GLOBAL TELESAT COMMUNICATIONS LTD
INDEX TO FINANCIAL STATEMENTS
 
 
   Page
 Report of Independent Registered Public Accounting Firm F-1
   
 Balance Sheets as of December 31, 2014 and 2013 F-2
   
 Statements of Income and Comprehensive Income for the years ended December 31, 2014 and 2013 F-3
   
 Statements of Stockholders’ Equity for the two years ended December 31, 2014 F-4
   
 Statements of Cash Flows for the years ended December 31, 2014 and 2013 F-5
   
Notes to Financial Statements F-6
 
 
 

 
 
Report of Independent Registered Public Accounting Firm
 

Board of Directors and Stockholders of Global Telesat Communications Ltd
 
We have audited the accompanying balance sheets of Global Telesat Communications Ltd (the “Company”), as of December 31, 2014 and 2013 and the related statements of income and comprehensive income, stockholders’ equity and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Telesat Communications Ltd as of December 31, 2014 and 2013 and the results of their operations and comprehensive income and their cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America.
 

/s/ RBSM LLP
 
New York, New York
 
April 29, 2015


 
 
F-1

 
 
GLOBAL TELESAT COMMUNICATIONS LTD
 
BALANCE SHEETS AS OF
 
             
   
December 31,
   
December 31,
 
   
2014
   
2013
 
ASSETS
           
Current assets:
           
      Cash
  $ 65,892     $ 78,412  
Accounts receivable, net
    82,986       30,039  
Inventory
    183,780       132,695  
Unbilled revenue
    25,612       14,880  
Other current assets
    25,764       9,460  
Total current assets
    384,034       265,486  
                 
Property and equipment, net
    58,413       47,380  
                 
Total assets
  $ 442,447     $ 312,866  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 299,877     $ 184,092  
Deferred revenue
    28,891       18,838  
Loan from funding circle
    -       4,298  
Note payable - related party
    59,308       55,041  
Total current liabilities
    388,076       262,269  
                 
Total Liabilities
    388,076       262,269  
                 
Stockholders' Equity:
               
Common Shares, 1,000 authorized, issued and outstanding, no par
    2,492       2,492  
Accumulated deficit
    52,728       46,237  
Accumulated other comprehensive (loss) income
    (849 )     1,868  
Total stockholder equity
    54,371       50,597  
                 
Total liabilities and stockholders' equity
  $ 442,447     $ 312,866  
 
See accompanying notes are an integral part of these financial statements
 
 
F-2

 

GLOBAL TELESAT COMMUNICATIONS LTD
 
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
 
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
 
             
   
December 31,
   
December 31,
 
   
2014
   
2013
 
             
Net sales
  $ 2,420,645     $ 1,536,129  
                 
Cost of sales
    1,739,388       1,150,023  
                 
Gross profit
    681,257       386,106  
                 
Operating expenses:
               
Selling, general and administrative
    640,065       346,054  
Depreciation
    20,602       18,031  
Total operating expenses
    660,667       364,085  
                 
Income before other expenses and income taxes
    20,590       22,021  
                 
Other (income) expense
               
Foreign currency exchange rate variance
    7,325       4,264  
Interest expense, net
    -       2,006  
Total other (income) expense
    7,325       6,270  
                 
Income before income tax
    13,265       15,751  
Less income tax
    (6,773 )     (6,098 )
Net income
  $ 6,492     $ 9,652  
                 
Comprehensive Income:
               
Net income
  $ 6,492     $ 9,652  
Foreign currency translation adjustments
    (2,717 )     5,938  
Comprehensive Income
  $ 3,775     $ 15,590  

See accompanying notes are an integral part of these financial statements
 
 
F-3

 

GLOBAL TELESAT COMMUNICATIONS LTD
 
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 
FOR THE TWO YEARS ENDED DECEMBER 31, 2014
 
                               
                               
                     
Accumulated
   
Total
 
   
Ordinary
         
Accumulated
   
Comprehensive
   
Stockholders'
 
   
Shares
   
Amount
   
Deficit
   
Income (Loss)
   
Equity
 
Balance, January 1, 2013
    1,000     $ 2,492     $ 36,584     $ (4,070 )   $ 35,006  
                                         
Comprehensive income
    -       -       -       5,938       5,938  
Net income
    -       -       9,652       -       9,652  
Balance, December 31, 2013
    1,000       2,492       46,237       1,868       50,597  
                                         
Comprehensive loss
    -       -       -       (2,717 )     (2,717 )
Net income
    -       -       6,492       -       6,492  
  Balance, December 31, 2014
    1,000     $ 2,492     $ 52,729     $ (849 )   $ 54,371  

See accompanying notes are an integral part of these financial statements
 
F-4

 

GLOBAL TELESAT COMMUNICATIONS LTD
 
STATEMENTS OF CASH FLOWS FOR THE
 
             
   
Year ended December 31,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 6,492     $ 9,652  
Adjustments to reconcile net income to net cash provided by operating activities:
         
Depreciation expense
    20,602       18,031  
Change in operating assets and liabilities:
               
     Accounts receivable
    (52,947 )     27,456  
     Inventory
    (51,085 )     (45,362 )
    Unbilled revenue
    (10,732 )     (5,363 )
    Other current assets
    (16,305 )     (8,397 )
    Accounts payable and accrued liabilities
    115,785       47,989  
    Excess payment over bank balance
    -       (13,850 )
    Deferred revenue
    10,053       15,785  
  Net cash provided by operating activities
    21,863       45,941  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (31,635 )     (33,612 )
  Net cash (used in) investing activities
    (31,635 )     (33,612 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from Funding Circle loan
    -       49,464  
Repayment of Funding Circle loan
    (4,298 )     (45,166 )
Proceeds from note payable, related party, net
    4,267       51,537  
  Net cash (used in) provided by financing activities
    (31 )     55,835  
                 
Effect of exchange rate on cash
    (2,717 )     5,938  
                 
Net (decrease ) increase in cash
    (12,520 )     74,102  
                 
Cash beginning of period
    78,412       4,310  
Cash end of period
  $ 65,892     $ 78,412  
                 
                 
SUPPLEMENTAL CASH FLOW INFORMATION
               
Cash paid during the period for
               
     Interest
  $ -     $ 2,006  
     Income tax
  $ 6,425     $ -  
 
See accompanying notes are an integral part of these financial statements

 
F-5

 
 
GLOBAL TELESAT COMMUNICATIONS LTD
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 2014
 
NOTE 1. NATURE OF OPERATION
 

Global Telesat Communications Ltd. (“GTC”, the “Company”) was formed in the 2008 and was incorporated under the laws of England and Wales.

GTC provides mobile voice and data communications services globally via satellite to government, defense industry and commercial users. GTC has an e-commerce mobile satellite solutions portal and is an authorized reseller of satellite telecommunications equipment and services offered by other leading satellite network providers such as Inmarsat, Iridium, Globalstar and Thuraya. GTC also has a new subscription based online tracking portal called GTCTrack, designed to attract new satellite and GSM tracking customers by offering an easy-to-use interface and compatibility with a wide range of devices.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

USE OF ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

REVENUE RECOGNITION
 
The Company recognizes revenue when all four of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred and title has transferred or services have been rendered; 3) our price to the buyer is fixed or determinable; and 4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

The Company records unearned contract revenues and subscription fees as deferred revenues and their associated costs of sales as prepaid expenses. As of December 31, 2014 and 2013, the Company recognized $28,891 and $18,838 as deferred revenue ie revenue pertaining to next year or years but invoiced in that year. Deferred revenues from subscription fees and their related costs are amortized over the subscription term. Also during the year ended December 31, 2014 and 2013 recorded $25,612 and $14,880, respectively as unbilled revenue ie revenue pertaining to current year but invoiced in next year.

ACCOUNTS REVEIVABLE

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. At December 31, 2014 and 2013, the Company has deemed that no allowance for doubtful accounts was necessary.

FOREIGN CURRENCY TRANSLATION

The Company’s reporting currency is US Dollars. The accounts of the Company’s are maintained using the 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 deferred as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the statements of operations.

The relevant translation rates are as follows: For the year ended 2014 closing rate at 1.5576 US$: GBP, average rate at 1.6481 US$: GBP and for the year ended 2013 closing rate at 1.6488 US$: GBP, average rate at 1.5643 US$.
 
INCOME TAXES

The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
 
U.S. GAAP requires that, in applying the liability method, the financial statement effects of an uncertain tax position be recognized based on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position should be analyzed based on technical merits and on the outcome that will likely be sustained under examination. There were no adjustments related to uncertain tax positions recognized during the years ended December 31, 2014 and 2013, respectively.

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. The Company did not incur research and development expenses for the years ended December 31, 2014 and 2013.

 
F-6

 
 
SHIPPING COSTS

Shipping costs are included in selling expenses and totaled $89,648 and $55,897 for the years ended December 31, 2014 and 2013, respectively.

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.

NET EARNINGS (LOSS) PER COMMON SHARE

The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock. Diluted net income (loss) per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes, exercise of warrants and options. As of December 31, 2014 and 2013 the Company didn’t have any common stock equivalents.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity. For the Company, comprehensive income for the years ended December 31, 2014 and 2013 included net income and unrealized gains from foreign currency translation adjustments.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash, accounts payable, notes payable. The carrying values for the current financial assets and liabilities approximate fair value due to their short maturity.
 
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
  Website development 4
                                                           
LONG LIVED ASSETS
 
The Company evaluates the fair value of long-lived assets on an annual basis or whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Accordingly, any impairment of value is recognized when the carrying amount of a long-lived asset exceeds its fair value. The Company’s evaluations have not indicated any impairment of fair values.

RECENT ACCOUNTING PRONOUNCEMENT
 
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s financial position and results of operations.
 
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
 
 
F-7

 
 
NOTE 3.  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

   
December 31,
   
December 31,
 
   
2014
   
2013
 
Office furniture and fixtures
  $ 69,411     $ 50,563  
Computer equipment
    11,155       8,913  
Website development
    42,283       35,500  
      122,849       94,976  
Less accumulated depreciation
    (64,436 )     (47,596 )
                 
Total
  $ 58,413     $ 47,380  

Depreciation expense was $20,602 and $18,031 for the years ended December 31, 2014 and 2013, respectively.
 
NOTE 4.  INVENTORIES

At December 31, 2014 and 2013, inventories consisted of the following:

   
December 31,
   
December 31,
 
   
2014
   
2013
 
             
             
Finished goods
  $ 183,780     $ 132,695  
      183,780       132,695  
Less reserve for obsolete inventory
    -       -  
                 
Total
  $ 183,780     $ 132,695  
 
For the years ended December 31, 2014 and 2013 the Company did not make any change for reserve for obsolete inventory.
 
NOTE 5. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

Accounts payable and accrued other liabilities consisted of the following:
 
   
December 31,
   
December 31,
 
   
2014
   
2013
 
Accounts payable
  $ 225,745     $ 166,948  
Rental deposits
    19,276       10,058  
VAT liability
    48,453       658  
                 
Total
  $ 293,474     $ 177,664  
 
NOTE 6. LOAN FROM FUNDING CIRCLE
 
On January 28, 2013 the Company entered into a loan for $49,464 (GBP 30,000) with Funding Circle.  The loan is repayable in 12 equal monthly payments of  $4,298 (GBP 2,606) and bears interest of 7.81% per annum. Interest paid as of December 31, 2014 and 2013 are $176 and $1,936, respectively.

NOTE 7. COMMITMENTS
 
Lease Commitments
 
The Company’s headquarters are located in Poole, UK. The lease was initially entered into in December 2010 and has a minimum three month term. The Company intends to continue to renew its lease agreement in three month terms. Currently, the Company is paying office rent on basis of $2,404 (GBP 1,450) per month. In December 2014, the Company renewed its lease agreement for office space at $2,404 per month.
 
Rent expense for year ended December 31, 2014 and 2013 is $29,250 and $24,491, respectively.
 
NOTE 8.  RELATED PARTY TRANSACTIONS
 
The Company has received financing from the Company’s Managing Director. No formal repayment terms or arrangements exist. The stockholder loans bear no interest and are due on demand. The accounts payable due to related party includes advances for inventory due to David Phipps. Total payments due to David Phipps as of December 31, 2014 and 2013 are $59,308 and $55,041, respectively.
 
 
F-8

 
 
NOTE 9. CONCENTRATIONS
 
Customers:
 
No customer accounted for 10% or more of the Company’s revenues during the years ended December 31, 2014 and 2013.
 
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, 2014 and 2013.

Supplier
 
2014
   
2013
 
Company A
    21.4 %     35.5 %
Company B
    20.8 %     9.2 %
Company C
    17.7 %     20.5 %
                 
 
NOTE 10. LITIGATION AND CONTINGENCIES
 
In the ordinary conduct of business, the Company is subject to periodic lawsuits, investigations and litigation claims, which the Company accrues for where appropriate and can be reasonably estimated. The Company cannot predict with certainty the ultimate resolution of such lawsuits, investigations and claims asserted against it. At December 31, 2014, the Company had no material contingencies.
 
The Company provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director, employee, or agent is or was serving at our request in such capacity.
 
NOTE 11. INCOME TAXES

At December 31, 2014, the Company had no accumulated taxable losses available to offset future taxable income.

Pursuant to the UK Income Tax Laws, the Company is subject to enterprise income tax at a rate of 20%.

Details of income taxes in the statements of operations are as follows:

The table below summarizes the reconciliation of the Company’s Income Tax provision (benefit) computed at the statutory U.S. Federal rate and the Actual tax provision:

 
   
Year Ended December 31,
   
2014
   
2013
 
     Income tax (benefit) provision at Federal statutory rate
 
$
4,510
   
$
5,355
 
     State Income taxes, net of Federal tax benefit
   
-
     
-
 
     Tax effect of non-deductible expense
   
7,005
     
6,131
 
     Foreign Rate Adjustment
   
(4,742
)
   
(5,388
)
     Tax Provision
  $
6,773
    $
6,098
 

The Company evaluates a variety of factors in determining the amount of the deferred income taxes to be recognized, including the Company’s earnings history. As of December 31, 2014 and 2013, the Company had no deferred tax assets.

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

NOTE 12. SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date and determined there were no subsequent events requiring disclosure other than below.

On February 19, 2015, Orbital Tracking Corp. (“OTC”) 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 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 the OTC with each share of Series E Convertible Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 (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 OTC.  
 
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. Following the closing of the Share Exchange, Orbital Tracking Corp. will have expanded its global satellite based business launched with the acquisition of various contracts by Orbital Satcom in December 2014 and will allow it to operate as a vertically integrated satellite services business with experienced management operating from additional locations in Poole, England in the United Kingdom and Aventura, Florida.