Orbital Tracking Corp. — FY 2016 Form 10-K
Filing identity and period: The supplied filing is for Orbital Tracking Corp., not Nextplat Corp. It reports the fiscal year ended December 31, 2016, with 2015 comparisons; it does not provide separate fourth-quarter results. The company distributes satellite communications hardware, airtime and related services, and develops tracking products. Its shares traded on the OTC Markets as TRKK.
Financial performance
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $4.699 million | $3.951 million |
| Gross profit / margin | $1.075 million / 22.9% | $0.984 million / 24.9% |
| Operating expenses | $2.706 million | $2.976 million |
| Operating loss | $1.631 million | $1.991 million |
| Net loss | $2.590 million | $2.064 million |
| Net cash used in operations | $1.044 million | $0.621 million |
| Cash at year-end | $114,733 | $963,329 |
| Working capital at year-end | $81,490 | Not clearly stated |
Revenue grew 18.9%, driven by increased product lines and expanded online marketplaces. GTCL sales rose 21.6% in reported U.S. dollars; management said GTCL sales increased 38.9% in pounds sterling. Currency translation reduced reported revenue: management estimated FY 2016 sales would have been $434,000 higher using the prior-year average exchange rate. Gross margin fell as reseller sales, which carry lower margins, increased.
Operating expenses declined 9.1%, mainly because stock-based compensation was lower than in 2015; professional fees increased 96.3%, including investor-relations and transaction costs. Other expense rose substantially, including $603,160 of interest expense and $679,778 of preferred-stock price-protection expense. The filing reports basic and diluted loss per share of $0.08 for 2016, versus $0.26 in 2015.
Financial position, funding and dilution
At December 31, 2016, current assets were $802,107 and current liabilities were $720,617. Total assets were $3.030 million, total liabilities were $720,617, and reported stockholders’ equity was $2.310 million. The company had an accumulated deficit of approximately $4.6 million. Operating cash outflow exceeded cash raised through financing: financing activities provided $242,568, while investing activities used $26,448.
The $605,000 convertible notes issued in 2015 were partly repaid and the remaining balance was exchanged for Series G preferred stock in 2016; the balance sheet reports no convertible note payable at year-end. The company also reported $67,453 due to a related party, including a $16,864 CEO note subsequently extended to February 2018. Management and the auditor cited substantial doubt about the company’s ability to continue as a going concern, dependent on raising additional capital.
Common shares outstanding increased from 19.3 million at December 31, 2015 to 57.3 million at December 31, 2016; 64.8 million were reported outstanding on April 4, 2017. The filing lists 12.85 million outstanding options and substantial convertible preferred securities, with potential common-share issuance subject to conversion terms and ownership limits. Preferred-stock anti-dilution provisions also led to additional issuances in 2016.
Outlook, risks and unusual items
- Management planned to complete testing and regulatory certification of its dual-mode cellular/satellite tracker for anticipated 2017 availability. Estimated completion costs were $50,000–$75,000; other planned tracking products were estimated at $75,000–$100,000. These were plans, not assured launches or guidance.
- Management expected cost of revenue and operating expenses to rise as the business expanded, but did not quantify expected increases. It stated the company would need additional capital and could not assure successful financing.
- Key risks include going-concern uncertainty, limited cash, continued losses, potential equity dilution, thin and volatile OTC trading, preferred-stock conversion and anti-dilution terms, supplier concentration, foreign-exchange exposure, product development and certification risks, and reliance on CEO David Phipps.
- Management concluded disclosure controls and internal control over financial reporting were ineffective, citing limited internal audit resources and inadequate segregation of accounting duties. The auditor did not attest to internal controls.
- The filing reports no material pending litigation. It notes $112,397 of liabilities from discontinued operations. No cash dividends were anticipated.
Important facts for investors to verify
- Confirm the issuer identity: the filing is Orbital Tracking Corp., while the request names Nextplat Corp.
- Review financing availability and the company’s going-concern disclosures, including cash needs and subsequent financing activity.
- Reconcile the filing’s equity figures: the balance sheet reports equity of $2,309,828, while the statement of changes in equity reports $2,303,283; related accumulated-deficit figures also differ.
- Assess the full potential dilution from preferred securities, anti-dilution protections, options and subsequent share conversions; the filing’s preferred-stock conversion totals and terms require careful review.
- Check the reported cash-flow amount: MD&A states operating cash use of approximately $1,044,039, while the audited cash-flow statement reports $1,044,036.
- Verify tracker development, certification, launch timing and actual spending against management’s estimates and stated plans.