NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
Orbital
Tracking 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. O
n 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.
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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2016 and
2015 are summarized as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
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. 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 institutions. The Company’s account at this institution
is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. To reduce its risk associated with
the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in
which it holds deposits.
Accounts
receivable and allowance for doubtful accounts
The
Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses
in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance
is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection
have been exhausted and the potential for recovery is considered remote. As of December 31, 2016 and 2015, there is an allowance
for doubtful accounts of $7,258 and $0, respectively.
Foreign
Currency Translation
The
Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained
using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated
into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense
accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported
as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains
and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the statements of operations.
The
relevant translation rates are as follows: for the year ended December 31, 2016 closing rate at 1.2345 US$: 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
|
In
accordance with ASC 605-25,
Revenue Recognition
—
Multiple-Element Arrangements,
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.
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 market, using the first-in first-out cost method. The Company assesses the valuation of its
inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted
usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis
and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the
carrying value of inventories is recorded to cost of goods sold.
Prepaid
expenses
Prepaid
expenses amounted to $171,164 and $381,645 at December 31, 2016 and 2015, 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. The current portion consists primarily of costs paid for future services which will occur within a year.
Prepaid expense current portion and long-term portion were $171,164 and $0, as of December 31, 2016. Prepaid expense current portion
and long-term portion were $191,677 and $189,968, as of December 31, 2015.
Intangible
assets
Intangible
assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10
years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.
Goodwill
and other intangible assets
In
accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable
intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2016 and 2015 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 fixtures
|
|
|
4
|
|
Computer equipment
|
|
|
4
|
|
Appliques
|
|
|
10
|
|
Website development
|
|
|
2
|
|
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.
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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant
unobservable input (Level 3) from January 1, 2016 to December 31, 2016:
|
|
Conversion
feature derivative liability
|
|
|
Warrant
liability
|
|
|
Total
|
|
Balance at January 1, 2016
|
|
$
|
614,035
|
|
|
$
|
4,356
|
|
|
$
|
618,391
|
|
Change in fair value included in earnings
|
|
|
(422,974
|
)
|
|
|
(3,119
|
)
|
|
|
(426,093
|
)
|
Net effect on
additional paid in capital
|
|
|
(191,061
|
)
|
|
|
-
|
|
|
|
(191,062
|
)
|
Balance at December 31, 2016
|
|
$
|
-
|
|
|
$
|
1,237
|
|
|
$
|
1,237
|
|
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 requires 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 are 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 1,000,000 of its common stock, par value $0.0001, 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.
Accumulated
Other Comprehensive Income (Loss)
Comprehensive
income 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, 2016 and 2015 included net loss and unrealized losses from foreign currency translation
adjustments.
E
arnings
per Common Share
Net
income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic
income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding
during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted
average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities
are excluded.
The
following are dilutive common stock equivalents during the year ended:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Convertible preferred stock
|
|
|
212,514,255
|
|
|
|
214,157,174
|
|
Stock Options
|
|
|
12,850,000
|
|
|
|
2,850,000
|
|
Stock Warrants
|
|
|
5,000
|
|
|
|
5,000
|
|
Total
|
|
|
225,369,255
|
|
|
|
217,012,174
|
|
Reclassifications
Certain
reclassifications have been made to the prior year’s financial statements to conform to the current year’s
presentation. These reclassifications had no effect on previously reported results of operations. The Company
reclassified certain expense accounts to conform to the currents year’s treatment.
Recent
Accounting Pronouncements
In
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. The Company is currently assessing the impact of ASU No. 2014-15 on the
Company’s consolidated financial statements once adopted.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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. Early adoption is permitted. Therefore the amendments
in ASU 2015-11 will become effective for us as of the beginning of our 2018 fiscal year. The adoption of this guidance is not
expected to have a material impact upon our financial condition or results of operations.
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, 2016, the Company had an accumulated deficit of approximately $4,601,406, working capital of approximately $81,490 and net
loss of approximately $2,589,923 during the year ended December 31, 2016. 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.
NOTE
3 – ORBITAL TRACKING CORP AND GLOBAL TELESAT COMMUNICATIONS LIMITED SHARE EXCHANGE, REVERSE ACQUISITION AND RECAPITALIZATION
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 Exchange Agreement the GTCL Shareholders (7 members) transferred all of the issued and outstanding equity of GTCL to
OTC in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the OTC and 8,746,000 shares of the newly issued
Series E Convertible Preferred Stock of OTC with each share of Series E Convertible Preferred Stock convertible into ten shares
of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange
caused GTCL to become a wholly owned subsidiary of the Company.
For
accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization
of Orbital Tracking Corp. with Global Telesat Communications Limited considered the accounting acquirer, and the financial statements
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. As part of agreement, OTC shareholders retained 5,383,172 shares of Common Stock, 20,000
shares of series A Convertible Preferred Stock, 6,666 shares of series B Convertible Preferred Stock, 1,197,442 shares of series
C Convertible Preferred Stock and 5,000,000 shares of series D Convertible Preferred Stock.
Property and equipment
|
|
$
|
4,973
|
|
Accounts receivable
|
|
|
34,585
|
|
Cash in bank
|
|
|
30,934
|
|
Prepaid expenses
|
|
|
2,219,677
|
|
Inventory
|
|
|
40,161
|
|
Intangible asset
|
|
|
250,000
|
|
Current liabilities
|
|
|
(469,643
|
)
|
Due to related party
|
|
|
(2,174
|
)
|
Derivative liability
|
|
|
(4,936
|
)
|
Liabilities of
discontinued operations
|
|
|
(112,397
|
)
|
Total purchase
price/assets acquired
|
|
$
|
1,991,180
|
|
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – INVENTORIES
At
December 31, 2016 and 2015, inventories consisted of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Finished
goods
|
|
$
|
335,267
|
|
|
$
|
251,518
|
|
|
|
|
|
|
|
|
|
|
Less reserve
for obsolete inventory
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
335,267
|
|
|
$
|
251,518
|
|
For
the years ended December 31, 2016 and 2015, the Company did not make any change for reserve for obsolete inventory.
NOTE
5 – PREPAID EXPENSES
Prepaid
expenses amounted to $171,164 and $381,645 at December 31, 2016 and 2015, 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. The current portion consists primarily of costs paid for future services which will occur within a year.
Prepaid expense current portion and long-term portion were $171,164 and $0, as of December 31, 2016. Prepaid expense current portion
and long-term portion were $191,677 and $189,968, as of December 31, 2015.
Prepaid
License Fees
On
December 10, 2014, the Company, through its wholly owned subsidiary, Orbital Satcom Corp, entered into a License Agreement with
World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp, by which the Company had an irrevocable
non-exclusive license to use certain equipment, consisting of Appliques for a term of ten years. Appliques are demodulator and
RF interfaces located at various ground stations for gateways. The Company issued 2,222,222 common shares, valued at $1 per share
based on the quoted trading price on date of issuance, or $2,222,222. The company reflected the license as an asset on its balance
sheet with a ten-year amortization, the term of the license.
On
October 13, 2015, the Company purchased the license and equipment for an additional $125,000 in cash. The Company values the equipment
at the unamortized balance at the time of acquisition, $2,043,010, plus the consideration of $125,000 or $2,160,096. The Company
will amortize the life of the asset for ten years from date of acquisition, (see Note 6).
For
the years ended December 31, 2016 and 2015, the Company recorded amortization relating to the licenses of $0 and $174,582, respectively.
The amortization is included in depreciation and amortization expenses as reflected in the accompanying consolidated statements
of operations. As of December 31, 2016, the amount of prepaid expense relating to the license fees is $0.
Prepaid
Stock Based Compensation
On
February 19, 2015, the Company issued an aggregate of 500,000 shares of its common stock, $0.001 par value, at $0.05 per share,
as compensation for consulting services in the amount of $12,500, amortized over the length of service, six months; and 250,000
shares as compensation to an employee, which is amortized over twelve months. The amortization is included in professional fees
and stock based compensation, as reflected in the accompanying consolidated statements of operations.
On
June 18, 2015, the Company issued an aggregate of 150,000 shares of common stock valued at $0.79 per share, or $118,500 to an
Investor Relation firm as compensation for services, which is amortized over the period of service, six months. The amortization
is included in professional fees: investor relations, as reflected in the accompanying consolidated statements of operations.
On
December 28, 2015, the Company issued an aggregate of 250,000 shares of common stock valued at $1.30 per share, or $325,000 to
a consultant as a placement fee as compensation for services and paid a placement fee and associated transaction costs of $52,500,
relating to the proceeds from convertible debt and private placement, which is amortized over the term of the convertible notes,
two years. The amortization is included in depreciation and amortization, as reflected in the accompanying consolidated statements
of operations.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
February 11, 2016, the Company issued an aggregate of 136,612 shares of common stock valued at $0.73 per share, or $100,000 to
a consultant as compensation for services. The amortization is included in professional fees, as reflected in the accompanying
consolidated statements of operations.
The
following table represents the amounts included in the accompanying consolidated financial statements, as summarized:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Prepaid Expense
|
|
|
|
|
|
|
|
|
Compensation for services
|
|
$
|
403,212
|
|
|
$
|
25,000
|
|
Placement fees
and transaction costs
|
|
|
379,932
|
|
|
|
381,500
|
|
Less accumulated
amortization
|
|
|
(621,980
|
)
|
|
|
(24,855
|
)
|
Total
|
|
$
|
161,164
|
|
|
$
|
381,645
|
|
NOTE
6 – PROPERTY AND EQUIPMENT
On
October 13, 2015, the Company through its wholly owned subsidiary, Orbital Satcom Corp, purchased from World Surveillance Group,
Inc., and its wholly owned subsidiary, Global Telesat Corp the “Globalstar” license and equipment, which it had previously
leased. On December 10, 2014, the Company, entered into a License Agreement with World Surveillance Group, Inc., and its wholly
owned subsidiary, Global Telesat Corp, by which the Company had an irrevocable non-exclusive license to use certain equipment,
consisting of Appliques for a term of ten years. Appliques are demodulator and RF interfaces located at various ground stations
for gateways. The Company issued 2,222,222 common shares, valued at $1 per share based on the quoted trading price on date of
issuance, or $2,222,222. The company reflected the license as an asset on its balance sheet with a ten-year amortization, the
term of the license. On October 13, 2015, the Company acquired the license for additional consideration of $125,000 in cash. The
Company valued the asset at $2,160,016, which is the unamortized balance of the Appliques License, $2,043,010 plus the consideration
of $125,000.
Property
and equipment consisted of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Office furniture and fixtures
|
|
$
|
90,728
|
|
|
$
|
95,434
|
|
Computer equipment
|
|
|
29,066
|
|
|
|
24,766
|
|
Appliques
|
|
|
2,160,096
|
|
|
|
2,160,096
|
|
Website development
|
|
|
100,436
|
|
|
|
92,399
|
|
|
|
|
|
|
|
|
|
|
Less accumulated
depreciation
|
|
|
(401,989
|
)
|
|
|
(154,002
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,978,338
|
|
|
$
|
2,218,693
|
|
Depreciation
expense was $266,803 and $154,002 for the years ended December 31, 2016 and 2015, respectively.
NOTE
7 – 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 Gobal 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization
of customer contracts are included in depreciation and amortization. For the year ended December 31, 2016, the Company amortized
$25,000. Future amortization of intangible assets is as follows:
2017
|
|
$
|
25,000
|
|
2018
|
|
|
25,000
|
|
2019
|
|
|
25,000
|
|
2020
|
|
|
25,000
|
|
Total
|
|
$
|
200,000
|
|
On
February 19, 2015, the Company issued 1,000,000 of its common stock, par value $0.0001, 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.
NOTE
8 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts
payable and accrued other liabilities consisted of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Accounts payable
|
|
$
|
373,288
|
|
|
$
|
409,995
|
|
Rental deposits
|
|
|
12,307
|
|
|
|
18,937
|
|
Accrued wages
|
|
|
-
|
|
|
|
9,887
|
|
Payroll liabilities
|
|
|
4,908
|
|
|
|
5,439
|
|
Sales tax payable
|
|
|
1,769
|
|
|
|
1,861
|
|
VAT liability
|
|
|
27,399
|
|
|
|
28,063
|
|
Pre-merger accrued other liabilities
|
|
|
65,948
|
|
|
|
77,948
|
|
Accrued other
liabilities
|
|
|
51,286
|
|
|
|
58,102
|
|
Total
|
|
$
|
536,906
|
|
|
$
|
610,232
|
|
NOTE
9 – CONVERTIBLE NOTES PAYABLE
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 $550,001.
The
Notes mature on December 28, 2017. The Company must repay 1/24th or $25,208 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 550,000 shares of common
stock 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. 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.
Total
amortization of debt discounts for the convertible debentures amounted to $0 and $2,486 for the years ended December 31, 2016
and 2015, respectively, and was included as amortization.
At
December 31, 2016 and 2015, outstanding balance of convertible debentures was $0 and $605,000, respectively.
NOTE 10 – 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Instruments
with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the
occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower
strike price is an input to the fair value of a fixed-for-fixed option on equity shares.
In
connection with the issuance of its 6% convertible debentures and related warrants, the Company has determined that the terms
of the convertible warrants include down-round provisions under which the exercise price could be affected by future equity offerings.
Accordingly, the warrants are accounted for as liabilities at the date of issuance and adjusted to fair value through earnings
at each reporting date. 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 Convertible Preferred. Upon the conversion,
additional paid in capital increased $649,662 from the decrease in convertible notes payable of $504,168, decrease in derivative
liabilities of $146,502 and increase in Series G Convertible Preferred Stock of $1,008.
The
convertible notes were accounted for as liabilities at the date of issuance and adjusted to fair value through earnings at each
reporting date. The Company recorded amortization for the discount to the convertible notes of $602,515 at December 31, 2016.
As of December 31, 2016 and December 31, 2015, the Company has unamortized discount balance of $0 and $602,515, respectively.
The Company has recognized derivative liabilities of $0 and $614,036 at December 31, 2016 and December 31, 2015, respectively.
The gain (loss) resulting from the decrease (increase) in fair value of this convertible instrument was $422,974 and ($64,035)
for the year ended December 31, 2016 and the year ended December 31, 2015, respectively. The Company has recognized derivative
liabilities for related warrants of $1,237 and $4,356 at December 31, 2016 and December 31, 2015, respectively. The gain resulting
from the decrease in fair value of this convertible instrument was $2,815 and $580 for the year ended December 31, 2016 and the
year ended December 31, 2015, respectively. Weighted average term is 0.35 years.
|
|
Conversion
feature
derivative
liability
|
|
|
Warrant
liability
|
|
|
Total
|
|
Balance at January 1, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Recapitalization on February 19, 2015
|
|
|
-
|
|
|
|
4,936
|
|
|
|
4,936
|
|
Convertible notes payable – December 28, 2015
|
|
|
550,001
|
|
|
|
-
|
|
|
|
550,001
|
|
Change in fair value recorded in earnings
|
|
|
64,035
|
|
|
|
(581
|
)
|
|
|
63,454
|
|
Balance at December 31, 2015
|
|
|
614,035
|
|
|
|
4,356
|
|
|
|
618,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value included in earnings
|
|
|
(422,974
|
)
|
|
|
(3,119
|
)
|
|
|
(426,093
|
)
|
Net effect on
additional paid in capital
|
|
|
(191,062
|
)
|
|
|
-
|
|
|
|
(191,062
|
)
|
Balance at December 31, 2016
|
|
$
|
-
|
|
|
$
|
1,237
|
|
|
$
|
1,237
|
|
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, 2016
|
|
|
December
31, 2015
|
|
Expected volatility
|
|
|
263.35
|
%
|
|
|
318
|
%
|
Expected term - years
|
|
|
0.35
|
|
|
|
1.36
|
|
Risk-free interest rate
|
|
|
1.22
|
%
|
|
|
1.06
|
%
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated financial statements are retroactively restated for the effect of the Reincorporation.
The
authorized capital of the Company consists of 750,000,000 shares of common stock, par value $0.0001 per share and 50,000,000 shares
of preferred stock, par value $0.0001 per share, as of December 31, 2016,. 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.
Preferred
Stock
As
of December 31, 2016, there were 50,000,000 shares of Preferred Stock authorized. On March 6, 2016, the Company’s shareholders
increased the authorized shares of its preferred stock to 50,000,000 from 20,000,000.
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 shares of Series A Convertible Preferred Stock, par value $0.0001 per share, for a total of 20,000 issued
and outstanding shares of Series A Convertible 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
Convertible
Preferred Stock.
Each share of Series A Convertible 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. The holders of our Series A Convertible Preferred Stock are entitled to 250 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, 2016, and 2015, 20,000 shares of Series A Convertible Preferred Stock, $0.0001 par value were authorized
with none issued and outstanding.
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 shares of Series B Convertible Preferred Stock, par value $0.0001 per share, for a total of 6,666 issued
and outstanding shares of Series B Convertible 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 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 five (5) 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 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 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
one (1) votes per share of Series B
Convertible
Preferred Stock owned at the time
of such vote, subject to the 4.99% beneficial ownership limitation.
As
of December 31, 2016, and 2015, 30,000 shares of Series B Convertible Preferred Stock, $0.0001 par value were authorized
with 6,666 issued and outstanding, respectively.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 4,000,000 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 ten (10) 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 ten
(10) 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
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
4,000,000 from 3,000,000.
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 a price per share or conversion
or exercise price per share which shall be less than $0.05 per share (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 a Purchase Price equal 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 purchase price of $4.00 per share and the initial conversion price is $0.04 per share. The Company is required to issue to certain
prior investors an aggregate of 550,000 shares of Series C Convertible Preferred Stock, which is convertible into an aggregate
of 5,500,000 shares of the Company’s common stock.
As
of December 31, 2016, and 2015, 4,000,000 shares of Series C Convertible Preferred Stock, $0.0001 par value were authorized;
with 3,540,365 and 3,337,442 issued and outstanding, respectively.
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 5,000,000 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 twenty (20) 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
twenty (20) votes per share of Series D
Convertible
Preferred Stock owned at the
time of such vote, subject to the 4.99% beneficial ownership limitation.
As
of December 31, 2016 and 2015, there were 5,000,000 shares of Series D Convertible Preferred Stock authorized; 3,428,984
and 4,673,010 shares issued and outstanding, respectively.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
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
8,746,000
shares of its blank check preferred stock as Series
E Convertible Preferred
Stock
. Each share of Series E Convertible Preferred
Stock
has
a stated value equal to its par value of $0.0001 per share. In the 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 ten (10) shares of the
Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Convertible Preferred Stock
to the extent that, 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 Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock entitles the holder
to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series
E Convertible Preferred Stock entitles the holder to cast ten (10) votes per share of Series E Convertible Preferred Stock owned
at the time of such vote, subject to the 4.99% beneficial ownership limitation.
On
February 19, 2015, the Company entered into a share exchange agreement with
Global Telesat
Communications Limited,
a Private Limited Company formed under the laws of England and Wales (“GTCL”) and all
of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated
under the share exchange agreement, the GTCL Shareholders transferred all of the issued and outstanding equity of GTCL to the
Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly
issued Series E 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 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.
As
of December 31, 2016, and 2015, there were 8,746,000 shares of Series E Convertible Preferred Stock authorized; 7,929,651
and 8,621,589 shares issued and outstanding, respectively.
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, the Series F Convertible Preferred Stock are convertible into shares of common
stock based on a conversion calculation equal to the stated value of such Series F Convertible Preferred Stock divided by the
conversion price. The stated value of each Series F Convertible Preferred Stock 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 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.
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 one (1)
vote per share of Series F Convertible Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership
limitation.
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
Series F Convertible Preferred Stock with a conversion price equal to the lower price issuance.
On
December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance
and sale of $550,000 of 1,099,998 shares of Series F Convertible Preferred Stock at a purchase price of $0.50 per share.
On October 28, 2016, issued to certain prior investors of Series F Convertible Preferred Stock an aggregate
of 91,944 shares of Series I Convertible Preferred stock which is convertible into an aggregate of 9,194,400 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 $4.00 per share and the initial conversion price is $0.04 per share. The price per share or conversion
or exercise price per share which is less than $0.50 per 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 a Purchase Price equal to the
Lower Price Issuance.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2016, there were 1,100,000 shares of Series F Convertible Preferred Stock authorized and 1,099,998 shares
issued and outstanding, respectively. As of December 31, 2015, no shares of Series F Convertible Preferred Stock were authorized
or issued.
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 10,090,000 shares of its blank check preferred stock as Series G Preferred
Stock (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.
On
October 28, 2016, the Company issued to certain prior investors of Series G Preferred Convertible Shares an aggregate of
23,000 shares convertible preferred Series I, which is convertible into an aggregate of 2,300,000 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 $4.00 per share and the initial conversion price is $0.04 per share. The price per share or conversion
or exercise price per share which is less than $0.50 per 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 a Purchase Price equal to the
Lower Price Issuance.
As
of December 31, 2016, there were 10,083,351 shares of Series G Convertible Preferred Stock issued and outstanding convertible
into up to 10,083,351 shares of common stock without regard to the beneficial ownership limitation.
As
of December 31, 2015, no shares of Series G Convertible Preferred Stock were authorized or issued.
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 200,000 shares of its blank check preferred stock as Series H Preferred Stock
(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. Each Preferred H Share entitles the holder to cast one vote per share of Series H Preferred Stock owned as
of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.
As
of December 31, 2016, 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.
As
of December 31, 2015, no shares of Series H Convertible Preferred Stock were authorized or issued.
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 114,944 shares of its blank check preferred stock as Series I Preferred Stock
(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 Share entitles the holder to cast one 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2015, no shares of Series H Convertible Preferred Stock were authorized or issued.
As
of December 31, 2016, 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.
Common
Stock
As
of December 31, 2016, there were 750,000,000 shares of Common Stock authorized and 57,309,364 shares issued and outstanding. On
March 28, 2016, the Company’s shareholders increased the authorized shares of its common stock to 750,000,000 from 200,000,000.
On
December 10, 2014, the Company entered into a license agreement pursuant to which the Company was granted through its wholly-owned
subsidiary, Orbital Satcom, a fully paid and irrevocable non-exclusive license to use certain equipment owned by GTC or its affiliates
consisting of “appliques” in connection with the Globalstar Contracts. In consideration of the License Agreement,
the Company issued GTC 2,222,222 shares of the Company’s common stock. The Company valued these common shares at the
fair value of approximately $1.00 per common share or $2,222,222 based on the quoted trading price on the execution date of the
license agreement. On October 13, 2015, the company purchased the Appliques for an additional consideration of $125,000, see Note
6.
On
February 19, 2015, the Company entered into a Share Exchange Agreement (the “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 Exchange Agreement (the “Share Exchange”), the GTCL Shareholders (7 members) transferred all of the issued
and outstanding equity of GTCL to the Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the
Company and 8,746,000 shares of the newly issued Series E Convertible Preferred Stock of the Company with each share of Series
E Convertible Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 (the “Cash Payment”)
and (iii) a one-year promissory note in the amount of $122,536 (the “Note”). Such exchange caused GTCL to become a
wholly owned subsidiary of the Company. This transaction was accounted for as a reverse recapitalization of GTCL since the
shareholders of GTCL obtained approximately 39% voting control and management control of the Company, whereby GTCL is considered
the acquirer for accounting purposes. The Company is deemed to have issued 5,383,172 shares of common stock, 20,000 shares of
Series A Convertible Preferred Stock, 6,666 shares of Series B Convertible Preferred Stock, 1,197,442 shares of Series C convertible
preferred stock, and 5,000,000 shares of Series D convertible preferred stock which represent the outstanding common shares and
preferred shares of the Company just prior to the closing of the transaction.
On
February 19, 2015, David Phipps, the founder, principal owner and sole director of GTCL, was appointed President of Orbital Satcom
Corp., the Company’s wholly owned subsidiary. Following the transaction, Mr. Phipps was appointed Chief Executive Officer
and Chairman of the Board of Directors of the Company.
Mr. Phipps, who was one of the GTCL
Shareholders, received 400,000 shares of the Company’s common stock and 6,692,000 shares of Series E
Convertible
Preferred Stock in connection with the Share Exchange of GTCL shares, and was paid the Cash
Payment and 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, the Company issued an aggregate of 1,675,000 shares of common stock to certain current consultants, former
consultants and employees. These shares consist of (i) 250,000 shares of common stock issued to a consultant as compensation for
services relating to the provision of satellite tracking hardware and related services, sales and lead generation, valued at $12,500
(ii) 1 million shares of common stock issued to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar
Simplex tracking devices and related hardware and intellectual property, valued at $50,000 (iii) 250,000 shares of common stock,
subject to a one year lock up, issued to the Company’s controller, valued at $12,500 and (iv) 175,000 shares of common
stock issued to MJI in full satisfaction of outstanding debts of $175,000. MJI agreed to sell only up to 5,000 shares per day
and the Company has a nine-month option to repurchase these shares at a purchase price of $0.75 per share.
On
February 19, 2015, the Company issued to Mr. Rector, the former Chief Executive Officer, Chief Financial Officer and director
of the Company, 850,000 shares of the Company’s common stock and a seven-year option to purchase 2,150,000 shares of common
stock as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully
vested on the date of grant and shall expire in February 2022. The Company valued these common shares at the fair value of $0.05
per common share based on the sale of common stock in a private placement at $0.05 per common share. In connection with issuance
of these common shares, the Company recorded stock-based compensation of $42,500. The 2,150,000 options were valued on the grant
date at approximately $0.05 per option or a total of $107,500 using a Black-Scholes option pricing model with the following assumptions:
stock price of $0.05 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 year ended December 31, 2016 of $107,500.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 Convertible
Preferred Stock, par value $0.0001 per share, with each share convertible into ten (10) shares of common stock. The 550,000 units
sale included 15,000 units consisting of an aggregate of 600,000 shares of common stock and 535,000 units consisting of an aggregate
of 2,140,000 shares of Series C Convertible Preferred Stock. Included in this 550,000 units private placement was a sale to Frost
Gamma Investments Trust, a holder of 5% or more of its securities, of 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 its Series C Convertible Preferred
Stock per unit at a purchase price of $2.00 per unit for gross proceeds to the Company of $900,000.
On
June 18, 2015, the Company issued an aggregate of 150,000 shares of common stock valued at $0.79 per share, or $118,500 to an
Investor Relation firm as compensation for services, which is amortized over the period of service.
On
July 15, 2015, the Company issued an aggregate of 200,000 shares of common stock upon conversion of 20,000 shares of Series E
Preferred Stock held by the Chief Executive Officer.
On
July 24, 2015, the Company issued an aggregate of 20,000 shares of common stock upon conversion of 20,000 shares of Series A Preferred
Stock held by a former majority shareholder of the company.
On
August 3, 2015, the Company issued an aggregate of 63,825 shares of common stock upon the conversion of 6,382.50 shares of Series
E Preferred Stock.
On
August 4, 2015, the Company issued an aggregate of 5,325 shares of common stock upon the conversion of 532.50 shares of Series
E Preferred Stock.
On
August 5, 2015, the Company issued an aggregate of 5,850 shares of common stock upon the conversion of 585 shares of Series E
Preferred Stock.
On
September 1, 2015, the Company issued an aggregate of 73,800 shares of common stock upon the conversion of 7,380 shares of Series
E Preferred Stock.
On
September 8, 2015, the Company issued an aggregate of 1,200 shares of common stock upon the conversion of 120 shares of Series
E Preferred Stock.
On
October 1, 2015, the Company issued an aggregate of 73,800 shares of common stock upon the conversion of 7,380 shares of Series
E Preferred Stock.
On
October 2, 2015, the Company issued an aggregate of 1,200 shares of common stock, upon the conversion of 120 shares of Series
E preferred Stock.
On
October 5, 2015, the Company issued an aggregate of 400,000 shares of common stock upon the conversion of 20,000 shares of Series
D Preferred Stock.
On
October 8, 2015, the Company issued an aggregate of 400,000 shares of common stock upon conversion of 20,000 shares of Series
D Preferred Stock held by beneficial shareholder of the company.
On
October 20, 2015, the Company issued an aggregate of 300,000 shares of common stock upon conversion of 15,000 shares of Series
D Preferred Stock held by beneficial shareholder of the company.
On
November 2, 2015, the Company issued an aggregate of 73,800 shares of common stock upon the conversion of 7,380 shares of Series
E Preferred Stock.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
November 5, 2015, the Company issued an aggregate of 1,200 shares of common stock upon the conversion of 120 shares of Series
E Preferred Stock.
On
December 2, 2015, the Company issued an aggregate of 75,000 shares of common stock upon the conversion of 7,500 shares of Series
E Preferred Stock.
On
December 17, 2015, the Company issued an aggregate of 180,000 shares of common stock upon the conversion of 9,000 shares of Series
D Preferred Stock.
On
December 18, 2015, the Company issued an aggregate of 200,000 shares of common stock upon the conversion of 10,000 shares of Series
D Preferred Stock.
On
December 22, 2015, the Company issued an aggregate of 450,000 shares of common stock upon the conversion of 22,500 shares of Series
D Preferred Stock.
On
December 23, 2015, the Company issued an aggregate of 1,875,000 shares of common stock upon the conversion of 87,500 shares of
Series D Preferred Stock and 12,500 shares of Series E Preferred Stock.
On
December 24, 2015, the Company issued an aggregate of 1,681,120 shares of common stock upon the conversion of 84,056 shares of
Series D Preferred Stock.
On
December 28, 2015, the Company issued an aggregate of 250,000 shares of common stock valued at $1.30 per share, or $325,000 to
a consultant as a placement fee as compensation for services, which is amortized over the period of service. The Company issued
in a private placement to certain accredited investors an aggregate of 1,099,998 shares of Series F Preferred Stock, par value
$0.0001, at $0.50 per share for gross proceeds to the Company of $550,001.
On
December 29, 2015, the Company issued 678,860 shares of common stock upon the conversion of 33,934 shares of Series D Preferred
Stock and issued 462,230 shares of its common stock upon the conversion of 46,223 shares of Series E Preferred Stock, by David
Phipps, its Chief Executive Officer.
On
December 30, 2015, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 25,000 shares of Series
D Preferred Stock.
On
December 31, 2015, the Company issued an aggregate of 81,880 shares of common stock upon the conversion of 8,188 shares of Series
E Preferred Stock, by David Phipps, its Chief Executive Officer.
On
January 4, 2016, the Company issued an aggregate of 75,000 shares of common stock upon the conversion of 7,500 shares of Series
E Preferred Stock.
On
January 29, 2016, the Company issued an aggregate of 850,000 shares of common stock upon the conversion of 42,500 shares of Series
D Preferred Stock.
On
February 1, 2016, the Company issued an aggregate of 98,400 shares of common stock upon the conversion of 9,840 shares of Series
E Preferred Stock.
On
February 2, 2016, the Company issued an aggregate of 900,000 shares of common stock upon the conversion of 45,000 shares of Series
D Preferred Stock.
On
February 5, 2016, the Company issued an aggregate of 1,600 shares of common stock upon the conversion of 160 shares of Series
E Preferred Stock.
On
February 11, 2016, the Company issued an aggregate of 136,612 shares of common stock calculated by the average closing price of
the Company’s common stock on its principal exchange for the 10 (ten) trading days immediately prior to the execution of
the Agreement, or $100,000, to an investor relations consultant as compensation for services, which is amortized over the period
of service.
On
February 16, 2016, the Company issued an aggregate of 100,000 shares of common stock upon the conversion of 10,000 shares of Series
E Preferred Stock.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
March 1, 2016, the Company issued an aggregate of 98,400 shares of common stock upon the conversion of 9,840 shares of Series
E Preferred Stock.
On
March 8, 2016, the Company issued an aggregate of 73,320 shares of common stock upon the conversion of 3,666 shares of Series
D Preferred Stock.
On
March 11, 2016, the Company issued an aggregate of 1,600 shares of common stock upon the conversion of 160 shares of Series E
Preferred Stock.
On
April 1, 2016, the Company issued an aggregate of 98,400 shares of common stock upon the conversion of 9,840 shares of Series
E Preferred Stock.
On
April 5, 2016, the Company issued an aggregate of 208,530 shares of common stock upon the conversion of 20,853 shares of Series
C Preferred Stock.
On
April 12, 2016, the Company issued an aggregate of 125,000 shares of common stock upon the conversion of 6,250 shares of Series
D Preferred Stock.
On
April 18, 2016, the Company issued an aggregate of 650,000 shares of common stock upon the conversion of 32,500 shares of Series
D Preferred Stock.
On
April 21, 2016, the Company issued an aggregate of 400,000 shares of common stock upon the conversion of 20,000 shares of Series
D Preferred Stock.
On
April 22, 2016, the Company issued an aggregate of 900,000 shares of common stock upon the conversion of 45,000 shares of Series
D Preferred Stock.
On
April 27, 2016, the Company issued an aggregate of 200,000 shares of common stock upon the conversion of 10,000 shares of Series
D Preferred Stock.
On
May 2, 2016, the Company issued an aggregate of 92,840 shares of common stock upon the conversion of 9,284 shares of Series E
Preferred Stock.
On
May 4, 2016, the Company issued an aggregate of 5,560 shares of common stock upon the conversion of 556 shares of Series E Preferred
Stock.
On
May 17, 2016, the Company issued an aggregate of 1,376,470 shares of common stock upon the conversion of 64,147 shares of Series
C Preferred Stock and 36,750 shares of Series D Preferred Stock.
On
May 18, 2016, the Company issued an aggregate of 2,420,770 shares of common stock upon the conversion of 62,077 shares of Series
C Preferred Stock and 90,000 shares of Series D Preferred Stock. Also, on May 18, 2016 the Company issued an aggregate of 10,083,351
shares of Series G Preferred Stock upon the conversion of convertible notes of $504,168. Upon the conversion, additional paid
in capital increased $649,662 from the decrease in convertible notes payable of $504,168, decrease in derivative liabilities of
$146,502 and increase in Series G Preferred Stock of $1,008.
On
May 20, 2016, the Company issued an aggregate of 760,000 shares of common stock upon the conversion of 38,000 shares of Series
D Preferred Stock.
On
May 23, 2016, the Company issued an aggregate of 250,000 shares of common stock upon the conversion of 12,500 shares of Series
D Preferred Stock.
On
May 25, 2016, the Company issued an aggregate of 950,000 shares of common stock upon the conversion of 47,500 shares of Series
D Preferred Stock.
On
June 1, 2016, the Company issued an aggregate of 98,400 shares of common stock upon the conversion of 9,840 shares of Series E
Preferred Stock.
On
June 6, 2016, the Company issued an aggregate of 1,531,020 shares of common stock upon the conversion of 76,551 shares of Series
D Preferred Stock.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
June 8, 2016, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 50,000 shares of Series
D Preferred Stock.
On
June 13, 2016, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 25,000 shares of Series
D Preferred Stock.
On
June 30, 2016, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 50,000 shares of Series
E Preferred Stock.
On
July 5, 2016, the Company issued an aggregate of 1,058,400 shares of common stock upon the conversion of 48,000 shares of Series
D Preferred Stock and 9,840 shares of Series E Preferred Stock.
On
July 12, 2016, the Company issued an aggregate of 750,000 shares of common stock upon the conversion of 37,500 shares of Series
D Preferred Stock.
On
August 1, 2016, the Company issued an aggregate of 123,010 shares of common stock upon the conversion of 12,301 shares of Series
E Preferred Stock.
On
August 10, 2016, the Company issued an aggregate of 4,787,180 shares of common stock upon the conversion of 239,359 shares of
Series D Preferred Stock.
On
August 11, 2016, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 50,000 shares of Series
E Preferred Stock.
On
August 12, 2016, the Company issued an aggregate of 450,000 shares of common stock for payment of accounts payable of $22,500.
On
August 22, 2016, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 50,000 shares of Series
D Preferred Stock.
On
September 1, 2016, the Company issued an aggregate of 123,010 shares of common stock upon the conversion of 12,301 shares of Series
E Preferred Stock.
On
September 21, 2016, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 50,000 shares of
Series E Preferred Stock.
On
September 23, 2016, the Company issued an aggregate of 1,500,000 shares of common stock upon the conversion of 75,000 shares of
Series D Preferred Stock.
On
September 26, 2016, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares
of Series C Preferred Stock.
On
October 1, 2016, the Company issued an aggregate of 123,010 shares of common stock upon the conversion of 12,301 shares of Series
E Preferred Stock.
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 certificate of designation.
The Company is prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, because of such conversion,
the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock. Each share of Series
H Preferred Stock entitles the holder to cast one vote per share of Series H Preferred Stock owned as of the record date for the
determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the
necessary consents as required from prior subscription agreements, Series C Preferred Stock , Series G Preferred Stock and Preferred
Series H Preferred Stock, 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 Series G Preferred Stock. The
Company was required to issue 550,000 shares of its Series C Preferred Stock, which is convertible into 5,500,000 shares of the
Company’s common stock and 114,944 shares of Series I Preferred Stock , which is convertible into 11,494,400 shares of the
Company’s common stock. Series I Preferred Stock was issued to certain holders in lieu of Series G Preferred Stock and Series
H Preferred Stock, this resulted in the recording of other expense of $679,778 to account for the issuance of the additional preferred
shares to additional paid in capital.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
October 31, 2016, the Company issued an aggregate of 640,000 shares of common stock upon the conversion of 64,000 shares of Series
E Preferred Stock.
On
October 31, 2016, the Company issued an aggregate of 87,500 shares of Preferred Series H, upon execution of a subscription agreement
for proceeds of $350,000.
On
October 31, 2016, the Company issued an aggregate of 550,000 shares of Preferred Series C, and 114,944 shares of Preferred Series
I, upon the execution of the subscription agreement for Preferred Series H, in accordance with their anti-dilution rights under
their prior subscriptions. The Preferred Series C and Preferred Series I is convertible into 5,500,000 and 11,494,400 shares of
the Company’s common stock, respectively, subject to the 4.99% beneficial ownership limitation.
On
November 1, 2016, the Company issued an aggregate of 123,010 shares of common stock upon the conversion of 12,301 shares of Series
E Preferred Stock.
On
November 2, 2016, the Company issued an aggregate of 1,395,730 shares of common stock upon the conversion of 139,573 shares of
Series E Preferred Stock.
On
November 2, 2016, the Company, upon notice from the holder, rescinded and reissued 40,000 shares of Series D Preferred for an
aggregate of 800,000 shares of common stock.
On
November 2, 2016, the Company issued an aggregate of 500,000 shares of common stock upon the conversion of 50,000 shares of Series
E Preferred Stock.
On
November 4, 2016, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of
Series C Preferred Stock.
On
November 23, 2016, the Company issued an aggregate of 2,000,000 shares of common stock upon the conversion of 100,000 shares of
Series D Preferred Stock.
On
December 1, 2016, the Company issued an aggregate of 623,010 shares of common stock upon the conversion of 62,301 shares of Series
E Preferred Stock.
On
December 22, 2016, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of
Series E Preferred Stock.
On
December 28, 2016, the Company issued an aggregate of 5,000,000 shares of common stock upon the conversion of 125,000 shares of
Series D Preferred Stock and the conversion of 22,000 shares of Series I Preferred Stock.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Stock
Options
2014
Equity Incentive Plan
On
January 21, 2014, the Board approved the adoption of a 2014 Equity Incentive Plan (the “2014 Plan”). The purpose
of the 2014 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through
the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The 2014 Plan provides
for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation
rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants. Pursuant to
the terms of the 2014 Plan, either the Board or a board committee is authorized to administer the plan, including by determining
which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and
conditions of such awards. Unless earlier terminated by the Board, the Plan shall terminate at the close of business on January
21, 2024.
Unless
earlier terminated by the Board, the 2014 Plan shall terminate at the close of business on January 21, 2024. Up to 226,667 shares
of the Company’s common stock are reserved for issuance under the 2014 Plan as awards to employees, directors, consultants,
advisors and other service providers.
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 2,150,000 shares of common stock as compensation for services provided to the
Company. The options have an exercise price of $0.05 per share, were fully vested on the date of grant and shall expire in February
2022. The 2,150,000 options were valued on the grant date at approximately $0.05 per option or a total of $107,500 using a Black-Scholes
option pricing model with the following assumptions: stock price of $0.05 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, 2016 of $107,500, respectively.
On
December 28, 2015, the Company issued Ms. Carlise, Chief Financial Officer, a ten-year option to purchase 500,000 shares of common
stock as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully
vested on the date of grant and shall expire in December 2025. The 500,000 options were valued on the grant date at approximately
$1.30 per option or a total of $650,000 using a Black-Scholes option pricing model with the following assumptions: stock price
of $1.30 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 992%,
expected term of 10 years, and a risk free interest rate of 1.05%. In connection with the stock option grant, the Company recorded
stock based compensation for the year ended December 31, 2016 of $650,000, respectively.
Also
on December 28, 2015, the Company issued Mr. Delgado, its Director, a ten-year option to purchase 200,000 shares of common stock
as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully vested
on the date of grant and shall expire in December 2025. The 200,000 options were valued on the grant date at approximately $1.30
per option or a total of $260,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.30
per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 992%, expected
term of 10 years, and a risk-free interest rate of 1.05%. In connection with the stock option grant, the Company recorded stock
based compensation for the year ended December 31, 2016 of $260,000, respectively.
On
December 16, 2016, the Company issued options to Mr. Phipps, to purchase up to 10,000,000 shares of common stock. The options
were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have
an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The 10,000,000 options were valued on the
grant date at approximately $0.019 per option or a total of $190,000 using a Black-Scholes option pricing model with the following
assumptions: stock price of $0.019 per share (based on the closing price of the Company’s common stock of the date of issuance),
volatility of 872%, expected term of 10 years, and a risk-free interest rate of 1.0500%. In connection with the stock option grant,
the Company recorded stock based compensation for the year ended December 31, 2016 of $190,000, respectively
Stock
options outstanding at December 31, 2016 as disclosed in the below table have approximately $550,000 of intrinsic value at the
end of the period.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A
summary of the status of the Company’s outstanding stock options and changes during the year ended December 31, 2016 is
as follows:
|
|
Number
of
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Balance at January 1, 2015
|
|
|
60,000
|
|
|
$
|
0.015
|
|
|
|
3.06
|
|
Recapitalization February 19, 2015
|
|
|
2,150,000
|
|
|
|
0.05
|
|
|
|
6.14
|
|
Granted
|
|
|
700,000
|
|
|
|
0.05
|
|
|
|
9.98
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(60,000
|
)
|
|
|
0.015
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at December 31, 2015
|
|
|
2,850,000
|
|
|
$
|
0.05
|
|
|
|
7.08
|
|
Options exercisable at December 31, 2015
|
|
|
2,850,000
|
|
|
$
|
0.05
|
|
|
|
|
|
Weighted average fair value of options granted during the period
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
|
2,850,000
|
|
|
$
|
0.05
|
|
|
|
7.08
|
|
Granted
|
|
|
10,000,000
|
|
|
|
0.01
|
|
|
|
9.96
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at December 31, 2016
|
|
|
12,850,000
|
|
|
$
|
0.02
|
|
|
|
9.10
|
|
Options exercisable at December 31, 2016
|
|
|
12,850,000
|
|
|
$
|
0.02
|
|
|
|
9.10
|
|
Weighted average fair value of options granted during the period
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
A
summary of the status of the Company’s outstanding stock warrants and changes during the year ended December 31, 2016 is
as follows:
|
|
Number
of
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Balance at January 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Recapitalization at February 19, 2015
|
|
|
171,666
|
|
|
|
3.77
|
|
|
|
1.36
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(166,666
|
)
|
|
|
3.75
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2015
|
|
|
5,000
|
|
|
$
|
4.50
|
|
|
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
|
5,000
|
|
|
$
|
4.50
|
|
|
|
1.36
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding at December 31, 2016
|
|
|
5,000
|
|
|
$
|
4.50
|
|
|
|
0.35
|
|
The
following table summarizes the Company’s stock warrants outstanding at December 31, 2016:
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding at
December 31, 2016
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable at
December 31, 2016
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
4.50
|
|
|
|
5,000
|
|
|
|
0.35
Years
|
|
|
$
|
4.50
|
|
|
|
5,000
|
|
|
$
|
4.50
|
|
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – 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 $0.8 million at December 31, 2016, expiring through the year 2036.
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 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, 2016 and 2015:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Tax expense
(benefit) computed at “expected” statutory rate
|
|
$
|
(880,547
|
)
|
|
$
|
(701,382
|
)
|
State
income taxes, net of benefit
|
|
|
-
|
|
|
|
-
|
|
Permanent differences :
|
|
|
|
|
|
|
|
|
Stock
based compensation and consulting
|
|
|
384,974
|
|
|
|
364,067
|
|
Loss
(gain) from change in fair value of derivative liability
|
|
|
(144,872
|
)
|
|
|
21,575
|
|
Other
|
|
|
550,549
|
|
|
|
128,408
|
|
Valuation
allowance
|
|
|
89,895
|
|
|
|
187,332
|
|
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, 2016 and 2015 is approximately $0 and $0, 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, 2016
|
|
|
December
31, 2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
277,227
|
|
|
$
|
187,332
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
$
|
277,227
|
|
|
$
|
187,332
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
277,227
|
|
|
$
|
187,332
|
|
Less:
valuation allowance
|
|
|
(277,227
|
)
|
|
|
(187,332
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
net operating losses were increased from $187,332 at December 31, 2015 to $277,227 at December 31, 2016. After
consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December
31, 2016 and 2015, due to the uncertainty of realizing the deferred income tax assets.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
On
October 1, 2015, the Company entered into a three-year property lease for its headquarters, located in Poole, UK for £22,000
per annum, or $2,486 a month at the yearly average conversion rate of 1.35585. The following is a schedule, by year, using
the yearly average conversion rate of 1.35585, of future minimum rental payments under office space leases:
|
|
For the years
ended
December 31,
|
|
2017
|
|
$
|
29,829
|
|
2018
|
|
|
22,374
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
|
|
$
|
52,203
|
|
Rent
expense for year ended December 31, 2016 and 2015 is $29,829 and $33,628, respectively.
Employment
Agreements
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 years, subject to renewal, in consideration for an annual salary of $180,000.
Additionally, under the terms of the employment agreement, Mr. Phipps shall be eligible for an annual bonus if the Company meets
certain criteria, as established by the Board of Directors. Mr. Phipps remains the sole director of GTCL following the closing
of the Share Exchange. Mr. Phipps and the Company entered into an Indemnification Agreement at the closing.
The
Company entered into an employment agreement with Ms. Carlise on June 9, 2015. The agreement has a term of one year, and shall
automatically be extended for additional terms of one year each. The agreement provides for an annual base salary of $72,000.
In addition to the base salary Ms. Carlise shall be 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, the Company amended her employment agreement. 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.
On
March 3, 2016, the Company entered into 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 receive
an annual base salary equal to the sum of $144,000 and £48,000, or $65,078 at the yearly conversion rate of 1.3558. Mr.
Phipps is also eligible for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary
if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved
in the discretion of the Compensation Committee or Board. Also on March 3, 2016 and effective January 1, 2016, the Company’s
wholly owned subsidiary Orbital Satcom Corp. and Mr. Phipps, terminated an employment agreement between them dated February 19,
2015 pursuant to which Mr. Phipps was employed as President of Orbital Satcom for an annual base salary of $180,000. The other
terms of this agreement with the Company are identical to the terms of Mr. Phipps’ employment agreement with Orbital Satcom
described above.
Consulting
Agreement
On
December 10, 2014, the Company entered into a two year agreement with a consultant to assist the Company with business development,
corporate structure, strategic and business planning, selecting management and other functions reasonably necessary for advancing
the business of the Company. The Company agreed to pay the consultant an aggregate of $240,000 payable in 24 equal monthly payments,
at the sole discretion of the Company, of either (i) $10,000 cash or (ii) 200,000 shares of common stock. On January 28,
2015, the Company entered into a termination and cancellation agreement with the consultant whereby both parties agreed to terminate
the contractual relationship and cancel 400,000 shares of common stock issued under this consulting agreement. The parties agreed
that the consulting agreement has no further force and effect and neither party have any further obligations there under.
On
January 15, 2016, the Company engaged IRTH Communications LLC. (“IRTH”), for a term of 12 months to provide investor
relations, public relations, internet development, communication and consulting services. As consideration for its services, IRTH
will receive from the Company a monthly fee of $7,500 and as a single one-time retainer payment, $100,000 worth of shares of the
Company’s common stock; calculated by the average closing price of the Company’s common stock on its principal exchange
for the 10 (ten) trading days immediately prior to the execution of this agreement; which shares shall be restricted securities,
pursuant to the provisions of Rule 144. As additional compensation, in the event the Company, during or within two (2) years after
the term of the agreement, receives investment monies (debt, equity or a combination thereof) from investor(s) introduced to the
Company by IRTH as described herein, the 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.
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
February 16, 2016, the company entered into a consulting agreement with David Fisher Media, to provide financial and social media
communication services for ninety days for consideration of $50,000.
On
March 31, 2016, the Company entered into a two-month contract with a consultant, Reformation Services LLC for advertising, branding
strategy and public awareness marketing for consideration of $10,000.
On
April 25, 2016, the Company entered into an agreement with a marketing and investor relations’ consultant, MIDAM Ventures,
LLC, for fifteen months, ending on July 25, 2017. As for consideration of services the Company paid a one-time payment of $72,000.
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 – 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 note with David Phipps where
the stockholder loans bear no interest and are due February 19, 2016. On February 19, 2016, the note was extended an additional
year to February 19, 2017 and on January 9, 2017 the note was extended another additional year to February 19, 2018. The balance
of the related party note payable was $16,864 as of December 31, 2016. The accounts payable due to related party includes advances
for inventory due to David Phipps of $46,500 and wages of $4,089. Total payments due to David Phipps as of December 31, 2016 and
December 31, 2015 are $67,453 and $74,051, respectively.
Also,
as part of the Share Exchange Agreement entered into on February 19, 2015, Mr. Phipps received a payment of $25,000 as compensation
for transition services that he provided.
The
Company employs two individuals who are related to Mr. Phipps, of which earned gross wages totaling $64,058 and three individuals
earned $96,751, for the years ended December 31, 2016 and 2015, respectively.
During
the years ended December 31, 2016 and 2015, the Company paid consulting fees of $0 and $24,000, respectively, to an affiliated
company. The President of the affiliated company is the former CFO of the Company.
NOTE
15 - CONCENTRATIONS
Customers:
No
customer accounted for 10% or more of the Company’s revenues during the years ended December 31, 2016 and 2015.
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, 2016 and 2015.
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
Innovations
|
|
|
676,789
|
|
|
|
27.5
|
%
|
|
|
553,345
|
|
|
|
25.7
|
%
|
Delorme
|
|
|
322,566
|
|
|
|
13.1
|
%
|
|
|
442,022
|
|
|
|
21.1
|
%
|
IEC Telecom Europe
|
|
|
126,973
|
|
|
|
5.2
|
%
|
|
|
270,698
|
|
|
|
12.9
|
%
|
Globalstar Europe
|
|
|
260,392
|
|
|
|
10.6
|
%
|
|
|
232,014
|
|
|
|
11.0
|
%
|
Satcom Global
|
|
|
265,645
|
|
|
|
10.8
|
%
|
|
|
26,235
|
|
|
|
0.8
|
%
|
Cygnus
Telecom
|
|
|
421,472
|
|
|
|
17.1
|
%
|
|
|
208,087
|
|
|
|
9.9
|
%
|
ORBITAL
TRACKING CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 – SUBSEQUENT EVENTS
On
January 3, 2017, the Company issued an aggregate of 816,810 shares of common stock upon the conversion of 35,000 shares of Series
D Preferred Stock and 11,681 shares of Series E Preferred Stock.
On
January 4, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of
Series E Preferred Stock.
On
January 6, 2017, the Company issued an aggregate of 6,140 shares of common stock upon the conversion of 614 shares of Series E
Preferred Stock.
On
January 9, 2017, the related party note payable due to David Phipps of $16,864, was extended an additional year, through February
19, 2018.
On
January 11, 2017, the Company issued an aggregate of 1,200,000 shares of common stock upon the conversion of 60,000 shares of
Series D Preferred Stock.
On
January 31, 2017, the Company issued an aggregate of 2,500,000 shares of common stock upon the conversion of 125,000 shares of
Series D Preferred Stock.
On
March 2, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 50,000 shares of Series
D Preferred Stock.
On
March 7, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series
E Preferred Stock.