portable high-speed broadband terminals, and satellite Wi-Fi hotspots.

 

6

Mapping and Tracking Portal

 

Our advanced mapping and tracking portals,www.orbitaltrack.comwww.orbsat.com offered by Orbital Satcom, andwww.gtctrack.com offered by GTCL, are available for use by registered customers who pay a monthly subscription to access them. OrbitalTrack and GTCTrack display real-time worldwide asset location reports including position, speed, altitude and heading and also provides past location and movement history reports on a wide range of tracking devices. These mapping portals are available to all of our customers to monitor their assets and we intend to aggressively pursue new customers for this application.

Proprietary Satellite Tracking Products

 

We are currently developing our first own brand global tracking product, a dual-mode asset tracker, of which we hope to make available in the marketplace in early 20182020 following final testing and receipt of necessary regulatory and compatibility certifications. The Company’s dual-mode asset tracker is designed to address the current technical and service cost challenges facing the global Asset Management Systems market,.market. The first product designed and developed by the Company, the dual-mode tracker utilizes both cellular and satellite technology to provide truly global tracking, automatically switching between the cellular and satellite links making it an ideal solution for use in both populated and remote areas, including trans-oceanic routes. For commercial users in transportation, shipping, logistics, fleet management and construction, it features detailing reporting alerts, status and GPS location data allowing cargo and vehicles to be tracked nearly anywhere in the world while lowering operating costs by utilizing cellular when available and satellite in remote areas, optimizing roaming charges and delivering significant cost savings, by easily locating lost or stolen assets.

 

We anticipate that we will be ableintend to finalize development and certification of the new dual-mode tracker for approximately $50,000 to $75,000less than $100,000 and believe there is strong customer demand based on existing customer requests.

 

We also intend to develop additional personal and asset tracking products suitable for government and recreational users. Users of these devices will be able to see the location and movements of their devices through our OrbitalTrack or GTCTrack portals. Anticipated costs for completion are approximately $75,000 toless than $100,000. These products may operate on the Iridium, Inmarsat, Globalstar or Thuraya satellite networks.

Private Placement of Convertible Promissory Notes

 

On May 13, 2019, we completed a private placement of convertible promissory notes (“Notes”) for an aggregate principal amount of $805,000. Specifically, we entered into a Note Purchase Agreement (the “NPA”) by and among the Company and the lenders set forth on the lender schedule to the NPA (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. Pursuant to the NPA, the Company issued an aggregate principal amount of $650,000 of its convertible promissory notes. Pursuant to the Amendment, the Company reserved the right to issue and issued an additional 20% of the $650,000 principal amount of its convertible promissory notes or $130,000 of its convertible promissory notes. In total, pursuant to the Agreement, the Company issued an aggregate principal amount of $805,000 of 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 (“Common Stock”). 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, 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 sales of the Notes were used to repay certain outstanding indebtedness of the Company and for general corporate purposes.

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, as amended, 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.

Corporate History and Information

 

We were originally incorporated in 1997 as a Florida corporation. On January 22, 2015,April 21, 2010, we merged with and into a newly-formed wholly-owned subsidiary for the purpose of changing our state of incorporation to Delaware, effecting a 2:1 forward split of our common stock, and changing our name to EClips Media Technologies, Inc. On April 25, 2011, we changed our name to “Orbital Tracking Corp.” from “Great West Resources, Inc.“Silver Horn Mining Ltd.” pursuant to a merger with a newly formed wholly ownedwholly-owned subsidiary.

 

GTCL was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered into a share exchange agreement withGTCLand all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly owned subsidiary of ours.

On March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of our common stock, and changing our name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014, we abandoned our efforts to enter the potash business.

 

We were originally incorporated in 1997 as a Florida corporation. On April 21, 2010, we merged with and into a newly-formed wholly-owned subsidiary for the purpose of changing our state of incorporation to Delaware, effecting a 2:1 forward split of our common stock, and changing our name to EClips Media Technologies, Inc. On April 25, 2011,January 22, 2015, we changed our name to “Silver Horn Mining Ltd.“Orbital Tracking Corp.” from “Great West Resources, Inc.” pursuant to a merger with a newly-formed wholly-ownednewly formed wholly owned subsidiary.

 

GTCL was formed underEffective March 8, 2018, following the lawsapproval of England and Wales in 2008. On February 19, 2015,a majority of our shareholders, we entered intoeffected a share exchange agreement withGTCLand allreverse split of our common stock at a ratio of 1 for 150. As a result of the holdersreverse split, our common stock had the CUSIP number: 68558X209. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.

On August 19, 2019, FINRA approved a reverse split of our common stock at a ratio of 1 for 15. As a result of the outstanding equity of GTCLreverse split, our common stock now has the CUSIP number: 68557F100. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.

Also, on August 19, 2019, we changed our name to “Orbsat Corp.” from “Orbital Tracking Corp” pursuant to which GTCL became a merger with a newly formed wholly owned subsidiary of ours.subsidiary.

 

Our principal executive offices are located at18851 N.E. 29th Ave, Suite 700, Aventura, Florida 33180. Our telephone number is (305) 560-5355. The Company’s website address ishttp://www.orbitaltracking.comwww.orbsat.com. Information contained on the Company’s website is not incorporated into this prospectus.

 

Summary of the Offering

Common stock offered by us8 

____ shares

   

THE OFFERING

CommonShares of common stock to be outstanding after this offeringbeing offered by the selling stockholders: ____Up to 8,050,000 shares

Option to purchase additional shares

We have granted to the underwriters the option, exercisable for 45 days from the date of common stock issuable upon conversion of convertible promissory notes. See “Selling Stockholders” beginning on page 21 of this prospectus, to purchase up to                   additional shares of our common stock.

prospectus.
   
Use of proceedsproceeds: 

All proceeds from the sale of the shares of common stock under this prospectus will be for the account of the selling stockholders. We estimate that the netwill not receive any proceeds from the sale of our shares of common stock sold inoffered pursuant to this offering will be approximately $            million, assuming a public offering price of $             per share, the last reported sale price of our common stock on the OTCQB on                   , 2017, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds received from this offering for the final stage development and certification of our dual mode tracking device, establish a U.S. based sales office and warehouse facility to service North and South American customers, to increase our product range and associated inventory, to purchase accounting software, to allow us to consider acquisitions, and for general corporate purposes. See “Use of Proceeds” on page 20 of this prospectus.

Risk factorsSee “Risk Factors” beginning on page 10 of this prospectus and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our securities.
   
OTCQB trading symbolsymbol: TRKKOSAT.
   
Proposed symbol and listingListing: 

We will applyOur common stock is listed and trades on OTCQB tier of the OTC Markets Group, Inc.

Risk factors:Investing in our securities involves a high degree of risk. Before you decide to listinvest in our common stock, you should carefully read this prospectus in its entirety and carefully consider the risks and uncertainties described in “Risk Factors” beginning on [TheNASDAQCapital Market] under the symbol “            ”. There can be no assurance that our application will be approved. The closingpage 11 of this offering is contingent uponprospectus and in our Annual Report on Form 10-K for the successful listing offiscal year ended December 31, 2018 and our common stockQuarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, as such market.

risk factors may be amended, updated or modified periodically in our reports filed with the Securities and Exchange Commission (the “SEC”), and the financial data and related notes and the reports incorporated by reference herein and therein..

 

The number of shares of our common stock to be outstanding following this offering is based on 72,977,104121,216 shares of common stock issued and outstanding as of July 20, 2017,January 10, 2020, and excludes:

 42,850,0004,000 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $60.00 per share as of January 10, 2020
39,044 shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $0.01$17.49 per share as of July 20, 2017.January 10, 2020.
   
 33,3308,050,000 shares of our common stock issuable upon conversion of 6,666 shares$805,000 of Series B Convertible Preferred Stock (the “Series B Preferred Stock”)Notes Payable as of July 20 , 2017, not accounting for 9.99% beneficial ownership limitations;
35,403,650 shares of our common stock issuable upon conversion of 3,540,365 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) as of July 20 , 2017,January 10, 2020, not accounting for 4.99% beneficial ownership limitations;
60,179,680 shares of our common stock issuable upon conversion of 3,008,984 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”) as of July 20 , 2017, not accounting for 4.99% beneficial ownership limitations;
72,028,770 shares of our common stock issuable upon conversion of 7,202,877 shares of Series E Convertible Preferred Stock (the “Series E Preferred Stock”) as of July 20 , 2017, not accounting for 4.99% beneficial ownership limitations;
1,099,998 shares of our common stock issuable upon conversion of 1,099,998 shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) as of July 20 , 2017, not accounting for 4.99% beneficial ownership limitations;
10,083,351 shares of our common stock issuable upon conversion of 10,083,351 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock”) as of July 20, 2017, not accounting for 4.99% beneficial ownership limitations;
8,750,000 shares of our common stock issuable upon conversion of 87,500 shares of Series H Convertible Preferred Stock (the “Series H Preferred Stock”) as of July 20, 2017, not accounting for 4.99% beneficial ownership limitations;
9,294,400 shares of our common stock issuable upon conversion of 92,944 shares of Series I Convertible Preferred Stock (the “Series I Preferred Stock”) as of July 20, 2017, not accounting for 4.99% beneficial ownership limitations;
54,669,000 shares of our common stock issuable upon conversion of 54,669 shares of Series J Convertible Preferred Stock (the “Series J Convertible Preferred Stock) as of July 20, 2017, not accounting for 4.99% beneficial ownership limitations; and
116,665,152 shares of our common stock issuable upon conversion of 1,166,652 shares of Series K Convertible Preferred Stock (the “Series K Convertible Preferred Stock) as of July 20, 2017, not accounting for 4.99% beneficial ownership limitations.

Unless otherwise noted, the information in this prospectus assumes no exercise of outstanding options and no exercise of the underwriters’ option to purchase additional shares.

options.

 

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our consolidated financial data for the periods indicated. We derived our summary consolidated statements of operations data for the years ended, and our balance sheet data as of, December 31, 20152017 and 20162018 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations data for the yearyears ended December 31, 20142018, 2017 and 2016, from our audited consolidated financial statements not included in this prospectus. The statement of operations data for the three and nine months ended March 31, 2016September 30, 2019 and 20172018 and the balance sheet data as of March 31, 2017September 30, 2019, are derived from our unaudited financial statements that are included elsewhere in this prospectus. In the opinion of management, the unaudited financial statements have been prepared on the same basis as our audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information set forth therein. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. Our historical results are not necessarily indicative of the results that may be expected in any future period.

The summary consolidated financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

  

Years Ended

December 31,

  

Three Months Ended

March 31,

 
Consolidated Statement of Operations Data: 2014  2015  2016  2016  2017 
Net sales $2,420,645  $3,950,601  $4,698,638  $1,295,264  $1,382,330 
Cost of sales  1,739,388   2,966,121   3,623,516   856,920   1,067,752 
Gross profit  681,257   984,480   1,075,122   438,344   314,578 
Operating expenses:                    
Selling, general and administrative  401,114   517,269   566,186   184,775   155,254 
Salaries, wages and payroll taxes  241,510   582,226   664,705   173,855   152,951 
Stock-based compensation     1,072,500   190,000       
Professional fees  4,215   505,762   992,952   300,568   148,859 
Depreciation and amortization  20,602   298,047   291,803   82,822   75,978 
Total operating expenses  667,441   2,975,805   2,705,646   742,020   533,042 
Income (loss) from operations  13,816   (1,991,325)  (1,630,524)  (303,676)  (218,464)
Other (income) expense:                    
Interest expense     6,069   603,160   75,878   218 
Foreign currency exchange rate variance  7,325   3,363   102,554   25,005   1,694 
Change in fair value of derivative instruments, net     63,456   (426,093)  (464,505)  (1,114)
Other expense        679,778       
Total other (income) expense  7,325   72,886   959,399   (363,622)  798 
Net income (loss)  624,118   (2,064,211)  (2,589,923)  59,946   (219,262)
Foreign currency translation adjustments  (849)  (11,414)  (20,678)  2,039   5,592 
Comprehensive income (loss) $5,641  $(2,075,625) $(2,610,601)  61,985   (213,670)
Net loss per share - basic and diluted (1) $0.00  $(0.26) $(0.08) $0.00  $0.00 
Weighted average number of common shares outstanding - basic  2,540,000   7,994,119   34,277,686   20,714,532   62,203,378 
Weighted average number of common shares outstanding - diluted  90,000,000   7,994,119   34,277,686   23,102,865   62,203,378 

 

  

Years Ended

December 31,

  

NineMonths Ended

September30,

 

Consolidated Statement of

Operations Data:

 2016  2017  2018  2019  2018 
Net sales $4,698,638  $6,004,955  $5,726,572  $4,453,906  $4,654,507 
Cost of sales  3,623,516   4,854,216   4,691,748   3,553,351   3,673,128 
Gross profit  1,075,122   1,150,739   1,034,824   900,555   981,379 
Operating expenses:                    
Selling, general and administrative  566,186   583,898   664,819   522,352   477,698 
Salaries, wages and payroll taxes  664,705   688,589   741,584   536,504   566,626 
Stock-based compensation  190,000   600,000   219,518   -   47,422 
Professional fees  992,952   551,470   249,675   447,908   205,277 
Depreciation and amortization  291,803   284,386   288,864   203,234   221,656 
Total operating expenses  2,705,646   2,708,343   2,164,460   1,709,998   1,518,679 
Loss from operations  (1,630,524)  (1,577,604)  (1,129,636)  (809,443)  (537,300)
Other (income) expense:                    
Interest expense  603,160   831   110   211,344   110 
Interest earned  -   -   -   (1,576)  - 
Foreign currency exchange rate variance  102,554   49,669   56,426   41,238   47,158 
Gain on debt extinguishment  -   -   -   (134,677)  - 
Change in fair value of derivative instruments, net  (426,093)  (1,237)  -   69,677   - 
Other expense  679,778   2,308,981   -   -   - 
Total other (income) expense  959,399   2,358,244   56,536   186,006   47,268 
Income (loss) before provision for income taxes  (2,589,923)  (3,915,848)  (1,186,172)  (995,449)  (584,568)
                     
Provision for income taxes  -   23,459   8,534   745   8,897 
Net loss  (2,589,923)  (3,939,307)  (1,194,706)  (996,194)  (593,465)
                     
Foreign currency translation adjustments  (20,678)  32,541   (5,773)  (893)  (5,624)
Comprehensive income (loss) $(2,610,601) $(3,906,766) $(1,200,479) $(997,087) $(599,089)
Net loss per share - basic and diluted(1) $(170.00) $(122.46) $(19.14) $(10.90) $(12.13)
Weighted average number of common shares outstanding – basic & diluted  15,235   32,169   62,435   91,359   48,924 

  

Years Ended

December 31,

  

NineMonths Ended

September30,

 
Consolidated Balance Sheet Data: 2016  2017  2018  2019  2018 
Cash $114,733  $233,326  $142,888  $91,232  $203,449 
Property and equipment, net  1,978,338   1,757,200   1,519,845   1,384,884   1,585,590 
Working capital (2)  81,490   (122,634)  (341,130)  (353,537)  16,169 
Total assets  3,030,445   3,063,096   2,435,002   2,624,124   2,821,474 
Total liabilities  720,617   1,203,530   1,056,287   1,605,767   1,013,465 
Accumulated deficit  (4,601,407)  (8,540,713)  (9,735,419)  (10,731,617)  (9,134,180)
Total stockholders’ equity $2,309,828  $1,859,566  $1,378,715  $1,018,357  $1,808,009 

 

(1)See Note 1 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and the shares used in computing basic and diluted net loss per share.

  As of March 31, 2017 
Consolidated Balance Sheet Data: Actual  As Adjusted(1) 
Cash $214,990  $  
Property and equipment, net  1,917,544    
Working capital  (64,918)   
Total assets  3,132,138    
Total liabilities  1,035,762    
Accumulated deficit  (4,820,668)   
Total stockholders’ equity  2,096,376    

(1)The as adjusted consolidated balance sheet data as of March 31, 2017 reflects the sale and issuance of              shares of our common stock in this offering, at an assumed public offering price of $         per share, the last reported sale price of our common stock on the OTCQB on                     , 2017, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

9
 (2)Working capital represents total current assets less total current liabilities.

 

RISK FACTORS

 

Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below and other information contained in this prospectus, including our financial statements and related notes before purchasing shares of our common stock. There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In that case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

 

Risks Related to Our Business

 

We have a history of net losses and we are uncertain about our future profitability.

 

We have incurred significant net losses since our inception, including net losses of $1.2 million in 2018, $3.9 million in 2017, $2.6 million in 2016, $2.1 million in 2015 and $219,262$996,194 for the threenine months ended March 31, 2017.September 30, 2019. As of March 31, 2017,September 30, 2019, we had an accumulated deficit of $4.8 million.$10,731,617. If our revenue grows more slowly than currently anticipated, or if operating expenses are higher than expected, we may be unable to consistently achieve profitability, our financial condition will suffer, and the value of our common stock could decline. Even if we are successful increasing our sales, we may incur losses in the foreseeable future as we continue to develop and market our products.

 

If sales revenue from any of our current products or any additional products that we develop in the future is insufficient, or if our product development is delayed, we may be unable to achieve profitability. Furthermore, even if we are able to achieve profitability, we may be unable to sustain or increase such profitability on a quarterly or annual basis, which would significantly reduce the value of our common stock.

 

11

If we are unable to continue as a going concern, our securities will have little or no value.

 

The report of our independent registered public accounting firm that accompanies our audited consolidated financial statements for the years ended December 31, 20162018 and December 31, 20152017 contain a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern. At March 31, 2017,September 30, 2019, we had an accumulated deficit of $4.8 million$10,731,617 and negative working capital of ($64,918),$353,537, and a net loss of $219,262$996,194 during the threenine months ended March 31, 2017.September 30, 2019. These factors raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern. If we are unable to continue as a going concern, holders of our common stock might lose their entire investment.

 

We plan to attempt to raise additional equity capital by selling shares in this offering and, if necessary, through one or more private placement or public offerings. However, the doubts raised, relating to our ability to continue as a going concern, may make our shares an unattractive investment for potential investors. These factors, among others, may make it difficult to raise any additional capital.

 

Our dependence on key suppliers puts us at risk of interruptions in the availability of our products, which could reduce our revenue and adversely affect our results of operations. In addition, increases in prices for components used in our products could adversely affect our results of operations.

 

We require the timely delivery of sufficient amounts of materials and components, some of which are custom made, to manufacture our products. For reasons of quality assurance, cost effectiveness or availability, we procure certain materials and components from a single or limited number of suppliers. We generally acquire such materials and components through purchase orders placed in the ordinary course of business, and as a result we may not have a significant inventory of these materials and components and generally do not have any guaranteed or contractual supply arrangements with many of these suppliers. Our reliance on these supplierssupplier’s subjects us to risks that could harm our business, including, but not limited to, difficulty locating and qualifying alternative suppliers.

 

Our dependence on third-party suppliers involves several other risks, including limited control over pricing, availability, quality and delivery schedules. Suppliers of materials and components may decide, or be required, for reasons beyond our control, to cease supplying materials and components to us or to raise their prices. Shortages of materials, quality control problems, production capacity constraints or delays by our suppliers could negatively affect our ability to meet our production requirements and result in increased prices for affected materials or components. We may also face delays, yield issues and quality control problems if we are required to locate and secure new sources of supply. While we have not experienced any to date, any material shortage, constraint or delay may result in delays in shipments of our products, which could materially adversely affect our results of operations. Increases in prices for materials and components used in our products could also materially adversely affect our results of operations.

 

We may need to raise additional capital to grow our business and satisfy our anticipated future liquidity needs, and we may not be able to raise it on terms acceptable to us, or at all.

 

Growing and operating our business will require significant cash outlays, liquidity reserves and capital expenditures and commitments to respond to business challenges, including developing or enhancing new or existing products. As of March 31, 2017,September 30, 2019, we had cash on hand of $214,990.$91,232. If cash on hand, cash generated from operations, and the net proceeds from this offering are not sufficient to meet our cash and liquidity needs, we may need to seek additional capital, potentially through debt or equity financings. To the extent that we raise additional capital through the sale of additional equity or convertible securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or in light of specific strategic considerations. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or product candidate development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, operating results and prospects and cause the price of the common stock to decline.

 

12

Product development is a long, expensive and uncertain process.

 

The development of our own branded range of satellite tracking devices is a costly, complex and time-consuming process, and the investment in product development often involves a long wait until a return, if any, is achieved on such investment. Investments in new technology and processes are inherently speculative. We have experienced numerous setbacks and delays in our research and development efforts and may encounter further obstacles in the course of the development of additional technologies and products. We may not be able to overcome these obstacles or may have to expend significant additional funds and time. Technical obstacles and challenges we encounter in our research and development process may result in delays in or abandonment of product commercialization, may substantially increase the costs of development, and may negatively affect our results of operations.

 

Successful technical development of our products does not guarantee successful commercialization.

 

We may successfully complete the technical development for one or all of our product development programs, but still fail to develop a commercially successful product for a number of reasons, including among others the following:

 

 failure to obtain the required regulatory approvals for their use;
 prohibitive production costs;
 competing products;
 lack of innovation of the product;
 ineffective distribution and marketing;
 lack of sufficient cooperation from our partners; and
 demonstrations of the products not aligning with or meeting customer needs.

 

Our success in the market for the products we develop will depend largely on our ability to prove our products’ capabilities. Upon demonstration, our satellite ground stations and tracking devices may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with a larger, more established, more proven company than us. Moreover, competing products may prevent us from gaining wide market acceptance of our products. Significant revenue from new product investments may not be achieved for a number of years, if at all.

 

If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.

 

Our intellectual property and proprietary rights are important to our ability to remain competitive and for the success of our products and our business. We rely on a combination of trademark and trade secret laws as well as confidentiality agreements and procedures, non-compete agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. We have confidentiality agreements in place with our consultants, Globalstar, customers and certain business suppliers and plan to require future employees to enter into confidentiality and non-compete agreements. We have little protection when we must rely on trade secrets and nondisclosure agreements. Our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors. Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and/or products, which could result in decreased revenues. Moreover, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. Litigation may be necessary to enforce our intellectual property rights which could result in substantial costs to us and substantial diversion of management attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.

 

1113
 

 

Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.

 

We do not believe that we infringe the proprietary rights of any third party, but claims of infringement are becoming increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.

The decision by British voters to exit the European Union may negatively impact our operations.

 

The June 2016 referendum by British voters to exit the European Union (“Brexit”) adversely impacted global markets and resulted in a sharp decline in the value of the British pound, as compared to the U.S. dollar and other currencies. As the U.K. negotiates its exit from the European Union, volatility in exchange rates and in U.K. interest rates may continue. In the near term, a weaker British pound compared to the U.S. dollar during a reporting period causes local currency results of our U.K. operations to be translated into fewer U.S. dollars; a weaker British pound compared to other currencies increases the cost of goods imported into our U.K. operations and may decrease the profitability of our U.K. operations; and a higher U.K. interest rate may have a dampening effect on the U.K. economy. In the longer term, any impact from Brexit on our U.K. operations will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations.

The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.

 

We develop and sell products where insurance or indemnification may not be available, including:

 

 designing and developing products using advanced and unproven technologies in intelligence and homeland security applications that are intended to operate in high demand, high risk situations; and
 designing and developing products to collect, distribute and analyze various types of information.

 

Failure of certain of our products could result in loss of life or property damage. Certain products may raise questions with respect to issues of privacy rights, civil liberties, intellectual property, trespass, conversion and similar concepts, which may raise new legal issues. Indemnification to cover potential claims or liabilities resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others. We are not able to maintain insurance to protect against all operational risks and uncertainties. Substantial claims resulting from an accident, failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

 

Our sales may be impacted should there be a disruption of service to our Amazon online storefronts

 

The Company’s Amazon online marketplaces represented 46.9%approximately 37.3%, 40.2%25.7% and 34.7%57.6% of total sales for the years ended December 31, 20152018 and 20162017 and the three-monthnine-month period ended March 31, 2017,September 30, 2019, respectively and we anticipate that these marketplaces will continue to represent a significant portion of our sales for the foreseeable future. Should there be a disruption of Amazon services this may impact our sales adversely.

 

14

We are heavily reliant on David Phipps, our Chairman and Chief Executive Officer, and the departure or loss of David Phipps could disrupt our business.

 

The Company depends heavily on the continued efforts of David Phipps, Chairman, Chief Executive Officer and a director. Mr. Phipps is the founder of GTCL and is essential to the Company’s strategic vision and day-to-day operations and would be difficult to replace. Mr. Phipps’ two-year employment contract expires January 1,Phipps is currently serving under an Employment Agreement dated June 14, 2018, and wewhich runs for an initial term of two (2) years, with provision for an automatic extension of one (1) additional year. We cannot be certain that heMr. Phipps will desire to continue with usserve for the duration of the employment term.full contracted term, or to continue serving an extended term as needed. The departure or loss of Mr. Phipps, or the inability to timely hire and retain a qualified replacement, could negatively impact the Company’s ability to manage its business.

If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

 

For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

 

The control deficiencies in our internal control over financial reporting may until remedied cause errors in our financial statements or cause our filings with the SEC to not be timely.

 

We believe our disclosure controls and procedures were ineffective due to our limited internal audit functions and lack of ability to have multiple levels of transaction review in our internal control over financial reporting as of March 31, 2017,June 30, 2019, including those related to (i)a lack of segregation of duties within accounting functions, which was exacerbated by our entrance into the mobile satellite communications business in December 2015 and consummation of the share exchange in February 2015, and (ii) the need for a new accounting system to effectively manage our increased volume of transactions.If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely made with the SEC. We intend to implement additional corporate governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives. Moreover, no control environment, no matter how well designed and operated, can prevent or detect all errors or fraud. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors losing confidence in our reported financial information, which could lead to a decline in our stock price.

Risks Related to Our Organization and Our Common Stock

Certain shareholders will be able to exert significant influence over us to the detriment of minority stockholders.

Our ten largest shareholders beneficially own approximately 37.5% of our outstanding common stock as of July 20, 2017, as calculated according to voting power. These stockholders, if they act together, will be able to exert significant influence on our management and affairs and all matters requiring stockholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock. For a period of one yearfromthe date of subscription, holders of the Company’s Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock and Preferred Series J Preferred Stock have post offering covenants prohibiting theCompanyto issue any or becomesubjectto anyindebtednessgreater than $250,000, exceptfor ordinary trade payables withoutthe written consent ofPurchasersthenholding more than 50% of the Shares (the "Required Majority")and theCompany shall not issue any equity securities withoutthe consent oftheRequired Majority.

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.

 

We are authorized to issue an aggregate of 750,000,00050,000,000 shares of common stock and 50,000,0003,333,333 shares of “blank check” preferred stock. In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise or conversion prices) below the price an investor paid for stock.

ConversionOn May 13, 2019, the Company completed a private placement of our outstanding preferred stockconvertible promissory notes (“Notes”) for an aggregate principal amount of $805,000. The Notes bear interest at a rate of 6% per annum, simple interest, and mature on the third anniversary of the Issue Date. The holders of the Notes (the “Holders”) have an optional right of conversion. A Holder may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.

The conversion of some orelect to convert its Note, and all of ourthe Indebtedness outstanding Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stockas of such time, into the number of fully paid and Series I Preferred Stock, will dilute the ownership interests of existing stockholders. In addition, the existence of the preferred stock may encourage short selling by market participants because the conversion of the preferred stock could be used to satisfy short positions, or anticipated conversion of the preferred stock intonon-assessable shares of our commonCommon Stock (the “Conversion Shares”) as determined by dividing the Indebtedness by $0.10, subject to certain adjustments, but excluding adjustment for a reserve stock could depresssplit of no more than 1:20 contemplated by the priceCompany at the Issue Date. The optional right of our common stock.

The totalconversion is subject to a beneficial ownership limitation of 4.99% of the number of shares of preferred stock authorized, preferred stock issued andCommon Stock outstanding asimmediately after giving effect to the issuance of July 21 , 2017 and common stock that may be issuedshares of Common Stock issuable upon conversion of each class of preferred stock as of July 21, 2017 is set forth below.

Class of Preferred Stock Authorized
Shares of
Preferred Stock
  Issued and
Outstanding
July 21, 2017
  

Underlying Shares of
Common Stock
Issuable

July 21, 2017 (1)

  Beneficial
Ownership
Limitation
 
Series A Preferred Stock  20,000   -   -   9.99%
Series B Preferred Stock  30,000   6,666   33,330  ��9.99%
Series C Preferred Stock  4,000,000   3,540,365   35,403,650   4.99%
Series D Preferred Stock  5,000,000   3,333,984   66,679,680   4.99%
Series E Preferred Stock  8,746,000   7,817,356   78,173,560   4.99%
Series F Preferred Stock  1,100,000   1,099,998   1,099,998   4.99%
Series G Preferred Stock  10,090,000   10,083,351   10,083,351   4.99%
Series H Preferred Stock  200,000   87,500   8,750,000   4.99%
Series I Preferred Stock  114,944   92,944   9,294,400   4.99%
Series J Preferred Stock  125,000   54,669   54,669,000   4.99%
Series K Preferred Stock  1,250,000   1,166,652   116,665,152   4.99%

(1)Not accounting for any applicable limitations on beneficial ownership.

Even though the holders of the convertible preferred stock may not convert these securities if they would own more than 9.99% or 4.99%, as applicable, of the then-outstanding common stock, this restriction does not prevent these holders from selling some of their holdings and then converting additional shares. In this way, the holders could sell more than these limits while never holding more than those limits.conversion.

 

You will experience future dilution as a result of future equity offerings

 

We may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. Although no assurances can be given that we will consummate a financing, in the event we do, or in the event we sell shares of common stock or other securities convertible into shares of our common stock in the future, additional and substantial dilution will occur. In addition, investors purchasing shares or other securities in the future could have rights superior to investors in this offering.

 

We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment.

 

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares of common stock. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

 

Being a public company is expensive and administratively burdensome.

 

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management, and increases our expenses. We estimate the Company will incur approximately $200,000 to $300,000 annually in connection with being a public company.

Among other things, we are required to:

 

maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
prepare and distribute periodic reports in compliance with our obligations under federal securities laws;
institute a more comprehensive compliance function, including with respect to corporate governance; and
involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

 

Thedecision by Britishvoters toexitthe European Unionmay negatively impact our operations.

TheJune 2016 referendum byBritishvoters toexitthe European Union (“Brexit”) adversely impacted global markets and resulted in a sharp decline in the valueof theBritishpound, ascomparedto the U.S. dollar andother currencies. As the U.K. negotiates itsexitfrom the European Union, volatility inexchange rates and in U.K. interest rates maycontinue. In the near term, a weakerBritishpoundcomparedto the U.S. dollar during a reporting periodcauseslocalcurrencyresultsof our U.K.operations to be translated into fewer U.S. dollars; a weakerBritishpoundcomparedtoother currencies increases thecost of goods imported intoourU.K.operationsand may decrease the profitabilityof our U.K.operations;and a higher U.K. interest rate may have a dampeningeffect on the U.K.economy. In the longer term, any impact fromBrexit on our U.K.operationswill depend, in part,on theoutcome of tariff, trade, regulatory andother negotiations.

16

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist and may in the future discover areas of our internal control that need improvement.

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs in 20172019 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

 

The ability of our Board of Directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.

 

Our Board of Directors is authorized to issue up to 50,000,0003,333,333 shares of preferred stock with powers, rights and preferences designated by it. See “Preferred Stock” in the section of this prospectus titled “Description of Securities.” Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company. The ability of the Board of Directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change were to be favorable to stockholders generally.

15

 

Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.

 

While we will apply to list our common stock on [The NASDAQ Capital Market], and the closing of this offering is contingent on such listing,Until our common stock is currently quotedlisted on a national securities exchange such as the OTCQB marketplace. If we fail to maintainNew York Stock Exchange or the listing of our common stock on [The NASDAQ Capital Market],Nasdaq Stock Market, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system, or in the “pink sheets.” In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.

 

17

There currently is no active public market for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.

 

There is currently no active public market for shares of our common stock and one may never develop. Our common stock is quoted on the OTC Markets. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility, making it difficult or impossible to sell shares of our common stock.

 

Unless ourOur common stock is listed on [The NASDAQ Capital Market] or other national securities exchange, our common stock will continue to be subject to the “penny stock” rules of the SEC and the trading market in the securities will beis limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

We will apply for the listing of our common stock on [The NASDAQ Capital Market] and the closing of this offering is contingent upon such listing. Until such time as our common stock is listed on [The NASDAQ Capital Market] or if we fail to maintain our listing on such market or other national securities exchange, our common stock will be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Our stock price may be volatile.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

 changes in our industry;
 competitive pricing pressures;
 our ability to obtain working capital financing;
 additions or departures of key personnel;
 conversions from preferred stock to common stock;
 sales of our common and preferred stock;
 our ability to execute our business plan;
 operating results that fall below expectations;
 loss of any strategic relationship;
 regulatory developments; and
 economic and other external factors.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

Investor relations activities, nominal “float” and supply and demand factors may affect the price of our stock.

 

The Company expects to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for the Company. These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described. The Company may provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third-parties based upon publicly-available information concerning the Company. The Company does not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods. Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control. In addition, investors in the Company may, from time to time, also take steps to encourage investor awareness through similar activities that may be undertaken at the expense of the investors. Investor awareness activities may also be suspended or discontinued which may impact the trading market our common stock.

 

The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases. We, and our shareholders may be subjected to enhanced regulatory scrutiny due to the small number of holders who initially will own the registered shares of our common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTCQB Marketplace or the OTCPink Marketplace (Pink OTC) or pink sheets. Until such time as our restricted shares are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions, which will constitute the entire available trading market. The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. Since a small percentage of the outstanding common stock of the Company will initially be available for trading, held by a small number of individuals or entities, the supply of our common stock for sale will be extremely limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist. Securities regulators have often cited factors such as thinly-traded markets, small numbers of holders, and awareness campaigns as hallmarks of claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases. There can be no assurance that the Company’s or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of the stock.

 

Risks Related to the Offering

You will experience immediate and substantial dilution.

Since the public offering price of the securities offered pursuant to this prospectus is higher than the net tangible book value per share of our common stock, you will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. See “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase securities in this offering. Assuming a public offering price of $                 per share, the last reported sale price of our common stock on the OTCQB on                     , 2017, purchasers of common stock in this offering will experience immediate dilution of $                  per share in net tangible book value of our common stock. See “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase securities in this offering.

In addition, we may have issued options, warrants or other derivative securities to acquire common stock at prices below the expected public offering price of the shares of common stock offered hereby. To the extent outstanding options, warrants or other derivative securities are ultimately exercised or converted, or if we issue restricted stock to our employees under our equity incentive plans, there will be further dilution to investors who purchase our securities in this offering. In addition, if we issue additional equity securities or derivative securities, investors purchasing our securities in this offering will experience additional dilution.

1719
 

 

Management will have broad discretion as to the useThe offering price of the net proceeds from this offering,shares offered by the selling stockholders will be arbitrarily determined and we maysuch price should not use these proceeds in ways that increasebe used by an investor as an indicator of the fair market value of your investment.the shares.

 

Our managementThe offering price for the shares offered hereby by the selling stockholders will have broad discretion inbe arbitrarily determined and does not necessarily bear any direct relationship to the applicationassets, operations, book or other established criteria of the net proceeds from this offering including for any of the purposes described in the section entitled “Use of Proceeds,” and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock.company. Accordingly, you will be relying on the judgmentactual value of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the priceshares of our common stock to decline.may be significantly less than the such offering price.

18

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

 

In some cases, you can identify forward-looking statements by terminology, such as “expects”, “anticipates”, “intends”, “estimates”, “plans”, “potential”, “possible”, “probable”, “believes”, “seeks”, “may”, “will”, “should”, “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.

 

You should read this prospectus and the documents that we reference herein and therein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. These risks and uncertainties, along with others, are described above under the heading “Risk Factors” beginning on page 1011 of this prospectus. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.

 

INDUSTRY AND MARKET DATA

 

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the potential markets for our product candidates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors”. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

19

 

USE OF PROCEEDS

 

We estimate that the net proceeds from our sale ofAll shares of our common stock offered by this prospectus are being registered for the account of the selling stockholders identified herein. We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering at an assumed public offering price of $             per share, the last reported sale price of our common stock on the OTCQB on           , 2017, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $            million. If the underwriters’ option to purchase additional shares is exercised in full, we estimate that we will receive additional net proceeds of $            million.offering. See “Selling Stockholders”.

 

We intend to use the net proceeds of this offering as follows:

 20Approximately             for the final stage development and certification of our dual mode tracking device,
Approximately             establish a U.S.-based sales office and warehouse facility to service North and South American customers,
Approximately              to increase our product range and associated inventory,
Approximately              to purchase accounting software,
Approximately              to allow us to consider acquisitions, and
Any remainder for general corporate purposes.  

The expected use of net proceeds of this offering represents our current intentions based upon our present plans and business conditions. The amounts we actually expend in these areas may vary significantly from our current intentions and will depend upon a number of factors, including cash generated from future operations, if any, and actual expenses to operate our business. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

Pending use of proceeds from this offering, we intend to invest the proceeds in short-term, investment-grade, interest-bearing instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government, or hold as cash.

20
 

 

SELLING STOCKHOLDERS

This prospectus covers an aggregate of up to 8,050,000 shares of our common stock that may be sold or otherwise disposed of by the selling stockholders identified herein. Such shares are issuable to the selling stockholders upon the conversion of certain outstanding convertible debt, we issued and sold to the selling stockholders in a private placement transaction and as compensation for certain placement agent services in connection with such transaction and the related registered direct offering of shares of our common stock, as described above under “Prospectus Summary—Private Placement of Convertible Promissory Notes.”

When we refer to the selling stockholders in this prospectus, we mean those persons listed in the table below, as well as the permitted transferees, pledgees, donees, assignees, successors and others who later come to hold any of the selling stockholders’ interests other than through a public sale.

The selling stockholders may from time to time offer and sell pursuant to this prospectus any or all of the shares of common stock set forth in the following table. There is no requirement for the selling stockholders to sell their shares, and we do not know when, or if, or in what amount the selling stockholders may offer the shares of common stock for sale pursuant to this prospectus.

The selling stockholders identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will supplement this prospectus accordingly. We are unable to confirm whether the selling stockholders will in fact sell any or all of their shares of common stock.

To our knowledge and except as noted below, none of the selling stockholders has, or within the past three years has had, any material relationships with us or any of our affiliates. Each selling stockholder who is also an affiliate of a broker dealer, as noted below, has represented that: (1) the selling stockholder purchased in the ordinary course of business; and (2) at the time of purchase of the securities being registered for resale, the selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

  Number of shares of  

Maximum Number of

shares of Common Stock

  Number of shares of 

Name of Selling

Stockholder (1)(2)

 

Common Stock Owned

Prior to Offering (3)

  

to be Sold Pursuant to this

Prospectus (4)

  

Common Stock Owned

After Offering (5)

 
          
Richard Aulicino(6)  100,000   100,000   0 
Richard A. Aulicino(7)  200,000   200,000   0 
Auxol Capital LLC(8)  1,250,000   1,250,000   0 
John Baleno(9)  250,000   250,000   0 
Jerald Batoff(10)  250,000   250,000   0 
Matthew Bogust(11)  250,000   250,000   0 

BRR Palm Irrevocable

Trust(12)

  500,000   500,000   0 
DL2 Capital LLC(13)  1,065,000   1,065,000   0 
Scott Goss(14)  300,000   300,000   0 
INS COV, LLC(15)  875,000   875,000        0 
Intelligent Conversion LLC(16)  300,000   300,000   0 

JD Chestnut Realty LLC(17)

  770,000   770,000   0 
Robert D. Keyser Jr.(18)  500,000   500,000   0 
Medipak LLC(19)  875,000   875,000   0 
Shapiro Consulting LLC(20)  565,000   565,000   0 

(1)The information in this table and the related notes is based upon information supplied by the selling stockholders, including reports and amendments thereto filed with the SEC on Schedules 13G.
(2)Unless otherwise indicated the address is c/o 18851 NE 29th Ave., Suite 700, Aventura, FL 33180.
(3)Represents the total number of shares of our common stock issued or issuable to each selling shareholders as of the date of this prospectus, without regard to ownership limitations set forth in the applicable agreements or other documents relating to such shares, including (i) all of the shares offered hereby, and (ii) to our knowledge, all other securities held by each of the selling shareholders as of the date hereof.
(4)Assumes that none of the convertible debt that are convertible for the shares of our common stock offered hereby have been sold or otherwise transferred prior to the date of this prospectus in transactions exempt from the registration requirements of the Securities Act. All such convertible debt contain certain beneficial ownership limitations, which provide that a holder of the debt will not have the right to convert any portion of its debt if the holder, together with its affiliates, would beneficially own in excess of (i) 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion, and (ii) for the convertible debt held by all other selling stockholders, 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion, provided that upon at least 61 days prior notice to us, a holder may increase or decrease such limitation up to a maximum of 4.99% of the number of shares of common stock outstanding. As a result, the number of shares of common stock reflected in this column as beneficially owned by each selling stockholder includes (a) any outstanding shares of our common stock held by such selling stockholder, and (b) if any, the number of shares of common stock subject to the convertible debt, convertible for the shares offered hereby or any other convertible debt that may be held by such selling stockholder, in each case which such selling stockholder has the right to acquire as of 10th of January 2020 or within 60 days thereafter and without it or any of its affiliates beneficially owning more than 4.99% of the number of outstanding shares of our common stock as of 10th of January 2020.
(5)Assumes that, after the date of this prospectus and prior to completion of this offering, none of the Selling Stockholders (i) acquires additional shares of our common stock or other securities or (ii) sells or otherwise disposes of shares of our common stock or other securities held by such Selling Stockholders as of the date hereof and not offered hereby.
(6)Represents 100,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Richard Aulicino, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Richard Aulicino.
(7)Represents 200,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Richard A. Aulicino, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Richard A. Aulicino.
(8)Represents 250,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, of which shares of common stock are being registered under this prospectus for resale in the name of Auxol Capital LLC and 1,000,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock held in the name of R. Douglas Armstrong. R. Douglas Armstrong is President and Managing Member of Auxol Capital LLC, which is the President and Managing Member, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Auxol Capital LLC.
(9)Represents 250,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. John Baleno, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account John Baleno.
(10)Represents 250,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Jerald S. Batoff, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Jerald S. Batoff.
(11)Represents 250,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Matthew Bogust, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Matthew Bogust.
(12)Represents 500,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Roxanne S. Rosetto is Trustee of BRR Palm Irrevocable Trust, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account BRR Palm Irrevocable Trust.
(13)Represents 1,065,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Dan Erdberg is Managing Member of DL2 Capital LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account DL2 Capital LLC.
(14)Represents 300,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Scott Goss, who is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Scott Goss.
(15)Represents 875,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Michelle Larkin is Managing Member of INS COV LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account INS COV LLC.
(16)Represents 300,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Paul Applebaum is Authorized Representative of Intelligent Conversion LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Intelligent Conversion LLC.
(17)Represents 770,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Ace Aron Jonas is Authorized Signatory of JD Chestnut Realty LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account JD Chestnut Realty LLC.
(18)Represents 500,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Robert D. Keyser Jr., which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Robert D. Keyser Jr.
(19)Represents 875,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Marc Sporn is Manager of Medipak LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Medipak LLC.
(20)Represents 565,000 shares of our common stock issuable upon conversion of convertible debt, convertible into shares of our common stock, which shares of common stock are being registered under this prospectus for resale. Bret Shapiro is Managing Member of Shapiro Consulting LLC, which is the Principal, and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account Shapiro Consulting LLC.

23

PRICE RANGE OF COMMON STOCK AND RELATED MATTERS

 

OurBeginning August 19, 2019, our trading symbol changed to “TRKKD”, from “TRKK”, for a period of twenty business days, after which it became “OSAT”, as a result of a reverse split of our common stock is quoted onat a ratio of 1 for 15, the OTCQB underCommon Stock has the symbol “TRKK”. following new CUSIP number: 68557F100. All share and per share information has been retroactively restated to reflect the reverse split.

The following table sets forth the high and low closing bid prices for our common stock for the periods indicated.fiscal quarter indicated as reported on OTC Markets, as adjusted for; our 150:1 reverse split approved by FINRA April 21, 2014, our 150:1 reverse split approved by FINRA March 8, 2018, and our 15:1 reverse split approved by FINRA on August 19, 2019. The quotations reflect inter-dealer prices, set forth below represent inter-dealer quotations, without adjustment for retail mark-up, mark-down or commission and may not represent the pricesactual transactions. Our common stock is very thinly traded and, thus, pricing of actual transactions.our common stock on OTC Markets does not necessarily represent its fair market value.

 

  High  Low 
2017        
Quarter ended March 31, 2017 $0.0795  $0.02 
Quarter ended June 30, 2017 $0.0248  $0.0155 
Quarter ended September 30, 2017 through July 20, 2017 $0.0138  $0.001 
         
2016        
Quarter ended March 31, 2016 $1.05  $0.18 
Quarter ended June 30, 2016 $0.24  $0.05 
Quarter ended September 30, 2016 $0.11  $0.02 
Quarter ended December 31, 2016 $0.06  $0.02 
         
2015        
Quarter ended March 31, 2015 $2.37  $0.90 
Quarter ended June 30, 2015 $1.65  $0.79 
Quarter ended September 30, 2015 $1.10  $0.79 
Quarter ended December 31, 2015 $1.75  $0.81 
  High  Low 
2020        
Quarter ended March 31, 2020 (as of January 10, 2020) $2.95  $2.95 
         
2019        
Quarter ended March 31, 2019 $7.88  $3.23 
Quarter ended June 30, 2019 $7.50  $3.00 
Quarter ended September 30, 2019 $4.85  $3.01 
Quarter ended December 31, 2019 $3.26  $2.95 
         
2018        
Quarter ended March 31, 2018 $67.50  $22.50 
Quarter ended June 30, 2018 $45.00  $20.70 
Quarter ended September 30, 2018 $25.95  $7.65 
Quarter ended December 31, 2018 $15.00  $2.25 
         
2017        
Quarter ended March 31, 2017 $2,361.30  $404.85 
Quarter ended June 30, 2017 $805.05  $104.85 
Quarter ended September 30, 2017 $236.10  $45.00 
Quarter ended December 31, 2017 $139.50  $31.50 

 

As of July 20, 2017January 10, 2020, there were 441452 stockholders of record of our common stock. On July 20, 2017,January 10, 2020, the closing sale price of our common stock as reported on the OTCQB was $0.02$2.95 per share

.

 

EQUITY COMPENSATION PLAN INFORMATION

As of July 20 , 2017 we had outstanding options to purchase 42,850,000 shares of common stock. The weighted average exercise price of the options were $0.01. The foregoing securities were not issued under any equity compensation plan.

The following table provides information about our equity compensation plans as of July 20, 2017:

Plan categoryNumber of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities remaining available for future issuance under equity
compensation plans
Equity compensation plans approved by security holders--226,667
Equity compensation plans not approved by security holders---
Total--226,667

DIVIDEND POLICY

 

We have never paid our stockholders cash dividends, and we do not anticipate paying any cash dividends in the foreseeable future as we intend to retain any earnings for use in our business. Any future determination to pay dividends will be at the discretion of our board of directors.

21

SECURITY OWNERSHIP OF CERTAIN

CAPITALIZATIONBENEFICIAL OWNERS AND MANAGEMENT

 

The following tabletables sets forth, our cash and total capitalization as of March 31, 2017 on:

an actual basis; and
an as adjusted basis to reflect the sale and issuance of              shares of our common stock in this offering, at an assumed public offering price of $               per share, the last reported sale price of our common stock on the OTCQB on              , 2017, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

TheJanuary 10, 2020, the number of and percent of the Company’s common stock beneficially owned by: (1) all directors, naming them; (2) our named executive officers; (3) our directors and executive officers as adjusted information set forth in the table below is illustrative onlya group, without naming them; and will be adjusted based on the actual public offering price and other terms(4) persons or groups known by us to own beneficially 5% or more of this offering determined at pricing.our voting securities.

 

You should read this table together withA person is deemed to be the section entitled “Management’s Discussionbeneficial owner of securities that can be acquired by him within 60 days from January 10, 2020 upon the exercise of options, warrants or other convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that convertible securities that are held by that beneficial owner, but not those held by any other person, and Analysiswhich are exercisable within 60 days of Financial ConditionJanuary 10, 2020 have been exercised and Results of Operations” and our consolidated financial statements and related notes incorporated by reference into this prospectus.converted.

  

March 31, 2017

 
  

Actual

  

As Adjusted

 
  (unaudited) 
Cash $214,990   $ 
Stockholders’ equity:        
Preferred Stock, $0.0001 par value; 50,000,000 shares authorized:        
Series A, $0.0001 par value; 20,000 shares authorized, and no shares issued and outstanding, actual and as adjusted $  $ 
Series B, $0.0001 par value; 30,000 shares authorized, 6,666 shares issued and outstanding, actual and as adjusted)  1   1 
Series C, $0.0001 par value; 4,000,000 shares authorized, 3,540,365 shares issued and outstanding, actual and as adjusted)  354   354 
Series D, $0.0001 par value; 5,000,000 shares authorized, 3,158,984 issued and outstanding, actual and as adjusted)  316   316 
Series E, $0.0001 par value; 8,746,000 shares authorized, 7,717,356 shares issued and outstanding, actual and as adjusted)  772   772 
Series F, $0.0001 par value; 1,100,000 shares authorized, 1,099,998 issued and outstanding, actual and as adjusted)  110   110 
Series G, $0.0001 par value; 10,090,000 shares authorized, 10,083,351 issued and outstanding, actual and as adjusted)  1,008   1,008 
Series H, $0.0001 par value; 200,000 shares authorized, 87,500 issued and outstanding, actual and as adjusted)  9   9 
Series I, $0.0001 par value; 114,944 shares authorized, 92,944 issued and outstanding, actual and as adjusted  9   9 
Common shares, $0.0001 par value; 750,000,000 shares authorized, 64,832,314 issued and outstanding, actual, and                          shares issued and outstanding, as adjusted  6,483   6,483 
Additional paid-in capital  6,935,331     
Accumulated deficit  (4,820,668)  (4,820,668)
Accumulated other comprehensive loss  (27,349)  (27,349)
Total stockholders equity  2,096,376     
Total capitalization $2,096,376  $

 

The table above excludes the following shares:

42,850,000 shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $0.01 per share as of March 31, 2017.
33,330 shares of our common stock issuable upon conversion of 6,666 shares of Series B Preferred Stock as of March 31, 2017, not accounting for 9.99% beneficial ownership limitations;
35,403,650 shares of our common stock issuable upon conversion of 3,540,365 shares of Series C Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
60,179,680 shares of our common stock issuable upon conversion of 3,158,984 shares of Series D Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
74,028,770 shares of our common stock issuable upon conversion of 7,717,356 shares of Series E Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
1,099,998 shares of our common stock issuable upon conversion of 1,099,998 shares of Series F Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
10,083,351 shares of our common stock issuable upon conversion of 10,083,351 shares of Series G Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
8,750,000 shares of our common stock issuable upon conversion of 87,500 shares of Series H Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
9,294,400 shares of our common stock issuable upon conversion of 92,944 shares of Series I Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
54,669,000 shares of our common stock issuable upon conversion of 54,669 shares of Series J Convertible Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations; and
116,665,152 shares of our common stock issuable upon conversion of 1,166,652 shares of Series K Convertible Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations.

22

 

DILUTIONAmount and Nature of Beneficial Ownership

 

  Common Stock(1) 
Name and Address of Beneficial Owner(2) Number of Shares  Percent 
Directors and Executive Officers        
David Phipps  48,285(3)  37.3%
Hector Delgado  5,644(4)  4.5%
Theresa Carlise  13,556(5)  10.1%

Directors and Executive Officers as a Group (3 persons)

  67,485(6)  45.4%
         
5% Stockholders:        
James Phipps  10,837(7)  8.6%
Jenna Foster  10,837(8)  8.6%

If you invest in our

(1) In determining the percent of common stock your interest willbeneficially owned by a person or entity, (a) the numerator is the number of shares beneficially owned by such person or entity, including shares which may be immediatelyacquired by that person within 60 days of January 10, 2020, upon exercise of warrants or options, and substantially diluted to(b) the extentdenominator is the sum of (i) the difference between the public offering price per sharetotal shares of our common stock outstanding on January 10, 2020 (121,216 shares), and the as adjusted net tangible book value per share of our common stock immediately after this offering.

As of March 31, 2017, our net tangible book value was approximately $2,096,376, or $0.03 per share of common stock. Net tangible book value per share represents the amount of our tangible assets less our liabilities divided by(ii) the total number of shares that the beneficial owner may acquire within 60 days of our common stock outstanding asJanuary 10, 2020 upon exercise of March 31, 2017.options and warrants.

 

After giving effect to the sale and issuance of shares of our common stock in this offering at an assumed public offering price of $ per share, the last reported sale price of our common stock on the OTCQB on , 2017, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our as adjusted net tangible book value as of March 31, 2017 would have been approximately $ , or $ per share. This represents an immediate increase in as adjusted net tangible book value of $ per share to our existing stockholders, and an immediate dilution of $ per share to investors purchasing shares in this offering.

The following table illustrates the per share dilution to investors purchasing shares(2) Unless otherwise indicated in the offering:

Assumed public offering price per share $   $  
Pro forma net tangible book value per share as of March 31, 2017 $0.03  $  
Increase in net tangible book value per share attributable to this offering $   $  
Pro forma as adjusted net tangible book value per share after this offering $   $  
Dilution in pro forma net tangible book value per share to new investors $   $  

Iffootnotes, the underwriters exercise their option to purchase additional shares in full, our as adjusted net tangible book value per share after this offering would be $ per share, andaddress of the dilution in net tangible book value per share to new investors in this offering would be $ per share.beneficial owners is c/o Orbsat Corp., 18851 N.E. 29th Ave., Suite 700, Aventura, Florida 33180.

 

The foregoing table and calculations excludes:

42,850,000 shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $0.01 per share as of March 31, 2017.
33,330 shares of our common stock issuable upon conversion of 6,666 shares of Series B Preferred Stock as of March 31, not accounting for 9.99% beneficial ownership limitations;
35,403,650 shares of our common stock issuable upon conversion of 3,540,365 shares of Series C Preferred Stock as of March 31, not accounting for 4.99% beneficial ownership limitations;
60,179,680 shares of our common stock issuable upon conversion of 3,158,984 shares of Series D Preferred Stock as of March 31, not accounting for 4.99% beneficial ownership limitations;
74,028,770 shares of our common stock issuable upon conversion of 7,717,356 shares of Series E Preferred Stock as of March 31, not accounting for 4.99% beneficial ownership limitations;
1,099,998 shares of our common stock issuable upon conversion of 1,099,998 shares of Series F Preferred Stock as of March 31, not accounting for 4.99% beneficial ownership limitations;
10,083,351 shares of our common stock issuable upon conversion of 10,083,351 shares of Series G Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
8,750,000 shares of our common stock issuable upon conversion of 87,500 shares of Series H Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
9,294,400 shares of our common stock issuable upon conversion of 92,944 shares of Series I Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations;
54,669,000 shares of our common stock issuable upon conversion of 54,669 shares of Series J Convertible Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations; and
116,665,152 shares of our common stock issuable upon conversion of 1,166,652 shares of Series K Convertible Preferred Stock as of March 31, 2017, not accounting for 4.99% beneficial ownership limitations.  

23

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read together with our financial statements and accompanying notes appearing elsewhere in this Prospectus. This Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” set forth in the beginning of this Prospectus, and see “Risk Factors” beginning on page 10 for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.

Orbital Tracking Corp.

Overview

On January 22, 2015, the Company changed its name to “Orbital Tracking Corp.” from “Great West Resources, Inc.” pursuant to a merger with a newly-formed wholly owned subsidiary.

On March 28, 2014, the Company merged with a newly-formed wholly-owned subsidiary of the Company solely for the purpose of changing its state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of its common stock, and changing its name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014, the Company abandoned its efforts to enter the potash business.

The Company was originally incorporated in 1997 as a Florida corporation. On April 21, 2010, the Company merged with and into a newly-formed wholly-owned subsidiary for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to “Silver Horn Mining Ltd.” pursuant to a merger witha newly-formed wholly-owned subsidiary.

GTCL was formed under the laws of England and Wales in 2008. On February 19, 2015, the Company entered into a share exchange agreement withGTCL and all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly owned subsidiary of the Company.

For accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization of Orbital Tracking Corp. with 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 Orbital Tracking Corp. was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historical results of GTCL and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.

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 ofGTCLin February 2015 expanded our global satellite based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts.

On September 30, 2014, the Company sold an aggregate of 200,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $400,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s newly designated Series C Preferred Stock, par value $0.0001 per share, with each share convertible into 10 shares of Common Stock. On October 15, 2014, the Company sold an aggregate of 50,000 units for additional gross proceeds of $100,000. The Company issued an aggregate of 10,000,000 shares of common stock in connection with the foregoing transactions.

On October 10, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series C Preferred Stock, setting forth the rights, powers, and preferences of the Series C Preferred Stock.Pursuant to the Series C Certificate of Designation, as amended on February 19, 2015, the Company designated 4,000,000 shares of its blank check preferred stock as Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series C Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series C Preferred Stock’s preferential payment and over our common stock. The Series C Preferred Stock is convertible into 10 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series C Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series C Preferred Stock. Each share of Series C Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series C Preferred Stock entitles the holder to cast 10 votes per share of Series C Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On October 15, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series D Preferred Stock, setting forth the rights, powers, and preferences of the Series D Preferred Stock.Pursuant to the Series D Certificate of Designation, the Company designated 5,000,000 shares of its blank check preferred stock as Series D Preferred Stock. Each share of Series D Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series D Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series D Preferred Stock’s preferential payment and over our common stock. The Series D Preferred Stock is convertible into twenty (20) shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series D Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Preferred Stock. Each share of Series D Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series D Preferred Stock entitles the holder to cast twenty (20) votes per share of Series D Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On October 15, 2014, the Company entered into an exchange agreement with a holder of promissory notes in the aggregate principal face amount of $35,000 previously issued by the Company. Pursuant to the exchange agreement, the holder exchanged the notes and relinquished any and all other rights it may have pursuant to the notes in exchange for 750,000 shares of newly designated Series D Preferred Stock.

On October 15, 2014, the Company entered into a series of exchange agreements with certain former holders of convertible debentures who had previously converted the debentures but who were still owed unpaid interest on the debentures in the aggregate amount of $98,274. Pursuant to the exchange agreements, the holders exchanged the right to receive unpaid interest and relinquished any and all other rights they may have pursuant to the debentures in exchange for 4,250,000 shares of newly designated Series D Preferred Stock.

On October 15, 2014, two of the Company’s former directors and the Company’s former Secretary resigned from all of their positions with the Company and Mr. Rector, an existing board member, was appointed Chief Executive Officer, Chief Financial Officer and Secretary and became the sole director of the Company. The two former directors each entered into separation agreements with the Company pursuant to which they agreed to release all claims against the Company and received a one-time severance payment of $2,500. The Company entered into a separation agreement with its former Secretary pursuant to which, in exchange for a release of all claims against the Company, the former Secretary received a one-time severance payment of $5,000.

On December 10, 2014, the Company entered thesatellite voice and data equipment sales and service business through the purchase of certain contracts from 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., which owns 100% of GTC. Also on December 10, 2014, the Company, Orbital Sub, GTC and World entered into a license agreement pursuant to which GTC granted to Orbital Sub a fully paid and irrevocable non-exclusive license to use certain equipment owned by GTC or its affiliates consisting of “Appliqués” located in Globalstar’s facilities. The Company issued GTC 2,222,222 shares of its common stock as consideration for the license. Subsequently, on October 13, 2015, the Company purchased the Appliqués for an additional cash consideration of $125,000.

In December 2014 and January 2015, the Company issued a consultant an aggregate of 400,000 shares of its common stock as compensation for services provided. The Company and the consultant agreed to cancel these shares in February 2015.

On January 22, 2015, the Company changed its name to “Orbital Tracking Corp.” from “Great West Resources, Inc.” The Company effectuated the name change through a short-form merger pursuant to Chapter 92A of the Nevada Revised Statutes where a subsidiary formed solely for the purpose of the name change was merged with and into the Company, with the Company as the surviving corporation in the merger. The merger had the effect of amending the Company’s Articles of Incorporation to reflect its new legal name.

On January 23, 2015, the Company settled in full $156,000 owed to certain vendors. On such date, the Company paid the vendors $35,000 and issued them an aggregate of 1,650,000 shares of its common stock. The Company further agreed that upon the close of its next financing, it would pay the vendors an additional $10,000 cash, issue 850,000 shares of common stock or common stock equivalents and convert an aggregate of $56,221 into securities on the same terms offered to investors in the financing. On February 19, 2015, the Company issued an aggregate of 197,443 shares of Series C Preferred Stock to certain of these vendors in connection with its settlement agreements.

On February 11, 2015, the Company entered into exchange agreements with two holders of its common stock. Pursuant to the exchange agreements, the holders exchanged an aggregate of 10,000,000 shares of common stock for 1,000,000 shares of Series C Preferred Stock.

On February 19, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series E Preferred Stock, setting forth the rights, powers, and preferences of the Series E Preferred Stock.Pursuant to theSeries ECertificate of Designation, the Company designated8,746,000shares of its blank check preferred stock as Series E Preferred Stock. Each share of Series E Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series E Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series E Preferred Stock’s preferential payment and over our common stock. The Series EConvertiblePreferred is convertible into 10 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series E Preferred Stock. Each share of Series E Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series E Preferred Stock entitles the holder to cast 10 votes per share of Series E Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On February 19, 2015, the Company entered into a share exchange agreement with GTCL and the GTCL Shareholders. Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the Company in exchange for(3) Represents (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly issued Series E Preferred Stock of the Company (the “Series E Preferred Stock”) with each share of Series E Preferred Stock convertible into 10 shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.

Also on February 19, 2015, David Phipps, the founder, principal owner and sole director of GTCL and the former founder and president of GTC, was appointed President of Orbital Satcom. Following the transaction, Mr. Phipps was appointed Chief Executive Officer and Chairman of the Board of Directors of the Company. The acquisition of GTCL expands the Company’s global satellite based business and enables the Company to operate as a vertically integrated satellite services business with experienced management operating from additional locations in Poole, England in the United Kingdom and Aventura, Florida.

On February 19, 2015, the Company issued to Mr. Rector, the current Chief Financial Officer and a director of the Company and former Chief Executive Officer of the Company, 850,00039,952 shares of common stock, and a seven year immediately vested option to purchase 2,150,000(ii) 8,333 shares of common stock at a purchase priceissuable upon exercise of $0.05 per share as compensation for services provided to the Company.options.

 

On February 19, 2015, the Company sold an aggregate of 550,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $1,100,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s Series C Preferred Stock, par value $0.0001 per share, with each share convertible into 10Represents 5,644 shares of common stock. The Company sold 15,000 units consistingstock issuable upon exercise of an aggregateoptions.

(5) Represents 13,556 shares of 600,000common stock issuable upon exercise of options.

(6) Represents (i) 39,952 shares of common stock, and 535,000 units consisting of an aggregate of 2,140,000 shares of Series C Preferred Stock.

On February 19, 2015, the Company issued an aggregate of 1,675,000(ii) 27,533 shares of common stock to certain current consultants, former consultants and employees. These shares consistissuable upon exercise of (i) 250,000 shares of common stock issued to a consultant as compensation for services relating to the provision of satellite tracking hardware and related services, sales and lead generation, (ii) one million shares of common stock issued to a consultant as compensation for the design and delivery of dual mode GSM /Globalstar Simplex tracking devices and related hardware and intellectual property, (iii) 250,000 shares of common stock, subject to a one year lock up, issued to the Company’s controller and (iv) 175,000 shares of common stock issued to MJI in full satisfaction of outstanding debts. MJI agreed to sell only up to 5,000 shares per day and the Company has a six-month option to repurchase these shares at a purchase price of $0.75 per share.options.

 

On June 18, 2015, the Company issued an aggregate of 150,000 shares of its common stock, valued at $0.79 per share, or $118,500 to an investor relations consultant for compensation of services.

On October 13, 2015, the Company through its wholly owned subsidiary, Orbital Satcom, purchased from World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp the “Globalstar” license and equipment, which it had previously leased. On December 10, 2014, the Company entered into a License Agreement with World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp, by which the Company had an irrevocable non-exclusive license to use certain equipment, consisting of Appliques for a term of 10 years. Appliques are demodulator and RF interfaces located at various ground stations for gateways. The Company issued 2,222,222 common shares, valued at $1 per share based on the quoted trading price on date of issuance, or $2,222,222. The company reflected the license as an asset on its balance sheet with a 10-year amortization, the term of the license. On October 13, 2015, the Company acquired the license for additional consideration of $125,000 in cash. The Company valued the asset at $2,160,016, which is the unamortized balance of the Appliques License, $2,043,010 plus the consideration of $125,000.

On December 21, 2015, the Company entered into a Placement Agent Agreement with Chardan Capital Markets LLC, as Agent, pursuant to which the Placement Agent agreed to serve as the non-exclusive placement agent for the Company in connection with any private placement from December 21, 2015 through January 15, 2017. The Company agreed to pay the Placement Agent a cash fee of $50,000 and issue the Placement agent 250,000 shares of common stock following the issuance of at least $900,000 of securities prior to the expiration of the term of the Placement Agent Agreement. On December 28, 2015, upon closing of the note purchase and Series F subscription agreements, the Company paid the respective fees and issued the common shares.

On December 28, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series F Preferred Stock, setting forth the rights, powers, and preferences of the Series F Preferred Stock.Pursuant to theSeries FCertificate of Designation, the Company designated1,100,000shares of its blank check preferred stock as Series F Preferred Stock. Each share of Series F Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series F Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series F Preferred Stock’s preferential payment and over our common stock. The Series FConvertiblePreferred is convertible into one (1) share of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series F Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F Preferred Stock. Each share of Series F Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series F Preferred Stock entitles the holder to cast one vote per share of Series F Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $550,000 of shares of Series F Preferred Stock at a purchase price of $0.50 per share. The Preferred F Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance.

On December 28, 2015, the Company entered into separate note purchase agreements with accredited investors relating to the issuance and sale of an aggregate of $605,000 in principal amount of original issue discount convertible notes for an aggregate purchase price of $550,000.

The Notes mature on December 28, 2017. The Company must repay 1/24th of the principal of the Notes each month commencing January 18, 2016. The Notes do not bear interest except that all overdue and unpaid principal bears interest at a rate equal to the lesser of 18% per year or the maximum rate permitted by applicable law. The Notes are convertible into common stock at the option of the holder at a conversion price of $1.00, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events; provided however, that the principal and interest, if any, on the Notes may not be converted to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Notes. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of one year from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Notes with a conversion price equal to the lower price issuance.

Pursuant to the Subscription Agreement and Note Purchase Agreement, the Company agreed to use its reasonable best efforts to effectuate the increase of its authorized shares of common stock from 200,000,000 shares of common stock to 750,000,000 shares of common stock on or prior to January 31, 2016. The Company’s shareholders on March 5, 2016, approved the increase in authorized common and preferred shares. $350,000 of the proceeds from the sale of Preferred F Shares and the Notes are intended to be utilized for public relations and expenses associated with publications, reports and communications with shareholders and others concerning the company’s business. The Subscription Agreement provides the purchasers of the Preferred F Shares with a 100% right of participation in all future securities offerings of the Company, subject to customary exceptions.

On December 28, 2015 the Company and Theresa Carlise, its Chief Financial Officer, amended her employment agreement, dated June 9, 2015. Pursuant to the Amendment, which is effective December 1, 2015, the term of Ms. Carlise’s employment was extended to December 1, 2016 from June 9, 2016, her annual salary was increased to $140,000 from $72,000 and she agreed to devote her full business time to the Company. The term of the Original Agreement, as amended by the Amendment, shall automatically extend for additional terms of one year each, unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the initial term or the then current renewal term, as applicable.

Also on December 28, 2015, the Company issued Ms. Carlise options to purchase up to 500,000(7) Represents (i) 5,559 shares of common stock, and issued Hector Delgado, a director of the Company, options to purchase up to 200,000(ii) 5,278 shares of common stock issuable upon exercise of options.

(8) Represents (i) 5,559 shares of common stock, and (ii) 5,278 shares of common stock issuable upon exercise of options.

EXECUTIVE COMPENSATION

2019 Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our named executive officers (as defined in Item 402(m)(2) of Regulation S-K) for the fiscal years ended December 31, 2019 and December 31, 2018:

Name and Principal Position Year  Salary
($)
  Bonus ($)  Stock Awards ($)  Option Awards ($)(1)  Non-Equity Incentive Plan Compensation ($)  Nonqualified Deferred Compensation Earnings ($)  All Other Compensation ($) Total
($)
 
David Phipps Chief Executive  2019  $231,297   -   -   -   -   - $52,455(3)(4)(7)$283,752 
Officer, President and Chairman  2018  $219,862   -   -  $83,233   -   - $46,718(3)(4)(7)$349,813 
                                   
Theresa Carlise Chief Financial  2019  $150,000   -   -   -   -   - $18,911(6)(8)$168,911 
Officer, Secretary and Treasurer  2018  $145,640  $5,000   -  $41,617(4)  -   - $14,873(6)(8)$207,130 

(1)Reflects the grant date fair values of stock awards calculated in accordance with FASB Accounting Standards Codification Topic 718. All stock awards have been adjusted for our 1:150 reverse stock split effective March 28, 2014 our 1:150 reverse stock split effective March 8, 2018 and further on August 19, 2019, FINRA approved a reverse split of our common stock at a ratio of 1 for 15.
(2)On May 26, 2017, Mr. Phipps was granted a ten-year option to purchase shares of common stock. The option is immediately exercisable into 2,222 shares of common stock at a purchase price of $22.50 per share. On June 14, 2018, Mr. Phipps was granted a three-year option to purchase 6,667 shares of common stock, vesting quarterly over the term at an exercise price per $25.50 per share. On December 18, 2018, the company cancelled the unvested portion of the grant or 5,000 options and reissued a separate grant of options to purchase 21,667 shares of common stock, fully vested with a term of five years at an exercise price of $2.55.
(3)The Company pays David Phipps a monthly fee of $3,000 or $36,000 per year, for his services as a director of the company, in addition to his compensation as Chief Executive Officer and President.
(4)On June 14, 2018, the Company entered into a new employment agreement, which entitles him to $1,200 per month auto allowance. For the years ended December 31, 2019 and 2018, the auto allowance was $14,400 and $8,748, respectively.
(5)On May 26, 2017, Ms. Carlise was granted a ten-year option to purchase shares of common stock. The option is immediately exercisable into 1,667 shares of common stock at a purchase price of $22.50 per share. On June 14, 2018, Ms. Carlise was granted a three-year option to purchase 3,333 shares of common stock, vesting quarterly over the term at an exercise price per $22.50 per share. On December 18, 2018, the company cancelled the unvested portion of the grant or 2,500 options and reissued a separate grant of options to purchase 10,833 shares of common stock, fully vested with a term of five years at an exercise price of $2.25.
(6)On June 14, 2018, the Company entered into a new employment agreement, which entitles her to $600 per month auto allowance. For the year ended December 31, 2019 and 2018, the auto allowance was $7,200 and $3,920, respectively. For the years ended December 31, 2019 and 2018, medical insurance premiums for Ms. Carlise totaling, $11,711 and $10,953, respectively.
(7)For the years ended December 31, 2019 and 2018, the Company paid on behalf of Mr. Phipps, thru its UK subsidiary, GTCL, medical insurance premiums totaling of $2,055 and $1,970, respectively.
(8)For the years ended December 31, 2019 and 2018, the Company paid on behalf of Ms. Carlise medical insurance premiums for totaling, $11,711 and $10,953, respectively.

Narrative Disclosure to the Summary Compensation Table

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 $0.05$22.50 per share, vest immediately, and have a term of 10ten years.

On January 15, 2016, The 13,333 options were valued on the Company engaged IRTH Communications LLC., forgrant date at approximately $45.00 per option or a termtotal of 12 months to provide investor relations, public relations, internet development, communication and consulting services. As consideration for its services, IRTH will receive from$600,000 using a Black-Scholes option pricing model with the Corporation a monthly feefollowing assumptions: stock price of $7,500 and as a single one-time retainer payment, $100,000 worth of shares of$45.00 per share (based on the Company’s common stock; calculated by the average closing price of the Company’s common stock on its principal exchangeof 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 10 trading days immediately prior to the execution of this Agreement; which shares shall be Restricted Securities, pursuant to the provisions of Rule 144. As additional compensation, in the eventyears ended December 31, 2017, the Company during or within two (2) years after the termrecorded stock-based compensation of this Agreement, receives investment monies (debt, equity or a combination thereof) from investor(s) introduced to the Company by IRTH as described herein, Company agrees to pay IRTH a finder’s fee equal to three percent (3%) of all gross monies invested by investor(s) and received by Company.$600,000.

 

On February 11, 2016,June 14, 2018, we issued 18,333 new stock options to our executives and directors under the Company2018 Incentive Plan. All options issued 136,612 shareshave an exercise price of its common stock, valued at $0.60$22.50 per share, with the exception of David Phipps, a Ten Percent Stockholder, whose exercise price is $24.00, vest in equal quarterly installments 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 $20.69 per option or $81,967,a total of $47,422 using a Black-Scholes option pricing model with the following assumptions: strike price of 22.50 stock price of $20.69 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 $20.69 per option or a total of $47,422 using a Black-Scholes option pricing model with the following assumptions: stock price of $20.69 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 IRTH Communications LLCthis grant, the company recorded stock-based compensation of $81,698 for services, as disclosed above.the year ended December 31, 2018.

 

On March 3, 2016,June 14, 2018, the Company entered into a two (2) year Employment Agreement (“Agreement”) with Mr. Phipps, with an automatic one (1) year extension. Under the Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President and will receive an annual base salary equal to the sum of $170,000 and £48,000 to be paid through our operating subsidiary, GTCL. For the years ended December 31, 2019 and 2018, the £48,000 equivalent to USD is $61,293 and $62,219 and the yearly conversion rate is 1.276933 and 1.296229, respectively. The agreement provides for a performance bonus based on exceeding our annual revenue goals and on our ability to attract new investment. The 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 Agreement), 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 Agreement terminates and supersedes the Original Agreements and any subsequent amendments, effective as of the June 14, 2018.

Previously the Company had a two-year Executive Employment Agreement with DavidMr. Phipps, its Chairman, President and Chief Executive Officer, effective January 1, 2016. Under the Employment Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President and receivereceived an annual base salary equal to the sum of $144,000 and £48,000.£48,000, or $61,833 at the yearly conversion rate of 1.288190. Mr. Phipps is also eligible for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. Also on March 3, 2016 and effectiveOn January 1, 2016,2018, the Corporation’s wholly owned subsidiary Orbital Satcom and Mr. Phipps terminated an employment agreement between them dated February 19, 2015 pursuant to which Mr. Phipps was employed as President of Orbital Satcomautomatically renewed for an annual base salary of $180,000. The other terms of the Original Agreement are identical to the terms of the Employment Agreement. Mr. Phipps remains the President of Orbital Satcom.another year.

 

On May 17, 2016, the CompanyAlso, on June 14, 2018, we entered into exchange agreements with holders of the Company’s outstanding $504,168 convertible notes originally issued on December 28, 2015, pursuant to which the Notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Preferred Stock.

The terms of the shares of Series G Preferred Stock are set forth in the Certificate of Designation of Series G Preferred Stock as filed with the Secretary of State of the State of Nevada. The Series G COD authorizes 10,090,000 Preferred G Shares. The Preferred G Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares. Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price prior to December 28, 2016, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred G Shares with a conversion price equal to the lower price issuance.

The exchanging holders, GRQ Consultants Inc. 401K, Michael Brauser and Intracoastal Capital LLC, are each holders of over 5% of a class of the Company’s voting securities.

On October 26, 2016, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of $350,000, out of a maximum of $800,000, of shares of Series H Preferred Stock at a purchase price of $4.00 per share. The initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H COD. The Company is prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock.EachSeries H Preferred Stockentitles the holder to cast one vote per share of Series H Preferred Stockowned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Preferred Series C, Preferred Series G and Preferred Series H, as well as antidilution rights.Certain shareholders have waived their right to adjustment, equal treatment, most favored nations and other rights to which they were entitled pursuant to the Prior Offerings, including without limitation, certain rights granted to holders of our Series C Preferred Stock, Series F Preferred Stock and G Preferred Stock.The Company was required to issue 550,000 shares of its Preferred Series C, which is convertible into 5,500,000 shares of the Company’s common stock and 114,944 shares of Preferred Series I, which is convertible into 11,494,400 shares of the Company’s common stock. Preferred Series I was issued to certain holders in lieu of Preferred Series G and Preferred Series H.

On May 31, 2017, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $546,694 of shares of Series J Preferred Stock at a purchase price of $10.00 per share. The Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J COD. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

In connection with the Series J Offering, the Company obtained the consent of certain shareholders, as required under the agreements entered into by the Company and issued shares pursuant to applicable anti-dilution obligations. The Company is required to issue to certain prior investors of Series G Preferred Stock additional shares of Series G Preferred Stock, which would be convertible into an aggregate of 38,805,668 shares of the Company’s common stock. However, in lieu of issuing such additional shares of Series G Preferred Stock, the Company will create a new series of preferred stock, to be designated as “Series K Preferred Stock” and will issue to such holders of Series G Preferred Stock an aggregate of 388,057 shares of Series K Preferred Stock, each of which shall be convertible into 100 shares of the Company’s common stock. In addition, in order to proceedEmployment Agreement, (“Agreement”) with the Series J Offering, the Company agreed to issue additional shares of Series F Preferred Stock and Series H Preferred Stock to certain prior investors. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series H Preferred Stock, the Company issued to such holders of Series F Preferred Stock and Series H Preferred Stock an aggregate of 701,832 shares of Series K Preferred Stock, each of which are convertible into 100 shares of the Company’s common stock, or 70,183,243 shares. In addition, certain creditors of the Company were also entitled to anti-dilution protection from issuances and as a result such creditors were, at the closing of the Series J Offering, issued an aggregate of 76,762 shares of Series K Preferred Stock convertible into 7,676,241 shares of common stock in full satisfaction of payments owed to them.

The following table describes the capital raised as described above:

  Date  Units  Stated Value  Total Proceeds  Common Equivalents  Anti-Dilution Issuances  Total Common Equivalents 
                      
Preferred Series C  2/19/2015   550,000  $2.00  $1,100,000   22,000,000   5,500,000   27,500,000 
Preferred Series F  12/28/2015   1,099,998  $0.50  $550,000   1,099,998   53,899,902   54,999,900 
Preferred Series G  5/17/2016   10,083,351  $0.05  $504,168   10,083,351   40,333,449   50,416,800 
Preferred Series H  10/31/2016   87,500  $4.00  $350,000   8,750,000   26,250,000   35,000,000 
Preferred Series J  5/31/2017   50,000  $10.00  $500,000   5,000,000   -   5,000,000 
              $3,004,168   46,933,349   125,983,351   172,916,700 

We had net cash used in operations of approximately $1,044,039 during the year ended December 31, 2016 . At December 31, 2016, we had a working capital of approximately $81,490 . Additionally, at December 31, 2016, we had an accumulated deficit of approximately $4,601,406 and stockholder’s equity of $2,309,828 . 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 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.

At March 31, 2017, the Company had an accumulated deficit of approximately $4,820,668, working capital of approximately ($64,918) and net loss of approximately $219,262 during the three months ended March 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 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.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s applications of accounting policies. Critical accounting policies for our company include accounting for derivative liabilities and stock based compensation.

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 condensed financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, 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.

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, preferred deemed dividend and common stock issued for services.

Effect of Exchange Rate on Results

The Company’s reporting currency is US 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 year ended December 31, 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$: GBP and for the year ended 2015 closing rate at 1.47373 US$: GBP, average rate at 1.52855 US$: GBP.

Global Telesat Communications LTD, (GTCL) represents 70.8% of total company sales and as such, currency rate variances have an impact on results. For the year ended December 31, 2016 the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.52855 to 1.35585. Had the yearly average rate remained, sales would have been higher by $434,000. GTCL comparable sales in GBP, its home currency, increased 38.9% or £705,683, from £1,811,909 to £2,517,592 for the year ended December 31, 2016 as compared to December 31, 2015.

Results of Operations for the years ended December 31, 2016 and 2015

Net Revenue.For the years ended December 31, 2016 and 2015, revenues generated were approximately $4,698,638 and $3,950,601, an increase of $748,037 or 18.9%. Revenues were derived primarily from the sales of satellite phones, satellite tracking devices accessories and airtime plans. Comparable sales for Orbital Satcom Corp. increased 7.6% or $132,782, from $1,181,008 to $1,270,393. Comparable sales for Global Telesat Communications LTD increased 21.6% or $1,189,946, from $2,769,594 to $3,326,855. The sales increase is attributable to additional product lines being introduced by the company and resources associated from equity funding, which occurred in December of 2015, and enabled the Company to add additional marketplaces for its online presence, offset by exchange rate variances as described above.

Cost of Sales.During the years ended December 31, 2016, cost of revenues increased to $3,623,516 compared to $2,966,121 for the year ended December 31, 2015, an increase of $657,395 or 22.2%. We expect our cost of revenues to continue to increase during fiscal 2017 and beyond, as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases. Gross profit margins during the year ended December 31, 2016 and 2015 were 22.9% and 24.9%, respectively. The decline in margin was attributable to an increase in sales to resellers which have a lower profit margin.

Operating Expenses.Total operating expenses for the year ended December 31, 2016 were $2,705,646, a decrease of $270,159, or 9.1%, from total operating expenses for the year ended December 31, 2015, of $2,975,805.

Selling, general and administrative expenseswere $566,186 and $517,269 for the years ended December 31, 2016 and 2015, respectively, an increase of $48,917 or 9.5%. The increase is attributable to increases variable costs, which increase with revenue, such as credit card processing fees, online service fees, bank charges, advertising and marketing.

Salaries, wages and payroll taxeswere $664,705 and $582,226 for the year ended December 31, 2016 and 2015, respectively, an increase of $82,479, or 14.2%. The increase was attributable to costs associated with personnel; to support the requirements for public companies, to support revenue goals and build the Company’s infrastructure for future growth and opportunities.

Stock based compensationwere non-cash expenses, for fully vested options to purchase 10,000,000 shares of Company’s stock at an exercise price of $0.01 per share, to the Company’s CEO. For the year ended December 31, 2016, stock based compensation was $190,000. For the year ended December 31, 2015, there was stock based compensation of $1,072,500, for awards of 1,100,000 shares of Company’s stock and 2,850,000 fully vested options to purchase common stock at an exercise price of $0.05 per share, to employees and a director.

Professional feeswere $992,952 and $505,762 for the years ended December 31, 2016 and 2015, respectively, an increase of $487,190 or 96.3%. Non-recurring, non-cash expenses of $262,500, represented 46.0 % of the increase, which were related to stock based fees for investor relations. Additionally, another $415,416 of non-recurring costs represented amounts for investor relations and certain other transaction fees. The increase during the year ended December 31, 2016 as compared to the prior year in 2015, was attributable to the Company’s non-recurring costs, as described above, which were derived as part of the reserve, from the Company’s proceeds from convertible notes and preferred stock subscriptions totaling $1.1 million on December 28, 2015.

Depreciation and amortizationexpenses were $291,803 and $298,047 for the years ended December 31, 2016 and 2015, respectively, a decrease of $6,244, or 2.1%. The decrease was attributable to exchange rate variances. We expect our expenses in each of these areas to continue to increase during fiscal 2017 and beyond as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.

Total Other (Income) Expense.Our total other expenses were $959,399 compared to $72,886 during the years ended December 31, 2016 and 2015 respectively, an increase of $886,513 or 1,216.3%. The increase is primarily attributed to the decrease recognized due to; changes in the fair value of derivative instruments of $426,093, interest expense related to the amortized portion of the convertible note payable discount, net of $602,027 and expense related to Series H Preferred stock issuance for price protection to certain Subscribers of Preferred Series C, Preferred Series F and Preferred series G in the amount of $679,778, and imputed interest related to related party note payable of $1,133, totaling $856,845, which is a net offset as an increase to additional paid in capital, and exchange rate variances of $102,554.

Net Income (Loss)

We recorded net loss before income tax of $2,589,923 for the year ended December 31, 2016 as compared to a net loss of $2,064,211, for the year ended December 31, 2015. The increase is a result of the factors as described above.

Comprehensive (Loss) Income

We recorded a loss for foreign currency translation adjustments for the year ended December 31, 2016 and 2015, of $20,678 and $11,414, respectively. The fluctuations of the increase/decrease is primarily attributed to the increase recognized due to exchange rate variances. Comprehensive loss was $2,610,601 as compared to loss of $2,075,625 for the year ended December 31, 2016 and 2015, respectively.

Results of Operations for the Three Months Ended March 31, 2017 compared to the Three Months Ended March 31, 2016

Revenue.Sales for the three months ended March 31, 2017 consisted primarily of sales of satellite phones, accessories and airtime plans. For the three months ended March 31, 2017, revenues generated were approximately $1,382,330 compared to approximately $1,295,264 of revenues for the three months ended March 31, 2016, an increase in total revenues of $87,066 or 6.7%. Factors relative to the increase in revenue are; an increase in comparable revenue of 5.95% and 10.2% for its wholly owned subsidiaries, Global Telesat Communication Ltd and Orbital Satcom Corp., for the three months ended March 31, 2017. Total sales for Global Telesat Communications Ltd. were $977,141 for the three months ended March 31, 2017 as compared to $927,493 for the three months ended March 31, 2016, an increase of $49,648 or 5.4%. Total sales for Orbital Satcom Corp. were $405,189 for the three months ended March 31, 2017 as compared to $367,771 for the three months ended March 31, 2016, an increase of $37,418 or 10.2%. The Company attributes the increases in revenue to the addition of online marketplaces, offset by exchange rate variances as described above.

For the three months ended March 31, 2017, Global Telesat Communications LTD, (GTCL) represents 70.7% of total company sales and as such, currency rate variances have an impact on results. For the three months ended March 31, 2017 the net effect on revenues were impacted by the differences in exchange rate from quarterly average exchange of 1.43284 to 1.23801. Had the yearly average rate remained, sales would have been higher by $153,776. GTCL comparable sales in GBP, its home currency, increased 22.6% or £145,651, from £643,633 to £789,283 for the three months ended March 31, 2017 as compared to March 31, 2016.

Cost of Sales.During the three months ended March 31, 2017, cost of revenues increased to $1,067,752 compared to $856,920 for the three months ended March 31, 2016, an increase of $210,832 or 24.6%. We expect our cost of revenues to continue to increase during fiscal 2017 and beyond, as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases. Gross profit margins during the three months ended March 31, 2017 were 22.8% as compared to 33.8% for the comparable period in the prior year. GBP depreciated significantly against US$ following BREXIT vote but we had to maintain product pricing at the same level to remain competitive. Additionally, we picked up new reseller customers who buy in larger quantities at lower margins.

Operating Expenses.Total operating expenses for the three months ended March 31, 2017 were $533,042, a decrease of $208,978, or 28.2%, from total operating expenses for the three months ended March 31, 2016 of $742,020. Factors contributing to the increase are described below.

Selling, general and administrative expenseswere $155,254 and $184,775 for the three months ended March 31, 2017 and 2016, respectively, a decrease of $29,521 or 16.0%. The decrease for the three months ended March 31, 2017, was due to lower exchange rates in the current period offset by variable expenses which increase as revenue increases.

Salaries, wages and payroll taxeswere $152,951 and $173,855, for the three months ended March 31, 2017 and 2016, respectively, a decrease of $20,904, or 12.0%. The decrease in the exchange rate was the primary reason for the reduction.

Professional feeswere $148,859 and $300,568 for the three months ended March 31, 2017 and 2016, respectively, a decrease of $151,709, or 50.5%. The decrease during the three months ended March 31, 2017 as compared to the same period in 2016 was attributable to the Company’s decrease of $152,142 for investor relation fees from the same period in the prior year.

Depreciation and amortizationexpenses were $75,978 and $82,822 for the three months ended March 31, 2017 and 2016, respectively, a decrease of $6,844 or 8.3%. The decrease during the 2017 period was primarily attributable the decrease in the exchange rate, 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 2017 and beyond as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.

Total Other (Income) Expense.Our total other (income) expenses were $798 compared to ($363,622) during the three months ended March 31, 2017 and 2016 respectively, a decrease of $364,420. The decrease is primarily attributed to changes in the fair value of derivative instruments and interest expense related to the December 2015 private placement offering of convertible preferred stock and convertible debt.

Net Income (Loss)

We recorded net loss before income tax of ($219,262), for the three months ended March 31, 2017 as compared to a net income of $59,946, for the three months ended March 31, 2016. The increase is a result of the factors as described above.

Comprehensive (Loss) Income

We recorded a gain for foreign currency translation adjustments for the three months ended March 31, 2017 and 2016, of $5,592 and $2,039, respectively. The fluctuations of the increase/decrease are primarily attributed to the increase recognized due to exchange rate variances.

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 March 31, 2017, we had a cash balance of $214,490. Our working capital is ($64,918) at March 31, 2017.

Our current assets at March 31, 2017 increased by approximately 21.0% from December 31, 2016 and included cash, accounts receivable, unbilled revenue, inventory, prepaid and other current assets.

Our current liabilities at March 31, 2017 increased by 43.7% from December 31, 2016 and included our accounts payable, derivative liabilities, due to related party and deferred revenue and other liabilities in the ordinary course of our business.

Operating Activities

Net cash flows provided by operating activities for the three months ended March 31, 2017 amounted to $87,124 and were primarily attributable to our net loss of $219,262, total amortization expense of $6,250, depreciation of $69,728, and offset by change in fair value of derivative liabilities of $1,114 and net change in assets and liabilities of $231,304, primarily attributable to an increase in accounts receivable of $53,119, increase in inventory of $33,922, increase in unbilled revenue of $2,209, decrease in prepaid expense of $50,068, increase in other current assets of $29,978, increase in accounts payable of $301,484 and an decrease in deferred revenue of $1,200.

Net cash flows used in operating activities for the three months ended March 31, 2016 amounted to $469,469 and were primarily attributable to our net income of $59,946, total amortization expense of $155,967, depreciation of $69,529, and offset by change in fair value of derivative liabilities of $464,505 and net change in asset and liabilities of $290,658, primarily attributable to an increase in accounts receivable of $118,924, increase in inventory of $61,142, decrease in unbilled revenue of $9,398, increase in prepaid expense of $130,582, increase in other current assets of $2,676, increase in accounts payable of $7,272 and an increase in deferred revenue of $5,996.

Investing Activities

Net cash flows used in investing activities were ($8,934) and ($3,318) for the three months ended March 31, 2017 and 2016, respectively. We purchased property and equipment of $8,934 during the three months ended March 31, 2017. During the three months ended March 31, 2016, we purchased property and equipment of $3,318.

Financing Activities

Net cash flows provided by (used in) financing activities were $15,975 and ($101,259) for the three months ended March 31, 2017 and 2016, respectively. Net cash flows provided by financing activities were $15,975 for the three months ended March 31, 2017 and were for amounts owed to a related party. During the three months ended March 31, 2016, net cash used in financing activities were repayments of related party payable and convertible notes payable of $25,632 and $75,626, respectively.

Off-balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have

an obligation under a guarantee contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors
a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or
any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.

34

BUSINESS

Our Current Business

The Company is a distributor, developer and reseller of satellite enabled communications hardware and provides products, airtime and related services to customers located both in the United States and internationally through its subsidiaries, US based Orbital Satcom and UK based GTCL. We sell equipment and airtime for use on all major satellite networks including Globalstar, Inmarsat, Iridium and Thuraya. We specialize in offering a range of satellite enabled personal and asset tracking products and provide an advanced mapping portal for customers using our range of GSM and satellite based GPS tracking devices. Additionally, we operate a short-term rental service for customers who require use of our equipment for a limited time without the up-front expense of purchasing hardware.

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 which entitle us to transmit GPS tracking coordinates and other information at preferential rates through one of the world’s largest commercial satellite networks.

We now have a physical or storefront presence in more than 10 countries, and have in excess of 20,000 customers located in almost 80 countries across every continent in the world. Our customers include businesses, U.S. and foreign governments, non-governmental and charitable organizations, military users and private individuals located all over the world.

MSS Products

Through GTCL, we believe we are one of the leading providers in Europe of Mobile Satellite Solutions (MSS) including satellite trackers, satellite phones, mobile broadband Wi-Fi hotspots and terminals. By enabling wireless communications in areas not served or underserved by terrestrial wireless networks, or in circumstances where terrestrial networks are not operational due to natural or man-made disasters, we seek to meet our customers’ increasing desire for connectivity anywhere in the world.

Our MSS products rely on satellite networks for voice, data and tracking connectivity and thus are not reliant on cell towers or other local infrastructure. As a result, our MSS solutions are suitable for recreational travelers and adventurers, government and military users, and corporations and individuals wishing to communicate from remote locations, or in the event of an emergency such as a power outage, hurricane or other natural disaster during which regular cell phone, telephone and internet service may not be available. We purchase these products directly from the manufacturers or distribution partners and sell them directly to end users and a growing base of resellers that we have around the world.

Our principal focus is on growing our existing satellite based hardware, airtime and related services, specifically services attracting recurring revenue for the Company. Additionally, we are developing our own dual mode tracking device for use by retail, corporate and governmental customers worldwide which we hope will further increase future revenue.

Satellite Communications Services

As a result of the purchase of contracts and assets from Global Telesat Corp. (“GTC”) in December 2014, we commenced providing satellite communications services globally via satellite over Globalstar’s satellite based simplex data network. We provide this service through our Orbital Satcom and GTC subsidiaries. Our rights under the purchased contracts allow us to have preferred pricing arrangements with Globalstar for each account used during the term of contracts. We then offer our customers a range of prepaid and monthly fee satellite communications airtime options.

The simplex service is a one-way burst data transmission from a commercial simplex device over the Globalstar network that can be used to track and monitor assets. We can use each simplex or one-way transmission account to transmit an unlimited number of locational or status messages from tracking devices used anywhere within the Globalstar simplex coverage area. At the heart of the simplex service is a demodulator and RF interface, called an applique, which is located at a Globalstar gateway. The gateways equipped with appliques, many of which are owned by us, provide coverage for simplex   tracking devices over vast areas of the globe. The applique receives and collates messages from all simplex devices transmitting over the Globalstar network. Simplex devices consist of a telemetry unit, an application specific sensor, a battery and optional global positioning functionality. The small size of the devices makes them attractive for use in tracking asset shipments, monitoring unattended remote assets, trailer tracking and mobile security together with lone worker or recreational user safety.

Aside from providing services over Globalstar’s simplex data network, we are, through GTCL and Orbital Satcom, an authorized reseller of Globalstar’s two-way voice and data transmissions service, called the duplex service, and simplex and duplex satellite telecommunications services offered by other leading networks such as Iridium, Inmarsat and Thuraya. We offer a range of pay-as-you-go and monthly fee satellite communications airtime options from these network providers. We typically pay the network providers a monthly access fee per subscriber, as well as usage fees for airtime minutes used by our subscribers. This is a rapidly growing market and we believe we are well positioned to take advantage of this growth. Our customers are in industries such as maritime, aviation, government/military, emergency/humanitarian services, mining, forestry, oil and gas, heavy equipment, transportation and utilities as well as recreational users. We are focused on growing and diversifying our customer base, increasing our product range and making maximum use of our preferred pricing arrangements with Globalstar and other networks to generate increased revenue.

Online Storefronts

We operate two mobile friendly e-commerce websites through our Orbital Satcom and GTCL subsidiaries which offer a range of MSS products and solutions. These websites produce sales and attract enquiries from customers and potential customers from all around the world. Over the long term and as funding permits , we plan to develop additional country-specific websites or offer translation options on our existing websites to target customers in South America, Asia and Europe where we anticipate there will be substantial further demand for our products.

In addition to our two main e-commerce websites, we make portable satellite voice, data and tracking solutions easier to find and buy online through our various third party e-commerce storefronts offered by Amazon, eBay, Sears and Walmart. We currently have storefronts in the UK, US, Germany, France, Spain, Italy, Mexico, Japan and Canada. We have invested in personnel to translate our listings correctly in the different countries we are represented in and are regularly improving and increasing our listings on all Amazon sites. We currently have more than 1,000 product listings on all third party sites and invest in inventory to hold at Amazon’s various warehouses around the world to ensure that orders are shipped and received by customers as quickly as possible. The products include handheld satellite phones, personal and asset tracking devices, portable high speed broadband terminals, and satellite Wi-Fi hotspots.

Mapping and Tracking Portal

Our advanced mapping and tracking portals,www.orbitaltrack.com offered by Orbital Satcom, andwww.gtctrack.com offered by GTCL, are available for use by registered customers who pay a monthly subscription to access them. OrbitalTrack and GTCTrack display real-time worldwide asset location reports including position, speed, altitude and heading and also provides past location and movement history reports on a wide range of tracking devices. These mapping portals are available to all of our customers to monitor their assets and we intend to aggressively pursue new customers for this application.

Proprietary Satellite Tracking Products

We are currently developing our first own brand global tracking product, a dual-mode asset tracker, of which we hope to make available in the marketplace in early 2018 following final testing and receipt of necessary regulatory and compatibility certifications. The Company’s dual-mode asset tracker is designed to address the current technical and service cost challenges facing the global Asset Management Systems market, The first product designed and developed by the Company, the dual-mode tracker utilizes both cellular and satellite technology to provide truly global tracking, automatically switching between the cellular and satellite links making it an ideal solution for use in both populated and remote areas, including trans-oceanic routes. For commercial users in transportation, shipping, logistics, fleet management and construction, it features detailing reporting alerts, status and GPS location data allowing cargo and vehicles to be tracked nearly anywhere in the world while lowering operating costs by utilizing cellular when available and satellite in remote areas, optimizing roaming charges and delivering significant cost savings, by easily locating lost or stolen assets.

We anticipate that we will be able to finalize development and certification of the new dual-mode tracker for approximately $50,000 to $75,000 and believe there is strong customer demand based on existing customer requests.

We also intend to develop additional personal and asset tracking products suitable for government and recreational users. Users of these devices will be able to see the location and movements of their devices through our OrbitalTrack or GTCTrack portals. Anticipated costs for completion are approximately $75,000 to $100,000. These products may operate on the Iridium, Inmarsat, Globalstar or Thuraya satellite networks.

Industry and Market

We compete in the mobile satellite products and services sector of the global communications industry. The products and airtime that we sell, are intended to meet users’ needs for connectivity in all locations where existing terrestrial wireline and wireless communications networks do not exist, do not provide sufficient coverage, or are impaired. Government organizations, including military and intelligence agencies and disaster response agencies, non-governmental organizations and industrial operations and support teams depend on mobile voice and data satellite communications products and services on a regular basis. Businesses with global operations require reliable communications services when operating in remote locations around the world. Mobile satellite services users span many sectors, including emergency services, maritime, aviation, government, utilities, oil and gas, mining, recreation, forestry, heavy equipment, construction, and transportation, among others. Many of our customers, such as lone workers, sailors, adventurers, and those travelling in remote locations with no other form of contact , view satellite communications products and services as critical to their daily operations.

There is an existing, and we believe significantly growing, multi-billion dollar global market for a small and cost effective solution for receiving and processing mobile voice and data communications from remote locations used in applications such as tracking vehicles or asset shipments, monitoring unattended remote assets or mobile security. Over the past two decades, the global mobile satellite services market has experienced significant growth. Increasingly, better-tailored, improved-technology products and services are creating new channels of demand for mobile satellite services. Growth in demand for mobile satellite voice services is driven by the declining cost of these services, the diminishing size and lower costs of the devices, as well as heightened demand by governments, businesses and individuals for ubiquitous global voice and data coverage. We believe our solutions are ideally suited for industries such as maritime, aviation, government/military, emergency/humanitarian services, mining, forestry, oil and gas, heavy equipment, transportation and utilities, as well as recreational users. We do not tailor our products and services to different types of customers as in our experience military, non-profit, government and recreational users tend to purchase the same types of products and services.

Competition

The competitors for our satellite telecommunications services and products are other leading satellite networks such as Iridium, Inmarsat, Thuraya and Globalstar, and their various resellers, some of which are also our suppliers. We expect the competition for our satellite telecommunications services and our satellite tracking and monitoring services to increase significantly as the market demand accelerates.We believe that we will be well positioned to compete for thesatellite telecommunications servicesbusiness largely on a cost basis and due to our global presence with various websites and Amazon storefronts. We believe that we will be able to charge our customers lower prices for satellite airtime than our competitors due to the preferential pricing we have with Globalstar due to the Globalstar agreements. We believe that we will be able to compete in the MSS market due to our competitive pricing, varied products and easy to use website and Amazon storefront.

Intellectual Property

Our success and ability to compete depends in part on our ability to maintain our trade secrets. All of our employees and consultants are subject to non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. In connection with the purchase of the contracts from GTC and related agreements, GTC and its parent World Surveillance Group, Inc. agreed to keep confidential certain information. In February 2015 we purchased certain software, including source code and executable code, and electronic files required for the development of dual mode trackers. On October 13, 2015, we purchased appliques, which are demodulator and RF interfaces located at various ground stations for gateways.

Research and Development

On February 19, 2015, the Company issued 1,000,000 shares of common stock, at $0.05 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.We spent $0 and $50,000, respectively, in the fiscal years ending December 31, 2016 and December 31, 2015 on research and development.

Regulatory Matters

Government contract laws and regulations affect how we will do business with our customers, and in some instances, will impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties, the termination of any then existing contracts or the inability to bid on future contracts. We intend our Orbital Sub to become qualified as a government contractor.

Sources and Availability of Components

Certain materials and equipment for our products are custom made for those products and are dependent upon either a single or limited number of suppliers. Failure of a supplier could cause delays in delivery of the products if another supplier cannot promptly be found or if the quality of such replacement supplier’s components are inferior or unacceptable.

Employees

We currently have 8 full time and 2 part time employee, not including David Phipps, our Chief Executive Officer and President, and Theresa Carlise, our Chief Financial Officer. Mr. Phipps and Ms. Carlise work for us full time.

Properties

We rent our office space at 18851 N.E. 29th Ave, Suite 700, Aventura, Florida 33180 for $175 per month and our facilities in Poole, England for £1,833 per month, or $2,342 per month at the yearly average conversation rate of 1.27779.

Legal Proceedings

We anticipate that we will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. ItOfficer, Theresa Carlise. The Agreement is not feasible to predict the outcome of any such proceedings and we cannot assure that their ultimate disposition will not have a materially adverse effect on the Company’s business, financial condition, cash flows or results of operations. The Company is not currently a party to any material pending legal proceedings, nor is the Company aware of any civil proceeding or government authority contemplating any legal proceeding as of the date of this filing.

Corporate History

On January 22, 2015, the Company changed its name to “Orbital Tracking Corp.” from “Great West Resources, Inc.” pursuant to a merger with a newly formed wholly owned subsidiary.

On March 28, 2014, the Company merged with a newly-formed wholly-owned subsidiary of the Company solely for the purpose of changing its state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of its common stock, and changing its name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014, the Company abandoned its efforts to enter the potash business.

The Company was originally incorporated in 1997 as a Florida corporation. On April 21, 2010, the Company merged with and into a newly-formed wholly-owned subsidiary for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to “Silver Horn Mining Ltd.” pursuant to a merger with a newly-formed wholly-owned subsidiary.

GTCL was formed under the laws of England and Wales in 2008. On February 19, 2015, the Company entered into a share exchange agreement withGTCL and all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly owned subsidiary of the Company.

For accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization of Orbital Tracking Corp. with 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 Orbital Tracking Corp. was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historical results of GTCL and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.

MANAGEMENT

The following table presents information with respect to our officers, directors and significant employees as of July 20, 2017:

Name and AddressAgeDate First Elected or AppointedPosition(s)
David Phipps51February 19, 2015Chief Executive Officer, President and Chairman
Hector Delgado48May 27, 2015Director
Theresa Carlise58June 9, 2015Chief Financial Officer, Treasurer and Secretary

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. The Board of Directors shall not appoint any new members or vote to increase its size in the absence of the written consent of Mr. Phipps. The Board of Directors elects officers and their terms of office are at the discretion of the Board of Directors.

Background of officers and directors

The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

David Phipps, Chief Executive Officer and Chairman, 51 , has served as the Managing Director of GTCL since 2008 and as the President of GTC, a competitor of the Company, from 2003 through 2014. He has served as the President of Orbital Satcom since February 19, 2015, as Chairman of the Board of Directors of the Company since February 24, 2015 and Chief Executive Officer since February 25, 2015. Mr. Phipps was chosen as a director of the Company based on his knowledge of and relationships in the global satellite communications business.

Hector Delgado,Director, 48 , was appointed to the Board of Directors on May 27, 2015. Mr. Delgado is currently the Executive Officer of the Naval Reserve Special Operations Command South (SOCSOUTH) Detachment 108. He has also served as a Special Agent in the United States Department of Homeland Security since 1995 and as the Managing Member of ISR Strategies, LLC, a full service security consulting company, since 2010. He is a United States Navy SEAL with active and reserve service for over twenty-eight years. In 2006, he was mobilized and served a combat tour in Ramadi, Iraq with SEAL Team THREE receiving a Navy Commendation Medal with Combat “V”. He has served with SEAL Teams TWO, THREE, FOUR, EIGHTEEN and Special Operations Command Central and South. Mr. Delgado has participated in tours of duty in the Middle East, Europe, Africa and South America. He has also served as an adjunct instructor at the United States Merchant Marine Academy teaching maritime security and conducting International Ship Security Code (ISPS) training and assessments. His managerial expertise has been refined not only in a military environment, but also extensively in the governmental sector, where he has been responsible for the budgets, training, and logistics of thousands of people. Mr. Delgado was chosen as a director of the Company based on his leadership and entrepreneurial experience and particular familiarity with the military and governmental agencies.

Theresa Carlise,Chief Financial Officer, Treasurer and Secretary, 58, was appointed Chief Financial Officer, Treasurer and Secretary on June 9, 2015. She joined the Company from FTE Networks (OTCBB FTNW), a leading provider of infrastructure services for the telecommunications and wireless sector, where she served as a financial advisor from May 2014 through March 2015, and Chief Financial Officer and director from September 2011 through May 2014.Prior to FTE Networks, she served as the Chief Executive Officer, Chief Financial Officer and a director of Control System & Instrumentation (CSI) Consultants, which provided information technology consulting and system design to the industrial and manufacturing sectors, from July 2010 to September 2011 and as Chief Financial Officer and a director of Las Vegas Railway Express, Inc. (OTCBB LVRE), a developer of passenger rail transportation and related ancillary services, from December 2009 through July 2010. Ms. Carlise also served as the Chief Financial Officer of Shearson Financial Network, Inc. (OTCBB SFNN), and as Chief Financial Officer, senior vice president and a director of National Record Mart, Inc., (NASDAQ NRMI). From October 2006 to November 2007 Ms. Carlise served as Chief Financial Officer of Shearson Financial Network, Inc., a direct to consumer mortgage banking company. Declining market conditions in the mortgage banking industry in 2007, contributed to the Company filing a voluntary petition under Chapter 11 of the United States Bankruptcy Code in June of 2008. Ms. Carlise holds a Bachelor of Science in Finance from Indiana University of Pennsylvania.

Family Relationships

There are no family relationships between any of our directors, executive officers or directors except as set forth herein.

Involvement in Certain Legal Proceedings

During the past 10 years, none of our officers, directors, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K except as set forth herein.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. The Board of Directors shall not appoint any new members or vote to increase its size in the absence of the written consent of Mr. Phipps.

Director Independence

Mr. Phipps is not an “independent” director based on the definition of independence in the listing standards of the NASDAQ Stock Market (“NASDAQ”). Mr. Delgado is an “independent” director based on the definition of independence in the listing standards of NASDAQ.

Committees of the Board of Directors

Audit Committee. We intend to establish an audit committee of the Board of Directors once we have satisfied the other initial listing standards for listing our common stock on the Nasdaq Stock Market or another national exchange. The audit committee will consist of independent directors, of which at least one director will qualify as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. The audit committee’s duties will be to recommend to our Board of Directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

Compensation Committee. We intend to establish a compensation committee of the Board of Directors once we have satisfied the other initial listing standards for listing our common stock on the Nasdaq Stock Market or another national exchange. The compensation committee will review and approve our salary and benefits policies, including compensation of executive officers. The compensation committee will also administer our stock option plans and recommend and approve grants of stock options under such plans.

Nominating Committee. We intend to establish a nominating committee of the Board of Directors once we have satisfied the other initial listing standards for listing our common stock on the Nasdaq Stock Market or another national exchange. The nominating committee will consider and make recommendations on matters related to the practices, policies and procedures of the Board and take a leadership role in shaping our corporate governance. As part of its duties, the nominating committee would assess the size, structure and composition of the Board and its committees, and coordinate the evaluation of Board performance. The nominating committee would also act as a screening and nominating committee for candidates considered for election to the Board.

Board Leadership Structure and Role in Risk Oversight

Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of the Company. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our Company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the SEC. Based solely on our review of copies of such reports and representations from our executive officers and directors, we believe that our executive officers and directors complied with all Section 16(a) filing requirements during the year ended December 31, 2016.

Compensation of Executive Officers and Directors

The following table summarizes the overall compensation earned over each of the past two fiscal years ended December 31, 2016 by each person who served as a named executive officer during the fiscal year ended December 31, 2016.

Summary Compensation Table

Name and Principal Position Year  Salary ($)  Stock
Awards ($) (1)
  All Other
Compensation ($)
  Total ($) 
David Phipps, Chief Executive Officer, 2016  $217,370  $190,000  $36,000  $443,370 
President and Chairman (2) 2015  $165,000  $-  $58,000  $223,000 
                    
Theresa Carlise, Chief Financial Officer, 2016  $140,000  $-  $-  $140,000 
Secretary and Treasurer (3) 2015  $47,507  $650,000  $-  $697,507 

(1)Reflects the grant date fair values of stock awards calculated in accordance with FASB Accounting Standards Codification Topic 718. All stock awards have been adjusted for our 1:150 reverse stock split effective March 28, 2014.
(2)Mr. Phipps was appointed as our Chief Executive Officer, President, Chief Financial Officer and Treasurer on February 19, 2015. He resigned on June 9, 2015, from his positions as Chief Financial Officer and Treasurer.
(3)Ms. Carlise was appointed as our Chief Financial Officer, Secretary and Treasurer on June 9, 2015. On December 28, 2015, Ms. Carlise was granted a 10 year option to purchase shares of common stock. The option is immediately exercisable into 500,000 shares of common stock at a purchase price of $0.05 per share.

Agreements

Upon the closing of the share exchange with GTCL on February 19, 2015, Orbital Satcom entered into an employment agreement with Mr. Phipps, whereby Mr. Phipps agreed to serve as the President of Orbital Satcom for a period of two (2) years, subjectwith an automatic one (1) year extension. Ms. Carlise’s base salary is $150,000 per year. The Agreement provides for performance bonuses based on exceeding our annual revenue goals and on our ability to renewal,attract new investment. The 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 consideration for an annualcontrol, or resignation with good reason (as defined in the Agreements), Ms. Carlise will be entitled to a severance equal to twice her base salary, the immediate vesting of $180,000. Additionally, underall unvested options, and other benefits. The Agreement terminates and supersedes the termsOriginal Agreements and any subsequent amendments, effective as of the employment agreement, Mr. Phipps wasJune 14, 2018.

Prior to be eligible for an annual bonus ifJune 14, 2018, the Company met certain criteria, as established by the Board of Directors.

On March 3, 2016, the Company entered into an Executive Employment Agreement with Mr. Phipps, effective January 1, 2016. Under the Employment Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President, and receive an annual base salary equal to the sum of $144,000 and £48,000, or $73,370 at the yearly conversion rate of 1.52855. Mr. Phipps is also eligiblehad a one-year agreement for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. Also on March 3, 2016 and effective January 1, 2016, Orbital Satcom and Mr. Phipps terminated the employment agreement between them dated February 19, 2015.

The Company entered into an employment agreement with Ms. Carlise, as its Chief Financial Officer, Treasurer and Secretary, on June 9, 2015.Secretary. The agreement is non exclusive,provided for an annual compensation of $140,000 as well as medical benefits. The agreement was effective December 1, 2016 and had an automatic renewal clause whereby Ms. Carlise shall devote the required business time and efforts to the performance of her duties hereunder. Notwithstanding the foregoing, the expenditure of reasonable amounts of timeagreement renews itself for another year, if not cancelled by the Executive for other employment and consulting relationships, the making of passive personal investments, the conduct of business affairs and charitable and professional activities shall be allowed, provided such activities do not materially interfere with the services required to be rendered to the Corporation.Company previously. The agreement has ahad been automatically extended for an additional term of one year and shall automatically be extended for additional terms of one year each The agreement provides for an annual base salary of $72,000  .on December 1, 2017. In addition to the base salary of $140,000 annually, Ms. Carlise shall bewas eligible to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors and shall be eligible for grants of awards under stock option or other equity incentive plans of the Company.

On December 28, 2015,18, 2018, the Company amendedcancelled the unvested options as follows; 5,000 options to David Phipps, 2,500 options to Theresa Carlise, 1,250 options to Hector Delgado, its employment agreement with Ms. Carlise, effective December 1, 2015. Ms. Carlise annual base salary was increasedDirector and 5,000 options to $140,000certain employees of the Company. Total grants cancelled were 13,750 and requires exclusivity, Ms Carlise shall devote thesubstantial portion of her entire business time, attention and energy exclusivelywere returned to the business and affairs of the Companyas it pertains to her capacity as Chief Financial Officer, Treasurer and Secretary. The term of Ms. Carlise’s employment was automatically renewed to December 1, 2017 from December 1, 2016.Plan.

 

Also, on December 28, 2015,18, 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%.

For the years ended December 31, 2019 and 2018, the Company recorded stock-based compensation of $0 and $219,518, respectively.

Outstanding Equity Awards at 2019 Fiscal Year-End

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2019.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
  OPTION AWARDS  STOCK AWARDS 
Name  Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable   Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
   Option Exercise Price ($)  Option Expiration Date  Number Of Shares or Shares of Stock That Have Not Vested (#)   Market
Value of Shares or Shares of Stock That Have Not Vested ($)
   Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#)   Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) 
David Phipps  1,667   -   -   24.00  7/01/2021  -   -   -   - 
                     -   -   -   - 
   4,444(1)  -   -   22.50  12/15/2026  -   -   -   - 
   2,222(1)  -   -   22.50  5/25/2027  -   -   -   - 
   8,333                               
Theresa Carlise  833   -   -   22.50  7/01/2021  -   -   -   - 
   10,833   -   -   2.25  12/17/2023  -   -   -   - 
   311(1)  -   -   112.50  12/21/2025  -   -   -   - 
   1,667(1)  -   -   22.50  5/25/2027                
   13,644                               

(1)Options granted outside of any Stock Option Plan.

2019 Director Compensation

The table below summarizes all compensation of our directors for our last completed fiscal year.

DIRECTOR COMPENSATION 
Name Fees Earned or Paid in Cash ($)  Stock Awards ($)  Option Awards ($)  Non-Equity Incentive Plan Compensation ($)  Non-Qualified Deferred Compensation Earnings ($)  All Other Compensation ($)  Total ($) 
David Phipps(1) $36,000   -  $-   -   -   -  $36,000 
Hector Delgado $20,000   -  $-   -   -   -  $20,000 

(1)Amounts are included in Summary Compensation Table.

Narrative Disclosure to the Director Compensation Table

The Company pays David Phipps a monthly fee of $3,000 for his services as a director of the company, in addition to his compensation as Chief Executive Officer and President.

On December 29, 2016, the Board of Directors approved increasing its quarterly payments from $3,500 to $5,000, to its independent director, Hector Delgado.

On December 16, 2016, the Company issued Ms. Carlise options to Mr. Phipps, to purchase up to 500,0004,444 shares of common stock. The options have an exercise price of $22.50 per share, vest immediately, and have a term of ten years. The options were valued on the grant date at approximately $45.00 per option. The amount is disclosed in the executive compensation table as well as, with the director compensation.

On May 26, 2017, the Company issued 556 options to Hector Delgado, its Director and 2,200 options to David Phipps. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.05$22.50 per share, vest immediately, and have a term of ten years. The options were valued on the grant date at approximately $45.00 per option or a total of $200,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $3.00 per share (based on the closing price of the Company’s common stock of the date of issuance post-split), volatility of 736%, expected term of 10 years.

On December 16, 2016,years, and a risk-free interest rate of 1.30%. Additionally, on May 26, 2017, the Company issued Mr. Phippsanother 8,867 options to purchase up to 10,000,000 sharescertain employees of common stock.the Company. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.01$22.50 per share, vest immediately, and have a term of 10ten years. The options were valued on the grant date at approximately $45.00 per option. In connection with the stock option grant, as described above, the Company recorded stock-based compensation for the year ended December 31, 2017 of $600,000.

 

On May 31, 2017, the CompanyJune 14, 2018, we issued 5,000,0006,667 stock options to Mr.David Phipps 3,750,000and 1,667 options to Theresa Carlise and 20,000,000Hector Delgado, its Director. All options to certain employees of the Company. The employees are the adult children of our Chief executive Officer. All of the options are fully vested andissued have an exercise price of $0.01$22.50 per share, with the exception of David Phipps, a Ten Percent Stockholder, whose exercise price is $24.00, vest in equal quarterly installments starting July 1, 2018 over the next two years and a termexpire on July 1, 2021, pursuant to the 2018 Incentive Plan. On December 18, 2018, the Company cancelled the unvested options for David Phipps of 10 years.

Directors’ Compensation

The Company has paid5,000 and cancelled 1,250 options for Hector Delgado, its Director. Also, on December 18, 2018, we issued we issued 21,667 stock options Mr. Phipps an additional monthly fee of $3,000 for his services as a director of the Company since the share exchange.

On May 19, 2015, the Board approved quarterly payments of $3,500,and 4,583 options to Hector Delgado. On December 29, 2016,Delgado, its Director, pursuant to the Board approved to increase Mr. Delgado’s quarterly payments to $5,000. On December 28, 2015, the Board awarded Mr. Delgado fully vested2018 Incentive Plan. All options to purchase up to 200,000 shares of common stock at an exercise price of $0.05 with a 10-year term. On May 31, 2017, the Company issued 1,250,000 options Mr. Delgado. The options are fully vested and have an exercise price of $0.012.25 per share, with the exception of David Phipps, a Ten Percent Stockholder, whose exercise price is $2.55, are fully vested and a term of 10 years.expire on December 17, 2023.

 

Mr. Phipps and Mr. Delgado receive no compensation from the Company except as described above.

 

Grants of Plan Based Awards and Outstanding Equity Awards at Fiscal Year-EndEmployment Agreements with Current Management

 

226,667 shares of our common stock are reserved for issuance under the 2014 Equity Incentive PlanOther than as awards to employees, directors, consultants, advisors and other service providers. Theredescribed above, there are no outstanding equity awards as ofadditional agreements with current management, for the two years ended December 31, 2016 as reserved under the 2014 Equity Incentive Plan.2019 and 2018, respectively.

 

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our Board of Directors.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following tables sets forth, as of July 21 , 2017, the number of and percent of the Company’s common stock beneficially owned by: (1) all directors and nominees, naming them; (2) our executive officers; (3) our directors and executive officers as a group, without naming them; and (4) persons or groups known by us to own beneficially 5% or more of our voting securities.

A person is deemed to be the beneficial owner of securities that can be acquired by him within 60 days from July 21 , 2017 upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of July 21 , 2017 have been exercised and converted.

Amount and Nature of Beneficial Ownership

  Total Voting Power (1) Common Stock (2)  Series B Preferred Stock (3)  Series C Preferred Stock (4)  Series D Preferred Stock (5) 
   Number of Shares   Percent  Number of Shares   Percent   Shares
Beneficially
Held
   Percent   Shares
Beneficially
Held
   Percent   Shares
Beneficially
Held
   Percent 
Name and Address of Beneficial Owner (13)                                       
Directors and Executive Officers                                       
David Phipps  3,641,557(14)  3.75%   18,484,630(15)  15.96%  -   -   -   -   -   - 
Hector Delgado  -   -   1,450,000(16)  1.27%  -   -   -   -   -   - 
Theresa Carlise  -   -   4,250,000(17)  3.73%  -   -   -   -   -   - 
Jenna Foster  720,00018)  0.76%  10,720,000(19)  9.42%  -   -   -   -   -   - 
James Phipps  720,000(20)  0.76%  10,720,000(21)  9.42%  -   -   -   -   -   - 
Directors and Executive Officers as a Group (5 persons)     5.21%  24,184,630   20.88%  -   -   -   -   -   - 
                                         
Certain Persons                                        
ADH Capital Ventures LLC (22)  3,641,557(23)  3.73%  3,641,557(23)  3.14%  -   -   375,000   10.59%  -   - 
Michael Brauser (24)  

 

3,641,557

(24)  

 

3.73

%  

 

3,641,557

(24)  3.14%  3,333(24)  50.00%  -   -   1,583,816(24)  52.64%
DL2 Capital (25)  3,641,557(26)  3.73%  3,641,557(26)  3.14%  -   -   -       -     
Frost Gamma Investments Trust (27)  

 

 

3,641,557

(28)  

 

 

3.73

%  

 

 

3,641,557

(28)  

 

 

3.14

%  -   -    2,127,923(28)  60.10%  -   - 
Barry Honig GRQ 401K (29)  

 

3,641,557

(30)  

3.73

%  

 

3,641,557

(30)  

 

3.14

%   3,333(24)  50.00%  -   -   691,094(30)  24.69%
Sichenzia Ross Ference Kesner LLP (31)  

 

 

3,641,557

( 32 )  

 

 

3.73

%  

 

 

3,641,557

( 32 )  

 

 

3.14

%  -   -   112,442   3.18%  -   - 
Oban Investments LLC (33)  

 

3,641,557

(34)  

 

3.73

%  

 

3,641,557

(34)  

3.14

%                  55,625(34)  1.85%
Sandor Capital Master Fund LP (35)  

 

 

3,641,557

(36)  

 

 

3.73

%  

 

 

3,641,557

(36)  

 

 

3.14

%  -   -    925,000(36)  26.13%   655,000(36)  20.73%
DTMFS LP (37)  3,641,557(38)  3.73%  3,641,557(38)  3.14%                        
The David Stephen Group LLC (39)  850,000   0.87%  3,000,000(40)  2.59%  -   -   -   -   -   - 
                                         
Total Voting Capital and Shares Outstanding  97,515,989       115,827,104       6,666       3,540,365       3,008,984     

Amount and Nature of Beneficial Ownership-(Continued)

  Series E Preferred Stock (6)  Series F Preferred Stock (7)  Series G Preferred Stock (8)  Series H Preferred Stock (9)  Series I Preferred
Stock (10)
 
  Shares Beneficially Held  Percent  Shares Beneficially Held  Percent  Shares Beneficially Held  Percent  Shares Beneficially Held  Percent  Shares Beneficially Held  Percent 
Name and Address of Beneficial Owner (13)                                        
Directors and Executive Officers                                        
David Phipps  6,133,537   82.85%  -   -   -   -   -   -   -    - 
Hector Delgado   -   -   -   -   -   -   -   -   -    - 
Theresa Carlise  -   -   -   -   -   -   -    -   -   - 
Jenna Foster  -   -   -   -   -   -   -   -   -   - 
James Phipps  -   -   -   -   -   -   -   -   -   - 
Directors and Executive Officers as a Group (5 persons)  6,133,537   82.85%  -   -   -   -   -   -   -   - 
                                         
Certain Persons                                        
ADH Capital Ventures LLC (22)  -   -   -   -   -   -   -   -    -    - 
Michael Brauser (24)  -   -   349,999(24)  31.82%  4,125,008(24)  40.91%  12,500(24)  14.3%  24,305 (24)  26.15%
DL2 Capital (19)  985,500(20)  13.68%                                
Frost Gamma Investments Trust (27)   -   -    -   -    -    -   62,500(28)  71.4%   -    - 
Barry Honig GRQ 401K (29)  -   -   349,999(30)  31.82%  4,125,008(30)  40.91%  12,500(30)  14.3%  24,305(30)  26.15%
Sichenzia Ross Ference Kesner LLP (31)  -   -    -   -   -   -   -    -   -    - 
Oban Investments LLC (33)  -   -   200,000(34)  18.18%  1,833,335(34)  18.18%   -    -   20,834(34)  75.25%
Sandor Capital Master Fund LP (35)  -   -   200,000(36)  18.18%  -   -    -    -   23,000(36)  22.42%
DTMFS LP (37)  -   -   -   -   -   -   -   -   -   - 
The David Stephen Group LLC (39)  -   -   -   -   -   -   -   -   -    - 
                                         
Total Voting Capital and Shares Outstanding  7,202,877       1,099,998       10,083,351       87,500       92,944     

45

Amount and Nature of Beneficial Ownership-(Continued)

  Series J Preferred Stock (11)  Series K Preferred Stock (12) 
  Shares Beneficially Held  Percent  Shares Beneficially Held  Percent 
Name and Address of Beneficial Owner (13)                
Directors and Executive Officers                
David Phipps  -   -   -   - 
Hector Delgado          -   - 
Theresa Carlise  -   -   -   - 
Jenna Foster  -   -   -   - 
James Phipps  -   -   -   - 
Directors and Executive Officers as a Group (5 persons)  -   -   -   - 
                 
Certain Persons                
ADH Capital Ventures LLC (22)  -   -   -   - 
Michael Brauser (24)  5,000(24)  9.15%  341,819(24)   29.30 
DL2 Capital (19)                
Frost Gamma Investments Trust (27)  30,000(28)  54.88%  187,500(28)  16.07 
Barry Honig GRQ 401K (29)  5,000(30)  9.15%  341,820(30)  29.30 
Sichenzia Ross Ference Kesner LLP (31)  4,669   8.54%  76,763   6.58 
Oban Investments LLC (33)  5,000(34)  9.15%  143,750(34)  12.32 
Sandor Capital Master Fund LP (35)          75,000(36)  6.43 
DTMFS LP (37)  5,000(38)  9.15%  -   - 
The David Stephen Group LLC (39)  -   -   -   - 
                 
Total Voting Capital and Shares Outstanding  54,669       1,166,652     

(1) In determining  the voting power held by a person or entity on July 21 , 2017, the percentage of total voting power represents voting power with respect to all shares of our common stock and preferred stock, as a single class. The holders of our common stock are entitled to one vote per share, holders of our Series B Preferred Stock are entitled to one vote per share, holders of our Series C Preferred Stock are entitled to 10 votes per share, holders of our Series D Preferred Stock are entitled to 20 votes per share, holders of our Series E Preferred Stock are entitled to 10 votes per share, holders of our Series F Preferred Stock are entitled to one vote per share, holders of our Series G Preferred Stock are entitled to one vote per share, holders of our Series H Preferred Stock are entitled to 100 votes per share, holders of our Series I Preferred Stock are entitled to 100 votes per share, holders of our Series J Preferred Stock are entitled to 1,000 votes per share and holders of our Series K Preferred Stock are entitled to 100 votes per share. Shares of common stock which may be acquired within 60 days upon exercise of warrants or options or conversion of promissory notes were not included in calculating the voting power.

(2) In determining the percent of common stock beneficially owned by a person or entity on July 21 , 2017, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of preferred stock and promissory notes, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on July 21 , 2017 ( 72,977,104 ) and (ii) the total number of shares that the beneficial owner may acquire upon exercise of warrants or options and conversion of preferred stock and promissory notes, subject to limitations on conversion and exercise as more fully described in the notes below, which is an aggregate of 67,388,885 shares (includes the 24,538,885 preferred shares and 42,850,000 shares issuable upon exercise of options).

(3) The holders of our Series B Preferred Stock are entitled to one vote for each share of Series B Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited. Each share of Series B Preferred Stock is convertible into five shares of common stock. Pursuant to the terms of the Series B Preferred Stock, a holder cannot convert any of the Series B Preferred Stock if such holder would beneficially own, after any such conversion, more than 9.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series B Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits.

(4) Each share of Series C Preferred Stock is convertible into 10 shares of common stock. Pursuant to the terms of the Series C Preferred Stock, a holder cannot convert any of the Series C Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series C Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 10 votes for each share of Series C Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited.

(5) Each share of Series D Preferred Stock is convertible into 20 shares of common stock. Pursuant to the terms of the Series D Preferred Stock, a holder cannot convert any of the Series D Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series D Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 20 votes for each share of Series D Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited.

(6) Each share of Series E Preferred Stock is convertible into 10 shares of common stock. Pursuant to the terms of the Series E Preferred Stock, a holder cannot convert any of the Series E Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series E Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 10 votes for each share of Series E Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited

(7) Each share of Series F Preferred Stock is convertible into one share of common stock. Pursuant to the terms of the Series F Preferred Stock, a holder cannot convert any of the Series F Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series F Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to one vote for each share of Series F Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(8) Each share of Series G Preferred Stock is convertible into one share of common stock. Pursuant to the terms of the Series G Preferred Stock, a holder cannot convert any of the Series G Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series G Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to one vote for each share of Series G Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(9) Each share of Series H Preferred Stock is convertible into 100 shares of common stock. Pursuant to the terms of the Series H Preferred Stock, a holder cannot convert any of the Series H Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series H Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 100 votes for each share of Series H Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(10) Each share of Series I Preferred Stock is convertible into 100 shares of common stock. Pursuant to the terms of the Series I Preferred Stock, a holder cannot convert any of the Series I Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series I Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 100 votes for each share of Series I Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(11) Each share of Series J Preferred Stock is convertible into 100 shares of common stock. Pursuant to the terms of the Series J Preferred Stock, a holder cannot convert any of the Series J Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series J Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 100 votes for each share of Series J Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(12) Each share of Series K Preferred Stock is convertible into 1,000 shares of common stock. Pursuant to the terms of the Series K Preferred Stock, a holder cannot convert any of the Series K Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series K Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to 1,000 votes for each share of Series K Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken or any written consent of shareholders is solicited.

(13) Unless otherwise indicated in the footnotes, the address of the beneficial owners is c/o Orbital Tracking Corp., 18851 N.E. 29th Ave., Suite 700, Aventura, Florida 33180.

(14) Includes (i) 3,641,557 shares of common stock and (ii) 156,927 shares of common stock issuable upon the conversion of 15,693 shares of Series E Preferred. Does not include 61,178,443 votes and 61,178,443 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series E Preferred Stock.

(15) Includes (i) 3,641,557 shares of common stock and (ii) 15,000,000 shares of common stock issuable upon exercise of options. Does not include 61,335,370 votes and 61,335,370 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series E Preferred Stock.

(16) Includes 1,450,000 shares of common stock issuable upon exercise of options.

(17) Includes 4,250,000 shares of common stock issuable upon exercise of options.

(18) Includes 720,000 shares of common stock. Ms. Foster is the adult child of David Phipps, the company’s Chief Executive Officer.

(19) Includes (i) 720,000 shares of common stock and (ii) 10,000,000 shares of common stock issuable upon exercise of options.

(20) Includes 720,000 shares of common stock. Mr. James Phipps is the adult child of David Phipps, the company’s Chief Executive Officer.

(21) Includes (i) 720,000 shares of common stock and (ii) 10,000,000 shares of common stock issuable upon exercise of options.

(22) The address of this beneficial owner is 916 Fiddler’s Creek Road, Ponte Vedra Beach, Florida 32082

(23) Includes 3,641,557 shares of common stock issuable upon conversion of Series C Preferred Stock. Felicia Hess is the president of ADH Ventures LLC and holds voting and dispositive power over the securities of the company held by ADH Ventures LLC. Does not include 108,443 votes and 108,443 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series C Preferred Stock.

(24) The address of this beneficial owner is 4400 Biscayne Blvd., #850, Miami Florida 33137. Includes (i) one vote per share for 2,652,800 shares of common stock, (ii) one vote per share for 3,333 shares of Series B Preferred Stock and (iii) 985,424 votes, or 20 votes per share of 49,271 shares of Series D Preferred Stock. Does not include (i) 29,465,896 votes, or 20 votes per share of 1,473,295 shares of Series D Preferred stock due to the beneficial ownership limitations on the voting rights of the Series D Preferred Stock and (ii) one vote per share for 116,666 shares of common stock issuable upon conversion of Series F Preferred Stock due to the beneficial ownership limitations on the voting rights of the Series F Preferred Stock and (iii) 1,986,116 shares of common stock issuable upon conversion of Series G Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series G Preferred Stock, and (iv) 1,250,000 shares of common stock issuable upon conversion of Series H Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series H Preferred Stock held by Grander Holdings Inc. 401K., Mr. Brauser is the trustee of Grander Holdings Inc., 401K and holds voting and dispositive power over the securities of the Company held by Grander Holdings Inc., 401K and (v) held in the name of Michael Brauser, 1,250,000 shares of common stock issuable upon conversion of Series H Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series H Preferred Stock, (vi) held in the name of Michael Brauser, 2,430,500 shares of common stock issuable upon conversion of 100 votes per share or 24,305 shares of Series I Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series I Preferred Stock, (vii) held in the name of Grander Holdings Inc., 401k, 5,000,000 shares of common stock issuable upon conversion of 1,000 votes per share or 5,000 shares of Series J Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series J Preferred Stock, (viii) ) held in the name of Grander Holdings Inc., 401k, 20,520,800 shares of common stock issuable upon conversion of 100 votes per share or 205,208 shares of Series K Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series K Preferred Stock and (ix) ) held in the name of Michael Brauser, 13,661,100 shares of common stock issuable upon conversion of 100 votes per share or 136,611 shares of Series K Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series K Preferred Stock

(25) The address of this beneficial owner is 520 NW 165th Street Road # 102, Miami, FL 33169

(26) Includes 3,641,557 shares of common stock issuable upon conversion of Series E Preferred Stock. Does not include 6,213,443 votes and 6,213,443 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series E Preferred Stock.

(27) The address of this beneficial owner is 4400 Biscayne Blvd., 15th Fl. Miami Florida 33137

(28) Includes 706,667 shares of common stock held by Phillip and Patricia Frost Philanthropic Frost Gamma Trust, 620,770 shares of common stock held by Frost Gamma Investments Trust and 20,000 shares of common stock held by Dr. Philip Frost and 2,194,320 shares of common stock issuable upon the conversion of 219,432 shares of Series C Preferred Stock held by Frost Gamma Investments Trust. Dr. Frost is the trustee of Frost Gamma Investments Trust and Phillip and Patricia Frost Philanthropic and holds voting and dispositive power over the securities of the Company held by both. Does not include: (i) 19,084,910 votes and 19,084,910 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series C Preferred Stock held by Frost Gamma Investments Trust and (ii) 6,250,000 votes and 6,250,000 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series H Preferred Stock held by Frost Gamma Investments Trust, (iii) 30,000,000 votes and 30,000,000 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series J Preferred Stock held by Frost Gamma Investments Trust and (iv) 18,750,000 votes and 18,750,000 shares of common stock due to the beneficial ownership limitations on the voting rights and conversion of the Series K Preferred Stock held by Frost Gamma Investments Trust

(29) The address of this beneficial owner is 555 South Federal Highway #450, Boca Raton, Florida 33432

(30) Includes (i) one vote per share for 31,098 shares of common stock held by Barry Honig, (ii) one vote per share for 3,333 shares of Series B Preferred Stock held by Barry Honig, (iii) one vote per share for 2,700,000 shares of common stock held by GRQ Consultants, Inc. 401K FBO Barry Honig, (iv) one vote per share for 2,000 shares of common stock held by GRQ Consultants, Inc. and (v) 838,422 votes, or 20 votes per share, for 41,921 shares of Series D Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig. Mr. Honig is the trustee of GRQ Consultants, Inc. 401K FBO Barry Honig and holds voting and dispositive power over the securities of the Company held by GRQ Consultants, Inc. 401K FBO Barry Honig. Mr. Honig is the president of GRQ Consultants, Inc. and holds voting and dispositive power over the securities of the company held by GRQ Consultants, Inc. Does not include (i) 12,983,458 votes underlying 649,173 shares of Series D Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig, and (ii) 349,999 votes or shares of common stock due to the beneficial ownership limitations on the conversion of the Series F Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig, and (iii) 4,125,008 votes or shares of common stock due to the beneficial ownership limitations on the conversion of the Series G Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig., (iv) 1,250,000 Votes, or 100 votes per share, underlying 12,500 shares of Series H Preferred Stock due to the beneficial ownership limitations on the conversion of the Series H Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig, (v) 2,430,500 Votes, or 100 votes per share, underlying 24,305 shares of Series I Preferred Stock due to the beneficial ownership limitations on the conversion of the Series I Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig, (vi) 5,000,000 Votes, or 1,000 votes per share, underlying 5,000 shares of Series J Preferred Stock due to the beneficial ownership limitations on the conversion of the Series J Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig and (vii) 34,182,000 Votes, or 100 votes per share, underlying 341,820 shares of Series K Preferred Stock due to the beneficial ownership limitations on the conversion of the Series K Preferred Stock held by GRQ Consultants, Inc. 401K FBO Barry Honig.

(31) The address of this beneficial owner is 61 Broadway FL 32, New York, NY 10006-2701.

(32) Includes (i) 961,470 shares of common stock held by Sichenzia Ross Ference Kesner LLP, 350,000 shares of common stock held by Paradox Capital Partners LLC and 1,466 shares of common stock held by Aurcana LLC (ii) 1,104,401 shares of common stock issuable upon conversion of Series J Preferred Stock held in the name of Sichenzia Ross Ference Kesner LLP. Does not include (i) 3,564,599 shares of common stock issuable upon conversion of 3,565 shares of Series J Preferred stock due to the beneficial ownership limitations on the voting rights and conversion of the Series J Preferred Stock, (ii) 978,600 shares of common stock issuable upon conversion of Series K Preferred Stock held by Sichenzia Ross Ference Kesner LLP, and (iii) 6,697,700 shares of common stock issuable upon conversion of Series K Preferred Stock held in the name of Paradox Capital Partners LLC. Harvey Kesner partner of Sichenzia Ross Ference and Kesner LLP has voting control and investment discretion over the securities reported herein that are held by Sichenzia Ross Ference and Kesner LLP. Mr Kesner principal of Paradox Capital Partners LLC and Aurcana LLC has voting control and investment discretion over the securities reported herein that are held by same.

(33) The address of this beneficial owner is 68 Fiesta Way, Fort Lauderdale, FL 33301.

(34) Includes (i) 99 shares of common stock held by John Stetson and (ii) 1,112,500 votes and 55,625 shares due to the beneficial ownership limitations on the voting rights and conversion of the Series D Preferred Stock, (iii) 200,000 votes and 200,000 shares due to the beneficial ownership limitations on the voting rights and conversion of the Series F Preferred Stock, 1,833,335 votes and 1,833,335 shares due to the beneficial ownership limitations on the voting rights and conversion of the Series G Preferred Stock. Does not include (i) 4,125,008 votes and 4,125,008 shares of common stock issuable upon conversion of Series G Preferred Stock held by Oban Investments LLC due to the beneficial ownership limitations on the voting rights and conversion of the Series G Preferred Stock, (ii) 1,687,775 votes and 16,878 shares of common stock issuable upon conversion of Series I Preferred Stock held by Oban Investments LLC due to the beneficial ownership limitations on the voting rights and conversion of the Series I, (iii) 5,000,000 votes and 5,000 shares of common stock issuable upon conversion of Series J Preferred Stock held by Oban Investments LLC due to the beneficial ownership limitations on the voting rights and conversion of the Series J Preferred Stock and 14,375,000 votes and 143,750 shares of common stock issuable upon conversion of Series K Preferred Stock held by Oban Investments LLC due to the beneficial ownership limitations on the voting rights and conversion of the Series K Preferred Stock John Stetson is the manager of Oban Investments LLC and holds voting and dispositive power over the securities of the Company held by Oban Investments LLC.

(35) The address of this beneficial owner is 2828 Routh Street, Suite 500, Dallas, Texas 75201.

(36) Includes (i) 1,735,968 shares of common stock and (ii) 1,805,789 shares of common stock issuable upon conversion of Series C Preferred Stock. John Lemak is the manager of Sandor Capital Master Fund LP and holds voting and dispositive power over the securities of the Company held by Sandor Capital Master Fund LP. Does not include: (i) 1,250,000 shares of common stock issuable upon conversion of Series C Preferred Stock, held by JSL Kids Partners, of which Mr. Lemak is the control person (i) 6,194,211 votes and 619,421 shares of Series C Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series C Preferred Stock held by Sandor Capital Master Fund LP, (ii) 13,100,000 votes and 655,000 shares of Series D Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series D Preferred Stock held by Sandor Capital Master Fund LP and (iv) 200,000 votes and shares due to the beneficial ownership limitations on the voting rights and conversion of the Series F Preferred Stock held by Sandor Capital Master Fund LP., and (v) 2,300,000 votes, or 100 votes per share, underlying 23,000 shares of Series I Preferred Stock due to the beneficial ownership limitations on the conversion of the Series I Preferred Stock held by Sandor Capital Master Fund LP (vi) 7,500,000 votes and 75,000 shares of Series K Preferred Stock due to the beneficial ownership limitations on the voting rights and conversion of the Series K Preferred Stock held by Sandor Capital Master Fund LP , Mr. Lemak is the trustee of JSL Kids Partners LLC and holds voting and dispositive power over the securities of the Company held by JSL Kids Partners LLC.

(37) The address of this beneficial owner is 327 Seneca Lane, Boca Raton, FL 33487

(38) Includes 3,541,757 shares of common stock issuable upon conversion of Series J Preferred Stock due to the beneficial ownership limitations on the voting rights of the Series J Preferred Stock. Does not include 1,458,243 votes, or 1,000 votes per share, underlying 1,458 shares of Series J Preferred Stock due to the beneficial ownership limitations on the conversion of the Series J Preferred Stock. Brian Herman is the principal of DMTFS LP and holds voting and dispositive power over the securities of the Company held by DMTFS LP.

(39) The address of this beneficial owner is 1640 Terrace Way, Walnut Creek, CA 94597-3902

(40) Includes 2,150,000 shares of common stock issuable upon exercise of options. David Rector is the president of The David Stephen Group LLC and holds voting and dispositive power over the securities of the Company held by The David Stephen Group LLC.

51

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

The Company

 

SEC rules require us to disclose any transaction or currently proposed transaction in which the Company is a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons.

 

On February 11, 2015, we entered into exchange agreements with each of Sandor Capital Master Fund LPFor the years ended December 31, 2018 and Point Capital, Inc., a holder of 5% or more of a class of our voting securities at that time. Pursuant to the exchange agreements, Sandor Capital Master Fund LP exchanged 8 million shares of common stock for 800,000 shares of the Company’s Series C Preferred Stock and Point Capital, Inc. exchanged 2 million shares of common stock for 200,000 shares of Series C Preferred Stock.

2017, Orbital Satcom purchased an aggregate of approximately $114,000$828,741 and $881,151 of inventory from GTCL in January, February and March 2015. On February 19, 2015, the Company entered into a share exchange agreement with GTCL and the GTCL Shareholders. Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly issued Series E Preferred Stock of the Company with each share of Series E Preferred Stock convertible into 10 shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note. The note has an original principal amount of $122,536, which is equal to the total cost of certain inventory owned by GTCL immediately prior to the share exchange, and shall be repaid from the sale of the inventory following closing. Mr. Phipps was a GTCL Shareholder and the sole director of GTCL. Hereceived in exchange for his shares of GTCL 400,000 shares of the Company’s common stock and 6,692,000 shares of Series E Preferred Stock, and was paid the full cash payment and the full amount of the note. The Company also paid Mr. Phipps an additional $25,000 at closing as compensation for transition services previously provided by him to the Company in anticipation of the share exchange.

On February 19, 2015, Mr. Rector, our former officer and director, was issued 850,000 shares of common stock and a seven-year option to purchase shares of common stock. The option is immediately exercisable into 2,150,000 shares of common stock at a purchase price of $0.05 per share. The Company has paid an affiliated company of which Mr. Rector is the President, $24,000 and $15,000, forFor the years ended December 31, 20152018 and 2014, respectively.2017, GTCL purchased an aggregate of approximately $30,557 and $5,774 of inventory from Orbital Satcom.

 

Jenna Foster, a former GTCL Shareholder and the Secretary of GTCL, was appointed director of the Company at the closing of the share exchange.She received 400,000 shares of common stock and 320,000 shares of Series E Preferred Stock in the share exchange. Mrs . Foster resigned as a director on February 24, 2015.

On February 19, 2015, the Company sold to Frost Gamma Investments Trust, a holder of 5% or more of its securities, an aggregate of 450,000 units of its securities, with 15,000 units consisting of 40 shares of common stock per unit and 435,000 units consisting of 4 shares of shares of its Series C Preferred Stock per unit at a purchase price of $2.00 per Unit for gross proceeds to the Company of $900,000.

On February 19, 2015, the Company issued 175,000 shares of common stock to MJI Resources Corp., an entity controlled by former officer and director Daniel Bleak, in full satisfaction of all outstanding debts pursuant to a settlement agreement. Mr. Bleak resigned from all officer and director positions with us in 2014. Up to 5,000 of the shares may be sold per day and the Company had a six month option to repurchase these shares at a purchase price of $0.75 per share.

December 2015 Transactions

On December 28, 2015, the Company entered into agreements with Michael Brauser, Sandor Capital Master Fund LP, Intracoastal Capital LLC and an affiliate of Barry Honig, each holders of 5% of our voting securities, for the purchase of preferred stock related to the issuance and sale of $550,000 of shares of Series F Preferred Stock at a purchase price of $0.50 per share. Also on December 28, 2015, the Company entered into separate note purchase agreements with Michael Brauser, Intracoastal Capital LLC and the Honig affiliate relating to the issuance and sale of an aggregate of $605,000 in principal amount of original issue discount convertible notes (the “Notes”) for an aggregate purchase price of $550,000. The terms of the shares of Series F Preferred Stock (the “Preferred F Shares”) are set forth in the Certificate of Designation of Series F Preferred Stock (the “Series F COD”) filed with the Secretary of State of the State of Nevada. The Preferred F Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred F Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred F Shares.Each Preferred F Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred F Share entitles the holder to cast one vote per share of Series F Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation.Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance.

The Notes were to mature on December 28, 2017. The Company was to repay 1/24th of the principal of the Notes each month commencing January 18, 2016. The Notes did not bear interest except that all overdue and unpaid principal bears interest at a rate equal to the lesser of 18% per year or the maximum rate permitted by applicable law. The Notes were to be convertible into common stock at the option of the holder at a conversion price of $1.00, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events; provided however, that the principal and interest, if any, on the Notes may not be converted to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Notes. $350,000 of the proceeds from the sale of Preferred F Shares and the Notes are intended to be utilized for public relations and expenses associated with publications, reports and communications with shareholders and others concerning the company’s business. The subscription agreement provides the purchasers of the Preferred F Shares with a 100% right of participation in all future securities offerings of the Company, subject to customary exceptions.

The breakdown of the investments is below:

Investor Shares of
Series F
Preferred
Stock
  Purchase
Price Paid
for Series F
Preferred
Stock
  Purchase
Price Paid
for the Notes
  Principal
Amount of
Notes
 
GRQ Consultants, Inc. 401K  116,666  $58,333  $108,334  $119,167 
Intracoastal  666,666  $333,333  $333,333  $366,666 
Michael Brauser  116,666  $58,333  $108,334  $119,167 
Sandor  200,000  $100,000  $-  $- 
Total  1,099,998  $549,999  $550,001  $605,001 

On May 17, 2016, the Company entered into exchange agreements with holders of the Company’s outstanding $504,168 of Notes pursuant to which the Notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Preferred Stock.

The terms of the shares of Series G Preferred Stock (the “Preferred G Shares”) are set forth in the Certificate of Designation of Series G Preferred Stock (the “Series G COD”) filed with the Secretary of State of the State of Nevada. The Series G COD authorizes 10,090,000 Preferred G Shares. The Preferred G Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares.Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation.Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price prior to December 28, 2016, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred G Shares with a conversion price equal to the lower price issuance.

On October 28, 2016, the Company entered into separate subscription agreements with Barry Honig, Michael Brauser and Frost Gamma Investments Trust relating to the issuance and sale of $350,000, out of a maximum of $800,000, of shares of Series H Preferred Stock at a purchase price of $4.00 per share (the “Series H Offering”).

The terms of the Series H Preferred Stock are set forth in the Certificate of Designation of Series H Preferred Stock (the “Series H COD”) filed with the Secretary of State of the State of Nevada. The Series H Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series H Preferred Stock divided by the conversion price. The stated value of each Series H Preferred Stock is $4.00 and the initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H COD. The Company is prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock.Each Series H Preferred Stockentitles the holder to cast one vote per share of Series H Preferred Stockowned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

In order to conduct the Series H Offering, the Company has solicited the consent of certain shareholders, as required under the agreements entered into by the Company during prior offerings, whereby such shareholders were granted certain notification, consent and anti-dilution rights (“Prior Offerings”). Certain shareholders have waived their right to adjustment, equal treatment, most favored nations and other rights to which they were entitled pursuant to the Prior Offerings, including without limitation, certain rights granted to holders of our Series C Preferred Stock, Series F Preferred Stock and G Preferred Stock. However, the Company is required to issue to certain prior investors an aggregate of 550,000 shares of Series C Preferred Stock, which is convertible into an aggregate of 5,500,000 shares of the Company’s common stock. These investors are: Frost Gamma Investments Trust, ADH Capital Ventures LLC and JSL Kids Partners LLC, an affiliate of Sandor Capital Master Fund LP.

Further, in order to proceed with the Series H Offering, the Company had agreed to issue additional shares of Series F Preferred Stock and Series G Preferred Stock to Intracoastal Capital LLC and Sandor Capital Master Fund LP. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series G Preferred Stock, the Company agreed, pursuant to that certain Series I Issuance Agreement, to create a new series of preferred stock, to be designated as “Series I Preferred Stock” and will issue to such holders of Series F Preferred Stock and Series G Preferred Stock an aggregate of 114,944 shares of Series I Preferred Stock, each of which shall be convertible into one hundred (100) shares of the Company’s common stock. Intracoastal Capital LLC was issued 91,944 shares of Series I and Sandor Master Capital Fund LP was issued 23,000 shares of Series I Preferred Stock. The terms of the Series I Preferred Stock are set forth in the Certificate of Designation of Series I Preferred Stock filed with the Secretary of State of the State of Nevada.

On May 31, 2017, the Company entered into separate subscription agreements (the “Subscription Agreements”) with accredited investors relating to the issuance and sale of $546,694 of shares of Series J convertible preferred stock (the “Series J Preferred Stock”) at a purchase price of $10.00 per share (the “Series J Offering”). The subscribers in the Series J Offering included, among others, Frost Gamma Investments Trust, Michael Brauser, as Trustee of the Grander Holdings, Inc. 401K Profit Sharing Plan, and Barry Honig as Trustee of the GRQ Consultants Inc. 401K. The terms of the Series J Preferred Stock are set forth in the Certificate of Designation of Series J Convertible Preferred Stock (the “Series J COD”) filed with the Secretary of State of the State of Nevada on May 31, 2017. The Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J COD. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

In connection with the Series J Offering, the Company obtained the consent of certain shareholders, as required under the agreements entered into by the Company and issued shares pursuant to applicable anti-dilution obligations. The Company was required to issue to certain prior investors of Series G Convertible Preferred Stock (the “Series G Preferred Stock”) additional shares of Series G Preferred Stock, which would be convertible into an aggregate of 38,805,668 shares of the Company’s common stock. However, in lieu of issuing such additional shares of Series G Preferred Stock, the Company created a new series of preferred stock, designated as “Series K Preferred Stock” and issued to such holders of Series G Preferred Stock an aggregate of 388,057 shares of Series K Preferred Stock, each of which shall be convertible into 100 shares of the Company’s common stock.

In addition, in order to proceed with the Series J Offering, the Company agreed to issue additional shares of Series F Convertible Preferred Stock (the “Series F Preferred Stock”) and Series H Convertible Preferred Stock (the “Series H Preferred Stock”) to certain prior investors. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series H Preferred Stock, the Company issued to such holders of Series F Preferred Stock and Series H Preferred Stock an aggregate of 701,832 shares of Series K Preferred Stock, each of which shall be convertible into 100 shares of the Company’s common stock, or 70,183,243 shares.

In addition, certain creditors of the Company are also entitled to anti-dilution protection from issuances and as a result such creditors were, at the closing of the Series J Offering, issued an aggregate of 76,762 shares of Series K Preferred Stock convertible into 7,676,241 shares of common stock in full satisfaction of payments owed to them. The shareholders issued Series K Preferred Stock included, among others, Michael Brauser, Frost Gamma Investments Trust, Michael Brauser, as Trustee of the Grander Holdings, Inc. 401K Profit Sharing Plan, Barry Honig as Trustee of the GRQ Consultants Inc. 401K, and Sandor Capital Master Fund.

The terms of the Series K Preferred Stock are set forth in the Certificate of Designation of Series K Convertible Preferred Stock (the “Series K COD”) filed with the Secretary of State of the State of Nevada on May 31, 2017.

Also on May 31, 2017, the Company issued5,000,000 options to David Phipps, its Chief Executive Officer and a director, 3,750,000 options to Theresa Carlise, its Chief Financial Officer, 1,250,000 options to Hector Delgado, a director and 20,000,000 options to certain employees of the Company. The employees are adult children of our Chief Executive Officer. All of the options are fully vested, have an exercise price of $0.0l per share and a term of 10 years.

DESCRIPTION OF SECURITIES

 

We have authorized capital stock consisting of 750,000,00050,000,000 shares of common stock and 50,000,0003,333,333 shares of preferred stock. On March 8, 2018, FINRA approved a reverse split of 1 for 150 as well as, effective and approved by FINRA on August 19, 2019, a reverse split of our common stock at a ratio of 1 for 15. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.

 

Common Stock

 

The holders of common stock are entitled to one vote per share. Our certificate of incorporation does not provide for cumulative voting. The holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the Board of Directors and issued in the future.

 

Preferred Stock

 

The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Board of Directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. At July 20 , 2017:

20,000 shares of preferred stock were designated as Series A Preferred Stock, of which no shares were issued and outstanding;
30,000 shares of preferred stock were designated as Series B Preferred Stock, of which 6,666 shares were issued and outstanding;
4,000,000 shares of preferred stock were designated as Series C Preferred Stock, of which 3,540,365 shares were issued and outstanding;
5,000,000 shares of preferred stock were designated as Series D Preferred Stock, of which 3,008,984 shares were issued and outstanding;
8,746,000 shares of preferred stock were designated as Series E Preferred Stock, of which 7,202,877 shares were issued and outstanding.
1,100,000 shares of preferred stock were designated as Series F Preferred Stock, of which 1,099,998 shares were issued and outstanding;
10,090,000 shares of preferred stock were designated as Series G Preferred Stock, of which 10,083,351shares were issued and outstanding;
200,000 shares of preferred stock were designated as Series H Preferred Stock, of which 87,500 shares were issued and outstanding; and
114,944 shares of preferred stock were designated as Series I Preferred Stock, of which 92,944 shares were issued and outstanding.
125,000 shares of preferred stock were designated as Series J Preferred Stock, of which 54,669 shares were issued and outstanding.
1,250,000 shares of preferred stock were designated as Series K Preferred Stock, of which 1,166,652 shares were issued and outstanding.

Series A Preferred Stock

 

On March 28, 2014, in connection with our merger with and into our former subsidiary Great West Resources, Inc., each issued and outstanding share of our Series A Preferred Stock, par value $0.0001 per share, was converted into 1/150th shares of Series A Preferred Stock, par value $0.0001 per share, for a total of 20,000 issued and outstanding shares of Series A Preferred Stock.Pursuant to the Series A Certificate of Designation, the Company designated 20,000 shares of its blank check preferred stock as Series A Preferred Stock.Each share of Series A Preferred Stock is convertible into one share each of our common stock, subject to equitable adjustments after such events as stock dividends, stock splits or fundamental corporate transactions. In the event of a liquidation, dissolution or winding up of our business, the holder of the Series A Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series A Preferred Stock’s preferential payment and over our common stock.The Company is prohibited from effecting the conversion of the Series A PreferredStockto the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series A Preferred Stock. Notwithstanding such beneficial ownership limitation,the holders of our Series A Preferred Stock are entitled to 250 votes for each share of Series A Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited. As of July 20 , 2017, there were no shares of Series A Preferred Stock issued and outstanding.

Series B Preferred StockOptions

 

On March 28, 2014, in connection with our merger with and into our former subsidiary Great West Resources, Inc., each issued and outstanding share of our Series D Preferred Stock, par value $0.0001 per share, was converted into 1/150th shares of Series B Preferred Stock, par value $0.0001 per share, for a total of 6,666 issued and outstanding shares of Series B Preferred Stock.Pursuant to the Series B Certificate of Designation, the Company designated 30,000 shares of its blank check preferred stock as Series B Preferred. Each share of Series B Preferred has a stated value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series B Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series B Preferred Stock’s preferential payment and over our common stock. The Series B Preferred Stock is convertible into five (5) shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series B Preferred to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series B Preferred Stock. Each share of Series B Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series B Preferred Stock entitles the holder to cast one vote per share of Series B Preferred Stock owned at the time of such vote, which vote is not subject to the 9.99% beneficial ownership limitation.As of July 20 , 2017, there were 6,666 shares of Series B Preferred Stock issued and outstanding convertible into up to 33,330 shares of common stock without regard to the beneficial ownership limitation.

Series C Preferred Stock

On October 10, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series C Preferred Stock, setting forth the rights, powers, and preferences of the Series C Preferred Stock.Pursuant to the Series C Certificate of Designation, as amended on February 19, 2015, the Company designated 4,000,000 shares of its blank check preferred stock as Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series C Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series C Preferred Stock’s preferential payment and over our common stock. The Series C Preferred is convertible into 10 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series C Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series C Preferred. Each share of Series C Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series C Preferred entitles the holder to cast 10 votes per share of Series C Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.As of July 21 , 2017, there were 3,540,365 shares of Series C Preferred Stock issued and outstanding convertible into up to 35,403,650 shares of common stock without regard to the beneficial ownership limitation.

Series D Preferred Stock

On October 15, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series D Preferred Stock, setting forth the rights, powers, and preferences of the Series D Preferred Stock.Pursuant to the Series D Certificate of Designation, the Company designated 5,000,000 shares of its blank check preferred stock as Series D PreferredStock. Each share of Series D PreferredStockhas a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series D Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series D Preferred Stock’s preferential payment and over our common stock. The Series D Preferred is convertible into 20 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series D Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Preferred Stock. Each share of Series D Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series D Preferred Stock entitles the holder to cast 20 votes per share of Series D Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.As of July 20 , 2017, there were 3,008,984 shares of Series D Preferred Stock issued and outstanding convertible into up to 60,179,680 shares of common stock without regard to the beneficial ownership limitation.

Series E Preferred Stock

On February 19, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series E Preferred Stock, setting forth the rights, powers, and preferences of the Series E Preferred Stock.Pursuant to theSeries ECertificate of Designation, the Company designated8,746,000shares of its blank check preferred stock as Series E PreferredStock. Each share of Series E PreferredStockhas a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company,the holder of the Series E Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series E Preferred Stock’s preferential payment and over our common stock. The Series E Preferred is convertible into 10 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series E Preferred Stock. Each share of Series E Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series E Preferred Stock entitles the holder to cast 10 votes per share of Series E Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.As of July 20 , 2017, there were 7,202,877 shares of Series E Preferred Stock issued and outstanding convertible into up to 72,028,770 shares of common stock without regard to the beneficial ownership limitation.

Series F Preferred Stock

On December 28, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series F Preferred Stock, setting forth the rights, powers, and preferences of the Series F Preferred Stock.Pursuant to theSeries FCertificate of Designation, the Company designated1,100,000shares of its blank check preferred stock as Series F PreferredStock (the “Preferred F Shares”), which are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred F Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred F Shares.Each Preferred F Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred F Share entitles the holder to cast one vote per share of Series F Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation.Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from December 28, 2017, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance.As of July 20, 2017, there were 1,099,998 shares of Series F Preferred Stock issued and outstanding convertible into up to 1,099,998 shares of common stock without regard to the beneficial ownership limitation.

Series G Preferred Stock

On May 17, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series G Preferred Stock, setting forth the rights, powers, and preferences of the Series G Preferred Stock.Pursuant to theSeries GCertificate of Designation, the Company designated10,090,000shares of its blank check preferred stock as Series G PreferredStock (the “Preferred G Shares”), which are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares.Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation.As of July 20 , 2017, there were 10,083,351 shares of Series G Preferred Stock issued and outstanding convertible into up to 10,083,351 shares of common stock without regard to the beneficial ownership limitation.

Series H Preferred Stock

On October 13, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series H Preferred Stock, setting forth the rights, powers, and preferences of the Series H Preferred Stock.Pursuant to theSeries HCertificate of Designation, the Company designated200,000shares of its blank check preferred stock as Series H PreferredStock (the “Preferred H Shares”), which are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series H Preferred Stock divided by the conversion price. The stated value of each Series H Preferred Stock is $4.00 and the initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H Certificate of Designation. The Company is prohibited from effecting a conversion of the Series H Preferred Shares to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock.EachPreferred H Shareentitles the holder to cast one vote per share of Series H Preferred Stockowned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.As of July 20 , 2017, there were 87,500 shares of Series H Preferred Stock issued and outstanding convertible into up to 8,750,000 shares of common stock without regard to the beneficial ownership limitation.

Series I Preferred Stock

On October 13, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series I Preferred Stock, setting forth the rights, powers, and preferences of the Series I Preferred Stock.Pursuant to theSeries ICertificate of Designation, the Company designated114,944shares of its blank check preferred stock as Series I PreferredStock (the “Preferred I  Shares”), each of which is convertible into 100 shares of common stock. The stated value of each Series I Preferred Stock is $0.25. The Company is prohibited from effecting a conversion of the Series I Preferred Shares to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series I Preferred Stock.Each Preferred I  Shareentitles the holder to cast one vote per share of Series I Preferred Stockowned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.As of July 20 , 2017, there were 92,944 shares of Series I Preferred Stock issued and outstanding convertible into up to 9,294,400 shares of common stock without regard to the beneficial ownership limitation.

Series J Preferred Stock

On May 31, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series J Preferred Stock, setting forth the rights, powers, and preferences of the Series J Preferred Stock.Pursuant to theSeries JCertificate of Designation, the Company designated125,000shares of its blank check preferred stock as Series J PreferredStock (the “Preferred J Shares”), each of which are convertible into shares of common stock based on a conversion calculation equal to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each share of Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J COD. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. As of July 20, 2017 , there were 54,669 shares of Series J Preferred Stock issued and outstanding convertible into up to 54,669,000 shares of common stock without regard to the beneficial ownership limitation.

Series K Preferred Stock

On May 31, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series K Preferred Stock, setting forth the rights, powers, and preferences of the Series K Preferred Stock.Pursuant to theSeries KCertificate of Designation, the Company designated1,250,000shares of its blank check preferred stock as Series K PreferredStock (the “Preferred K Shares”), each of which are convertible into 100 shares of common stock. The Company is prohibited from effecting a conversion of the Series K Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series K Preferred Stock. Each Series K Preferred Stock entitles the holder to cast one vote per share of Series K Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. As of July 20, 2017, there were 1,166,652 shares of Series K Preferred Stock issued and outstanding convertible into up to 116,665,152 shares of common stock without regard to the beneficial ownership limitation.

Options

The maximum number of shares of common stock that may be delivered pursuant to awards granted to eligible persons under the Company’s 2014 Equity2018 Incentive Plan may not exceed 226,66766,667 shares of common stock, subject to certain adjustments. As of July 20, 2017,January 10, 2020, the Company has issued ten yearnet options to purchase an aggregate of 42,850,00020,000 shares of common stock under the 2018 Incentive Plan, at a weighted average exercise price of $4.25 per share. As of January 10, 2020, the Company has also issued ten-year options to purchase an aggregate of 19,044 shares of common stock outside of its 2014 Equity Incentive Plan. Theany equity incentive plan. These options have a weighted average exercise price of $0.01$28.49 per share.

Warrants

 

As of July 20, 2017,January 10, 2020, the Company has no issued and outstanding warrants. Previously, the company had recordedten-year warrants to purchase an aggregate of 5,0004,000 shares of common stock, at an exercise price of $4.50. The warrants expired on $60.00.

May 9, 20172019 Convertible Promissory Notes; Registration and Pre-emptive Rights

 

Other Convertible SecuritiesOn May 13, 2019, we completed a private placement of convertible promissory notes (“Notes”) for an aggregate principal amount of $805,000. Specifically, we entered into a Note Purchase Agreement (the “NPA”) by and among the Company and the lenders set forth on the lender schedule to the NPA (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. Pursuant to the NPA, the Company issued sold an aggregate principal amount of $650,000 of its convertible promissory notes. Pursuant to the Amendment, the Company reserved the right to issue and issued an additional 20% of the $650,000 principal amount of its convertible promissory notes or $130,000 of its convertible promissory notes. In total, pursuant to the Agreement, the Company issued an aggregate principal amount of $805,000 of 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 (“Common Stock”). 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, 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 sales of the Notes were used to repay certain outstanding indebtedness of the Company and for general corporate purposes.

 

AsThe holders of July 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 2017, other than the securities described above,contemplated by the Company does not have anyat 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 convertible securities.

immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion.

 

Other Convertible SecuritiesThe 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.

 

AsPursuant to the Agreement, as amended, the Holders are granted demand registration rights and pre-emptive rights as set forth in the Agreement. If on a one-time basis after conversion of July 20 , 2017, other than the securities described above,aggregate principal balance of Notes exceeding the lesser of (i) one-half of the aggregate principal amounts of all Notes sold by the Company does not haveas of the termination of the offering of Notes hereunder, or (ii) $325,000, in either case, into shares of Registrable Securities, and provided that such persons hold such Registrable Securities, holders of at least such applicable representative number of shares of Registrable Securities request the registration of shares of Registrable Securities (“Demand Registration”), the Company is required to use commercially reasonable efforts to effect the registration under the Securities Act, within three (3) months of filing an appropriate registration statement (the “Registration Statement”), of all such shares of Registrable Securities which such holders request in writing to be so registered, and in a manner as nearly as commercially possible corresponding to the methods of distribution described in such holders’ request. The Company is required to keep effective and maintain any outstanding convertible securities.

Rightssuch registration or qualification for a period of Certain Holders of Our Securities

For a periodat least one (1) year after the effective date thereof; provided that it may withdraw such Registration Statement before the expiration of one (1) yearfrom period if all of the shares of the Common Stock subject to the Registration Statement have been resold. In addition, for so long as the Holders continue to hold any of (i) the applicable Notes, or (ii) any shares of Common Stock issued to such Lender upon conversion of the Note, if the Company proposes to offer or sell any new securities for one year following the effective date of subscription, holdersthe Agreement, the Company is required to first offer such new securities to the Holders and each Holder will have the right to acquire its pro rata portion of the Company’s Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock and Preferred Series J Preferred Stock have post offeringnew securities.

The Agreement includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants prohibitingthereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon theCompanyto issue any or becomesubjectto anyindebtednessgreater than $250,000, exceptfor ordinary trade payables withoutthe written consent occurrence ofPurchasersthenholding more than 50% an Event of Default, a majority of the Shares (the "Required Majority")andtheCompany shall not issue any equity securities withoutHolders may accelerate theconsent maturity oftheRequired Majority. Indebtedness.

 

Indemnification of Directors and Officers

 

Neither our articles of incorporation nor bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statutes (“NRS”). NRS Section 78.7502, provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

 

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Our charter provides that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification. We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

Our bylaws provide that a director or officer of the Company shall have no personal liability to the Company or its stockholders for damages for breach of fiduciary duty as a director or officer, except for damages for breach of fiduciary duty resulting from (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law, or (b) the payment of dividends in violation of section 78.3900 of the NRS as it may from time to time be amended or any successor provision thereto.

 

Listing

 

Our common stock is quoted on the OTCQB marketplace under the symbol “TRKK.“OSAT.”. The closing price of our common stock on July 20, 2017January 10, 2020 was $0.02$2.95 per share. We will apply to list our common stock on The NASDAQ Capital Market, under the symbol “             ,” although there is no guarantee that our application will be approved.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock and preferred stock is Equity Stock Transfer. Its address is 237 West 37th Street, Suite 601, New York, NY 10018 and its telephone number is (212) 575-5757.

UNDERWRITINGPLAN OF DISTRIBUTION

 

We have entered into an underwriting agreement with ViewTrade Securities, Inc. to act as representative for the underwriters named below. Subject to the terms and conditionsEach selling stockholder (the “Selling Stockholders”) of the underwriting agreement, the underwriters named below have agreedsecurities and any of their pledgees, assignees and successors-in-interest may, from time to purchase, and we have agreed totime, sell to them, the numberany or all of our common shares at the public offering price, less the underwriting discounts and commissions, as set forththeir securities covered hereby on the cover pageprincipal trading market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of this prospectus and as indicated below:

the following methods when selling securities:

 

Underwriter Number of
Shares
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
ViewTrade Securities, Inc.
Total   
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
settlement of short sales;
in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
a combination of any such methods of sale; or
any other method permitted pursuant to applicable law.

 

The underwriting agreement provides thatSelling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the obligationsSecurities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the underwriters to pay for and accept deliverysecurities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the sharessecurities in the course of hedging the common sharespositions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are subjectinvolved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

We are required to pay certain fees and expenses incurred by us incident to the approval of certain legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for allregistration of the common shares offered by this prospectus if any such shares are taken.  However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares described below.

securities. We have agreed to indemnify the underwritersSelling Stockholders against specifiedcertain losses, claims, damages and liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

Option to Purchase Additional Shares

We have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to               additional common shares at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional common shares as the number listed next to the underwriter’s name in the preceding table bears to the total number of common shares listed next to the names of all underwriters in the preceding table.

Discounts and Commissions

The underwriters will initially offer the shares to be sold in this offering directly to the public at the public offering price set forth on the cover of this prospectus and to selected dealers at the public offering price less a selling concession not in excess of $         per share. After the offering, the underwriters may change the offering price and other selling terms. No change in those terms will change the amount of proceeds to be received by us as set forth on the cover of this prospectus.

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us.  These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional                common shares.

Total
Per ShareNo ExerciseFull Exercise
Public offering price
Underwriting discounts and commissions(1)(2)
Proceeds, before expenses

(1)Does not include (i) the warrant to purchase shares of our common stock equal to 8% of the number of shares sold in the offering, (ii) a 1% non-accountable expense allowance or (iii) certain out-of-pocket expenses, each as described below. 
(2)The underwriting discount of      % per share is subject to reduction to      % per share with respect to shares sold in this offering to our existing stockholders, as set forth in the underwriting agreement.

We will also pay to the underwriters by deduction from the net proceeds of the offering contemplated herein a non-accountable expense allowance equal to 1% of the gross proceeds from the offering. In addition, we have agreed to pay up to $100,000 of the legal fees of underwriters’ counsel and up to an additional $37,500 for certain costs and expenses incurred by the underwriters in connection with the offering, as provided in the underwriting agreement.Act.

 

We estimate thatagreed to keep this prospectus effective until the total expensesearlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the offering payable by us, excludingsecurities have been sold pursuant to this prospectus or Rule 144 under the underwriting discounts and commissions and non-accountable expense allowance,Securities Act or any other rule of similar effect. The resale securities will be approximately $                 ..sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Representative’s Warrants

We have agreed to issue warrants toUnder applicable rules and regulations under the representative to purchase a number of shares of common stock equal to 8%Exchange Act, any person engaged in the distribution of the total number of shares soldresale securities may not simultaneously engage in this offering at an exercise price equal to 110% of the public offering price of the shares sold in this offering. These warrants will be exercisable upon issuance, will have a cashless exercise provision and will terminate on the fifth anniversary of the effective date of the registration statement of which this prospectus is a part. The warrants also provide for customary anti-dilution provisions and “piggyback” registration rightsmarket making activities with respect to the registration of the shares of common stock underlyingfor the warrants for aapplicable restricted period, of two years from the date of this prospectus.

The warrants and the underlying shares may be deemed compensation by FINRA, and therefore will be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the underwriter warrants nor any of our shares issued upon exercise of the underwriter warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would resultas defined in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the underwriter warrants are being issued, subject to certain exceptions.

Board Observer

For a period of three years after the date of this prospectus, the representative will have the right to appoint an observer to attend meetings of our Board, subject to certain limitations. We will reimburse this person for his or her reasonable out-of-pocket expenses incurred in attending any meeting, and will pay to him or her the same fees or other compensation paid to our non-employee directors for attendance.

Termination Fee.

In the event we do not complete this offering and enter into discussions regarding a letter of intent or similar agreement, or effect a private and/or public offering of securities, with a broker-dealer or any other person, prior to July 7, 2018, without the consent of the representative, we will be required to pay to the representative its accountable expenses incurred in connection with this offering plus a termination fee equal to $100,000. However, the termination fee will not be payable in the event we enter into a merger, stock exchange, asset acquisition, stock acquisition or other similar business combination and engage the representative as a financial advisor in connection with such transaction.

Pricing of the Offering

Our common stock has been quoted on the electronic marketplace operated by OTC Markets Group, Inc. The public offering price will be determined based on the trading of our shares on the electronic marketplace operated by the OTC Markets Group, Inc. as well as through negotiations between us and the representative. Among the factors considered in determining the public offering price of the shares, in addition to the prevailing market conditions, are our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

Listing

Our common stock is currently quoted on the electronic marketplace operated by OTC Markets Group, Inc. under the symbol “TRKK.” We intend to apply to list our common stock on The NASDAQ Capital Market under the symbol “            .” We cannot guarantee that we will be successful in listing the common stock; however, we will not complete this offering unless we are so listed.

No Sales of Similar Securities

We, our directors, executive officers and principal stockholders will enter into lock-up agreements with the representativeRegulation M, prior to the commencement of this offering pursuantthe distribution. In addition, the Selling Stockholders will be subject to which each of these persons or entities, for a period of 12 months from the effective dateapplicable provisions of the registration statement of which this prospectus is a part, agree not to: (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any common shares or any securities convertible into, exercisable or exchangeable for or that represent the right to receive common shares (including common shares which may be deemed to be beneficially owned by such person in accordance withExchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Securitiescommon stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired; (2) enter into any swap or other agreement that transfers, in whole or in part, anyhave informed them of the economic consequencesneed to deliver a copy of ownershipthis prospectus to each purchaser at or prior to the time of the foregoing securities, whether any such transaction described in clause (1) or (2) above is to be settledsale (including by delivery of common shares or such other securities, in cash or otherwise; (3) make any demand for or exercise any rightcompliance with respect to,Rule 172 under the registration of any common shares or any security convertible into or exercisable or exchangeable for common shares; or (4) publicly disclose the intention to do any of the foregoing.Securities Act).

 

Electronic Offer, Sale and Distribution of Shares

A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of common shares to selling group members for sale to their online brokerage account holders. The common shares to be sold pursuant to Internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.

62

Price Stabilization, Short Positions and Penalty BidsLEGAL MATTERS

 

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common shares. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under option to purchase additional shares. The underwriters can close out a covered short sale by exercising the option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our common shares in this offering because the underwriter repurchases those shares in stabilizing or short covering transactions.

Finally, the underwriters may bid for, and purchase, our common shares in market making transactions, including “passive” market making transactions as described below.

These activities may stabilize or maintain the market price of our common shares at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected in the over-the-counter market or otherwise.

Potential Conflicts of Interest

The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Selling Restrictions

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

The underwriters are expected to make offers and sales both in and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by broker-dealers registered with the SEC.

LEGAL MATTERS

The validity of the securities being offered by this prospectus has been passed upon for us by Schiff Hardin LLP and Laxague Law Inc. Certain legal matters in connection with this offering will be passed upon for the underwriters byK&L Gates, LLP, Miami, Florida.

 

EXPERTS

 

The consolidated financial statements of Orbital TrackingOrbsat Corp. as of December 31, 20162018 and 2015, and for the years ended December 31, 2016 and 20152017, have been included herein in reliance on the report of RBSM LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We are a reporting company and file annual, quarterly and special reports, and other information with the SEC. Copies of the reports and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can request copies of such documents by writing to the SEC and paying a fee for the copying cost. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site athttp://www.sec.govthat contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

This prospectus is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has been omitted from this prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules with the registration statement that are excluded from this prospectus. For further information you may:

 

 read a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s Public Reference Room; or
 obtain a copy from the SEC upon payment of the fees prescribed by the SEC.

 

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The SEC allows us to “incorporate by reference” information from other documents that we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus supersedes information incorporated by reference that we filed with the SEC prior to the date of this prospectus. We incorporate by reference into this prospectus and the registration statement of which this prospectus is a part the information or documents listed below that we have filed with the SEC:

our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 29, 2019;
our Quarterly Reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2019 filed with the SEC on May 15, August 14, and November 14, 2019, respectively;
our Current Reports on Form 8-K filed with the SEC on January 17, May 6, May 15, May 16, May 21, July 23, July 24, August 1, August 13, and August 19, 2019 in each case to the extent the information in such reports is filed and not furnished;

The description of our common stock, par value $0.0001 per share is set forth in our Registration Statement on Form 10SB12G, filed on November 23, 1998, and any amendments thereto.

Additionally, all documents filed by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after (i) the date of the initial registration statement and prior to effectiveness of the registration statement, and (ii) the date of this prospectus and before the termination or completion of any offering hereunder, shall be deemed to be incorporated by reference into this prospectus from the respective dates of filing of such documents, except that we do not incorporate any document or portion of a document that is “furnished” to the SEC, but not deemed “filed.”

We will furnish without charge to you, on written or oral request, a copy of any or all of the documents incorporated by reference in this prospectus, including exhibits to these documents. You should direct any requests for documents to Soliton, Inc., Attn: Corporate Secretary, 18851 N.E. 29th Ave., Suite 700, Aventura, FL 33180.

We do not incorporate the information on our website into this prospectus or any supplement to this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus or any supplement to this prospectus (other than those filings with the SEC that we specifically incorporate by reference into this prospectus or any supplement to this prospectus).

Any statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed modified, superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus modifies, supersedes or replaces such statement.

SharesORBSAT CORP. AND SUBSIDIARIES

Common StockFKA: ORBITAL TRACKING CORP.

INDEX TO CONSOLIDATED FINANCIAL STAEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

Report of Independent Registered Public Accounting FirmF-1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2018 and 2017F-2
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2018 and 2017F-3
Consolidated Statements of Stockholders’ Equity for the two years ended December 31, 2018F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017F-10
Notes to Consolidated Financial StatementsF-11

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2019 (UNAUDITED)

Financial Statements (Unaudited)
Condensed Consolidated Balance SheetsF-39
Condensed Consolidated Statement of OperationsF-40
Condensed Consolidated Statements of Stockholders’ EquityF-41
Condensed Consolidated Statements of Cash FlowsF-53
Notes to Condensed Consolidated Financial StatementsF-54

The following consolidated audited financial statements for the years ended December 31, 2018 and 2017 and the condensed consolidated unaudited financial statements for the three and nine months ended September 30, 2019, have been retroactively adjusted for the following reverse splits as approved by FINRA; our 150:1 reverse split approved on April 21, 2014, our 150:1 reverse split approved on March 8, 2018, and our 15:1 reverse split approved on August 19, 2019.

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Orbsat Corp and Subsidiaries

FKA: Orbital Tracking Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Orbsat Corp and Subsidiaries (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Explanatory Paragraph

As discussed in Note 10 to the consolidated financial statements, Orbsat Corp effectuated a reverse stock split for a ratio of 1 for 15 for the common and preferred stock. Additionally, the number of authorized shares for both classes were reduced in direct proportion to the reverse stock split. Our opinion is not modified with respect to this matter.

Basis for Opinion

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

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

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

/s/ RBSM LLP
We have served as the Company’s auditor since 2014.
Henderson, NV
March 29, 2019 (Except for the effect of reverse stock split discussed in Note 10 to the consolidated financial statements, for which the date is January 16, 2020)

F-1

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED BALANCE SHEETS

  December 31, 
  2018  2017 
ASSETS        
Current Assets        
Cash $142,888  $233,326 
Accounts receivable, net  170,526   294,494 
Inventory  269,024   

332,894

 
Unbilled revenue  87,080   89,515 
Prepaid expenses  1,926   82,454 
Other current assets  43,713   48,213 
Total Current Assets  715,157   1,080,896 
         
Property and equipment, net  1,519,845   1,757,200 
Intangible assets, net  200,000   225,000 
         
Total Assets $2,435,002  $3,063,096 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current Liabilities        
Accounts payable and accrued expenses $874,466  $855,685 
Deferred revenue  19,701   215,989 
Due to related party  39,027   6,998 
Provision for income taxes  10,696   12,461 
Liabilities of discontinued operations  112,397   112,397 
Total Current Liabilities  1,056,287   1,203,530 
         
Total Liabilities  1,056,287   1,203,530 
         
Stockholders’ Equity        
Preferred stock, $0.0001 par value; 3,333,333 shares authorized        
Series A ($0.0001 par value; 1,333 shares authorized, no shares issued and none outstanding as of December 31, 2018, and 2017)  -   - 
Series B ($0.0001 par value; 2,000 shares authorized, 222 and 222 shares issued and outstanding as of December 31, 2018, and 2017, respectively)  -   - 
Series C ($0.0001 par value; 266,667 shares authorized, 127,578 issued and outstanding as of December 31, 2018, and 2017, respectively)  13   13 
Series D ($0.0001 par value; 333,333 shares authorized, 192,807 shares issued and outstanding as of December 31, 2018, and 2017, respectively)  19   19 
Series E ($0.0001 par value; 583,067 shares authorized, 344,947 shares issued and outstanding as of December 31, 2018, and 2017, respectively)  34   34 
Series F ($0.0001 par value; 73,333 shares authorized, 23,333 shares issued and outstanding as of December 31, 2018, and 2017, respectively)  2   2 
Series G ($0.0001 par value; 672,667 shares authorized, 346,840 shares issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  35   35 
Series H ($0.0001 par value; 13,333 shares authorized, 916 shares issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  -   - 
Series I ($0.0001 par value; 7,663 shares authorized, 3,274 issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  -   - 
Series J ($0.0001 par value; 8,333 shares authorized, 4,313 and 2,980 issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  -   - 
Series K ($0.0001 par value; 83,333 shares authorized, 77,124 issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  8   8 
Series L ($0.0001 par value; 6,667 shares authorized, 2,000 and none issued and outstanding as of December 31, 2018, and December 31, 2017, respectively)  -   - 
Common stock, ($0.0001 par value; 50,000,000 shares authorized, 62,435 shares issued and outstanding as of December 31, 2018, and 2017, respectively)  6   6 
Additional paid-in capital  11,120,192   10,400,564 
Accumulated deficit  (9,735,419)  (8,540,713)
Accumulated other comprehensive loss  (6,175)  

(402

)
Total Stockholders’ Equity  1,378,715   1,859,566 
         
Total Liabilities and Stockholders’ Equity $2,435,002  $

3,063,096

 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

  For the Years Ended
December 31,
 
  2018  2017 
       
Net sales $5,726,572  $6,004,955 
Cost of sales  4,691,748   4,854,216 
         
Gross profit  1,034,824   1,150,739 
         
Operating Expenses        
Selling, general and administrative  664,819   583,898 
Salaries, wages and payroll taxes  741,584   688,589 
Stock-based compensation  219,518   600,000 
Professional fees  249,675   551,470 
Depreciation and amortization  288,864   284,386 
Total Operating Expenses  2,164,460   2,708,343 
         
Loss from Operations  (1,129,636)  (1,577,604)
         
Other Expense        
Interest expense  110   831 
Foreign currency exchange rate variance  56,426   49,669 
Change in fair value of derivative instruments, net  -   (1,237)
Other expense  -   2,308,981 
Total Other Expense  56,536   2,358,244 
         
Loss before provision for income taxes  (1,186,172)  (3,915,848)
         
Provision for income taxes  8,534   23,459 
         
Net loss  (1,194,706)  (3,939,307)
         
Comprehensive loss:        
Net loss  (1,194,706)  (3,939,307)
Foreign currency translation adjustments  (5,773)  32,541 
Comprehensive loss available to common stockholders $(1,200,479) $(3,906,766)
         
Net loss Per Share – Basic & Diluted $(19.14) $(122.46)
Weighted average common shares outstanding        
Basic & Diluted  62,435   32,169 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  

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 January 1, 2017          444   -   236,024   24 
                         
Preferred stock conversions to common  -   -   (222)  -   (108,446)  (11)
Stock-based compensation in connection with options granted  -   -   -   -   -   - 
Common stock issued for accounts payable  -   -   -   -   -   - 
Sale of Series J Preferred Stock  -   -   -   -   -   - 
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers  -   -   -   -         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss     -         -   -            -   -            - 
                         
Balance, December 31, 2017  -  $-   222  $-   127,578  $13 
                         
Sale of Preferred stock Series J  -   -   -   -   -   - 
Sale of Preferred stock Series L  -   -   -   -   -   - 
Stock based compensation for options granted  -   -   -   -   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive income (loss)  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, December 31, 2018  -  $-   222  $-   127,578  $13 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  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 January 1, 2017  228,599   23   528,643   52   73,333   7 
                         
Preferred stock conversions to common  (35,792)         (4)  (183,697)      (18)  (50,000)          (5)
Stock-based compensation in connection with options granted  -   -   -   -   -   - 
Common stock issued for accounts payable  -   -   -   -   -   - 
Sale of Series J Preferred Stock  -   -   -   -   -   - 
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers  -   -   -   -   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, December 31, 2017  192,807  $19   344,947  $34   23,333  $2 
                         
Sale of Preferred stock Series J  -   -   -   -   -   - 
Sale of Preferred stock Series L  -   -   -   -   -   - 
Stock based compensation for options granted  -   -   -   -   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive income (loss)  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, December 31, 2018  192,807  $19   344,947  $34   23,333  $2 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  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 January 1, 2017  672,223   67   5,833   -   6,196   - 
                         
Preferred stock conversions to common  (325,383)       (32)  (4,917)  -  (2,922)  -
Stock-based compensation in connection with options granted                                  
Common stock issued for accounts payable                        
Sale of Series J Preferred Stock                        
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers                        
Imputed interest expense related to related party note payable issued for recapitalization                        
Comprehensive loss                        
Net loss                        
                         
Balance, December 31, 2017  346,840  $35   916  $-   3,274  $- 
                         
Sale of Preferred stock Series J  -   -   -   -   -   - 
Sale of Preferred stock Series L  -   -   -   -   -   - 
Stock based compensation for options granted  -   -   -   -   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive income (loss)  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, December 31, 2018  346,840  $35   916  $-   3,274  $- 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  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 January 1, 2017  -   -   -   -   -   - 
                         
Preferred stock conversions to common  (665)  -   (652)  -   -    - 
Sale of Preferred stock Series J  3,333   -   -   -         
Stock-based compensation in connection with options granted  -   -   -   -   -    - 
Common stock issued for accounts payable  311   -   -   -   -    - 
Sale of Series J Preferred Stock  -   -   -   -   -    - 
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers  -   -   77,777   8   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -         
Net loss  -   -   -   -   -   - 
                         
Balance, December 31, 2017  2,980  $-   77,124  $8   -   - 
                         
Sale of Preferred stock Series J  1,333   -   -   -   -   - 
Sale of Preferred stock Series L  -   -           2,000   - 
Stock based compensation for options granted  -   -   -   -   -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   -                 
Comprehensive income (loss)  -   -   -   -   -   - 
Net loss  -   -   -   -         
                         
Balance, December 31, 2018  4,313  $        -   77,124  $      8   2,000  $       - 

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  Common Stock 
  $0.0001 Par Value 
  Shares  Amount 
Balance January 1, 2017  25,583   2 
         
Preferred stock conversions to common  36,851   4 
Stock-based compensation in connection with options granted  -   - 
Common stock issued for accounts payable        
Sale of Series J Preferred Stock  -   - 
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers  -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   - 
Comprehensive loss  -   - 
Net loss  -          - 
         
Balance, December 31, 2017  62,435  $6 
         
Sale of Preferred stock Series J        
Sale of Preferred stock Series L  -   - 
Stock based compensation for options granted  -   - 
Imputed interest expense related to related party note payable issued for recapitalization  -   - 
Comprehensive income (loss)  -   - 
Net loss  -   - 
Sale of Preferred stock Series J  -   - 
Sale of Preferred stock Series L  -   - 
         
Balance, December 31, 2018  62,435  $6 

See accompanying notes to consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2018

  Additional  Accumulated  Comprehensive  Stockholders’ 
  Paid in Capital  Deficit  Income (Loss)  Equity 
             
Balance January 1, 2017 $

6,944,000

  $(4,601,406) $(32,941) $2,309,828 
                 
Preferred stock conversions to common  

66

           - 
Stock-based compensation in connection with options granted  600,000           600,000 
Common stock issued for accounts payable  46,694           46,694 
Sale of Series J Preferred Stock  

500,000

           500,000 
Preferred stock issued due to antidilution clauses of the Preferred Series C, F and G Subscribers  2,308,973           2,308,981 
Imputed interest expense related to related party note payable issued for recapitalization  831           831 
Comprehensive loss  -       32,539   32,539 
Net loss  -   (3,939,307)      (3,939,309)
                 
Balance, December 31, 2017 $10,400,564   (8,540,713)  (402)  1,859,566 
                 
Sale of Preferred stock Series J  200,000           200,000 
Sale of Preferred stock Series L  300,000           300,000 
Stock based compensation for options granted  219,518           219,518 
Imputed interest expense related to related party note payable issued for recapitalization  110           110 
Comprehensive income (loss)  -       (5,773)  (5,772)
Net loss  -   (1,194,706)      (1,194,706)
                
Balance, December 31, 2018 $11,120,192   (9,735,419)  (6,175)  1,378,715 

See accompanying notes to consolidated financial statements

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

  

For the Years Ended

December 31,

 
  2018  2017 
Cash Flows From Operating Activities:        
Net loss $(1,194,706) $(3,939,307)
Adjustments to reconcile net loss to net cash used in operations        
Imputed interest  110   831 
Amortization of intangible asset  25,000   25,000 
Amortization of prepaid expense in connection with the issuance of common stock issued for prepaid services  -   161,164 
Preferred stock-based price protection expense  -   2,308,981 
Change in fair value of derivative liabilities  -   (1,237)
Depreciation expense  263,864   259,386 
Stock-based compensation  219,518   600,000 
Changes in operating assets and liabilities:        
Accounts receivable  123,968   (197,736)
Inventory  63,870   2,373 
Prepaid expenses  80,528   (72,454)
Unbilled revenue  2,435   (35,171)
Other current assets  4,500   (18,372)
Accounts payable and accrued expenses  18,781   365,473 
Provision for income taxes  (1,765)  12,461 
Deferred revenue  (196,288)  213,365 
Net Cash Used In Operating Activities  (590,185)  (315,243)
         
Cash Flows From Investing Activities:        
Purchase of property and equipment  (30,331)  (33,193)
Net Cash Used In Investing Activities  (30,331)  (33,193)
         
Cash Flows From Financing Activities:        
Proceeds from issuance of preferred stock  500,000   500,000 
Proceeds from (repayments to) related party, net  32,029   (60,455)
Net Cash Provided by Financing Activities  532,030   439,545 
         
Effect of Exchange Rate on Cash  (1,951)  27,484 
         
Net (Decrease) Increase in Cash  (90,438)  118,593 
         
Cash at Beginning of Year  233,326   114,733 
Cash at End of Year $142,888  $233,326 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for interest $-  $- 
Cash paid for taxes $5,099  $6,413 
         
Non-Cash Financing and Investing Activity        
Issuance of preferred stock for price protection expense $-  $2,308,981 
Issuance of common stock for prepaid services $-  $100,000 
Issuance of common and preferred stock for accounts payable $-  $46,694 

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and 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;

(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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 10 - Stockholders Equity.

On March 8, 2018, our then-outstanding 140,224,577 shares of common stock outstanding were reduced by a reversed split for a ratio of 1 for 150. As of December 31, 2018, we had 936,519 shares of common stock issued and outstanding post-split. The number of authorized shares of our common stock will not be reduced by the reverse stock split. On August 19, 2019, we effectuated a reverse split for a ratio of 1 for 15, for our common stock and preferred stock, as well as the number of authorized shares for both classes were reduced in direct proportion to our to the reverse split. As of December 31, 2018 and 2017, we had 62,435 shares issued and outstanding post-split. Accordingly, the reverse Stock split will have the effect of creating additional unissued and unreserved shares of our common stock. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split. See Note 10 - Stockholders Equity.

Discontinued Operations

The Company’s former operations were developing and manufacturing products and services, which reduce fuel costs, save power and energy and protect the environment. The products and services were made available for sale into markets in the public and private sectors. In December 2009, the Company discontinued these operations and disposed of certain of its subsidiaries, and prior periods have been restated in the Company’s consolidated financial statements and related footnotes to conform to this presentation.

The remaining liabilities for discontinued operations are presented in the consolidated balance sheets under the caption “Liabilities of discontinued operation” and relates to the discontinued operations of developing and manufacturing of energy saving and fuel-efficient products and services. The carrying amounts of the major classes of these liabilities as of December 31, 2018 and 2017 are summarized as follows:

  December 31, 2018  December 31, 2017 
Assets of discontinued operations $-  $- 
Liabilities        
Accounts payables and accrued expenses $(112,397) $(112,397)
Liabilities of discontinued operations $(112,397) $(112,397)

Basis of Presentation and Principles of Consolidation

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries, Orbital Satcom Corp. and Global Telesat Communications Ltd. All material intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, preferred deemed dividend and common stock issued for services.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. 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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable and allowance for doubtful accounts

The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are offset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2018, and 2017, there is an allowance for doubtful accounts of $17,887 and $431, respectively.

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 year ended December 31, 2018 closing rate at 1.274700 US$: GBP, yearly average rate at 1.296229 US$: GBP, for the year ended 2017 closing rate at 1.350291 US$: GBP, average rate at 1.288190 US$: GBP and for the year ended 2016 closing rate at 1.350291 US$: GBP, average rate at 1.288190 US$: GBP and for the year ended 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$: GBP.

Revenue Recognition

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 deferred revenue and once shipped is recognized as revenue. The Company also records as deferred revenue, 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.

Revenue is recognized when all of the following criteria have been met:

Persuasive evidence of an arrangement exists. Contracts and customer purchase orders are generally used to determine the existence of an arrangement.
Delivery has occurred. Shipping documents and customer acceptance, when applicable, are used to verify delivery
The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment
Collectability is reasonably assured. We assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330):Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventory within the scope of this Update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. This guidance has not had a material impact upon our financial condition or results of operations as of December 31, 2018.

Prepaid expenses

Prepaid expenses amounted to $1,926 and $82,454 at December 31, 2018 and 2017, 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.

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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 did not consider it necessary to record any impairment charges during the years ended December 31, 2018 and 2017 respectively.

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 fixtures4
Computer equipment4
Rental equipment4
Appliques10
Website development2

Fair value of financial instruments

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2017 to December 31, 2018:

  Warrant liability 
Balance at January 1, 2017 $1,237 
     
Change in fair value included in earnings  (1,237)
Balance at December 31, 2017  - 
Change in fair value included in earnings  - 
Balance at December 31, 2018 $- 

The Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.

Stock Based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, 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.

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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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. We spent $0 in the fiscal years ending December 31, 2018 and December 31, 2017 on research and development.

Presentation of Financial Statements—Going Concern

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity. For the Company, comprehensive loss for the years ended December 31, 2018 and 2017 included net loss and unrealized losses from foreign currency translation adjustments.

Earnings per Common Share

Net income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

  December 31, 2018  December 31, 2017 
Convertible preferred stock  147,649   133,760 
Stock Options  79,044   19,044 
Stock Warrants  4,000   - 
Total  230,693   152,804 

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.

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. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. The objective of this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalents in the statement of cash flows. For public business entities, this ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update have been be applied retrospectively to all periods presented. The Company adopted this standard on January 1, 2018 and does not have a material impact on the Company’s financial statements.

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 does 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 should be 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. The Company is currently evaluating the requirements of this new guidance and has not yet determined its impact on the Company’s consolidated financial statements.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 22, 2017 the SEC staff 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 Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 withASU 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 is effective for us on January 1, 2019, with early adoption permitted. We expect to adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. 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. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. 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. We do not expect that this standard will have a material effect on our financial statements as the company has not recorded any lease obligations. While we continue to assess all of the effects of adoption, we do not expect a significant change in our leasing activities between now and adoption.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

NOTE 2 - GOING CONCERN CONSIDERATIONS

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At December 31, 2018, the Company had an accumulated deficit of approximately $9,735,419, negative working capital of approximately $341,130 and net loss of approximately $1,194,706 during the year ended December 31, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing. Management intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect. The 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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVENTORIES

At December 31, 2018 and 2017, inventories consisted of the following:

  December 31, 2018  December 31, 2017 
Finished goods $269,024  $332,894 
         
Less reserve for obsolete inventory  -   - 
Total $269,024  $332,894 

For the years ended December 31, 2018 and 2017, the Company did not make any change for reserve for obsolete inventory and deemed unnecessary.

NOTE 4 – PREPAID EXPENSES

Prepaid expenses amounted to $1,926 and $82,454 at December 31, 2018 and 2017, respectively. 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 deferred revenue. The current portion consists of costs paid for future services which will occur within a year.

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

  December 31, 2018  December 31, 2017 
Office furniture and fixtures $76,907  $81,467 
Computer equipment  30,678   29,894 
Rental equipment  66,090   40,298 
Appliques  2,160,096   2,160,096 
Website development  23,061   23,776 
         
Less accumulated depreciation  (836,987)  (578,331)
         
Total $1,519,845  $1,757,200 

Depreciation expense was $263,864 and $259,386 for the years ended December 31, 2018 and 2017, 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.

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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of customer contracts are included in depreciation and amortization. For the year ended December 31, 2018, the Company amortized $25,000. Future amortization of intangible assets is as follows:

2019 $25,000 
2020  25,000 
2021  25,000 
2022  25,000 
2023 and thereafter  50,000 
Total $150,000 

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.

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES

Accounts payable and accrued other liabilities consisted of the following:

  December 31, 2018  December 31, 2017 
Accounts payable $625,157  $659,285 
Rental deposits  22,991   22,303 
Customer deposits payable  37,099   27,790 
Accrued wages & payroll liabilities  14,807   15,902 
Property tax payable  31,955   - 
VAT liability & sales tax payable  47,875   36,537 
Pre-merger accrued other liabilities  65,948   65,948 
Accrued other liabilities  28,634   27,920 
Total $874,466  $855,685 

NOTE 9 – DERIVATIVE LIABILITIES

In June 2008, a FASB approved guidance related to the determination of whether a freestanding equity-linked instrument should be classified as equity or debt under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Stock. The adoption of this requirement will affect accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price (“down-round” provisions). Warrants with such provisions are no longer recorded in equity and are reclassified as a liability.

Instruments with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.

The Company has recognized derivative liabilities for warrants as a result of its recapitalization on February 19, 2015, of $0 and $1,237 at December 31, 2018 and December 31, 2017, respectively. The warrants expired in May of 2017. The gain resulting from the decrease in fair value of this convertible instrument was $0 and $1,237 for the years ended December 31, 2018 and 2017, respectively.

  Warrant
liability
 
Balance at January 1, 2017 $1,237 
     
Change in fair value included in earnings  (1,237)
Balance at December 31, 2017  - 
Change in fair value included in earnings  - 
Balance at December 31, 2018 $- 

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes option pricing model:

December 31, 2018December 31, 2017
Expected volatility-263.35%
Expected term - years-0.35
Risk-free interest rate-1.22%
Expected dividend yield--

NOTE 10 – STOCKHOLDERS’ EQUITY

Capital Structure

On March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reincorporation.

The authorized capital of the Company consists of 50,000,000 shares of common stock, par value $0.0001 per share and 3,333,333 shares of preferred stock, par value $0.0001 per share, as of December 31, 2018. 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 53,333,333 shares consisting of (i) 50,000,000 shares of common stock and (ii) 3,333,333 shares of preferred stock from 14,666,667 shares consisting of (i) 13,333,333 shares of common stock and (ii) 1,333,333 shares of preferred stock.

Effective March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. As well as on August 19, 2019, we further effectuated another reverse split at a ratio of 1 for 15. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.

Preferred Stock

As of December 31, 2018, there were 3,333,333 shares of Preferred Stock authorized. On March 6, 2016, the Company’s shareholders increased the authorized shares of its preferred stock to 3,333,333 from 1,333,333.

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.

Series A Convertible Preferred Stock

On March 28, 2014, in connection with the merger with and into the Company’s former subsidiary Great West Resources, Inc., each issued and outstanding share of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share, was converted into (1/150th)/15 shares of Series A Convertible Preferred Stock, par value $0.0001 per share, for a total of 1,333 issued and outstanding shares of Series A Convertible Preferred Stock. Pursuant to the Series A Certificate of Designation, the Company designated 1,333 shares of its blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into (1/150th)/15 share each of our common stock, subject to equitable adjustments after such events as stock dividends, stock splits or fundamental corporate transactions. The holders of our Series A Convertible Preferred Stock are entitled to 17 votes for each share of Series A Convertible Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken, or any written consent of shareholders is solicited. In the event of a liquidation, dissolution or winding up of our business, the holder of the Series A Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series A Convertible Preferred Stock’s preferential payment and over our common stock.

As of December 31, 2018, and 2017, 1,333 shares of Series A Convertible Preferred Stock, $0.0001 par value were authorized with none issued and outstanding.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series B Convertible Preferred Stock

On March 28, 2014, in connection with the merger with and into the Company’s former subsidiary Great West Resources, Inc., each issued and outstanding share of the Company’s Series D Convertible Preferred Stock, par value $0.0001 per share, was converted into (1/150th)/15 shares of Series B Convertible Preferred Stock, par value $0.0001 per share, for a total of 444 issued and outstanding shares of Series B Convertible Preferred Stock. Pursuant to the Series B Certificate of Designation, the Company designated 2,000 shares of its blank check preferred stock as Series B Convertible Preferred. Each share of Series B Convertible Preferred Stock has a stated value of $0.0001 per share.

In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series B Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series B Convertible Preferred Stock’s preferential payment and over our common stock. The Series B Convertible Preferred Stock is convertible into (5/150th)/15 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series B Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series B Convertible Preferred Stock. Each share of Series B Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series B Convertible Preferred Stock entitles the holder to cast (1/150th)/15 votes per share of Series B Convertible Preferred Stock owned at the time of such vote, subject to the 9.99% beneficial ownership limitation.

As of December 31, 2018 and 2017, 2,000 shares of Series B Convertible Preferred Stock, $0.0001 par value were authorized with 222 issued, outstanding and convertible into 7 shares of common stock, without regard to beneficial ownership limitations.

Series C Convertible Preferred Stock

On October 10, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series C Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series C Convertible Preferred Stock. Pursuant to the Series C Certificate of Designation, as amended on February 19, 2015, the Company designated 266,667 shares of its blank check preferred stock as Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series C Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series C Convertible Preferred Stock’s preferential payment and over our common stock. The Series C Convertible Preferred is convertible into (10/150th)/15 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series C Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series C Convertible Preferred. Each share of Series C Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series C Convertible Preferred entitles the holder to cast (10/150th)/15 votes per share of Series C Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation. On December 5, 2017, pursuant to the approval of our board of directors and a majority of the shareholders in each class, we increased the maximum conversion limit from 4.99% to 9.99%.

On February 19, 2015, the Company filed an amendment to the Certificate of Designation of Rights and Preferences of its Series C Convertible Preferred Stock, increasing the authorized shares of Series C Convertible Preferred Stock to 266,667 from 200,000.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As per the Certificate of Designation, for Convertible Preferred Series C Stock, other than in connection with Excepted Issuances, if at any time during the period beginning on the Closing Date of the Convertible Preferred Series C Stock subscription and ending two (2) years thereafter, the Company shall issue any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at conversion ratio per share which shall be less than (10/150th)/15 or 0.0044 per share, as of February 19, 2015, (the “Lower Price Issuance”), then the Company shall issue such additional Units such that the Subscriber shall hold that number of Units, in total, had such Subscriber purchased the Units with the same conversion ratio to the Lower Price Issuance. On October 28, 2016, the Company entered into separate subscription with accredited investors relating to the issuance and sale of $350,000, of shares of Series H convertible preferred stock at a conversion ratio of (100/150th)/15 or 0.0444 per share. The Company is required to issue to certain prior investors an aggregate of 36,667 shares of Series C Convertible Preferred Stock, which is convertible into an aggregate of 2,444 shares of the Company’s common stock.

On May 31, 2017, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 5,118 shares of Series K Preferred Stock, convertible into 3,412 shares of common stock, in lieu of Series C Preferred Stock.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series C Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, 266,667 shares of Series C Convertible Preferred Stock, $0.0001 par value were authorized; with 127,578 and issued, outstanding, and convertible into 8,505 shares of common stock, without respect to beneficial ownership conversion limitations.

As of December 31, 2018, all price protection rights, “Lower Price Issuance” have expired.

Series D Convertible Preferred Stock

On October 15, 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series D Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series D Convertible Preferred Stock. Pursuant to the Series D Certificate of Designation, the Company designated 333,333 shares of its blank check preferred stock as Series D Convertible Preferred Stock. Each share of Series D Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series D Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series D Convertible Preferred Stock’s preferential payment and over our common stock. The Series D Convertible Preferred is convertible into (20/150th)/15 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series D Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Convertible Preferred Stock.

Each share of Series D Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series D Convertible Preferred Stock entitles the holder to cast (20/150th)/15 votes per share of Series D Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series D Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 333,333 shares of Series D Convertible Preferred Stock authorized; 192,807 issued, outstanding and convertible into 25,708 shares of common stock, without regard to beneficial ownership conversion limitations.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series E Convertible Preferred Stock

On February 19, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series E Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series E Convertible Preferred Stock. Pursuant to the Series E Certificate of Designation, the Company designated 583,067 shares of its blank check preferred stock as Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series E Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series E Convertible Preferred Stock’s preferential payment and over our common stock. The Series E Convertible Preferred Stock is convertible into (10/150th)/15 shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 9.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series E Convertible Preferred Stock entitles the holder to cast (10/150th)/15 votes per share of Series E Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.

On February 19, 2015, the Company entered into a share exchange agreement with Global Telesat Communications Limited, a Private Limited Company formed under the laws of England and Wales (“GTCL”) and all of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the Company in exchange for (i) an aggregate of 1,129 shares of the common stock of the Company and 583,067 shares of the newly issued Series E Preferred Stock of the Company with each share of Series E Preferred Stock convertible into (10/150th)/15 shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series E Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 583,067 shares of Series E Convertible Preferred Stock authorized; 344,497 issued, outstanding and convertible into 22,996 shares of common stock, without regard to beneficial ownership conversion limitations.

Series F Convertible Preferred Stock

On December 28, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series F Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series F Convertible Preferred Stock. Pursuant to the Series F Certificate of Designation, each Series F Convertible Preferred Stock are convertible into (1/150th)/15 or 0.0004, shares of common stock. The stated value of each Series F Convertible Preferred Stock is $7.50, the conversion ratio is subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Series F Convertible Preferred Stock Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series F Convertible Preferred Stock. On December 5, 2017, pursuant to the approval of our board of directors and a majority of the shareholders in each class, we increased the maximum conversion limit from 4.99% to 9.99%. Each Series F Convertible Preferred Stock Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Series F Convertible Preferred Stock Share entitles the holder to cast (1/150th)/15 or 0.0004 vote per share of Series F Convertible Preferred Stock, owned at the time of such vote subject to the 4.99% beneficial ownership limitation. Prior to December 31, 2018, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Series F Convertible Preferred Stock with a conversion price equal to the lower price issuance.

F-25

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $550,000 of 73,333 shares of Series F Convertible Preferred Stock at a purchase price of $7.50 per share.

On October 28, 2016, issued to certain prior investors of Series F Convertible Preferred Stock an aggregate of 6,130 shares of Series I Convertible Preferred stock which is convertible into an aggregate of 4,086 shares of the Company’s common stock in relation to the subscription of the issuance and sale of $350,000, of shares of Series H convertible preferred stock at a purchase price of $60.00 per share and the initial conversion ratio of (1/150th)/15 or 0.0445 a share each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The conversion ratio which is less than (1/150th)/15 or 0.0445, a share then the Company shall issue such additional Units such that the Subscriber shall hold that number of Units, in total, had such Subscriber purchased the Units with the same conversion ratio equal to the Lower Price Issuance. As of December 31, 2018, all such price protection obligations or “Lower Price Issuance” have expired.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series F Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, 73,333 Series F Convertible Preferred Stock shares were authorized; 23,333 shares of Series F Convertible Preferred Stock were issued, outstanding and convertible into 156 shares of common stock, without regard to beneficial ownership limitations.

Series G Preferred Stock

On May 17, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series G Preferred Stock, setting forth the rights, powers, and preferences of the Series G Preferred Stock. Pursuant to the Series G Certificate of Designation, the Company designated 672,667 shares of its blank check preferred stock as Series G Preferred Stock (the “Preferred G Shares”), which are convertible into (1/150th)/15 or 0.0004 shares, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares. Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred G Share entitles the holder to cast 1/15th vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation.

On October 28, 2016, the Company issued to certain prior investors of Series G Preferred Convertible Shares an aggregate of 1,533 shares convertible Series I Preferred, which is convertible into an aggregate of 1,022 shares of the Company’s common stock in relation to the subscription of the issuance and sale of Series H Convertible Preferred Stock $350,000, of shares of at a purchase price of $0.75 per share. Each share of Series H Preferred is convertible into (1/150th)/15 or 0.0004 a share. The conversion ratio per share which is less than 0.0004 of a share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, then the Company shall issue such additional Units such that the Subscriber shall hold that number of Units, in total, had such Subscriber purchased the Units with the same conversion ratio to the Lower Price Issuance. As of December 31, 2018, there are no longer any Lower Price Issuance price protection in effect.

F-26

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series G Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 672,667 shares authorized and 346,840 shares of Series G Convertible Preferred Stock issued, outstanding and convertible into 2,312 shares of common stock, without regard to the beneficial ownership limitations.

Series H Preferred Stock

On October 13, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series H Preferred Stock, setting forth the rights, powers, and preferences of the Series H Preferred Stock. Pursuant to the Series H Certificate of Designation, the Company designated 13,333 shares of its blank check preferred stock as Series H Preferred Stock (the “Preferred H Shares”), each share of Series H Preferred is convertible into (100/150th)/15 or 0.0444 shares of common stock, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, as subject to adjustment as set forth in the Preferred Series H Certificate of Designation. The Company is prohibited from effecting a conversion of the Series H Preferred Shares to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding, immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock. Each Preferred Series H Share entitles the holder to cast (100/150th)/15 vote per share of Series H Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series H Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 13,333 shares authorized; par value $0.0001, and 916 shares of Series H Preferred Stock issued and outstanding convertible into up to 611 shares of common stock without regard to the beneficial ownership limitation.

Series I Preferred Stock

On October 13, 2016, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series I Preferred Stock, setting forth the rights, powers, and preferences of the Series I Preferred Stock. Pursuant to the Series I Certificate of Designation, the Company designated 7,663 shares of its blank check preferred stock as Series I Preferred Stock, each of which is convertible into (100/150th)/15 shares of common stock. The Company is prohibited from effecting a conversion of the Series I Preferred Shares to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series I Preferred Stock. Each Preferred I Share entitles the holder to cast (100/150th)/15 vote per share of Series I Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series I Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 7,663 shares authorized and 3,274 shares of Series I Convertible Preferred Stock issued and outstanding, convertible into up to 2,183 shares of common stock without regard to the beneficial ownership limitation.

F-27

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series J Preferred Stock

On May 31, 2017, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of 3,333 of shares of Series J Preferred Stock at a purchase price of $150.14 per share, as well as, the issuance of 311 shares of Series J Preferred Stock for accounts payable of $46,694. Each share of Preferred Series J is convertible into 0.4445 shares of the company’s common stock, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, as subject to adjustment as set forth in the Series J certificate of designation. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each share of Series J Preferred Stock entitles the holder to cast (1/150th)/15 vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Series F Preferred Stock, Series G Preferred Stock and Preferred Series H Preferred Stock, as well as antidilution rights. The Company was required to issue 72,626 shares of Series K Preferred Stock, which is convertible into 48,417 shares of the Company’s common stock, to the certain holders for the consent and anti-dilution rights. In addition, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 5,118 shares of Series K Preferred Stock, convertible into 3,412 shares of common stock, in lieu of Series C Preferred Stock. The additional issuances for the consent, anti-dilution rights and settlement, resulted in the recording of other expense and additional paid in capital of $2,308,981. As of December 31, 2018, all price protection rights, “Lower Price Issuance” have expired

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series J Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

On May 10, 2018, we issued 1,333 shares of our Series J Preferred Stock at their stated value of $150.04 per share to one investor, for total proceeds of $200,000. Our Series J Preferred Stock is currently convertible to common stock at a price of $22.50 per share and votes on an as-converted basis, subject to certain conversion limitations.

As of December 31, 2018, there were 8,333 shares authorized and 4,313 shares of Series J Convertible Preferred Stock issued, outstanding and convertible into 28,755 shares of common stock without regard to the beneficial ownership limitation.

As of December 31, 2017, there were 2,980 shares issued and outstanding of Series J Convertible Preferred Stock and convertible into 19,866 shares of common stock without regard to the beneficial ownership limitation.

Series K Preferred Stock

On May 31, 2017, the Company was required to issue 72,626 shares of Series K Preferred Stock, which is convertible into 48,417 shares of the Company’s common stock, to the certain holders for the consent and anti-dilution rights from the Series J Preferred Stock issuance. In addition, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 5,118 shares of Series K Preferred Stock, convertible into 3,412 shares of common stock, in lieu of Series C Preferred Stock. Each share of Series K Preferred Stock is convertible into (100/150th)/15 or 0.0444 a share of common stock. Pursuant to the terms of the Series K Preferred Stock, a holder cannot convert any of the Series K Preferred Stock if such holder would beneficially own, after any such conversion, more than 4.99% of the outstanding shares of common stock. However, this beneficial ownership limitation does not prevent the holders from selling some of their holdings and then converting additional shares of Series K Preferred Stock into common stock. In this way, the holders could sell more than these limits while never holding more than those limits. Subject to the beneficial ownership limitation, each holder is entitled to one vote for each (100/150th)/15 or 0.0444 a share of Series K Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record, date is established, at the date, such vote is taken, or any written consent of shareholders is solicited.

F-28

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 5, 2017, the board of directors and a majority of the shareholders for the respective class of preferred shares, amended the Certificates of Designation for Series K Preferred Stock. The amendments changed the conversion rights of the class of preferred stock such that the Maximum Conversion as defined in the Certificate of Designation was increased from 4.99% to 9.99% of our outstanding shares of common stock.

As of December 31, 2018 and 2017, there were 83,333 shares authorized; 77,124 of Series K Preferred Stock issued, outstanding and convertible into 51,416 shares of common stock, respectively without regard to the beneficial ownership limitation.

Series L Preferred Stock

On May 11, 2018, we designated a new series of Preferred Stock entitled “Series L Preferred Stock.” Our Series L Preferred Stock consists of 6,667 shares with a stated value of $150.00 per share. Series L Preferred Stock is convertible to common stock at a price of $60.00 per share, and votes together with our common stock on an as-converted basis, subject to conversion limitations. Conversions of our Series L Preferred Stock are limited such that no conversion may be made to the extent that, following the conversion, the converting shareholder would own more than 9.99% of our issued and outstanding common stock.

On May 14, 2018, we issued a total of 2,000 Units to three investors at a price of $150.00 per Unit, for total proceeds of $300,000. Each Unit consists of 1/15th share of our newly designated Series L Preferred Stock and warrants to purchase 2/15thshares of common stock at a price of $60.00, exercisable for three years.

As of December 31, 2018, there were 6,667 shares authorized; 2,000 of Series L Preferred Stock issued, outstanding and convertible into 5,000 shares of common stock, respectively without regard to the beneficial ownership limitation.

Common Stock

As of December 31, 2018 and 2017, there were 50,000,000 shares of Common Stock authorized; 62,435 and 62,435 shares issued and outstanding, respectively.

On January 3, 2017, the Company issued an aggregate of 363 shares of common stock upon the conversion of 2,333 shares of Series D Preferred Stock and 779 shares of Series E Preferred Stock.

On January 4, 2017, the Company issued an aggregate of 444 shares of common stock upon the conversion of 6,667 shares of Series E Preferred Stock.

On January 6, 2017, the Company issued an aggregate of 3 shares of common stock upon the conversion of 41 shares of Series E Preferred Stock.

On January 11, 2017, the Company issued an aggregate of 533 shares of common stock upon the conversion of 4,000 shares of Series D Preferred Stock.

On January 31, 2017, the Company issued an aggregate of 1,111 shares of common stock upon the conversion of 8,333 shares of Series D Preferred Stock

On March 2, 2017, the Company issued an aggregate of 444 shares of common stock upon the conversion of 3,333 shares of Series D Preferred Stock.

On March 7, 2017, the Company issued an aggregate of 444 shares of common stock upon the conversion of 6,667 shares of Series E Preferred Stock.

On April 21, 2017, the Company issued an aggregate of 444 shares of common stock upon the conversion of 6,667 shares of Series E Convertible Preferred Stock.

F-29

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 31, 2017, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of 3,333 of shares of Series J Preferred Stock at a purchase price of $150.14 per share, as well as, the issuance of 311 shares of Series J Preferred Stock for accounts payable of $46,694. The initial conversion ratio is each share of preferred is convertible into 0.4444 shares of common, subject to adjustment as set forth in the Series J certificate of designation. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each share of Series J Preferred Stock entitles the holder to cast 0.4444 votes per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Series F Preferred Stock, Series G Preferred Stock and Preferred Series H Preferred Stock, as well as antidilution rights. The Company was required to issue 76,626 shares of Series K Preferred Stock, which is convertible into 48,417 shares of the Company’s common stock, to the certain holders for the consent and anti-dilution rights. In addition, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 5,118 shares of Series K Preferred Stock, convertible into 3,412 shares of common stock, in lieu of Series C Preferred Stock. The additional issuances for the consent, anti-dilution rights and settlement, resulted in the recording of other expense and additional paid in capital of $2,308,981.

On July 18, 2017, the Company issued an aggregate of 889 shares of common stock upon the conversion of 13,333 shares of Series E Convertible Preferred Stock.

On September 27, 2017, the Company issued an aggregate of 889 shares of common stock upon the conversion of 13,333 shares of Series E Convertible Preferred Stock.

On December 6, 2017, the Company issued an aggregate of 7 shares of common stock upon the conversion of 222 shares of Series B Convertible Preferred Stock.

On December 11, 2017, the Company issued an aggregate of 10,460 shares of common stock upon the conversion of; 54,191 shares of Series C Convertible Preferred Stock, 4,083 shares of Series D Convertible Preferred Stock, 30,037 shares of Series E Convertible Preferred Stock, 4,917 shares of Series H Convertible Preferred Stock and 1,533 shares of Series I Convertible Preferred Stock.

On December 12, 2017, the Company issued an aggregate of 6,959 shares of common stock upon the conversion of; 18,335 shares of Series C Convertible Preferred Stock, 52,367 shares of Series E Convertible Preferred Stock, 272 shares of Series J Convertible Preferred Stock and 652 shares of Series K Convertible Preferred Stock.

On December 14, 2017, the Company issued an aggregate of 3,821 shares of common stock upon the conversion of; 36,667 shares of Series F Convertible Preferred Stock, 203,161 shares of Series G Convertible Preferred Stock and 333 shares of Series J Convertible Preferred Stock.

On December 18, 2017, the Company issued an aggregate of 2,723 shares of common stock upon the conversion of; 3,708 shares of Series D Convertible Preferred Stock, 13,333 shares of Series F Convertible Preferred Stock, 122,222 shares of Series G Convertible Preferred Stock, 1,389 shares of Series I Convertible Preferred Stock and 60 shares of Series J Convertible Preferred Stock.

On December 19, 2017, the Company issued an aggregate of 2,395 shares of common stock upon the conversion of 35,919 shares of Series C Convertible Preferred Stock.

On December 20, 2017, the Company issued an aggregate of 2,634 shares of common stock upon the conversion of 39,508 shares of Series E Convertible Preferred Stock.

On May 10, 2018, we issued 1,333 shares of our Series J Preferred Stock at their stated value of $150.04 per share to one investor, for total proceeds of $200,000. Our Series J Preferred Stock is currently convertible to common stock at a price of $22.50 per share and votes on an as-converted basis, subject to certain conversion limitations.

F-30

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 11, 2018, we designated a new series of Preferred Stock entitled “Series L Preferred Stock.” Our Series L Preferred Stock consists of 6,667 shares with a stated value of $150.00 per share. Series L Preferred Stock is convertible to common stock at a price of $60.00 per share and votes together with our common stock on an as-converted basis.

In addition, on May 14, 2018, we issued a total of 2,000 Units to 3 investors at a price of $150.00 per Unit, for total proceeds of $300,000. Each Unit consists of 1/15th share of Series L Preferred Stock and warrants to purchase 2/15th shares of common stock at a price of $60.00, exercisable for three years.

Stock Options

2018 Incentive Plan

On June 14, 2018, our Board of Directors approved the Orbsat Corp. (FKA: Orbital Tracking Corp.) 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.

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 installments 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 were 4,583. On July 1, 2018, 2,292 options were fully vested and valued on the vesting date at approximately $20.69 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 $20.69 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 $20.69 per option or a total of $47,422 using a Black-Scholes option pricing model with the following assumptions: stock price of $20.69 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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

David Phipps, President, CEO, and Director(5,000)
Theresa Carlise, CFO(2,500)
Hector Delgado, Director(1,250)

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%.

The number of options issued to our officers and directors were as follows:

Options
David Phipps, President, CEO, and Director21,667
Theresa Carlise, CFO10,833
Hector Delgado, Director4,583

In addition, we issued options to purchase a total of 18,333 shares to two key employees. These options have the same terms as those awarded to our officers and directors.

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 $112.45 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 $112.45 per option or a total of $107,500 using a Black-Scholes option pricing model with the following assumptions: stock price of $112.45 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 $2,927.93 per option or a total of $650,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $2,927.93 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.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $2,921.35 per option or a total of $260,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $2,921.35 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 $22.50 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 $22.50 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 years ended December 31, 2018 and 2017, the Company recorded total stock-based compensation of $219,518 and $600,000, respectively.

Stock options outstanding at December 31, 2018, as disclosed in the below table have approximately $189,707 of intrinsic value at the end of the period.

A summary of the status of the Company’s outstanding stock options and changes during the years ended December 31, 2018 and 2017, is as follows:

  Number of Options  Weighted Average
Exercise Price
  

Weighted

Average

Remaining

Contractual
Life (Years)

 
Balance at January 1, 2017  5,711  $45.00   9.10 
Granted  13,333   22.50   9.40 
Exercised  -   -   - 
Forfeited  -   -   - 
Cancelled  -   -   - 
Balance outstanding at December 31, 2017  19,044  $29.25   9.01 
Options exercisable at December 31, 2017  19,044  $29.25   9.01 
Weighted average fair value of options granted during the period     $29.25     
             
Balance at January 1, 2018  19,044  $29.25   9.01 
Granted  73,750  $7.50   4.35 
Exercised  -         
Forfeited            
Cancelled  (13,750) $23.10   2.50 
Balance outstanding at December 31, 2018  79,044  $9.90   5.56 
Options exercisable at December 31, 2018  79,044         
Weighted average fair value of options granted during the period     $7.50     

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Company’s outstanding stock warrants and changes during the years ended December 31, 2018 and 2017, is as follows:

  Number of Warrants  Weighted Average
Exercise Price
  

Weighted

Average

Remaining

Contractual
Life (Years)

 
Balance at January 1, 2017  2  $45   1.36 
Granted  -   -   - 
Exercised  -   -   - 
Forfeited (expired May 19, 2017)  (2)  (45)  - 
Cancelled  -   -   - 
Balance at December 31, 2017  -  $-   - 
             
Balance at January 1, 2018  -  $-   - 
Granted  4,000   60   2.37 
Exercised  -   -   - 
Forfeited  -   -   - 
Cancelled  -   -   - 
Balance outstanding at December 31, 2018  4,000  $60   2.37 

As of December 31, 2018 and 2017, there were 4,000 and 0 stock warrants outstanding, respectively.

NOTE 11 – INCOME TAXES

The Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carry forward for tax purposes totaling approximately $3.1 million at December 31, 2018, expiring through the year 2036.

The tax reform bill that Congress voted to approve Dec. 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%. The Company has not reviewed the all of the changes the “Tax Cuts and Jobs Act” that will apply to the Company but is reviewing such changes. Due to the continuing loss position of the Company, such changes should not be material.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, based on the Code. The Company has also, not completed its review of NOL’s pertaining to years the Company was known as “Silver Horn Mining Ltd.” and “Great West Resources, Inc.”, which may not be available due to IRC Section 382 and because of a change in business line that may eliminate NOL’s associated with ““Silver Horn Mining Ltd.” and “Great West Resources, Inc.” The company has also not reviewed the impact relating to “Recent Events” for its IRC Section 382 possible NOL’s limitation.

The table below summarizes the differences between the Company’s effective tax rate of 39% and the statutory federal rate as follows for the years ended December 31, 2018 and 2017:

  December 31, 2018  December 31, 2017 
Tax expense (benefit) computed at “expected” statutory rate $(222,448) $(1,331,927)
State income taxes, net of benefit  (46,078)  - 
Permanent differences:        
Stock based compensation and consulting  (52,316)  839,849 
Loss (gain) from change in fair value of derivative liability  -   (421)
Other  (3,648)  370,079 
Valuation allowance  219,858   122,420 
Net income tax expense/(benefit) $-  $- 

The Company’s wholly owned subsidiary, GTCL, is a United Kingdom (“UK”) Limited Company and files tax returns in the UK. Its estimated tax liability for December 31, 2018 and 2017 is approximately $0 and $23,459, respectively.

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset is as follows:

  December 31, 2018  December 31, 2017 
Deferred tax assets:        
Net operating loss carryforward $947,937  $501,397 
         
Total deferred tax assets $947,937  $501,397 
         
Deferred tax liabilities:        
Book basis of property and equipment in excess of tax basis $-  $- 
Total deferred tax liabilities $-  $- 
         
Net deferred tax asset before valuation allowance $947,937  $501,397 
Less: valuation allowance  (947,937)  (501,397)
Net deferred tax asset $-  $- 

The net operating loss carryforward increased from $399,647 at December 31, 2017 to $446,540 at December 31, 2018. After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2018 and 2017, due to the uncertainty of realizing the deferred income tax assets.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has a month to month lease for its headquarters, located in Poole, UK for $2,376 a month at the yearly average conversion rate of 1.296229 or £22,000 per annum. The three-year lease expired on October 1, 2018.

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rent expense for year ended December 31, 2018 and 2017 is $27,852 and $31,456, respectively.

Employment Agreements

On June 14, 2018, the Company entered into a two (2) year Employment Agreement (“Agreement”) with Mr. Phipps, with an automatic one (1) year extension. Under the Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President and will receive an annual base salary equal to the sum of $170,000 and £48,000 to be paid through our operating subsidiary, Global Telesat Communications, Ltd. For the year ended December 31, 2018, the £48,000 equivalent to USD is $62,219 and the yearly conversion rate is 1.296229. The agreement provides for a performance bonus based on exceeding our annual revenue goals and on our ability to attract new investment. The 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 Agreement), 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 Agreement terminates and supersedes the Original Agreements 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. Under the Employment Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President and received 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 is also eligible for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. On January 1, 2018, the agreement automatically renewed for another year.

Also, on June 14, 2018, we entered into a new Employment Agreement, (“Agreement”) with our Chief Financial Officer, Theresa Carlise. The 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 Agreement provides for performance bonuses based on exceeding our annual revenue goals and on our ability to attract new investment. The 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 Agreements), Ms. Carlise will be entitled to a severance equal to twice her base salary, the immediate vesting of all unvested options, and other benefits. The Agreement terminates and supersedes the Original Agreements and any subsequent amendments, effective as of the June 14, 2018.

Prior to June 14, 2018, the Company had a one-year agreement for Ms. Carlise, as its Chief Financial Officer, Treasurer and Secretary. The agreement provided for an annual compensation of $140,000 as well as medical benefits. The agreement was effective December 1, 2016 and had an automatic renewal clause whereby the agreement renews itself for another year, if not cancelled by the Company previously. The agreement had been automatically extended for an additional term of one year on December 1, 2017. In addition to the base salary of $140,000 annually, Ms. Carlise was eligible to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors and shall be eligible for grants of awards under stock option or other equity incentive plans of the Company

Consulting Agreement

On July 7, 2017, the Company entered into an agreement with Viewtrade Securities Inc. to assist in effectuating a securities offering of $5,000,000 to $7,000,000. The agreement has expired, and the Company’s related registration statement has been withdrawn prior to effectiveness.

F-36

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 13 – RELATED PARTY TRANSACTIONS

The Company has received financing from the Company’s Chief Executive Officer. No formal repayment terms or arrangements existed prior to February 19, 2015, when as part of the Share Exchange Agreement, the Company entered into a one-year term note with David Phipps where the stockholder loans bear no interest. The note has been extended annually, with the most recent extension dated January 29, 2018, for an additional year to February 19, 2019. On May 11, 2018, the note payable of $5,768, was paid in full. The accounts payable due to related party includes advances for inventory and services due to David Phipps of $11,540. Total payments due to David Phipps as of December 31, 2018 and December 31, 2017 are $39,027 and $6,998, respectively.

The Company employs two individuals who are related to Mr. Phipps, of which earned gross wages totaled $72,312 and $75,643, for the years ended December 31, 2018 and 2017, respectively.

NOTE 14 - CONCENTRATIONS

Customers:

Amazon accounted for 37.3% and 25.7% of the Company’s revenues during the years ended December 31, 2018 and 2017, respectively. No other customer accounted for 10% or more of the Company’s revenues for either period.

Suppliers:

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the years ended December 31, 2018 and 2017.

  December 31, 2018  December 31, 2017 
             
Network Innovations $2,002,733   42.8% $1,367,898   40.8%
Garmin $589,529   12.2% $340,786   10.2%
Globalstar Europe $610,933   12.7% $460,989   13.8%
Cygnus Telecom $457,871   9.5% $438,825   13.10%

Geographic:

The following table sets forth revenue as to each geographic location, for the years ended December 31, 2018 and 2017:

  Year Ended December 31, 2018     Year Ended December 31, 2017    
             
Europe $3,841,332   67.1% $3,787,582   63.1%
North America  1,282,494   22.4%  1,529,209   25.5%
South America  227,280   4.0%  326,647   5.4%
Asia & Pacific  317,699   5.5%  328,633   5.5%
Africa  58,096   1.0%  32,884   0.5%
  $5,726,901      $6,004,955     

ORBSAT CORP. AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – SUBSEQUENT EVENTS

On January 14, 2019, under the terms of a Securities Purchase Agreement, we issued a Convertible Promissory Note in the amount of $65,000 (the “Note”) to Power Up Lending Group Ltd. (“Power Up”). The Note bears interest at a rate of twelve percent (12%) per year and is due one (1) year from the date of issue. Beginning 180 days from the issue date, the Note is convertible to our common stock at a price equal to 61% of the Market Price, which is defined as the lowest trading price for our common stock during the 15 trading days prior to the conversion notice. Conversions under the Note are limited such that the holder may not convert the Note to the extent that the number of shares of common stock issuable upon the conversion would result in beneficial ownership by the holder and its affiliates of more than 4.99% of our outstanding shares of common stock.

In the event of any default, the Note will bear interest at a rate of 22% per year. The Note may be pre-paid at a premium for the first 150 days after issue, with the pre-payment amount ranging from 115% of the balance to 140% of the balance. After 150 days from issue, pre-payment of the Note is not allowed.

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 TRKK 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 

Part I Financial Information

Item 1. Financial Statements

The Company’s unaudited financial statements for the three and nine months ended September 30, 2019 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.

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF

  September 30, 2019  December 31, 2018 
  (unaudited)    
ASSETS        
Current assets:        
Cash $91,232  $142,888 
Accounts receivable, net  245,441   170,526 
Inventory  448,210   269,024 
Unbilled revenue  67,993   87,080 
Prepaid expenses  37,715   1,926 
Other current assets  83,218   43,713 
Total current assets  973,809   715,157 
         
Property and equipment, net  1,384,884   1,519,845 
Right of use  84,181   - 
Intangible assets, net  181,250   200,000 
         
Total assets $2,624,124  $2,435,002 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Accounts payable and accrued liabilities $1,113,605  $874,466 
Contract liabilities  45,057   19,701 
Related party payable  18,171   39,027 
Lease liabilities - current  27,087   - 
Provision for income taxes  11,029   10,696 
Liabilities from discontinued operations  112,397   112,397 
Total current liabilities  1,327,246   1,056,287 
         
Long term liabilities:        
Convertible debt, net of discount, unamortized, $702,906  102,094   - 
Note payable  121,848   - 
Lease liabilities – long term  54,479     
Total Liabilities  1,605,767   1,056,287 
         
Stockholders’ Equity:        
Preferred Stock, $0.0001 par value; 3,333,333 shares authorized        
Series A ($0.0001 par value; 0 and 1,333 shares authorized, and no shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)  -   - 
Series B ($0.0001 par value; 0 and 2,000 shares authorized, 0 and 222 shares issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   - 
Series C ($0.0001 par value; 0 and 266,667 shares authorized, 0 and 127,578 shares issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   13 
Series D ($0.0001 par value; 0 and 333,333 shares authorized, 0 and 192,807 shares issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   19 
Series E ($0.0001 par value; 0 and 583,067 shares authorized, 0 and 344,947 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)  -   34 
Series F ($0.0001 par value; 0 and 73,333 shares authorized, 0 and 23,333 issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   2 
Series G ($0.0001 par value; 0 and 672,667 shares authorized, 0 and 346,840 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)  -   35 
Series H ($0.0001 par value; 0 and 13,333 shares authorized, 0 and 916 issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   - 
Series I ($0.0001 par value; 0 and 7,663 shares authorized, 0 and 3,274 issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   - 
Series J ($0.0001 par value; 0 and 8,333 shares authorized, 0 and 4,313 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)  -   - 
Series K ($0.0001 par value; 0 and 83,333 shares authorized, 0 and 77,124 issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively)  -   8 
Series L ($0.0001 par value; 0 and 6,667 shares authorized, 0 and 2,000 issued and outstanding as of September 30, 2019, and December 31, 2018, respectively)  -   - 
Common Shares, $0.0001 par value; 50,000,000 shares authorized, 121,216 outstanding as of September 30, 2019 and 62,435 outstanding at December 31, 2018  12   6 
Additional paid-in capital  11,757,027   11,120,192 
Accumulated (deficit)  (10,731,613)  (9,735,419)
Accumulated other comprehensive (income) loss  (7,068)  (6,175)
Total stockholders’ equity  1,018,358   1,378,715 
         
Total liabilities and stockholders’ equity $2,624,124  $2,435,002 

See the accompanying notes to the unaudited condensed consolidated financial statements.

F-39

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHNSIVE LOSS

  Three Months
Ended
September 30, 2019
  Three Months
Ended
September 30, 2018
  Nine Months
Ended
September 30, 2019
  Nine Months
Ended
September 30, 2018
 
Net sales $1,746,525  $1,386,927  $4,453,906  $4,654,507 
                 
Cost of sales  1,366,008   1,140,717   3,553,351   3,673,128 
                 
Gross profit  380,517   246,210   900,555   981,379 
                 
Operating expenses:                
Selling and general administrative  210,600   162,038   522,352��  477,698 
Salaries, wages and payroll taxes  176,762   200,675   536,504   566,626 
Stock based compensation  -   47,422   -   47,422 
Professional fees  126,565   44,309   447,908   205,277 
Depreciation and amortization  69,109   74,943   203,234   221,656 
Total operating expenses  583,036   529,387   1,709,998   1,518,679 
                 
Loss before other expenses and income taxes  (202,519)  (283,177)  (809,443)  (537,300)
                 
Other (income) expense                
Change in fair value of derivative instruments, net  -   -   69,677   - 
Gain on debt extinguishment  -   -   (134,677)  - 
Interest earned  (812)  -   (1,576)  - 
Interest expense  81,121   -   211,344   110 
Foreign currency exchange rate variance  18,131   32,313   41,238   47,158 
Total other expense  98,440   32,313   186,006   47,268 
                 
Net loss before income tax expense $(300,959) $(315,490) $(995,449) $(584,568)
                 
Provision for income taxes  (12)  8,897   745   8,897 
                 
Net loss  (300,947)  (324,387)  (996,194)  (593,465)
                 
Comprehensive Income:                
Net loss  (300,947)  (324,387)  (996,194)  (593,465)
Foreign currency translation adjustments  (494)  (13,551)  (893)  (5,624)
Comprehensive loss $(301,441) $(337,938) $(997,087) $(599,089)
                 
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                
Weighted number of common shares outstanding – basic & diluted  119,876   62,435   91,359   48,924 
Basic and diluted net (loss) per share $(2.51) $(5.20) $(10.90) $(12.13)

See the accompanying notes to the unaudited condensed consolidated financial statements.

F-40

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2019

  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  $13 
                         
Beneficial conversion feature of convertible debt  -   -   -   -   -   - 
Preferred shares converted to note payable  -   -   -   -   (123,526)  (12)
Preferred shares converted to common  -   -   (222)  -   (4,052)  (1)
Exercise of options to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2019  -  $-   -  $-   -  $- 

For the Nine Months Ended September 30, 2018

  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, 2017   -  $       -   222  $      -    127,578  $ 13 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Sale of Preferred Stock Series J  -   -   -   -   -     
Sale of Preferred Stock Series L                        
Stock based compensation for options granted                        
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018  -  $-   222  $-    127,578  $13 

See accompanying notes to unaudited condensed consolidated financial statements.

F-41

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended September 30, 2019

Preferred Stock -
Series A
Preferred Stock -
Series B
Preferred Stock -
Series C
$0.0001 Par Value$0.0001 Par Value$0.0001 Par Value
SharesAmountSharesAmountSharesAmount
Balance, June 30, 2019-$  --$- -$-
Beneficial conversion feature of convertible debt------
Common issued for post-split adjustments------
Preferred shares converted to note payable------
Preferred shares converted to common------
Exercise of options to common----
Comprehensive loss------
Net loss------
Balance, September 30, 2019-$--$--$-

For the Three Months Ended September 30, 2018

  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, June 30, 2018      $   -   222  $     -   127,578  $ 13 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Sale of Preferred Stock Series J  -   -   -   -   -   - 
Sale of Preferred Stock Series L  -   -   -   -   -   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018  -  $-   222  $-    127,578  $13 

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 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  -   -   -   -   -   - 
Common issued for post-split adjustments  -   -   -   -   -   - 
Preferred shares converted to note payable  (147,577)   (15)  -   -   -   - 
Preferred shares converted to common  (45,230)  (4)  (344,947)  (34)  (23,333)  (2)
Exercise of options to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2019  -  $-   -  $-  $-  $- 

For the Nine Months Ended September 30, 2018

  

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, 2017   192,807  $ 19   344,947  $ 34    23,333  $ 2 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Sale of Preferred Stock Series J  -   -   -   -         
Sale of Preferred Stock Series L  -   -   -   -   -   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018   192,807  $19    344,947  $34  $ 23,333  $2 

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, 2019

Preferred Stock -

Series D

Preferred Stock -

Series E

Preferred Stock -

Series F

$0.0001 Par Value$0.0001 Par Value$0.0001 Par Value
SharesAmountSharesAmountSharesAmount
Balance, June 30, 2019-$- 2,256$-  -$ -
Beneficial conversion feature of convertible debt------
Common issued for post-split adjustments------
Preferred shares converted to note payable------
Preferred shares converted to common--(2,256)  ---
Exercise of options to common------
Comprehensive loss------
Net loss------
Balance, September 30, 2019-$--$--$-

For the Three Months Ended September 30, 2018

  

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, June 30, 2018  192,807  $ 19    344,947  $ 34    23,333  $ 2 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -     -   -     - 
Sale of Preferred Stock Series J  -   -   -   -   -   - 
Sale of Preferred Stock Series L  -   -   -   -   -   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018   192,807  $19   344,947  $34    23,333  $2 

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 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  -   -   -   -   -   - 
Common issued for post-split adjustments  -   -   -   -   -   - 
Preferred shares converted to note payable  (346,840)  (35)  (916)  -   (3,274)  - 
Preferred shares converted to common  -   -   -   -   -   - 
Exercise of options to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2019  -  $-   -  $-   -  $- 

For the Nine Months Ended September 30, 2018

  

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, 2017   346,840  $ 35   916  $  -   3,274  $  - 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -     -   -   -   -   - 
Sale of Preferred Stock Series J  -   -   -   -   -   - 
Sale of Preferred Stock Series L  -   -   -   -   -   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018   346,840  $35   916  $-   3,274  $- 

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, 2019

Preferred Stock –
Series G
Preferred Stock –
Series H
Preferred Stock –
Series I
$0.0001 Par Value$0.0001 Par Value$0.0001 Par Value
SharesAmountSharesAmountSharesAmount
Balance, June 30, 2019-$-    -$-33$     -
Beneficial conversion feature of convertible debt------
Common issued for post-split adjustments------
Preferred shares converted to note payable----(33)-
Preferred shares converted to common------
Exercise of options to common------
Comprehensive loss------
Net loss------
Balance, September 30, 2019-$--$--$-

For the Three Months Ended September 30, 2018

  

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 June 30, 2018   346,840  $ 35   916  $      -    3,274  $      - 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Sale of Preferred Stock Series J  -   -   -   -   -   - 
Sale of Preferred Stock Series L  -   -   -   -   -   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018  346,840  $35    916  $-   3,274  $- 

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 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  -   -   -     -   -   - 
Common issued for post-split adjustments  -   -   -   -   -   - 
Preferred shares converted to note payable  (4,296)     -   (70,571)  (7)  (2,000)    - 
Preferred shares converted to common  (17)  -   (6,553)  (1)  -   - 
Exercise of options to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2019  -  $-   -  $-    -  $- 

For the Nine Months Ended September 30, 2018

  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, 2017  2,980  $  -   77,124  $ 8   -  $  - 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -     -   -   - 
Sale of Preferred Stock Series J  1,333   -   -   -   -   - 
Sale of Preferred Stock Series L  -   -   -   -   2,000   - 
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018   4,313  $   -    77,124  $8   2,000  $   - 

See accompanying notes to unaudited condensed consolidated financial statements.

F-47

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three 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$0.0001 Par Value
SharesAmountSharesAmountSharesAmount
Balance, June 30, 2019-$--$- 667$  -
Beneficial conversion feature of convertible debt---  ---
Common issued for post-split adjustments------
Preferred shares converted to note payable----(667)  -
Preferred shares converted to common----
Exercise of options to common------
Comprehensive loss------
Net loss------
Balance, September 30, 2019-$--$--$-

For the Three Months Ended September 30, 2018

  

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, June 30, 2018  2,980  $     -   77,124  $ 8      -  $   - 
                         
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   -   -   - 
Sale of Preferred Stock Series J  1,333   -   -   -   2,000   - 
Sale of Preferred Stock Series L  -   -   -   -         
Preferred shares converted to common  -   -   -   -   -   - 
Comprehensive loss  -   -   -   -   -   - 
Net loss  -   -   -   -   -   - 
                         
Balance, September 30, 2018   4,313  $-    77,124  $8    2,000  $- 

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 Nine Months Ended September 30, 2019

  Common Stock  Additional    
  $0.0001 Par Value  Paid in  Accumulated 
  Shares  Amount  Capital  Deficit 
Balance, December 31, 2018  62,435  $ 6  $ 11,120,192  $(9,735,419)
                 
Beneficial conversion feature of convertible debt  -   -   805,000   - 
Common issued for post-split adjustments  1,687   -   -   - 
Preferred shares converted to note payable  -     -   (168,199)  - 
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  $ (10,731,613)

For the Nine Months Ended September 30, 2018

  Common Stock  Additional    
  $0.0001 Par Value  Paid in  Accumulated 
  Shares  Amount  Capital  Deficit 
Balance, December 31, 2017  62,435  $ 6  $ 10,400,564  $ (8,540,713)
                 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   110   - 
Sale of Preferred Stock Series J  -   -   200,000   - 
Sale of Preferred Stock Series L   -    -   300,000   - 
Stock based compensation for options granted  -   -   47,422   - 
Preferred shares converted to common  -   -   -   - 
Comprehensive loss  -   -   -   - 
Net loss  -     -   -   (593,465)
                 
Balance, September 30, 2018  62,435  $6  $ 10,948,096  $(9,134,178)

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, 2019

  Common Stock  Additional    
  $0.0001 Par Value  Paid in  Accumulated 
  Shares  Amount  Capital  Deficit 
Balance, June 30, 2019  117,689  $ 12  $ 11,757,027  $ (10,430,666)
                 
Beneficial conversion feature of convertible debt  -   -   -   - 
Common issued for post-split adjustments  1,687   -   -   - 
Preferred shares converted to note payable   -    -   -   - 
Preferred shares converted to common  1,840   -   -   - 
Exercise of options to common   -   -   -   - 
Comprehensive loss  -   -   -   - 
Net loss  -     -   -   (300,947)
                 
Balance, September 30, 2019  121,216  $12  $11,757,027  $ (10,731,613)

For the Three Months Ended September 30, 2018

  Common Stock  Additional    
  $0.0001 Par Value  Paid in  Accumulated 
  Shares  Amount  Capital  Deficit 
Balance, June 30, 2018  62,435  $ 6  $ 10,900,674  $ (8,809,791)
                 
Imputed interest expense related to related party note payable issued for recapitalization  -   -   -   - 
Sale of Preferred Stock Series J              - 
Sale of Preferred Stock Series L  -   -   -   - 
Stock based compensation for options granted  -   -   47,422   - 
Preferred shares converted to common      -   -   - 
Comprehensive loss  -     -   -   - 
Net loss  -   -   -   (324,387)
                 
Balance, September 30, 2018  62,435  $6  $10,948,096  $(9,134,178)

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 Nine Months Ended September 30, 2019

  Comprehensive  Stockholders’ 
  Income (Loss)  Equity 
       
Balance, December 31, 2018 $ (6,175) $1,378,715 
         
Beneficial conversion feature of convertible debt  -   805,000 
Common issued for post-split adjustments  -   - 
Preferred shares converted to note payable  -   (168,270)
Preferred shares converted to common  -   - 
Exercise of options to common   -   - 
Comprehensive loss  (893)  (893)
Net loss  -   (996,194)
Balance, September 30, 2019 $(7,068) $1,018,358 

For the Nine Months Ended September 30, 2018

  Comprehensive  Stockholders’ 
  Income (Loss)  Equity 
       
Balance, December 31, 2017 $  (402) $1,859,566 
         
Imputed interest expense related to related party note payable issued for recapitalization  -   110 
Sale of Preferred Stock Series J  -   200,000 
Sale of Preferred Stock Series L  -   300,000 
Stock based compensation for options granted  -   47,422 
Preferred shares converted to common      - 
Comprehensive loss  (5,624)  (5,624)
Net loss   -   (593,465)
Balance, September 30, 2018 $(6,026) $1,808,009 

See accompanying notes to unaudited condensed consolidated financial statements.

F-51

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended September 30, 2019

  Comprehensive  Stockholders’ 
  Income (Loss)  Equity 
       
Balance June 30, 2019 $(6,574) $1,319,799 
         
Beneficial conversion feature of convertible debt  -   - 
Common issued for post-split adjustments  -   - 
Preferred shares converted to note payable  -   - 
Preferred shares converted to common  -   - 
Exercise of options to common  -   - 
Comprehensive loss  (494)  (494)
Net loss  -   (300,947)
         
Balance, September 30, 2019 $ (7,068) $1,018,358 

For the Three Months Ended September 30, 2018

  Comprehensive  Stockholders’ 
  Income (Loss)  Equity 
       
Balance June 30, 2018 $(7,529) $2,083,471 
         
Imputed interest expense related to related party note payable issued for recapitalization  -   - 
Sale of Preferred Stock Series J  -   - 
Sale of Preferred Stock Series L  -   - 
Stock based compensation for options granted  -   47,422 
Preferred shares converted to common  -   - 
Comprehensive income  1,503   1,503 
Net loss  -   (324,387)
         
Balance, September 30, 2018 $(6,026) $1,808,009 

See accompanying notes to unaudited condensed consolidated financial statements.

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

  September 30, 2019  September 30, 2018 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(996,194) $(593,465)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation expense  184,484   202,906 
Amortization of intangible asset  18,750   18,750 
Amortization of right of use  2,196   - 
Amortization of convertible debt, net  211,330   - 
Stock based compensation  -   47,422 
Provision for income tax expense  -   (1,091)
Change in fair value of derivative liabilities  69,677   - 
Gain on debt extinguishment  (134,677)  - 
Imputed interest  -   110 
Convertible debt issued for services  113,000   - 
Change in operating assets and liabilities:      - 
Accounts receivable  (74,915)  104,850 
Inventory  (179,186)  (142,234)
Unbilled revenue  19,087   12,008 
Prepaid expense  (35,789)  82,454 
Other current assets  (39,505)  (35,691)
Lease liabilities  (4,811)  - 
Accounts payable and accrued liabilities  217,680   22,902 
Provision for income taxes  333   - 
Contract liabilities  25,356   (215,989)
Net cash used in operating activities  (603,183)  (497,068)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (51,414)  (31,019)
Net cash used in investing activities  (51,414)  (31,019)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of note payable, related party, net  (20,856)  4,542 
Repayments from note payable  (46,422)  - 
Proceeds from sale of preferred stock  -   500,000 
Proceeds of convertible debt  757,000   - 
Repayments from convertible notes payable  (87,778)  - 
Net cash provided by financing activities  601,944   504,542 
         
Effect of exchange rate on cash  998   (6,332)
         
Net increase in cash  (51,656)  (29,877)
Cash beginning of period  142,888   233,326 
Cash end of period $91,232  $203,449 
         
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 $805,000  $- 
Long term debt issued in exchange for preferred stock $168,270  $- 
Obtaining right of use asset for lease liability $86,377  $- 

See the accompanying notes to the unaudited condensed consolidated financial statements.

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited 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 consolidated financial statements as of December 31, 2018 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, 2018, 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 29, 2019. The consolidated balance sheet as of December 31, 2018 was derived from those financial statements.

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the SEC for interim financial information. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2019, and the results of operations and cash flows for the three and nine months ended September 30, 2019 have been included. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year.

Description of Business

The Company was formerly Great West Resources, Inc., a Nevada corporation. The Company, through its wholly owned subsidiaries, Global Telesat Communications Limited (“GTCL”) and Orbital Satcom Corp. (“Orbital Satcom”), 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.

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 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.

GTCL was formed under the laws of England and Wales in 2008. On February 19, 2015, the Company entered into a share exchange agreement withGTCLand all of the holders of the outstanding equity of GTCL pursuant to which GTCL became a wholly owned subsidiary of the Company (the “Share Exchange”).

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 11 - Stockholders Equity.

On March 8, 2018, our then-outstanding 140,224,577 shares of common stock were reduced by a reversed split for a ratio of 1 for 150, resulting in 936,519 shares of common stock issued and outstanding post-split. The number of authorized shares of our common stock were not reduced by the reverse stock split. Accordingly, the reverse stock split had the effect of creating additional unissued and unreserved shares of our common stock. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.

Subsequently on August 19, 2019, FINRA approved a reverse split of our common stock at a ratio of 1 for 15, reducing our then outstanding 1,792,834 shares of common stock for a ratio of 1 for 15. The Company was required to issue an additional 1,687 shares for post-split adjustments resulting in 121,216 shares of common stock issued and outstanding post-split. The number of authorized shares all classes were also reduced with the same 1 for 15 ratio. As a result of the reverse split, our common stock now has the CUSIP number: 68557F100. All share and per share, information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split. See Note 11 - Stockholders Equity.

Also, on August 19, 2019, we changed our name to “Orbsat Corp” from “Orbital Tracking Corp” pursuant to a merger with a newly formed wholly owned subsidiary.

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, preferred deemed dividend and common stock issued for services.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. 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. Quarterly, an adjustment is made offsetting sales for any balance over 90 days, not yet collected in 120 days from the 90-day report date. Account balances deemed to be uncollectible offset sales after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2019, and December 31, 2018, there is an allowance for doubtful accounts of $1,626 and $448, 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.

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 (“GBP”), as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferred as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the statements of operations.

The relevant translation rates are as follows: for the three and nine months ended September 30, 2019, closing rate at 1.228700 US$: GBP, quarter average rate at 1.232981 US$: GBP and yearly average rate at 1.273268 US$: GBP, for the three and nine months ended September 30, 2018 closing rate at 1.3036 US$: GBP, quarter average rate at 1.30281 US$: GBP and yearly average rate at 1.3513 US$: GBP, for the year ended 2018 closing rate at 1.274700 US$: GBP, yearly average rate at 1.296229 US$: 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.

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.

F-56

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 condensed consolidated balance sheets as current liabilities. At September 30, 2019, we had contract liabilities of approximately $45,057. At December 31, 2018, we had contract liabilities of approximately $19,701.

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 contract liabilities.

Shipping and handling costs are included as a component of costs of product sales in the Company’s consolidated statements of operations because the Company includes in revenue the related costs that the Company bills its customers.

Intangible assets

Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.

Goodwill and other intangible assets

In accordance with Accounting Standards Codification (“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 did not consider it necessary to record any impairment charges during the three and nine months ended September 30, 2019 and the year ended December 31, 2018, respectively.

F-57

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 fixtures4
Computer equipment4
Rental equipment4
Appliques10
Website development2

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, 2019 and December 31, 2018, 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.

  Conversion
feature
derivative
liability
 
Balance at January 1, 2019  - 
Derivative liability  65,000 
Change in fair value included in earnings  36,925 
Balance at March 31, 2019 $101,925 
Derivative Liability  (65,000)
Change in fair value included in earnings  (36,925)
Balance at September 30, 2019 $- 

The current portion of the convertible notes were accounted for as liabilities at the date of issuance and adjusted to fair value through earnings for the three months ended March 31, 2019. On May 14, 2019 due to the cash repayment any derivative liability recorded was reversed.

The Company did not identify any other assets or liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.

F-58

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.

F-59

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 period ended:

  September30, 2019  September30, 2018 
Convertible preferred stock  -   147,649 
Convertible notes payable (1)  

8,050,000

   - 
Stock options  39,044   21,336 
Stock warrants  4,000   4,000 
Total  8,093,044   172,985 

(1) 8,050,000 shares of our common stock issuable upon conversion of $805,000 of Convertible Notes Payable as of September 30, 2019, not accounting for 4.99% beneficial ownership limitations.

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:

  

Three Months
Ended
September 30,

2019

  

Three Months
Ended
September 30,

2018

  

NineMonths
Ended
September 30,

2019

  

NineMonths
Ended
September 30,

2018

 
Net loss $

(300,947

) $(324,387) $(996,194) $(593,465)
Preferred shares redemption adjustment $-  $-  $201,924  $- 
Net loss available to common shareholders $- $-  $(794,270) $- 
                 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                
Weighted number of common shares outstanding – basic & diluted  119,876   62,435   91,359   48,294 
Loss applicable to common shareholders per share $

(2.51

) $(5.20) $(8.69) $(12.13)

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.

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.

F-60

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 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 withASU 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 year lease for its UK office and warehouse for annual rent of £25,536 or GBP:USD using exchange rate close for liability of 1.2287 or $31,376. 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, 2019, the Company had current and long-term operating lease liabilities of $27,087 and $54,479, respectively, and right of use assets of $84,181.

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.

F-61

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - GOING CONCERN CONSIDERATIONS

The accompanying condensed consolidated financial statements are prepared assuming the Company will continue as a going concern. At September 30, 2019, the Company had an accumulated deficit of approximately $10,731,613, negative working capital of approximately $353,536 and net loss of approximately $996,194 during the nine months ended September 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing. Management intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect. The condensed consolidated financial statements do not include any adjustments relating to classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - INVENTORIES

At September 30, 2019 and December 31, 2018, inventories consisted of the following:

  September30, 2019  December 31, 2018 
Finished goods $448,210  $269,024 
Less reserve for obsolete inventory  -   - 
Total $448,210  $269,024 

For the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company did not make any change for reserve for obsolete inventory.

NOTE 4 – PREPAID EXPENSES

Prepaid expenses amounted to $37,715 at September 30, 2019 and $1,926 at December 31, 2018, respectively. 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, 2019 and December 31, 2018, property and equipment consisted of the following:

  September30, 2019  December 31, 2018 
Office furniture and fixtures $77,511  $76,907 
Computer equipment  47,580   30,678 
Rental equipment  69,998   66,090 
Appliques  2,160,096   2,160,096 
Website development  25,780   23,061 
         
Less accumulated depreciation  (996,081)  (836,987)
         
Total $1,384,884  $1,519,845 

Depreciation expense was $184,484 and $202,906 for the nine months ended September 30, 2019 and 2018, respectively. For the three months ended September 30, 2019 and 2018, depreciation expense was $62,859 and $68,693, 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.

F-62

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 nine months ended September 30, 2019 and 2018, the Company amortized $18,750, respectively. For the three months ended September 30, 2019 and 2018, the Company amortized $6,250, respectively. Future amortization of intangible assets is as follows:

2019  6,250 
2020  25,000 
2021  25,000 
2022  25,000 
2023 and thereafter  50,000 
Total $131,250 

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. The design is in need of further enhancements, before the Company can include it in its existing product lines. Upon receipt of sufficient additional capital, the Company intends to complete the launch of its new tracking design.

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES

Accounts payable and accrued other liabilities consisted of the following:

  September30, 2019  December 31, 2018 
Accounts payable $881,615  $625,157 
Rental deposits  14,840   22,991 
Customer deposits payable  40,159   37,099 
Accrued interest  21,458   - 
Accrued wages & payroll liabilities  5,708   14,807 
Property tax payable  10,267   31,955 
VAT liability & sales tax payable  36,978   47,875 
Pre-merger accrued other liabilities  88,448   65,948 
Accrued other liabilities  14,132   28,634 
Total $1,113,605  $874,466 

NOTE 8 – 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.

For the nine months ended September 30, 2019, the Company repaid $46,422 of the notes, leaving a balance of $121,848 as long-term notes payable. For the three and nine months ended September 30, 2019, the Company recorded interest in relation to the note of $1,843 and $3,065, respectively.

NOTE 9 – CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable – current portion

On January 14, 2019, under the terms of a Securities Purchase Agreement, we issued a Convertible Promissory Note in the amount of $65,000 (the “Note”) to Power Up Lending Group Ltd. (“Power Up”). The Note bears interest at a rate of twelve percent (12%) per year and is due one (1) year from the date of issue. Beginning 180 days from the issue date, the Note is convertible to our common stock at a price equal to 61% of the Market Price, which is defined as the lowest trading price for our common stock during the 15 trading days prior to the conversion notice. Conversions under the Note are limited such that the holder may not convert the Note to the extent that the number of shares of common stock issuable upon the conversion would result in beneficial ownership by the holder and its affiliates of more than 4.99% of our outstanding shares of common stock. In the event of any default, the Note will bear interest at a rate of 22% per year. The Note may be pre-paid at a premium for the first 150 days after issue, with the pre-payment amount ranging from 115% of the balance to 140% of the balance. After 150 days from issue, pre-payment of the Note is not allowed. On May 14, 2019, the Company repaid the convertible note payable, an aggregate of $87,778, representing principal of $65,000, prepayment penalty of $20,257 and accrued interest of $2,522. The Company has paid the debenture in cash and not converted the note to its common stock, any note amortization and derivative liabilities have been reversed. The interest and the prepayment penalty are reflected on the statement of operations as interest expense.

F-63

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2019 and 2018, outstanding balance of the current portion of convertible notes payable was $0. For the nine months ended September 30, 2019 and 2018, we recorded interest expense in relation to this note payable of $87,779 and $0, which includes a $20,257 pre-payment penalty. For the three months ended September 30, 2019 and 2018, we recorded interest expense of $0.

Convertible notes payable – long term

On May 14, 2019 (the “Issue Date”), the Company entered into a Note Purchase Agreement (the “NPA”) by and among the Company and the lenders set forth on the lender schedule to the NPA (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 and nine months ended September 30, 2019, the Company recorded simple interest expense of $11,799 and $18,394, 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.

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 three and nine months ended September 30, 2019, we amortized the discount on the debt, to interest expense of $67,573 and $102,094, resulting in a balance of unamortized discount notes payable of $702,906.

F-64

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – DERIVATIVE LIABILITIES

The current portion of the convertible notes were accounted for as liabilities at the date of issuance and adjusted to fair value through earnings for the three months ended March 31, 2019. On May 14, 2019, due to the cash repayment any derivative liability was fair valued at repayment date and a gain was recorded for the reversal of derivative liability.

  Conversion
feature
derivative
liability
 
Balance at January 1, 2019  - 
Derivative liability  65,000 
Change in fair value included in earnings  36,925 
Balance at March 31, 2019 $101,925 
Change in fair value included in earnings  32,752 
Derivative liability reversed  (134,677)
Balance at September 30, 2019 $- 

The Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes option pricing model:

September30, 2019
Expected volatility328%
Expected term - years0.79
Risk-free interest rate2.57%
Expected dividend yield-%

NOTE 11 - 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.

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, 2019.

Preferred Stock

As of September 30, 2019, 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, 2019, 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.

F-65

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Common Stock

As of September 30, 2019, there were 50,000,000 shares of common stock authorized and 121,216 shares issued and outstanding.

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.

F-66

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 installments 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:

David Phipps, President, CEO, and Director(5,000)
Theresa Carlise, CFO(2,500)
Hector Delgado, Director(1,250)

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 

F-67

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 three and nine months ended September 30, 2019, the Company recorded no stock-based compensation, respectively. For the year ended December 31, 2018 the Company recorded $219,518 stock-based compensation.

Stock options outstanding at September 30, 2019, as disclosed in the below table, have approximately $127,283 of intrinsic value at the end of the period.

F-68

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 nine months ended September 30, 2019 is as follows:

  Number of
Options
  Weighted
Average Exercise
Price
  Weighted
Average
Remaining
Contractual Life
(Years)
 
Balance at January 1, 2019  79,044  $8.40   5.56 
Granted            
Exercised  (40,000)  2.41   4.72 
Forfeited            
Cancelled  -  $-   - 
Balance outstanding at September 30, 2019  39,044   17.49   5.41 
Options exercisable at September 30, 2019  39,044         

A summary of the status of the Company’s outstanding warrants and changes during the nine months ended September 30, 2019 is as follows:

  Number of
Warrants
  Weighted
Average Exercise
Price
  Weighted
Average
Remaining
Contractual Life
(Years)
 
Balance at January 1, 2019  4,000  $60   2.37 
Granted  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Cancelled  -   -   - 
Balance outstanding and exercisable at September 30, 2019  4,000  $60   1.62 

As of September 30, 2019, and December 31, 2018, there were 4,000 warrants outstanding, respectively.

NOTE 12 - RELATED PARTY TRANSACTIONS

The Company entered into a note for $122,536 from the Company’s Chief Executive Officer as part of the Share Exchange Agreement on February 15, 2015. On May 11, 2018, the balance of $5,768, was paid in full. As of September 30, 2019, the accounts payable due to related party includes; advances for inventory and services due to David Phipps of $18,171. Total payments due to David Phipps as of September 30, 2019 and December 31, 2018 are $18,171 and $39,027, respectively. Those related party payable are non-interest bearing and due on demand.

The Company employs two individuals who are related to Mr. Phipps, of which earned gross wages totaling $46,116 and $54,803 for the nine months ended September 30, 2019 and September 30, 2018, respectively.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

On June 14, 2018, the Company entered into a two (2) year Employment Agreement (the “Phipps Agreement”) with Mr. 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 and will receive an annual base salary equal to the sum 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. The 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 defined in the Phipps Agreement), 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 received 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 for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. On January 1, 2018, the Original Phipps Agreement automatically renewed for another year.

F-69

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Also, 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. Carlise 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 a 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 cancelled by the Company previously. The Original Carlise Agreement had been automatically extended for an additional term of one year on December 1, 2017. In addition to the base salary of $140,000 annually, Ms. Carlise was eligible to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors and shall be eligible for grants of awards under stock option or other equity incentive plans of the Company.

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 to expire on January 13, 2020.

Lease Agreement

Effective July 24, 2019, a three-year lease was signed for 2,660 square feet for £25,536 annually, forour facilities in Poole, England for £2,128 per month, or $2,710 per month at the yearly average conversion rate of1.273268, or $2,615 using exchange rate close at September 30, 2019 of 1.2287. 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.

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 three months ended September 30, 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 September 30, 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, 2019, the Company had current and long-term operating lease liabilities of $27,087 and $54,479, respectively, and right of use assets of $84,181.

Future minimum lease payments under these leases are as follows, in thousands, (unaudited):

  Minimum 
  Lease 
Years Ending December 31, Payment 
Remainder of 2019 $8 
2020  31 
2021  31 
2022  18 
Total undiscounted future non-cancelable minimum lease payments  88 
Less: Imputed interest  - 
Present value of lease liabilities $88 
Weighted average remaining term  2.8 

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 three and nine months ended September 30, 2019 was $6,286 and $23,214, 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 14 - CONCENTRATIONS

Customers:

Amazon accounted for 57.6% and 42.7% of the Company’s revenues during the nine months ended September 30, 2019 and 2018, respectively. For the three months ended September 30, 2019 and 2018, Amazon accounted for 63.6% and 50.7% of the Company’s revenues. No other customer accounted for 10% or more of the Company’s revenues for either period.

F-70

ORBSAT CORP AND SUBSIDIARIES

FKA: ORBITAL TRACKING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2019 and 2018.

  September 30, 2019     September 30, 2018    
             
Globalstar Europe $435,741   13.4% $375,148   10.8%
Garmin $490,564   15.1% $479,717   13.8%
Network Innovations $1,032,647   31.8% $1,452,677   41.7%
Cygnus Telecom $402,455   12.4% $385,944   11.1%

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, 2019 and 2018.

  September 30, 2019     September 30, 2018    
             
Globalstar Europe $133,104   12.8% $103,899   7.3%
Garmin $188,383   18.1% $162,225   11.3%
Network Innovations $385,204   36.9% $789,639   55.2%
Cygnus Telecom $125,420   12.0% $157,382   11.0%

Geographic:

The following table sets forth revenue as to each geographic location, for the nine months ended September 30, 2019 and 2018:

  September 30, 2019     September 30, 2018    
             
Europe $3,216,613   72.2% $3,143,416   67.5%
North America  816,699   18.3%  1,074,032   23.1%
South America  33,841   0.8%  149,228   3.2%
Asia  312,848   7.0%  195,175   4.2%
Australia & Oceanic  35,912   0.8%  46,738��  1.0%
Africa  37,994   0.9%  45,918   1.0%
  $4,453,906      $4,654,507     

The following table sets forth revenue as to each geographic location, for the three months ended September 30, 2019 and 2018:

  September 30, 2019     September 30, 2018    
             
Europe $1,132,882   64.9% $950,294   68.5%
North America  479,463   27.5%  316,545   22.8%
South America  13,131   0.8%  32,641   2.4%
Asia  100,380   5.7%  61,962   4.5%
Australia & Oceanic  12,141   0.7%  14,203   1.0%
Africa  8,528   0.5%  11,282   0.8%
  $1,746,525      $1,386,927     

NOTE 15 - SUBSEQUENT EVENTS

On October 9, 2019, Orbital Satcom Corp., entered into a 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%.

ORBSAT CORP.

8,050,000 Shares of Common Stock

Issuable upon Conversion of Convertible Promissory Notes

 

PROSPECTUS

January __, 2020

, 2017

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table setsSet forth allbelow is an estimate (except for registration fees, which are actual) of the approximate amount of each type of fees and expenses to belisted below that were paid or are payable by the Registrant, other than estimated underwriters’ discounts and commissions,us in connection with our public offering. All amounts shownthe issuance and distribution of the shares of common stock to be registered by this registration statement. None of the expenses listed below are estimates except forto be borne by any of the SECselling stockholders named in the prospectus that forms a part of this registration fee:statement.

 

SEC registration fee $811.30  $3,082*
FINRA filing fee $* 
Printing and engraving expenses  - 
Legal fees and expenses  *   16,000 
Accounting fees and expenses  *   7,500 
Transfer agent and registrar fees  *   - 
Printing and engraving expenses  * 
Miscellaneous fees and expenses  *   1,000 
Total  *  $27,582 

 

* To be filed by amendment.Previously paid.

 

Item 14. Indemnification of Directors and Officers

 

Neither our articles of incorporation nor bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statutes (“NRS”). NRS Section 78.7502, provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

 

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

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NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Our charter provides that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification. We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

 

Our bylaws provide that a director or officer of the Company shall have no personal liability to the Company or its stockholders for damages for breach of fiduciary duty as a director or officer, except for damages for breach of fiduciary duty resulting from (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law, or (b) the payment of dividends in violation of section 78.3900 of the NRS as it may from time to time be amended or any successor provision thereto.

 

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Item 15. Recent Sales of Unregistered Securities

 

On September 30, 2014, the Company sold an aggregate of 200,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $400,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s newly designated Series C Preferred Stock, par value $0.0001 per share, with each share convertible into ten (10) shares of Common Stock. On October 15, 2014, the Company sold an aggregate of 50,000 units for additional gross proceeds of $100,000. The Company issued an aggregate of 10,000,000 shares of common stock in connection with the foregoing transactions. The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

On October 15, 2014, the Company entered into an exchange agreement with a holder of promissory notes in the aggregate principal face amount of $35,000 previously issued by the Company. Pursuant to the exchange agreement, the holder exchanged the notes and relinquished any and all other rights it may have pursuant to the notes in exchange for 750,000 shares of newly designated Series D Preferred Stock. The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) as a transaction by an issuer not involving a public offering.

On October 15, 2014, the Company entered into a series of exchange agreements with certain former holders of convertible debentures who had previously converted the debentures but who were still owed unpaid interest on the debentures in the aggregate amount of $98,274. Pursuant to the exchange agreements, the holders exchanged the right to receive unpaid interest and relinquished any and all other rights they may have pursuant to the debentures in exchange for 4,250,000 shares of newly designated Series D Preferred Stock. The shares of Series D Preferred Stock were offered and issued pursuant to the exemption from registration under the Securities Act provided by Section 4(a)(2), as a transaction by an issuer not including a public offering.

On December 10, 2014, the Company issued 2,222,222 shares of common stock as consideration for a fully-paid and irrevocable non-exclusive license to use certain assets of the licensor following the date of grant. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

In December 2014 and January 2015 the Company issued a consultant an aggregate of 400,000 of common stock as compensation for services provided. The Company and the Consultant agreed to cancel these shares in February 2015.The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On January 22, 2015, the Company changed its legal corporate name to “Orbital Tracking Corp.” from “Great West Resources, Inc.” The Company effectuated the name change through a short-form merger pursuant to Chapter 92A of the Nevada Revised Statutes where a subsidiary formed solely for the purpose of the name change was merged with and into the Company, with the Company as the surviving corporation in the merger. The merger had the effect of amending the Company’s Articles of Incorporation to reflect its new legal name. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

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On January 23, 3015 the Company settled in full $156,000 owed to certain vendors. On such date the Company paid the vendors $35,000 and issued them an aggregate of 1,650,000 shares of its common stock. The Company further agreed that upon the close of its next financing, it would pay the vendors an additional $10,000 cash, issue 850,000 shares of common stock or common stock equivalents and convert an aggregate of $56,221 into securities on the same terms offered to investors in the financing. On February 19, 2015, the Company issued an aggregate of 197,443 shares of Series C Preferred Stock to certain of these vendors in connection with its February 19, 2015 financing. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On February 11, 2015, the Company entered into exchange agreements with each of Sandor Capital Master Fund LP and Point Capital, Inc. Pursuant to the exchange agreements, Sandor Capital Master Fund LP exchanged 8 million shares of common stock for 800,000 shares of the Company’s Series C Preferred Stock (the “Series C Preferred Stock”) and Point Capital, Inc. exchanged 2 million shares of common stock for 200,000 shares of Series C Preferred Stock. The shares of Series C Preferred Stock were offered and issued pursuant to the exemption from registration under the Securities Act provided by Section 3(a)(9) of the Securities Act.

On February 19, 2015, the Company entered into a share exchange agreement with GTCL and the GTCL Shareholders. Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly issued Series E Preferred Stock of the Company with each share of Series E Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 Cash Payment and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.

On February 19, 2015, the Company issued to Mr. Rector, the Chief Financial Officer and a director at the time and former Chief Executive Officer, 850,000 shares of common stock and a seven year option to purchase 2,150,000 shares of common stock at a purchase price of $0.05 per share as compensation for services provided to the Company. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On February 19, 2015, the Company sold an aggregate of 550,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $1,100,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s Series C Preferred Stock, par value $0.0001 per share, with each share convertible into ten (10) shares of common stock. The Company sold 15,000 units consisting of an aggregate of 600,000 shares of common stock and 535,000 units consisting of an aggregate of 2,140,000 shares of Series C Preferred Stock. The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

On February 19, 2015, the Company issued an aggregate of 1,675,000 shares of common stock to certain current consultants, former consultants and employees. These shares consist of (i) 250,000 shares of common stock issued to a consultant as compensation for services relating to the provision of satellite tracking hardware and related services, sales and lead generation, (ii) one million shares of common stock issued to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property, (iii) 250,000 shares of common stock, subject to a one year lock up, issued to the Company’s controller and (iv) 175,000 shares of common stock issued to MJI in full satisfaction of outstanding debts. MJI agreed to sell only up to 5,000 shares per day and the Company has a six month option to repurchase these shares at a purchase price of $0.75 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

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In June 2015 the Company issued 150,000 shares of common stock to a consultant as compensation for services provided. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On December 10, 2014, the Company, Orbital Satcom, GTC and GTC’s parent entered into a license agreement pursuant to which GTC granted to Orbital Satcom a fully paid and irrevocable non-exclusive license to use certain equipment owned by GTC or its affiliates consisting of “Appliqués” located in Globalstar’s facilities. The Company issued GTC 2,222,222 shares of its common stock as consideration for the license. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On December 21, 2015, the Company entered into a Placement Agent Agreement with Chardan Capital Markets LLC, as Agent, pursuant to which the placement agent agreed to serve as the non-exclusive placement agent for the Company in connection with any private placement from December 21, 2015 through January 15, 2017. The Company agreed to pay the placement agent a cash fee of $50,000 and issue the placement agent 250,000 shares of common stock following the issuance of at least $900,000 of securities prior to the expiration of the term of the agreement. On December 28, 2015, upon closing of the note purchase and Series F subscription agreements, the Company paid the respective fees and issued the common shares. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $550,000 of shares of Series F Preferred Stock at a purchase price of $0.50 per share. The Preferred F Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance. The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

On December 28, 2015, the Company entered into separate note purchase agreements with accredited investors relating to the issuance and sale of an aggregate of $605,000 in principal amount of original issue discount convertible notes for an aggregate purchase price of $550,000. The Company was to repay 1/24th of the principal of the notes each month commencing January 18, 2016. The notes did not bear interest except that all overdue and unpaid principal bears interest at a rate equal to the lesser of 18% per year or the maximum rate permitted by applicable law. The notes were convertible into common stock at the option of the holder at a conversion price of $1.00, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events; provided however, that the principal and interest, if any, on the notes may not be converted to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion. The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

Also on December 28, 2015, the Company issued its Chief Financial Officer options to purchase up to 500,000 shares of common stock and issued a director options to purchase up to 200,000 shares of common stock. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the plan. The options have an exercise price of $0.05 per share, vest immediately, and have a term of ten years. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

II-5

On February 11, 2016, the Company issued 136,612 shares of its common stock, valued at $0.60 per share, or $81,967, to IRTH Communications LLC for consulting services. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On May 17, 2016, the Company entered into exchange agreements with holders of the Company’s outstanding $504,168 convertible notes originally issued on December 28, 2015, pursuant to which the notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Preferred Stock. The terms of the shares of Series G Preferred Stock are set forth in the Certificate of Designation of Series G Preferred Stock as filed with the Secretary of State of the State of Nevada. The Series G COD authorizes 10,090,000 Preferred G Shares. The Preferred G Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares. Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereof.

On August 12, 2016, the Company issued 450,000 shares of its common stock, valued at $0.05 per share, or $22,500, to IRTH Communications LLC for consulting services. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On October 26, 2016, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of $350,000, out of a maximum of $800,000, of shares of Series H Preferred Stock at a purchase price of $4.00 per share. The initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H COD. The Company is prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock.EachSeries H Preferred Stockentitles the holder to cast one vote per share of Series H Preferred Stockowned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Preferred Series C, Preferred Series G and Preferred Series H, as well as antidilution rights.Certain shareholders have waived their right to adjustment, equal treatment, most favored nations and other rights to which they were entitled pursuant to the Prior Offerings, including without limitation, certain rights granted to holders of our Series C Preferred Stock, Series F Preferred Stock and G Preferred Stock.The Company was required to issue 550,000 shares of its Preferred Series C, which is convertible into 5,500,000 shares of the Company’s common stock and 114,944 shares of Preferred Series I, which is convertible into 11,494,400 shares of the Company’s common stock. Preferred Series I was issued to certain holders in lieu of Preferred Series G and Preferred Series H.The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

On December 16, 2016, the Company issued its Chief Executive Officer options to purchase up to 10,000,000 shares of common stock. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the plan. The options have an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

On May 31, 2017, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $546,694 of shares of Series J Preferred Stock at a purchase price of $10.00$150.00 per share. TheEach share of Preferred Series J Preferred Stock areis convertible into 0.4444 shares of the company’s common stock, based on a conversion calculation equaleach subject to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share,adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, as subject to adjustment as set forth in the Series J COD.certificate of designation. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.

 

In connection with the Series J Offering, the Company obtained the consent of certain shareholders, as required under the agreements entered into by the Company and issued shares pursuant to applicable anti-dilution obligations. The Company is required to issue to certain prior investors of Series G Preferred Stock additional shares of Series G Preferred Stock, which would be convertible into an aggregate of 38,805,66817,247 shares of the Company’s common stock. However, in lieu of issuing such additional shares of Series G Preferred Stock, the Company will create a new series of preferred stock, to be designated as “Series K Preferred Stock” and will issue to such holders of Series G Preferred Stock an aggregate of 388,05725,870 shares of Series K Preferred Stock, each of which shall be convertible into 100(100/150th)/15 shares of the Company’s common stock. In addition, in order to proceed with the Series J Offering, the Company agreed to issue additional shares of Series F Preferred Stock and Series H Preferred Stock to certain prior investors. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series H Preferred Stock, the Company issued to such holders of Series F Preferred Stock and Series H Preferred Stock an aggregate of 701,83246,789 shares of Series K Preferred Stock, each of which are convertible into 100(100/150th)/15 shares of the Company’s common stock, or 70,183,24331,193 shares. In addition, certain creditors of the Company were also entitled to anti-dilution protection from issuances and as a result such creditors were, at the closing of the Series J Offering, issued an aggregate of 76,7625,117 shares of Series K Preferred Stock convertible into 7,676,2413,412 shares of common stock in full satisfaction of payments owed to them.

 

On March 20, 2018, the Company issued 1,688 shares of its common stock, for rounding adjustments in regard to the 1 for 150 reverse split, which further split on August 19, 2019 to 113, in regard to the 1 for 15 reverse split.

On May 10, 2018, we issued 1,333 shares of our Series J Preferred Stock at their stated value of $150.04 per share to one investor, for total proceeds of $200,000. Our Series J Preferred Stock is currently convertible to common stock at a price of $22.50 per share and votes on an as-converted basis, subject to certain conversion limitations.

On May 11, 2018, we designated a new series of Preferred Stock entitled “Series L Preferred Stock.” Our Series L Preferred Stock consists of 6,667 shares with a stated value of $150.00 per share. Series L Preferred Stock is convertible to common stock at a price of $60.00 per share and votes together with our common stock on an as-converted basis.

On May 14, 2018, we issued a total of 2,000 Units to 3 investors at a price of $150.00 per Unit, for total proceeds of $300,000. Each Unit consists of 1/15th share of Series L Preferred Stock and warrants to purchase 2/15th shares of common stock at a price of $60.00, exercisable for three years.

 

The following table describes the capital raised as described above:

  Date  Units  Stated Value  Total Proceeds  Common Equivalents  Anti- Dilution Issuances  

Warrant

Common Equivalents

  Total Common Equivalents 
Preferred Series C  2/19/2015   550,000  $2.00  $1,100,000   9,778   2,444      12,222 
Preferred Series F  12/28/2015   1,099,998  $0.50  $550,000   489   23,956      24,444 
Preferred Series G  5/17/2016   10,083,351  $0.05  $504,168   4,481   17,926      22,407 
Preferred Series H  10/31/2016   87,500  $4.00  $350,000   3,889   11,667      15,556 
Preferred Series J  5/31/2017   50,000  $10.00  $500,000   2,222         2,222 
Preferred Series J  5/11/2018   20,000  $10.00  $200,000   59         59 
Preferred Series L  5/14/2018   30,000  $10.00  $300,000   33      4,000   60 

On May 14, 2019, we entered into a Convertible Note Purchase Agreement, for an aggregate $805,000. The note bears interest at a rate of 6% per annum, has a term of three years and is convertible into 8,050,000 shares of our common stock, post-split.

 

On August 27, 2019, the Company issued 1,283 shares of its common stock, for rounding adjustments in regard to the 1 for 15 reverse split, as approved by FINRA on August 19, 2019.

  Date  Units  Stated Value  Total Proceeds  Common Equivalents  Anti-
Dilution Issuances
  Total Common Equivalents 
                      
Preferred Series C  2/19/2015   550,000  $2.00  $1,100,000   22,000,000   5,500,000   27,500,000 
Preferred Series F  12/28/2015   1,099,998  $0.50  $550,000   1,099,998   53,899,902   54,999,900 
Preferred Series G  5/17/2016   10,083,351  $0.05  $504,168   10,083,351   40,333,449   50,416,800 
Preferred Series H  10/31/2016   87,500  $4.00  $350,000   8,750,000   26,250,000   35,000,000 
Preferred Series J  5/31/2017   50,000  $10.00  $500,000   5,000,000      5,000,000 
              $3,004,168   46,933,349   125,983,351   172,916,700 

 

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Item 16. Exhibits and Financial Statement Schedules

 

(a) Exhibits.

 

Exhibits Description
   
1.1Form of Underwriting Agreement. ***
2.1 Agreement and Plan of Merger dated March 28, 2014 (Incorporated by reference to Exhibit 2.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
2.2 Asset Purchase Agreement dated December 10, 2014 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014) (1)
   
2.3 Articles of Merger (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2015)
   
2.4 Share Exchange Agreement by and among Orbital Tracking Corp., Global Telesat Communications Ltd. and the Shareholders of Global Telesat Communications Ltd. dated February 19, 2015 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2015) (2)
2.5Agreement and Plan of Merger by and between Orbital Tracking Corp. and Orbital Merger Sub, Inc., a wholly owned subsidiary of the Company, dated July 26, 2019. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2019)
   
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.2 Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.3 Certificate of Amendment to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.4 Certificate of Amendment to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 8, 2016)
   
3.5 Bylaws (Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.6 Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 3.5 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.7 Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 3.6 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014)
   
3.8 Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)
   
3.9 Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)
   
3.10 Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2015)

 

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3.11 Amendment to Certificate of Designation of Preferences, Rights and Limitations of Series FC Convertible Preferred Stock (Incorporated by reference to Exhibit 3.13.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2015)
   
3.12 Certificate of Designation of Preferences, Rights and Limitations of Series G Convertible Preferred Stock (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2016)
   
3.13 Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2016)
   
3.14 Certificate of Designation of Preferences, Rights and Limitations of Series I Convertible Preferred Stock (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2016)
   
3.15 Certificate of Correction to Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 13, 2017)
   
3.16 Certificate of Designation of Preferences, Rights and Limitations of Series J Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017)
   
3.17 Certificate of Designation of Preferences, Rights and Limitations of Series K Convertible Preferred Stock (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017)
3.18Certificate of Designation of Preferences, Rights and Limitations of Series L Convertible Preferred Stock (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2018)
3.19Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)
3.20Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)

 

II-5

3.21Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)
3.22Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series I Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)
3.23Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series J Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)
3.24Certificate of Amendment to Designation of Preferences, Rights and Limitations of Series K Convertible Preferred Stock (Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2017)
3.25Certificate of Designation of Preferences, Rights and Limitations of Series L Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2018)
3.26Amended and Restated Certificate of Designations for the Series E Preferred Stock,. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 2019).
3.27Certificate of Amendment to Certificate of Designations for Series E Preferred Stock. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2019).
3.28Certificate of Amendment to Certificate of Designations for Series I Preferred Stock. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2019).
3.29Certificate of Amendment to Certificate of Designations for Series L Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2019).
3.30Certificate of Withdrawal of Certificate of Designations for Series A Preferred Stock. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.31Certificate of Withdrawal of Certificate of Designations for Series B Preferred Stock. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.32Certificate of Withdrawal of Certificate of Designations for Series C Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.33Certificate of Withdrawal of Certificate of Designations for Series D Preferred Stock. (Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.34Certificate of Withdrawal of Certificate of Designations for Series F Preferred Stock. (Incorporated by reference to Exhibit 3.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).

II-6

3.35Certificate of Withdrawal of Certificate of Designations for Series G Preferred Stock. (Incorporated by reference to Exhibit 3.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.36Certificate of Withdrawal of Certificate of Designations for Series H Preferred Stock. (Incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.37Certificate of Withdrawal of Certificate of Designations for Series J Preferred Stock. (Incorporated by reference to Exhibit 3.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.38Certificate of Withdrawal of Certificate of Designations for Series E Preferred Stock. (Incorporated by reference to Exhibit 3.9 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.39Certificate of Withdrawal of Certificate of Designations for Series I Preferred Stock. (Incorporated by reference to Exhibit 3.10 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.40Certificate of Withdrawal of Certificate of Designations for Series L Preferred Stock. (Incorporated by reference to Exhibit 3.11 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2019).
3.41Articles of Merger by and between Orbital Tracking Corp. and Orbital Merger Sub, Inc., a wholly owned subsidiary of the Company, dated July 26, 2019. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2019).
3.42Certificate of Change of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 13, 2019).
  
5.1 ConsentLegal opinion of Laxague Law Inc. ***(Previously filed as an exhibit to the Company’s Registration Statements on Form S-1 on January 16, 2020 and incorporated herein by reference).
   
10.1 Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 30, 2014)
   
10.2 2014 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 21, 2014)+
   
10.3 Securities Purchase Agreement by and between the Company and Auracana LLC dated January 21, 2014 (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 21, 2014)
   
10.4 

Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)

10.5 Form of Registration Rights Agreement (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)
   
10.6 Form of Exchange Agreement (Note) (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)
   
10.7 Form of Exchange Agreement (Unconverted Interest) (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014)
   
10.8 License Agreement dated December 10, 2014 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)
   
10.9 Consulting Agreement dated December 16, 2014 (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)
   
10.10 Price & Delivery Quote for the acceleration of Remote Telemetry capability and Simplex Data Services dated June 30, 2003 and Globalstar Response to GTC’s Letter of Acceptance dated August 07, 2003 (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)

 

 II-8II-7 
   

 

10.11 Agreement by and between Globalstar LLC and Globalnet Corporation dated May 04, 2005 (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)**
   
10.12 Assignment and Assumption Agreement by and between Globalstar LLC, Globalnet Corporation and Global Telesat Corp. dated July 28, 2005 (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)
   
10.13 Amendment to the Agreement by and between Globalstar LLC and Globalnet Corporation dated May 04, 2005, dated August 16, 2006 (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014) **
   
10.14 Contract No. GINC-C-11-0520 by and between Global Telesat Corp. and Globalstar, Inc., dated February 10, 2011 (Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)**
   
10.15 Form of Strategic Consulting Agreement (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)
   
10.16 $122,536 Note issued February 19, 2015 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2015) (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.17 Executive Employment Agreement by and betweenwith David Phipps and Orbital Satcom,, dated February 19, 2015June 14, 2018 (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)June 15, 2018)+
   
10.18 Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.19 Form of Subscription Agreement (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.20 Form of Registration Rights Agreement (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.21 Consulting Agreement by and between SpaceTao LLC and the Company, dated February 19, 2015 (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.22 Purchase and Transfer Agreement by and between Concentric Engineering LLC and the Company, dated February 19, 2015 (Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.23 Mutual Release Agreement by and between MJI Resources Corp. and the Company, dated February 19, 2015 (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015)
   
10.24 Form of Strategic Consulting Agreement (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2014)
   
10.25 Employment Agreement by and between Theresa Carlise and the Company, dated June 9, 201514, 2018 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2015)2018) +

 

 II-9II-8 
   

 

10.26 Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015)
   
10.27 Form of Note Purchase Agreement (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015)
   
10.28 Form of Note (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015)
   
10.29 Placement Agent Agreement by and between the Company and Chardan Capital Markets LLC (Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015)
   
10.30 Form of Lockup Agreement (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015)
   
10.31 Amendment No. 1 to Employment Agreement by and between the Company and Theresa Carlise dated December 28, 2015 (Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2015) +
   
10.32 Form of Option Agreement (Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2015) +
   
10.33 Executive Employment Agreement by and between Orbital Tracking Corp. and David Phipps (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 4, 2016) +
   
10.34 Form of Exchange Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2016)
   
10.35 Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 13, 2016)
10.36Form of Series I Issuance Agreement (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2016)
   
10.3710.36 Form of Option Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2017) +
   
10.3610.37 Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 13, 2017)
10.38Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017)
   
10.3710.39 Issuance Agreement for 66,977 shares of Series K Preferred Stock (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017)

II-9
   

10.3810.40 Issuance Agreement for 9,786 shares of Series K Preferred Stock (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017)
   
10.3910.41 Form of Option Agreement (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017) +
10.42

Form of Subscription Agreement - Series J Preferred Stock (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2018)

10.43Form of Subscription Agreement - Series L Preferred Stock (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2018)
10.44Form of Warrant ((Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2018)
10.452018 Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2018) +
10.46Executive Employment Agreement by and between Orbital Tracking Corp. and David Phipps (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2018) +
10.47Executive Employment Agreement by and between Orbital Tracking Corp. and Theresa Carlise (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2018) +
10.48Form of Option Agreement (Incorporated by reference to Exhibit 10.49 to the Current Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2019)
10.49Security Purchase Agreement by and between Orbital Tracking Corp. and Power Up Ltd. dated January 14, 2019. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2019).
10.50Convertible Promissory Note by and between Orbital Tracking Corp. and Power Up Ltd., dated January 14, 2019. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2019).
10.51Form of Share Note Exchange Agreement by and between Orbital Tracking Corp and certain holders of the Company’s preferred stock. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2019).

II-10

10.52Form of 6% Promissory Note dated April 30, 2019, by and between Orbital Tracking Corp and certain holders of the Company’s preferred stock. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2019).
10.53Note Purchase Agreement by and among the Company and the lenders set forth on the lender schedule to the Note Purchase Agreement dated May 13, 2019. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2019).
10.54Amendment to Note Purchase Agreement by and among the Company and the lenders set forth on the lender schedule to the Note Purchase Agreement dated May 13, 2019. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2019).
10.55Form of Consulting Agreement with the Company, dated May 13, 2019. (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2019).
   
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 7, 2017) March 29, 2019).
   
23.1 Consent of RBSM LLP*
   
23.2 

Consent of Laxague Law Inc .(includedInc. (included in Exhibit 5.1)***.

   
24.1(1) PowerSchedules have been omitted pursuant to Item 601(b)(2) of Attorney (set forth onRegulation S-K. A copy of any omitted schedule will be furnished supplementally to the signature page hereof)Securities and Exchange Commission upon request; provided, however that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule or exhibit so furnished.

 

* Filed herewith.

II-10

 

** A redacted version of this exhibit was previously filed. An un-redacted version of this Exhibit has been separately filed with the Commission pursuant to an application for confidential treatment. The confidential portions of the Exhibit have been omitted and are marked by an asterisk.

 

*** To be filed by Amendment.

+ Management contract or compensatory plan or arrangement.

 

Item 17. Undertakings.

 

(a) The undersigned hereby undertakes:

(1) To file, during any period in which offers, or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

II-11

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-1 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrantRegistrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 II-11II-12 
   

 


SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1, Amendment No. 1 , to be signed on its behalf by the undersigned, thereunto duly authorized, in Aventura, Florida, on the 24th day of July, 2017.January 2020.

 

 ORBITAL TRACKINGORBSAT CORP.
   
 By:/s/ David Phipps
  David Phipps
  Chief Executive Officer
  (Principal Executive Officer)
 
 By:/s/ Theresa Carlise
  TeresaTheresa Carlise
  Chief Financial Officer
  (Principal Financial Officer and Principal Accounting Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Phipps his true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him/her and in his name, place and stead, in any and all capacities to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement, any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or all pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the following persons in the capacities and on the dates indicated have signed this Registration Statement below.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.

 

/s/ David Phipps    
David Phipps 

Director, Chairman Chief

Executive Officer

 JulyJanuary 24, 20172020
  (Principal Executive Officer)  
/s/ Theresa Carlise    
Theresa Carlise Chief Financial Officer July

January 24, 20172020

  

(Principal Financial Officer and

Principal Accounting Officer)

  
/s/ Hector Delgado *    
Hector Delgado Director July

January 24, 20172020

By:

/s/ David Phipps

 

David Phipps, Attorney-in-fact

    

 

 II-12II-13