UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31,
2018
☐ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-224906
FMC GlobalSat Holdings, Inc.
(Exact name of registrant as specified
in its charter)
| Delaware |
|
82-2691035 |
(State or other jurisdiction of
incorporation or organization) |
|
(IRS Employer
Identification No.) |
|
3301 SE 14th Avenue
Fort Lauderdale, FL |
|
33316 |
| (Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number,
including area code: 954-678-0697
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section
12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). ☐ Yes ☒ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
| Non-accelerated
filer |
☒ |
|
Smaller reporting company |
☒ |
| |
|
|
Emerging
growth company |
☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter, June 30, 2018, was $3,185,845. This computation is based on the number of issued and outstanding shares held by
persons other than officers, directors, and shareholders of 10% or more of the registrant’s common stock.
As of August 22, 2019, there were 10,913,460
shares of common stock are issued and outstanding.
Documents
incorporated by reference: None.
TABLE
OF CONTENTS
FMC
GLOBALSAT HOLDINGS, INC.
ANNUAL
REPORT ON FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2018
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
report includes statements of our expectations, intentions, plans, and beliefs that constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Nonetheless, it is important for an investor to understand that these statements, involve risks and uncertainties.
These statements, relate to the discussion of our business strategies and our expectations concerning future operations, margins,
profitability, liquidity, and capital resources and to analyses and other information that are based on forecasts of future results
and estimates of amounts not yet determinable. We have used words such as “may,” “will,” “should,”
“expect,” “intend,” “plan,” “anticipate,” “believe,” “think,”
“estimate,” “seek,” “expect,” “predict,” “could,” “project,”
“potential” and other similar terms and phrases, including references to assumptions, in this report to identify forward-looking
statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us
and are subject to uncertainties, risks and factors relating to our operations and business environment, all of which are difficult
to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters
expressed or implied by these forward-looking statements.
Such
risks and other factors also include those listed in Item 1A. “Risk Factors and elsewhere in this report and our other
filings with the Securities and Exchange Commission. When considering these forward-looking statements, you should keep in mind
the cautionary statements in this report and the documents incorporated by reference. New risks and uncertainties arise from time
to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward-looking statements
after the date of this report as a result of new information, future events or developments, except as required by applicable
laws and regulations.
When
used in this annual report, the terms the “Company,” “FGH”, “we,” “us,” “ours,”
and similar terms refer to FMC GlobalSat Holdings, Inc., a Delaware corporation, and its wholly-owned and operating subsidiary,
FMC GlobalSat, Inc., a Florida corporation.
PART
I
ITEM 1.
BUSINESS
About
the Company
FMC GlobalSat Holdings, Inc. (“FGH”
or the “Company”) is a Delaware corporation formed on August 31, 2017. The Company operates its business through its
wholly-owned subsidiary FMC GlobalSat, Inc. (“FG”). FG was formed as a Florida Limited Liability Company on April 19,
2017, and was later changed to a corporation on November 2, 2017, with an effective date as of April 19, 2017.
The
Company is a provider of global connectivity solutions, with a focus on providing hybrid communications and connectivity services
utilizing both terrestrial wireless and satellite networks. We currently offer data connectivity to remote or difficult to serve
customer sectors through broadband satellite and wireless 4G networks. The Company began in 2017 by reselling products and services
offered by Kymeta Corporation (“Kymeta”). Kymeta manufactures technologically innovative and electronically steerable
(i.e., using software and no mechanical parts) flat panel satellite antennas and offers a managed Ku band satellite data connectivity
service in partnership with IntelSat. The Company’s current core service offerings can be divided into the resale of three
primary managed connectivity applications i) fixed terrestrial, ii) mobile terrestrial (4G and LTE) and iii) maritime applications
(served by both satellite and terrestrial mobile, which accounted for 39%, 17% and 44% of our revenue, respectively, in 2018.
We believe our core service offerings fit potential customer needs within the following industry sectors: distributed power systems,
oil & gas and maritime (cruise, private yachts, and commercial vessels). In 2018, we expanded our service offerings by offering
4G wireless data plans on a resale basis through a wireless aggregator and major international telecom carriers, allowing the
company to leverage more than 550 telecom carriers in 180 different countries through roaming arrangements. The Company’s
strategy is to enter into similar agreements with other telecom satellite operators to diversify the regions in which it can provide
connectivity and the service configurations it can offer to include both subscription data plans (i.e. pricing based on data usage)
and information rates (i.e. pricing based on minimum and/or maximum data transfer rates).
The
Company’s current main satellite product is Kymeta’s 70 cm flat panel antenna terminal, and its current main satellite
service is Kymeta’s “Kalo” service, a managed Ku band connectivity service that is billed on a data plan basis
(i.e., a price per megabyte of data sent through the link). The Company’s main wireless product and service is the resale
of SIM cards and wireless connectivity. Our services offer a simplified way to buy and use satellite and wireless connectivity,
which is billed on a “by-the-byte” (data plan) basis, to customers and sectors that are currently unreached or underserved
by terrestrial networks, or where service through traditional (parabolic) stabilized VSATs may be considered too expensive.
FMC is also offering a bundled service which combines wireless and satellite connectivity, branded “FMC 4G/LTSAT,”
representing a converged approach which utilizes both 4G/LTE and satellite networks. FMC 4G/LTSAT seeks to provide seamless and
the most cost-effective connectivity by using a “least cost routing” approach, using the most cost-effective connectivity
path then available – typically, the FMC 4G/LTSAT service will connect the end-user to a 4G/LTE network if available (as
such networks generally provide more “throughput” at a lower cost to the end user on a per megabyte basis), but will
default to a satellite network if wireless connectivity is not available (or provides less robust throughput) at that time in
the end user’s location.
Strategy
The
goal of our connectivity service is to deliver an appropriate network solution to our customers regardless of the end user
device they are using to access the Internet and other network systems. The default sales model for the 4G/LTSAT product is
an equipment-inclusive or “bundled” model where customers contract (generally with a 1-3 year term) for a data
plan package subscription and all required hardware for a monthly fee, which significantly reduces or eliminates the
customer’s upfront capital expenditure for the equipment. We generate revenue primarily by delivering internet access
through satellite and 4G/LTE networks, with pricing based on the volume of data consumed through upload or download. The
Company allocates revenue to each deliverable and performance obligation, the Company recognizes revenue in accordance with
its policies when all revenue recognition criteria are met. Service revenue for equipment, data and cellular
arrangements are recognized evenly over the contract terms. Installation, activation, shipping and handling fees billed to
customers are included in revenue, with the associated costs included in the cost of sales, at the time the performance
obligation has been met.
We
are building what we believe will be a world-class technology platform which allows us to integrate multiple satellite carriers
and telecom operators through various API (Application Programming Interface) and provides our customers and their authorized
users the ability to monitor the connection, access relevant information on data consumption and specific key performance indicators
and request technical support if and as needed. We expect that we will need to continue investing in our platform on a continuous
basis as well as introduce additional features.
Kymeta
Distribution Agreement
On May 4, 2017, the
Company entered into a distribution agreement with Kymeta (the “Kymeta Agreement”), pursuant to which the Company
has been appointed as an authorized worldwide distributor/reseller (excluding certain territories) of Kymeta’s products
and services, including but not limited to satellite terminals and related equipment, and managed satellite connectivity (data
service). The Kymeta Agreement is non-exclusive and does not restrict either party from directly or indirectly acquiring, licensing,
developing, making, or distributing technologies, products, or services performing the same or similar functions as any of the
other party’s technologies, products, or services, and does not limit or preclude Kymeta from entering into similar agreements
with third parties.
The initial term of the Kymeta Agreement
began, and the effectiveness of the Company’s appointment as a distributor started, on May 4, 2017, and will last for five
(5) years from the Performance Notification Date, as defined in the Kymeta Agreement.
Overview
of the Industry
Internet
traffic worldwide has grown rapidly in recent years, driven by an increase in the number of users, the increasing mobility of
those users and high bandwidth applications, such as video, audio, cloud-based applications, online gaming, and social networking.
According to Cisco’s Visual Networking Index, global Internet protocol, or IP, traffic is expected to reach 4.8 zetabytes
by 2022, or 396 exabytes per month. In 2017, the annual run rate for global IP traffic was 1.5 zetabytes per year, or 122 exabytes
per month. Cisco projects IP traffic to grow at a compound annual growth rate of 26% from 2017 to 2022. Wired networking solutions
have traditionally been used to address increasing consumer and enterprise bandwidth needs. However, the high initial capital
requirements and ongoing operating costs and long market lead times associated with building and installing infrastructure for
wired networks has severely limited the widespread deployment of these networks in remote and other underserved and underpenetrated
markets. Satellite and wireless networks have emerged as an attractive alternative for addressing the broadband access needs of
remote, underserved and underpenetrated markets in both emerging and developed countries and in both enterprise and home applications.
Market
Challenges and Opportunities
Underserved
and underpenetrated markets. We believe that there is a significant market opportunity in both emerging and
developed economies. In “unconnected” emerging markets, the lack of an established network infrastructure and the
high initial deployment costs associated with traditional wired network infrastructure build-outs have encouraged adoption of
wireless networking infrastructure. In “under-connected” markets, bandwidth demand exceeds either the available capacity
from existing infrastructure or the affordable supply of new infrastructure, resulting in an attractive market opportunity for
wireless and satellite systems to bolster connectivity. Additionally, we believe there is a large market opportunity in connected
markets serving customers that want to deploy reliable, scalable and customizable wireless and satellite networks and whose primary
buying criterion is based on price-performance characteristics.
Challenges
facing incumbent solutions. To provide robust wireless and satellite connectivity that meet the price-performance
needs of service providers and enterprises, vendors of networking solutions must address the following problems facing incumbent
solutions:
| |
● |
Poor performance.
To deliver high performance, satellite and wireless networking solutions need to satisfy diverse performance requirements
for video, voice and data. The challenges of operating in the various bands of the Radio Frequency (“RF”) spectrum,
including spectrum noise and interference resulting from the proliferation of devices, often result in difficulty establishing
network connections and unreliable or poor performance. Additionally, the performance and reliability of existing, satellite
and wireless, networking solutions decline rapidly as the number of subscribers and, in the case of wireless networks, the
range of service delivery increases. Lack of hardware and software integration between products, technologies and vendor devices
can diminish network performance significantly and increase the complexity of network management, integration, and expansion.
Additionally, some of the challenges of operating a broadband satellite network include the high cost of building and launching
a satellite, limited orbital slots and available frequencies, managing interference with adjacent satellites, large remote
antennas requiring often limited space (for example, on a cruise ship) and remote terminals operating in sometimes harsh environments
or with “line-of-sight” blockages for fixed satellite service. The result is that network connections and the
amount of “throughput” are not as reliable or robust as with terrestrial services, and satellite service can be
significantly more expensive or impractical as a solution. |
| |
● |
High cost
of ownership. Existing alternative solutions, such as fiber-to-the-premises, cable, digital subscriber line (“DSL”),
worldwide interoperability for microwave access, or WiMAX, LTE and traditional backhaul, provide high capacity, high-performance
broadband access; however, these solutions can be extremely costly, and often do not meet the demanding price-performance
requirements of underserved markets. Likewise, traditional satellite services are often cost prohibitive for effective use
in all but the most critical applications. |
| |
● |
Complexity.
Existing alternative solutions are often difficult to deploy and manage and require skilled employees or high cost
consultants to install and operate. In addition, existing enterprise solutions often offer a large variety of features and
functionalities that enterprise customers may find overwhelming or unnecessary. |
| |
● |
Lack of product
support and customer-driven features. Product support and feedback for alternative suppliers’ wireless networking
solutions are often costly and ineffective. Existing wireless solutions are not accompanied by dynamic product support to
assist customers in efficiently setting up and troubleshooting their networks. Additionally, alternative suppliers generally
lack an effective mechanism to communicate with their end-users and incorporate feedback from usage into product roadmaps. |
Market
opportunity. Broadband satellite service providers have developed products and services to satisfy the increasing
demand for broadband access, support mobility and provide the performance and reliability demanded by customers in remote and
underserved areas. However, these existing solutions often fail to meet the price-performance requirements of fixed wireless networking
in remote or emerging markets, which in turn has led to low penetration of broadband access to remotely located critical assets
such as distributed power generation systems (Solar PV, Wind farms, hydroelectric power plant, biogas power plant and oil &
gas facilities). We believe a more attractively priced solution using satellite or other wireless technology would further expand
the use of the internet to these users.
Our
Solutions
The
products and services we distribute/resell enable both enterprises and end users to cost-effectively deploy the infrastructure
for high performance, scalable and reliable connectivity. Our solutions offer the following key benefits:
| |
● |
High-performance
proprietary technology solutions. The products and services we distribute/resell include high-performance antennas,
software, communications protocols, and management tools that have been designed to deliver carrier and enterprise-class satellite
and wireless broadband access and other services primarily in the licensed RF spectrum. The Kymeta terminals, which incorporate
innovative proprietary (to Kymeta) technologies, are designed and field tested to deliver carrier-class network speeds, throughput,
range, and coverage, while simultaneously meeting the varying performance requirements of video, voice and data traffic. As
compared to traditional stabilized parabolic VSAT antennas, the flat panel, electronically steered Kymeta antenna is smaller
and lower profile, and has no moving parts, making it lighter, cheaper and more easily deployable than both stabilized parabolic
and existing “phased array” flat panel antennas. |
| |
● |
Price disruptive
offering. The products and services we distribute/resell have been designed to deliver high performance to users at
highly disruptive price points. The deployment and operation of our products and solutions require a fraction of the capital
expenditures, implementation expenses and network maintenance costs of those associated with both terrestrial wireless networks
and traditional stabilized VSAT satellite solutions. The consumption-based data plans that we now offer represent a significant
change in the way customers can purchase and use broadband satellite and wireless services, and both opens new markets and
creates opportunities to convert existing customers from their current providers. |
| |
● |
Integrated
and easy to deploy and manage. The integrated products and services we distribute/resell reduce the complexity associated
with the installation, management, and expansion of wireless and satellite networks. The innovative, consumption-based
hybrid data plan offerings associated with our satellite and wireless services, compared with the traditional minimum monthly
fee, “use it or lose it” pricing model of broadband satellite and wireless, will allow penetration into currently
unserved or underserved markets (whether the application is fixed or mobile), such as renewable energy, Oil & Gas, Commercial
Vessels, and Private Yachts. |
Our
Strategy
Our
goal is to disrupt the market for communications technology by offering innovative products and services that provide superior
performance at more affordable prices than alternative solutions. Key elements of our strategy include the following:
| |
● |
Delivering
high-performance characteristics at disruptive price points. We intend to expand our market opportunities by continuing
to distribute and resell products and services with disruptive price-performance characteristics, such as the 4G/LTSATTM
service, with the goal of displacing higher-priced solutions in enterprise markets and expanding service to customers
with mission-critical assets in remote locations. We believe that we can sustain our disruptive strategy through our unique
business model, focusing on the features and functionalities most critical to customers and avoiding the fringe features,
which add both cost and complexity. These features and functions include easy to set-up and use satellite and wireless solutions. |
| |
● |
Leverage our
technologies and business model in adjacent markets. We intend to continue to leverage the technologies of our suppliers
and our business model to target other large and growing markets that we believe are ripe for disruption, such as video surveillance,
routing, switching, gigabit passive optical networking (GPON fiber connectivity) and licensed microwave wireless backhaul
markets. These verticals include small connected objects, found in the power and utility industries, hospitality, medical,
education, government, warehousing, retail, construction, trucking and fleet management, and other verticals. We believe we
are well positioned to gain traction in these new addressable markets and will continue to accelerate our collaboration with
our suppliers to continue innovation in these products. |
| |
● |
Maintain and
extend our technological leadership. We intend to work cooperatively with our current and future suppliers as they
develop innovative solutions for our target markets. We believe that our continued focus on utilizing customer-driven feedback
in helping suppliers develop such technologies will allow suppliers to deliver and us to distribute/resell products and solutions
with disruptive price-performance characteristics specifically tailored to the needs our target markets. In addition, we believe
the continued innovation of our suppliers’ technologies is key to the value in the products and services we distribute
and resell and critical to retaining customers. |
Competition
The
Company will be subject to significant and intensifying competition within the satellite industry and from other providers of
communications capacity. The Company’s ability to sell products and services will depend on 1) the ability of the Company’s
suppliers to develop new products and services to remain competitive, 2) the Company’s ability to i) re-sell such products
and services, ii) develop, adopt or have access to new technologies; iii) successfully implement its marketing, sales and promotion
strategy, and iv) maintain and grow market share in the industry, and 3) the risks from changes in the U.S. and international
regulatory environments affecting the satellite and communications industries. The Company’s failure to compete effectively
would adversely affect the Company’s results of operations, business prospects, and financial condition.
Distribution
Methods
Competing
successfully depends heavily on our ability to deliver and distribute innovative products and technologies to the marketplace
across. We often face a long sales cycle from the time a project is identified to the delivery and implementation of our solution.
In some cases, this cycle may last 6 months or longer. We believe that to compete successfully we need both a direct and indirect
distribution model:
Direct
Model
The
Company primarily sells directly to customers through our internal sales team and independent sales agents. Our sales process
is typically initiated either by potential customers contacting the Company directly via our website and/or through a referral
from a current customer, following which we collect information and provide a price estimate based on customer requirements and
our recommended connectivity solution. We “size” our connectivity solutions and allocated network bandwidth based
on the anticipated network load.
Indirect
Model
The
Company also utilizes a number of sub-resellers, and potential customers may also purchase our products and services from one
of such sub-resellers. We target sub-resellers with an existing customer base which we think may be candidates for our products
and services. In 2018, we set up several sub-resellers in Houston, Texas, Marseille, France, Trinidad and Tobago, Viareggio, Italy,
Genoa, Italy, and South Africa, however, there is no assurance that these arrangements will result in the generation of any meaningful
revenue.
Dependence
on one or a few major customers
The Company will likely depend on a limited
number of large customers to purchase or subscribe to its products and services. During the year ended December 31, 2018 one customer
accounted for 39% of our total revenue; and there were four additional customers each in excess of 10% of our total revenue. As
the Company expands and begins to generate more sales in the different targeted market verticals, the dependency on large customers
is expected to decline over time. The loss of business from any one of such customers could have a material adverse effect on our
business or results of operations.
Need
for any government approvals
The
telecommunications industry is highly regulated. Most of the services we resell require licenses or approvals from regulatory
authorities in various countries. In the United States, we and our suppliers are subject to the regulatory authority of the Federal
Communications Commission (“FCC”). Regulation of the telecommunications industry continues to change rapidly. The
services we currently resell in the U.S. are currently provided on a private carrier basis, rather than a common carrier basis,
and are therefore subject to lighter regulation under the U.S. Communications Act of 1934, as amended, and the regulations of
the FCC. If the FCC was to determine that our services constitute common carrier offerings subject to common carrier regulations,
we may be subject to significant costs to ensure compliance with the applicable provisions of those laws and regulations. We may
be subject to enforcement actions including, but not limited to, fines, cease and desist orders, or other penalties if we fail
to comply with all applicable requirements.
For
our U.S. business, our suppliers generally maintain licenses with rights to the radio frequency spectrum, including very small
aperture terminal (VSAT) earth station licenses, and contracts for wireless communications service licenses.
If
we execute a customer agreement in a foreign country, either we or our suppliers may be required to register to provide our telecommunications
services in that foreign country. The foreign laws and regulations governing the services we resell are often complex and subject
to change with short or no notice. Failure to comply with any of the laws and regulations to which we are subject may result in
various sanctions, including fines, loss of any existing authorizations and denial of applications for new authorizations.
If
we seek to export our telecommunications equipment and services, we will be required to comply with export control laws and regulations,
trade and economic sanction laws and regulations of the United States and other countries with respect to the export of our telecommunications
equipment and services. State and local regulation additionally apply to certain aspects of our business. We are also subject
to various anti-corruption laws, including the Foreign Corrupt Practices Act, that prohibits the offering of or giving anything
of value to government officials for the purpose of obtaining or retaining business or for gaining an unfair advantage.
Intellectual
Property
We
rely on various intellectual property laws, confidentiality procedures and contractual provisions to protect the proprietary technology
of the Company and our suppliers. We have registered the “FMC GlobalSat” logo with the U.S. Patent and Trademark Office,
and registered the domain name “fmcglobalsat.com”.
Consultants
and Employees
As
of December 31, 2018, we had 4 full-time employees, 7 consultants and 2 part-time employees. Our U.S. employees are not represented
by a labor union. Competition for qualified personnel in our industry is intense, particularly for software and network engineers,
computer scientists, and other technical staff. To be in compliance with US immigration law, we have sponsored some of our non-US-national
employees during the course of 2018 and we may expect to keep doing so in 2019 as we see fit.
Our
Website
Our
corporate website address is www.fmcglobalsat.com. Information found on our website is not incorporated by reference into this
report. We make available free of charge through our website our Securities and Exchange Commission (“SEC”) filings,
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically
file such material with, or furnish such material to, the SEC.
ITEM 1A.
RISK FACTORS
RISKS
RELATED TO OUR BUSINESS
We
are a company that has a limited operating history and it is difficult to predict our future growth and operating results.
As
of the date of this Annual Report, the Company has limited capital and operating history. Therefore, the Company is subject to
the risks involved with any speculative early-stage enterprise. There is no assurance that the Company will successfully offer,
market and distribute its licensed products or services and or retains its customers. The Company may experience continuing net
losses and negative cash flows from operations. The extent of continuing losses and negative cash flows from operations and the
time required to reach profitability are highly uncertain. There is no assurance that the Company will be able to achieve profitability
or that profitability if achieved, can be sustained on an ongoing basis. Such risks for the Company include, but are not limited
to:
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● |
An evolving, unpredictable
and unproven business model; |
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● |
An intensely competitive
developing market; |
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● |
Rapidly changing
technology; |
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● |
Dependence on key
personnel; |
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● |
Dependence on the
perpetuation of the distribution/reseller agreements with our suppliers; |
| |
● |
Dependence on our
suppliers continuing to offer favorable pricing for their hardware and services; |
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● |
Dependence on successful
commercial operations by our suppliers; |
| |
● |
Limited operating
capital and limited access to credit; and |
| |
● |
Other unforeseen
changes and developments. |
In
order to address these risks, the Company must, among other things:
| |
● |
Implement and successfully
execute its business strategy; |
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● |
Provide superior
customer service; |
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● |
Respond to competitive
developments; |
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● |
Attract, retain
and motivate qualified personnel; and |
| |
● |
Respond to unforeseen
and changing circumstances. |
The
Company cannot make the assurance that it will succeed in addressing these risks.
There
is substantial doubt about the Company’s ability to continue as a going concern, which may impact our ability to achieve
profitability in the future.
The
Company is in its early stage, has limited liquidity, limited operations, and has incurred a net loss of $1,943,182 and
$779,648 during the years ended December 31, 2018 and December 31, 2017, respectively. The Company’s primary source of
operating funds since inception has been from the issuance of convertible notes, the sale of Common Stock and warrants in the
private placements (see Note 7 – Stockholders’ Equity) of our accompanying financial statements),
cash proceeds from revenue generated by sales, and the issuance of common shares to its founders. We anticipate negative cash
flows for the foreseeable future, as we expect to incur operating expenses with the continued development and expansion of
our business. Our expenses include selling and marketing, customer support, and general and administrative expenses. There
can be no assurance that we will ever achieve or sustain profitability on a quarterly or annual basis. Since we have incurred
continuing losses from operations and are dependent upon future sources of equity or debt financing in order to fund our
operations, there is substantial doubt about the Company’s ability to continue as a going concern within one year from
the date the accompanying financial statements are issued. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We
face strong competition within the satellite and wireless connectivity industries.
The
Company will be subject to significant and intensifying competition within the wireless and satellite industries and from other
providers of communications capacity. The Company’s ability to sell products and services will depend on: the ability of
our suppliers to develop new products and services to remain competitive and on the Company’s ability to resell such products
and services; its ability to develop, adopt or have access to new technologies; its ability to successfully implement its marketing,
sales and promotion strategy; its ability to maintain and grow market share in the industry; and the adverse impacts from potential
changes in U.S. and international regulatory environments affecting the satellite and communications industries. The Company’s
failure to compete effectively would adversely affect the Company’s results of operations, business prospects, and financial
condition.
We
may be unable to implement price increases or maintain existing prices on our services.
The
average selling prices and margins of remote telecommunications services historically have declined over their life cycles. This
trend reflects, in part, the intense competition in the industry. The Company will compete not only against other distributors
of our suppliers’ products and services, but it will also effectively compete with other distributors and providers of wireless,
fixed satellite, and mobile satellite services that the Company does not distribute. The competitive environment may result in
downward pressure on pricing and lower margins. The downward pricing pressure may lead to period over period declines in the Company’s
operating results from time to time.
Dependence
on one or a few major customers
During the year ended December 31, 2018 customer accounted for 39% of our total revenue; and there were
four additional customers with revenue each in excess of 10% of our total revenue. The loss of business from any one of such customers could have a material adverse
effect on our business or results of operations.
We may be unable to source additional, or strengthen
our existing relationships with, suppliers. In addition, the loss of any of our key suppliers would negatively impact our business.
In order to attract
quality suppliers, we must demonstrate our ability to help our suppliers increase their sales and demonstrate our ability to offer
a cost-effective, high quality connectivity solution to our customers and potential customers. If we are unable to provide our
suppliers with a compelling return on investment and an ability to increase their sales, we may be unable to maintain and/or expand
our supplier network, which would negatively impact our business.
We purchase significant
amounts of products and services from a limited number of suppliers with limited supply capabilities, specifically including Kymeta.
There can be no assurance that our current suppliers will be able to accommodate our anticipated growth or continue to supply current
quantities at current prices. An inability of our existing suppliers to provide products and services in a timely or cost-effective
manner could impair our growth and materially and adversely affect our business, financial condition, and results of operations.
The loss of any of our significant suppliers would have a negative impact on our business, financial condition, and results of
operations. In addition, in our experience, it is challenging to persuade buyers of connectivity services to switch to a different
product/service, which could make it difficult to retain certain customers if we lose a connectivity supplier, thereby exacerbating
the negative impact of such loss on our business, financial condition, and results of operations.
We continually
seek to expand our base of suppliers and to identify new communications products and services. If we are unable to identify or
enter into distribution relationships with new suppliers or to replace the loss of any of our existing suppliers, we may experience
a competitive disadvantage, our business may be disrupted and our business, financial condition, and results of operations may
be adversely affected.
Our
future operating results are subject to fluctuations and quarterly variations based upon a variety of factors, many of which are
not within our control.
Given
the early stage of the Company and the rapidly evolving nature of the markets in which the Company will be competing, the Company
expects to experience significant fluctuations in its future operating results due to a variety of factors, many of which are
outside of its control. Factors that may adversely affect the Company’s operating results include, without limitation, the
following:
| |
● |
The acceptance and
use of the services and products the Company resells; |
| |
● |
Availability of
inventory from its vendors; |
| |
● |
The timing of sales
to customers; |
| |
● |
The ability of its
vendors and/or the Company to develop and upgrade its products, systems, and infrastructure; |
| |
● |
The announcement
or introduction of new products and services by the competitors of our suppliers and/or Company; |
| |
● |
The amount and timing
of operating costs and capital expenditures relating to the expansion of the Company’s business, operations, and infrastructure; |
| |
● |
The Company’s
continued access to capital to fund growth and capital expenditures, and |
| |
● |
General economic
conditions and economic conditions which are specific to the industry. |
We
have a relatively short operating history in a relatively new and rapidly developing market, which makes it difficult to evaluate
our business and future prospects.
The
markets for the services and products that will be offered by the Company are rapidly evolving and are characterized by an increasing
number of market entrants who have introduced or developed competitive service and product offerings. As is typical in the case
of a rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high
level of uncertainty and risk. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors,
or if the products and services offered by the Company do not achieve or sustain market acceptance, the Company’s business,
prospects, financial condition and results of operations would be materially adversely affected.
Rapid
technological change and substantial competition may impair our business.
To
remain competitive, the Company will be required to continually enhance and improve the responsiveness, functionality, and features
of our offered technology. The satellite and wireless communications industries are characterized by highly complex technology,
rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and practices that could at any time render its then existing
products and services, as well as proprietary technology and systems, obsolete. The Company’s future success will depend,
in part, on the ability of the company’s suppliers to develop technologies useful in their business, enhance their existing
services, develop new services and technologies that address the increasingly sophisticated and varied needs of its prospective
customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely
basis. The marketing and sale of other proprietary technology entails significant technical and business risks. There can be no
assurance that the Company will successfully be able to market or sell any of such new technologies effectively or that such hardware,
software and/or technology (proprietary or otherwise) will comply with customer requirements or emerging industry standards. If
the Company was unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing
market conditions or customer requirements, the Company’s business, prospects, financial condition and results of operations
would be materially adversely affected.
We
operate in a highly regulated industry, and increased costs of compliance with, or liability for violation of, existing or future
regulations could significantly increase our costs of doing business.
The
Company intends to operate in a highly regulated industry and government regulations may adversely affect its ability to sell
its intended products and/or services or otherwise limit the Company’s ability to operate or grow its business.
The
Company and/or its suppliers may be subject to regulatory and licensing requirements in each of the countries in which it will
sell products and/or provide services, and its business may be sensitive to regulatory changes in those countries. Countries where
the Company may conduct business or their regulatory authorities may adopt new laws, policies or regulations, or change their
interpretation of existing laws, policies or regulations, that could cause the Company’s or its suppliers’ existing
authorizations to be changed or canceled, require the Company (directly or indirectly through is suppliers) to incur additional
costs, impose or change existing pricing, or otherwise adversely affect its intended operations or revenues. As a result, any
currently held regulatory authorizations by the Company or its suppliers are subject to rescission and renewal and may not remain
sufficient or additional authorizations may be necessary that the Company (or its suppliers) may not be able to obtain on a timely
basis or on terms that are not unduly costly or burdensome.
In
addition, the provision of some of the services we currently resell or other future services may be dependent upon obtaining and
maintaining the necessary licenses, certifications, and other approvals, which may or may not be issued or renewed by the applicable
regulatory authority. If the Company, its suppliers or its end-users are unable to obtain or retain necessary licenses, certifications
and approvals, the Company’s revenue and profitability could be adversely affected.
The
Company has not requested or obtained an opinion of counsel or ruling from any authority to determine if its intended operations
are in compliance with or violate any laws and regulations of any jurisdiction. In the event that the Company’s intended
operations are deemed to violate any laws, the Company could have a liability that could cause it to modify or cease its operations.
We
are dependent upon our key management personnel for our future success.
The Company’s
performance will depend substantially on the continued services and performance of senior management of the Company, specifically
including our CEO, Emmanuel Cotrel, and other key personnel and strategic consultants. The Company’s performance will also
depend on its ability to retain and motivate their other qualified officers and key employees. The loss of the services of any
of the executive officers or other key employees of the Company could have a material adverse effect on the Company’s business,
prospects, financial condition and results of operation. The Company’s future success also depends on its ability to identify,
attract, hire, train, retain and motivate other highly skilled technical, marketing, managerial and financial personnel. Competition
for such personnel is intense, and the failure of the Company to attract and retain the necessary technical, marketing, managerial
and financial personnel could have a material adverse effect on the Company’s business, prospects, financial condition and
results of operations.
Management
of Growth
In
order to maximize the potential growth in the Company’s market opportunities, the Company may have to expand rapidly and
significantly. The impetus for expansion could place a significant strain on the management, operational and financial resources
of the Company. In order to manage growth, the Company will be required to implement and continually improve its operational and
financial systems, expand operations, attract and retain superior management and train, manage and expand its employee base. The
Company can give no assurance that it will effectively manage its operations, that its system, procedures, or controls will adequately
support operations or that management of the Company will successfully implement its business plan. If the Company cannot effectively
manage growth, the Company’s business, prospects, financial condition and results of operations could be adversely affected.
If
we cannot successfully implement any future acquisitions or other strategic transactions, it could have a material adverse effect
on our operating results
The
Company’s ability to complete future strategic transactions could be important to the successful implementation of its business
strategies, including its strategies to strengthen its geographic diversity and broaden its customer base. Successful completion
of an acquisition or other similar transaction depends on a number of factors that are not entirely within the Company’s
control, including its ability to negotiate acceptable terms, conclude satisfactory agreements and obtain all necessary regulatory
approvals. In seeking to acquire a target company, the Company may face competition from other companies interested in acquiring
the target company that have significantly greater financial and other resources than the Company has. If the Company needs to
finance a transaction, it may not be able to obtain the necessary financing on satisfactory terms and within the timeframe that
would permit the transaction to proceed. If any of these factors prevents it from completing one or more strategic transactions,
the Company may not be able to expand its business in the manner and on the schedule that it plans. In addition, the Company may
incur significant costs arising from its efforts to engage in strategic transactions. These costs may exceed the returns that
it realizes from a given transaction. Moreover, these expenditures may not result in the successful completion of a transaction.
Even
if the Company completes one or more strategic transactions, it may be unable to integrate successfully the personnel and operations
of a new business or achieve the operational synergies or other benefits that it had anticipated. Moreover, it might fail to discover
the liabilities of a business or operating or other problems prior to completing a transaction. The Company could experience adverse
accounting and financial consequences, such as the need to make large provisions against the acquired assets or to write down
acquired assets. It might also experience a dilutive effect on its earnings. Depending on how any such transaction is structured,
there may be an adverse impact on the Company’s capital structure. Further, an acquisition could disrupt the ongoing business,
distract management and employees or lead to increased expenses.
We
may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.
We
face a potential risk of product liability as a result of any of the products that we offer for sale. For example, we may be sued
if any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing
or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to
warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted
under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur
substantial liabilities. Even a successful defense would require significant financial and management resources. Regardless of
the merits or eventual outcome, liability claims may result in:
| |
● |
decreased demand
for products that we may offer for sale; |
| |
● |
injury to our reputation; |
| |
● |
costs to defend
the related litigation; |
| |
● |
a diversion of management’s
time and our resources; |
| |
● |
substantial monetary
awards to customers or those injured; |
| |
● |
product recalls,
withdrawals or labeling, marketing or promotional restrictions; and |
| |
● |
a decline in the
value of our stock. |
Our
inability to obtain and retain sufficient product liability insurance for any reason to protect against potential product liability
claims could prevent or inhibit the commercialization of products we offer for sale. We do not maintain any product liability
insurance. Even if we obtain product liability insurance in the future, we may have to pay amounts awarded by a court or negotiated
in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able
to obtain, sufficient capital to pay such amounts.
Liability
for uninsured losses could adversely affect our financial condition.
The
Company currently maintains some insurance coverages, such as a Commercial General Liability policy, and a director and officers
policy. However, we may not be able to arrange for products liability, errors, and omissions, additional or higher limited liability
coverage as may be needed and/or any other required insurance for its business, which is customarily obtained for similar businesses.
The lack of or inadequacy of insurance could materially adversely affect the Company and the value of its securities in the event
of an uninsured loss.
The Company is dependent on computer
and communications systems, and a systems failure or data breach could cause a significant disruption to its business.
The Company’s business depends on
the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure. The Company
currently maintains its products at numerous customers locations which are dependent upon computer systems at multiple locations,
including several third-party data centers, along with computer equipment at each of its terminals. The Company’s operations
and those of its technology and communications service providers are vulnerable to interruption by fire, earthquake, power loss,
telecommunications failure, terrorist attacks, Internet failures, computer viruses, data breaches (including cyber-attacks or
cyber intrusions over the Internet, malware and the like) and other events generally beyond its control. Although the Company
believes that the Company and its communications providers have robust information security procedures and other safeguards in
place, as cyber threats continue to evolve, it may be required to expend additional resources to continue to enhance its information
security measures and investigate and remediate any information security vulnerabilities. A significant cyber incident, including
system failure, security breach, disruption by malware or other damage, could interrupt or delay the Company’s operations,
damage its reputation, cause a loss of customers, agents or third party capacity providers, expose the Company to a risk of loss
or litigation, or cause the Company to incur significant time and expense to remedy such an event, any of which could have a material
adverse impact on its results of operations and financial position.
Acts
of terrorism, effects of war, public health, man-made and natural disasters, other catastrophes or political unrest could have
a material adverse effect on our business.
The
services and products we will be providing depend upon substantial investments in, and the reliable operation of, satellite networks
and terrestrial telecommunications equipment. Such facilities and equipment are subject to being disabled or made inaccessible
as a result of natural disasters, military actions, acts of war and acts of terrorism, which could, in turn, lead to an interruption
or disruption of some of our services in one or more geographic areas, including areas where we will have a significant customer
base. Further, such events could harm our business reputation, particularly if any of our competitors are able to continue to
provide communication services when we are not or are able to restore service more quickly than we do. In the event of future
natural or man-made disasters affecting our facilities or equipment, we may experience a loss in revenue, which may not be adequately
insured against and could, therefore, reduce our profitability. There is no assurance that we will be able to maintain adequate
insurance for our business at a reasonable cost or at all.
Our
business could be harmed by our or our suppliers’ possible failure to protect its intellectual property and proprietary
rights.
The
Company’s success will depend in part upon its ability to distribute/resell its suppliers’ proprietary products and
services. The Company does not own any patents or other intellectual property (other than trademark rights), though it is developing
certain software applications which will enable certain customer service and support functionality (such as a customer portal
through which customers can view and monitor things such as their data usage) in which it will own the intellectual property.
In addition, the Company cannot assure that its suppliers will be successful in protecting their intellectual property or that
others will not develop intellectual property, products and/or services that are superior to those offered by our suppliers or
that our suppliers will develop additional proprietary products or processes that are patentable, and that if issued, that any
patent will give a competitive advantage or that such patent will not be challenged by third parties, or that the patents of others
will not have a material adverse effect on our supplier’s technologies and products and/or the Company’s ability to
do business.
The
Company has applied and received from the USPTO its registered trademark of its FMC GlobalSat logo and name, and may apply to
register certain additional trademarks in, or claim certain trademark rights in, the United States and/or foreign jurisdictions.
The Company cannot assure that its or its suppliers’ means in protecting its proprietary rights will suffice or that the
Company’s competitors will not independently develop competitive technology or duplicate services or design around patents
or other intellectual property rights issued to the Company or its suppliers.
We
may become subject to litigation, the disposition of which could have a material adverse effect on our cash flows, financial position
or results of operations.
From
time to time in the normal course of business or otherwise, the Company may become subject to litigation that may result in liability
material to the Company’s financial statements as a whole or may negatively affect its operating results if changes to business
operations are required. The cost to defend such litigation may be significant and may require a diversion of the Company’s
resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of
the Company’s business, regardless of whether the allegations are valid or whether the Company is ultimately found liable.
As a result, litigation may adversely affect the Company’s business, financial condition, and results of operations.
Instability
in financial markets could adversely affect our ability to access additional capital.
In
past years, the volatility and disruption in the capital and credit markets reached unprecedented levels. If these conditions
reoccur, there can be no assurance that the Company will not experience a material adverse effect on their ability to borrow money
or have access to capital, if needed. Lenders may be unable or unwilling to lend money. In addition, if the Company determines
that it is appropriate or necessary to raise capital in the future, the future cost of raising funds through the debt or equity
markets may be expensive or those markets may be unavailable. If the Company were unable to raise funds through debt or equity
markets, it could have a material adverse effect on the Company’s business, results of operations and financial condition.
There can be no assurance that any additional capital will be available to the Company, or if available, will be on terms favorable
to the Company.
The
Company’s officers and directors have significant control over shareholder matters and the minority shareholders will have
little or no control over the Company’s affairs.
Our
officers and directors own approximately 47.6% of the Company’s outstanding Common Stock, and thus collectively have significant
control over shareholder matters, such as the election of directors, amendments to our Certificate of Incorporation, and approval
of significant corporate transactions. As a result, the Company’s minority shareholders will have little or no control over
our affairs.
RISKS
RELATING TO OUR COMMON STOCK
An
investment in our company should be considered illiquid.
An
investment in the Company requires a long-term commitment, with no certainty of return. Because we did not become an SEC reporting
company by the traditional means of conducting an initial public offering of our Common Stock, we may be unable to establish a
liquid market for our Common Stock. Moreover, we do not expect security analysts of brokerage firms to provide coverage of the
Company in the near future. In addition, investment banks may be less likely to agree to underwrite primary or secondary offerings
on behalf of the Company or its stockholders in the future than they would if we became a public reporting company by means of
an initial public offering of common stock. In 2018 the Company
had material weaknesses in its internal controls as further explained in Item 9A. If all or any of the foregoing risks occur,
it would have a material adverse effect on the Company. Even if our Common Stock is quoted on an over the counter market or listed
on a national exchange, of which no assurances can be given, we cannot predict whether an active market for our Common Stock will
ever develop in the future. The lack of an active market impairs purchasers of the Company’s Common Stock at the time they
wish to sell their shares or at a price that they consider reasonable. The lack of an active market may also reduce the fair market
value of the Company’s Common Stock.
We
may not qualify for OTC Bulletin Board or OTCQB inclusion, and therefore you may be unable to sell your shares.
There is no public trading market for our
Common Stock and our Common Stock is not quoted or reported on any exchange or quotation system and may not be able to be resold
other than in privately negotiated transactions. We plan on applying for the quotation of our Common Stock on the over the counter
bulletin board market maintained by OTC Markets, LLC, which we refer to herein as the OTCQB. No assurances can be given, however,
that our Common Stock will be accepted for quotation. Among other matters, in order for our Common Stock to become OTCQB eligible,
a broker/dealer member of FINRA, must file a Form 211 with FINRA and commit to make a market in our securities once the Form 211
is approved by FINRA. If for any reason our Common Stock does not become eligible for quotation on the OTCQB or a public trading
market does not develop, purchasers of shares of our Common Stock may have difficulty selling their shares should they desire to
do so. If we are unable to satisfy the requirements for quotation on the OTCQB, any quotation of our Common Stock would be conducted
in the “pink” sheets market. As a result, a purchaser of our Common Stock may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of their shares. The above-described rules may materially adversely affect the
liquidity of our securities.
Our
Common Stock is deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.
Our
Common Stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act.
The penny stock rules generally apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national
securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000
for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating
for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and,
as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject
to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.
If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
Once
our Common Stock becomes quoted on the OTCQB, substantial future sales of our Common Stock by us or by our existing stockholders
could cause our stock price to fall.
Additional
equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate
partnering transactions, could adversely affect the market price of our Common Stock, assuming our Common Stock begins trading
on the OTCQB. Sales by existing stockholders of a large number of shares of our Common Stock in the public market or the perception
that additional sales could occur could cause the market price of our Common Stock to drop.
FINRA
sales practice requirements may also limit your ability to buy and sell our Common Stock, which could depress the price of our
Common Stock.
FINRA
rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending
that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and
investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability
such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell
shares of Common Stock, have an adverse effect on the market for our Common Stock, and thereby depress the price of our Common
Stock. In addition, it has been more difficult in recent years for holders of “penny stocks” to deposit their shares
with brokerage firms, which may limit any shareholder’s ability to sell shares of the Company’s stock, even if such
shares are approved for quotation on the OTCQB.
We
are an “emerging growth company,” and will be able to take advantage of reduced disclosure requirements applicable
to “emerging growth companies,” which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and,
for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from
various reporting requirements applicable to other public companies but not to “emerging growth companies,” including,
but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest
of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become
a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, or (iii) the date on which we have issued
more than $1 billion in non-convertible debt during the preceding three year period. We cannot predict if investors will find
our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our Common Stock less attractive
as a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Stock and our
stock price may be more volatile.
We
will incur significantly increased costs and devote substantial management time as a result of operating as a public company particularly
after we are no longer an “emerging growth company.”
As
a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For
example, we are required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange Commission,
including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance
practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make
some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert
attention from operational and other business matters to devote substantial time to these public company requirements. In particular,
we expect to incur significant expenses and devote substantial management effort towards ensuring compliance with the requirements
of Section 404 of the Sarbanes-Oxley Act. We are just beginning the process of compiling the system and processing documentation
needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation
in a timely fashion. In that regard, we currently do not have an internal audit function, and we will need to hire additional
accounting and financial staff with appropriate public company experience and technical accounting knowledge.
However,
for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until
we are no longer an “emerging growth company.”
Under
the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as
those standards apply to private companies. We have elected to accept this exemption from new or revised accounting standards
and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not
“emerging growth companies.”
After
we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with
the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers,
including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
We
cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of
such costs.
There
may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud
may materially harm our company.
Proper
systems of internal controls over financial accounting and disclosure are critical to the operation of a public company. As we
are a start-up company, we are at the very early stages of establishing, and we may be unable to effectively establish such systems.
This would leave us without the ability to reliably assimilate and compile financial information about the Company and significantly
impair our ability to prevent error and detect fraud, all of which would have a negative impact on the Company from many perspectives.
Moreover,
we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all
error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there
are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us. In
2018, the Company had material weaknesses in its internal controls as further described in Item 9A.
We
do not currently intend to pay dividends on our Common Stock in the foreseeable future, and consequently, your ability to achieve
a return on your investment will depend on appreciation in the price of our Common Stock.
We
have never declared or paid cash dividends on our Common Stock and do not anticipate paying any cash dividends to holders of our
Common Stock in the foreseeable future. Consequently, investors must rely on sales of their shares after price appreciation, which
may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our Common
Stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Upon
dissolution of the Company, you may not recoup all or any portion of your investment.
In
the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets
of the Company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be
distributed to the stockholders of Common Stock on a pro rata basis. There can be no assurance that we will have available assets
to pay to the holders of Common Stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this
event, you could lose some or all of your investment.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our
principal executive offices are located at 3301 SE 14th Avenue, Fort Lauderdale, FL 33316. The property is leased for two years
beginning March 1, 2018 and ending February 28, 2020 at a rental expense of $4,452 per month. The lease contains two renewal options
each for an additional two-year lease term at the same monthly rent.
ITEM 3.
LEGAL PROCEEDINGS
We
are not a party to any material pending legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is not presently traded on any market or securities exchange. We are seeking a market maker to file 15c2-11
for the trading of our common stock on the OTCQB Market. There can be no assurance that a market maker will agree to file the
necessary documents with the FINRA, nor can we provide assurance that our shares will actually be quoted on the OTCQB Market or,
if quoted, that a viable public market will materialize or be sustained.
Future
sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity securities.
Holders
As of the date of this Annual Report, there are 60 holders of
record of our Common Stock.
Recent
Sales of Unregistered Securities.
None
Securities
Act Exemptions
We
deemed all of the above offers, sales and issuances of our shares of Common Stock and warrants to be exempt from registration
under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated
thereunder, relative to transactions by an issuer not involving a public offering. All purchasers of securities in transactions
exempt from registration pursuant to Regulation D represented to us that they were accredited investors and were acquiring the
shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that
they could bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received
written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant
to a registration statement or an available exemption from such registration.
Dividends
We
have never declared or paid cash dividends on our Common Stock. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements,
and such other factors as the Board deems relevant.
Issuer
Purchases of Equity Securities
None.
ITEM 6.
SELECTED FINANCIAL DATA
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information
required by this Item.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
annual report contains statements that are forward-looking, such as statements relating to plans for future organic growth and
other business development activities, as well as the impact of reimbursement trends, other capital spending and financing sources.
Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf
of the Company. These risks described herein in “Item 1A-Risk Factors.”
OVERVIEW
The
Company is a provider of global connectivity solutions, with a focus on providing hybrid communications and connectivity services
utilizing both terrestrial wireless and satellite networks. We currently offer data connectivity to remote or difficult to serve
customer sectors through broadband satellite and wireless 4G networks. The Company began in 2017 by reselling products and services
offered by Kymeta Corporation (“Kymeta”). Kymeta manufactures technologically innovative and electronically steerable
(i.e., using software and no mechanical parts) flat panel satellite antennas and offers a managed Ku band satellite data connectivity
service in partnership with IntelSat. The Company’s initial target market focus for reselling Kymeta products and services
was the renewable energy industry. The Company has since expanded its sales strategy to include targeting the following industry
sectors: distributed power systems, oil & gas and maritime (cruise, private yachts and commercial vessels). In 2018, we expanded
our service offerings by offering 4G wireless data plans on a resale basis through a wireless aggregator and major international
telecom carriers, allowing the Company to leverage more than 550 telecom carriers in 180 different countries through roaming arrangements.
The Company’s strategy is to enter into similar agreements with other telecom satellite operators to diversify the regions
in which it can provide connectivity and the service configurations it can offer to include both data plans (i.e. pricing based
on data usage) and information rates (i.e. pricing based on minimum and/or maximum data transfer rates).
The
Company’s current main satellite product is Kymeta’s 70 cm flat panel antenna terminal, and its current main satellite
service is Kymeta’s “Kalo” service, a managed Ku band connectivity service that is billed on a data plan basis
(i.e., a price per megabyte of data sent through the link). The Company’s main wireless product and service is the resale
of SIM cards and wireless connectivity. Our services offer a simplified way to buy and use satellite and wireless connectivity,
which is billed on a “by-the-byte” (data plan) basis, to customers and sectors that are currently unreached or underserved
by terrestrial networks, or where service through traditional (parabolic) stabilized VSATs may be considered too expensive.
FMC is also offering a bundled service which combines wireless and satellite connectivity, branded “FMC 4G/LTSAT,”
representing a converged approach which utilizes both 4G/LTE and satellite networks. FMC 4G/LTSAT seeks to provide seamless and
the most cost-effective connectivity by using a “least cost routing” approach, using the most cost-effective connectivity
path then available – typically, our 4G/LTSAT will connect the end-user to a 4G/LTE network if available (as such networks
generally provide more “throughput” at a lower cost to the end user on a per megabyte basis), but will default to
a satellite network if wireless connectivity is not available (or provides less robust throughput) at that time in the end user’s
location.
For
the year ended December 31, 2018 we generated revenues of $305,403 and a net loss of $1,943,864; and for the period of April 19,
2017 (inception) to December 31, 2017 we generated revenues of $35,213 and a net loss of $779,648.
The
following information should be read in conjunction with our Consolidated Financial Statements and related notes contained in
this Report.
Recent
Developments.
On
September 21, 2018, we entered into a financing transaction with Christopher MacDonald, who at the time was the Company’s
Chief Operating Officer and a member of the Board of Directors. As part of the financing, the Company issued to Mr. MacDonald
a convertible promissory note in the original principal amount of $70,000 (the “Note”) pursuant to the terms of a
note purchase agreement. The Note bears interest at the rate of 8% per annum. Interest payments accrued are due on the maturity
date. Both the principal and the interest under the note were repaid on November 15, 2018.
Between
November 14, 2018, and December 21, 2018, we sold an aggregate of $990,000 of units of securities pursuant to separate purchase
agreements with accredited investors (the “Investors”), at a purchase price of $1.00 per unit (the “December
2018 Private Placement”). Each unit consists of one share of Common Stock, and a five-year warrant to purchase one
half (1/2) of one share of Common Stock, at an exercise price of $2.50 per warrant. The Company’s Chief Executive Officer,
Emmanuel Cotrel, invested $200,000 out of the $990,000 raised by the Company in these private placements.
Except
for certain issuances, for a period beginning on the final closing date of the December 2018 Private Placement and ending on the
date that is 24 months thereafter, in the event that the Company issues any shares of Common Stock or securities convertible into
Common Stock at a price per share or conversion price or exercise price per share that is less than $1.00, the Company shall issue
to the Investors such additional number of units such that the Investor shall own an aggregate total number of units as if they
had purchased the units at the price of the lower price issuance. No adjustment to the exercise price of the warrants is
required in connection with a lower priced issuance.
The
warrants are exercisable, at any time on or after the closing date of the December 2018 Private Placement, at a price of $2.50
per share, subject to adjustment, and expire five years from the date of issuance.
At
any time after the Liquidity Date (as such term is defined in the governing securities purchase agreement), the Company shall
have the option, subject to certain conditions, to redeem the then outstanding warrants at a price of $0.0001 per share, upon
not less than thirty (30) days and not more than sixty (60) days prior written notice to the holder, provided (i) there is an
effective registration statement covering the resale of the shares of Common Stock underlying the warrants and (ii) the closing
bid price of the Company’s Common Stock for each of the twenty (20) of the thirty (30) consecutive prior trading days is
at least Five Dollars ($5.00).
In
connection with the December 2018 Private Placement, certain existing shareholders agreed to cancel an aggregate of 5,310,000
shares of Common Stock held by them.
In connection
with the December 2018 Private Placement, Emmanuel Cotrel, our Chief Executive Officer, agreed to terminate his employment agreement
and all related payments, benefits and severance rights thereunder pursuant to a letter agreement. Pursuant to the letter agreement,
Mr. Cotrel waived any deferred salary accrued to the date of the letter agreement, and the Company and Mr. Cotrel agreed that he
will continue serving as the Company’s Chief Executive Officer but will not draw a salary until such time as the Company
achieves a mutually agreeable revenue milestone (and until such milestone is reached, no salary will be accrued or considered deferred).
In consideration for the foregoing, the Company agreed to issue Mr. Cotrel an option award to purchase up to Six Hundred Thousand
(600,000) shares of Common Stock at an exercise price equal to $0.62 per share, which shall vest in 36 equal monthly installments
provided Mr. Cotrel remains employed by the Company.
Additionally,
in connection with the December 2018 Private Placement, Adam Ferguson, the Company’s then-Chief Technology Officer and Director,
and Christopher MacDonald, the Company’s then-Chief Operating Officer and Director, entered into separate letter agreements
with the Company, pursuant to which Adam Ferguson agreed to cancel 2,125,000 and Christopher MacDonald agreed to cancel 2,485,000
of their respective shares of Common Stock, effective upon the initial closing of the December 2018 Private Placement. Pursuant
to their respective letter agreements, each of Mr. Ferguson and Mr. MacDonald agreed to terminate their respective employment
agreements with the Company (including all payments, benefits and severance rights and the waiver of any deferred accrued salary),
effective as of the initial closing of the December 2018 Private Placement.
In
March 2019, the Company issued 30,000 shares of its common stock, and a warrant to purchase 240,000 shares of its common stock,
respectively, to two separate providers of strategic advisory services under agreements with such providers.
RESULTS
OF OPERATIONS
Comparison
of Results of Operations for the years ended December 31, 2018 and December 31, 2017
Revenue
and Cost of Revenue
During
the year ended December 31, 2018 revenues were $305,403 compared to $35,213 for the same period ended December 31, 2017, an increase
of $270,190 or an increase of 767.3%. The Company’s main focus during 2018 has been developing and initiating market awareness.
The increased revenue in 2018 is attributed to the launch of our 4G/LTSAT hybrid satellite and wireless service, most notably
in the fourth quarter of 2018.
Cost
of Revenue
During
the year ended December 31, 2018 cost of goods sold were $185,766, compared to $34,275 for the same period ended December 31,
2017, an increase of $151,491 or an increase of 442%. The Company’s main focus during 2018 has been developing and initiating
market awareness of our products and services. The increased cost of goods sold in 2018 is attributed to the launch of our 4G/LTSAT
hybrid satellite and wireless service, most notably in the fourth quarter of 2018 as services were deployed to customers.
Gross
margin
Gross
margin is calculated by subtracting the cost of sales from revenue. Gross margin percentage is calculated by dividing gross margins
by revenue.
Gross
margin for the years ended December 31, 2018 and 2017 were 39.2% and 2.7 %, respectively. The increase in gross margin for the
year ended 2018 compared to 2017, is primarily attributable to the increased revenue in 2018 and the development of an ongoing
business plan. Since the Company is in its early stages there can be no assurance that the 39.2% gross margin level is indicative
of sustainable margins at higher revenue levels.
Selling
and marketing expenses
Selling
and marketing expenses were $532,062 for the year ended December 31, 2018 compared to $25,222 during the same period ended December
31, 2017, an increase of $506,840. The increase was primarily due to an increase in compensation expense of $315,980 related to
the hiring of sales personnel, sales consultants, and marketing personnel. Marketing and promotional expenses for the year ended
December 31, 2018, increased approximately $66,682, as the Company has been developing and initiating market awareness through
tradeshows, social media campaigns, and publications. The remaining $124,178 increase was due to travel, sales, and marketing
related software subscriptions, and miscellaneous office related expenses.
General
and administrative expenses
General
and administrative expenses were $1,531,439 during the year ended December 31, 2018 compared to $615,419 in the prior year period,
an increase of $916,020 or approximately 149%. The increase was primarily due to a $370,231 increase in compensation expense related
to the hiring of accounting and support personnel; and due to the recording of $247,146 in stock-based compensation due to the
issuance of stock options in 2018, compared to zero stock option issuances in 2017. Office expense increased by $38,425 in the 2018 period due to the Company leasing office space in Fort Lauderdale.
Professional services increased $79,200 due to the audit and legal fees, insurance expense increased $40,062, travel expenses
increased $64,003, bad debt expense was $40,912 in the 2018 period compared to zero in the same period in 2017, and all other
expense categories combined increased approximately $36,000.
LIQUIDITY,
CAPITAL RESOURCES, AND GOING CONCERN
As
of December 31, 2018, we had a cash balance of $229,902. We maintain our cash in a checking account on deposit with a
banking institution in the United States. During the year ended December 31, 2018, we incurred a net loss of $1,943,182. We
have generated minimal revenues and incurred net losses since inception. As of December 31, 2018 we had a working capital
surplus of $190,145 and a retained earnings deficit of $2,722,830.
Cash
Flows from Operating Activities
Net
cash used in operating activities in the year ended December 31, 2018 was $1,710,218 compared to $477,144 during the same
period ended December 31, 2017. The increase in cash used in operating activities for the year ended December 31, 2018 was
primarily due to our reported net loss of $1,943,182 offset by stock-based compensation and other changes in working capital
for the 2018 period, compared to a net loss of $779,648 for 2017.
Cash
Flows from Investing Activities
Net
cash used in the investing activities was $349,257 for the year ended December 31, 2018, compared to zero during the same period
ended December 31, 2017. This is primarily due to the Company acquiring the equipment and telecommunication systems for lease
to customers and bundled in the monthly subscription charge with our 4G/LTSAT service and leasehold improvements, office furniture,
and computer equipment.
Cash
Flows from Financing Activities
Net
cash provided by financing activities during the year ended December 31, 2018, was $1,158,950 compared to $1,566,859 during the
same period in 2017. The difference is attributable to a decrease in proceeds from the sale of common stock by $157,909 and a
decrease in proceeds from convertible notes, net of repayments of $250,000; partially offset by an increase of $40,712 in officer advances.
The
Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon the Company
obtaining additional financing and generating positive cash flows from its operations. The Company will need to raise additional
capital through debt or equity financing or by increasing operating cash flows from revenues generated from the sales of product
and services to new customers. There are no assurances that the Company will be able to raise capital on terms acceptable to the
Company and or its stockholders or that sufficient cash flows are generated from its operations.
Management
has determined that there is substantial doubt about the Company’s ability to continue its operation as a going concern
within one year from the date the financial statements are issued. Based on current budget assumptions, projected cash burn, and
the cash and investments on hand as of December 31, 2018, we believe the Company will require additional capital from its investors
to have sufficient capital to meet our operating expenses and obligations for the next twelve months from the date of this filing.
If unanticipated difficulties or circumstances arise and we are unable to raise additional capital whenever necessary, we may
be forced to decelerate or curtail our sales and marketing activities and/or other operations until such time as additional capital
becomes available. Such limitation of our activities would allow us to slow our rate of spending and extend our use of cash until
additional capital is raised. There can be no assurance that such a plan will be successful. There is no assurance that additional
financing will be available when needed or that we will be able to obtain such financing on reasonable terms.
Contractual
Obligations
We
are party to a two-year lease agreement for office space in Fort Lauderdale, Florida which expires February 28, 2019. Rent
expense was $48,744 and $10,319 for the years ended December 31, 2018 and 2017, respectively.
Off-Balance
Sheet Arrangements
As
of December 31, 2018 and 2017, we had no off-balance sheet arrangements or obligations.
Critical
Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements
as well as the reported expenses during the reporting periods.
The
Company’s significant estimates and assumptions include the recognition of revenue, valuation of the Company’s common
stock options and warrants, the allowance for doubtful accounts, inventory parts, inventory reserves, the useful life of equipment
currently leased and used by customers, and the valuation allowance related to deferred tax assets. Some of these judgments can
be subjective and complex, and, consequently, actual results may differ from these estimates. Although the Company believes that
its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions
were made, and any adjustment could be significant.
Revenue
Recognition
The
Company derives revenue from the sale and support of its satellite and wireless communications products and ancillary services
related to the deployment of these products. The Company’s products consist of its equipment and satellite and cellular
service plans. The Company sells its products through its own internal sales force and external resellers. The Company extends
to the customer the manufacturer’s limited warranty of the satellite hardware for 24 months from shipment and invoicing
dates. The warranty with respect to defective products is discharged, at Kymeta’s sole discretion and at its expense by
1) repairing or replacing the defective products, or 2) crediting or refunding the price of the defective products, less any applicable
discounts, rebates, or credits. The Company has the responsibility to ship the defective product to Kymeta’s facility at
its own expense. The Company will estimate this expense on an annual basis depending on the number of systems installed and covered
under the limited warranty. After 24 months, in order to maintain the hardware and software warranty, customers may purchase a
maintenance plan or an extended warranty plan to continue coverage. The Company also provides ancillary services directly related
to the sale of its communications products including, installation, system engineering, product training, and onsite support.
In
accordance with U.S. GAAP, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectability is reasonably assured. For arrangements that require acceptance of the product,
system, or solution as specified by the customer, revenue is deferred until the acceptance criteria have been met.
Most
of the Company’s products have both equipment and service components that function together to deliver the products’
essential functionality. For these multiple deliverable arrangements, the Company allocates revenue to the deliverables based
on their relative selling prices. To the extent that a deliverable is subject to specific guidance on whether and/or how to allocate
the consideration in a multiple deliverable arrangement, that deliverable is accounted for in accordance with such specific guidance.
The Company limits the amount of revenue recognition for delivered items to the amount that is not contingent on the future delivery
of products or services or meeting other future performance obligations.
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes
the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance
throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as
requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize 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. ASC 606 defines a five-step process to achieve this core principle and, in doing so,
it is possible more judgment and estimates may be required within the revenue recognition process than required under existing
U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires
enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the
financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective
date (modified retrospective approach). As an emerging growth company, the Company has until January 1, 2019 to adopt ASC 606.
We are currently evaluating the impact on our consolidated financial statements.
Fair
Value of Financial Instruments
The
Company measures the fair value of the financial assets based on the guidance of ASC 820 “Fair Value Measurements and Disclosures”
which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The carrying amounts of cash, accounts receivable, accounts payable are approximate fair value due to the short-term nature of
these instruments.
Accounting
for Common Stock Warrants
The
Company classifies as equity any contracts that (a) require physical settlement or net-share settlement or (b) gives the Company
a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies
as assets or liabilities any contracts that (a) require net-cash settlement (including a requirement to net-cash settle the contract
if an event occurs and if that event is outside the control of the Company) or (b) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share settlement).
The
Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date
to determine whether a change in classification between assets and liabilities is required. The Company’s free-standing
derivatives consist of warrants to purchase common stock that were issued to the Company’s founders and private placement
offering investors. The Company evaluated these warrants to assess their proper classification using the applicable criteria enumerated
under U.S. GAAP and determined that the common stock purchase warrants meet the criteria for equity classification in the accompanying
balance sheet as of December 31, 2018 and 2017.
Recent
Accounting Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes
the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance
throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as
requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize 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. ASC 606 defines a five-step process to achieve this core principle and, in doing so,
it is possible more judgment and estimates may be required within the revenue recognition process than required under existing
U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires
enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the
financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective
date (modified retrospective approach). As an emerging growth company the Company has until January 1, 2019 to adopt ASC 606.
The Company is currently evaluating the impact on its consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial
statements.
In
July 2017, FASB issued ASU No. 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815). ASU 2017-11 consists of two parts. The amendments in Part I of this Update change the
classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When
determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own
stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a
freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to
recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction
of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have
down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic
470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in
Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as
pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public
business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are
effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early
adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those
amendments do not have an accounting effect. The Company adopted the standard during 2018 and did not have a material impact on the Company’s consolidated financial position and results of
operations.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred
after the balance sheet date through the date which the financial statements are issued. Based on the review, the Company did not
identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except
as disclosed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
This section is not required for smaller reporting companies.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
consolidated financial statements, the notes thereto are filed as part of this report starting on page F-1.
FMC
GlobalSat Holdings, Inc.
INDEX
TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors
of
FMC GlobalSat Holdings, Inc.
Houston, Texas
Opinion on the Financial
Statements
We have audited the accompanying
consolidated balance sheets of FMC GlobalSat Holdings, Inc. (the “Company”) as of December 31, 2018 and 2017, the related
consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period
ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018
and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018
in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in
Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional
funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Marcum llp
We have served as the Company’s auditor since 2017.
Houston, Texas
September 6, 2019
FMC
GlobalSat Holdings, Inc.
Consolidated
Balance Sheets
| | |
December 31, | | |
December 31, | |
| | |
2018 | | |
2017 | |
| Current assets | |
| | |
| |
| Cash | |
$ | 229,902 | | |
$ | 1,089,715 | |
| Accounts receivable, net | |
| 66,382 | | |
| 1,403 | |
| Inventory assembly parts | |
| 19,360 | | |
| 50,267 | |
| Prepaid expenses and other current assets | |
| 70,217 | | |
| 15,877 | |
| Total current assets | |
| 385,861 | | |
| 1,157,262 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 336,205 | | |
| - | |
| Other assets | |
| 11,752 | | |
| 9,752 | |
| Total Assets | |
$ | 733,818 | | |
$ | 1,167,014 | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 139,938 | | |
$ | 239,720 | |
| Accounts payable-related party | |
| 48,712 | | |
| - | |
| Deferred revenue | |
| 7,065 | | |
| 138 | |
| Total current liabilities | |
| 195,715 | | |
| 239,858 | |
| Total Liabilities | |
$ | 195,715
| | |
$ | 239,958
| |
| | |
| | | |
| | |
| Stockholders’ Equity | |
| | | |
| | |
| Common stock, $0.0001 par value; 20,000,000 shares authorized, 10,883,460 and 15,013.460 issued and outstanding as of December 31, 2018 and 2017, respectively | |
| 1,088 | | |
| 1,501 | |
| Additional paid-in capital | |
| 3,259,845 | | |
| 1,705,303 | |
| Accumulated deficit | |
| (2,722,830 | ) | |
| (779,648 | ) |
| Total Stockholders’ Equity | |
| 538,103 | | |
| 927,156 | |
| Total Liabilities and Stockholders’ Equity | |
$ | 733,818 | | |
$ | 1,167,014 | |
The
accompanying notes are an integral part of these consolidated financial statements.
FMC
GlobalSat Holdings, Inc.
Consolidated
Statements of Operations
| | |
For the Year Ended | |
| | |
December 31, | |
| | |
2018 | | |
2017 | |
| | |
| | |
| |
| Revenue | |
$ | 305,403 | | |
$ | 35,213 | |
| Cost of revenue | |
| 185,766 | | |
| 34,275 | |
| Gross profit | |
| 119,637 | | |
| 938 | |
| | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | |
| Selling and marketing | |
| 532,062 | | |
| 25,222 | |
| General and administrative | |
| 1,531,439 | | |
| 615,419 | |
| Total operating expenses | |
| 2,063,501 | | |
| 640,641 | |
| Loss from operations | |
| (1,943,864 | ) | |
| (639,703 | ) |
| | |
| | | |
| | |
| Other income (expense) | |
| | | |
| | |
| Interest income | |
| 2,000 | | |
| - | |
| Interest expense | |
| (1,318 | ) | |
| (139,945 | ) |
| Total other income (expense) | |
| 682 | | |
| (139,945 | ) |
| Loss before provision for income taxes | |
| (1,943,182 | ) | |
| (779,648 | ) |
| Provision (credit) for income tax | |
| - | | |
| - | |
| Net loss | |
$ | (1,943,182 | ) | |
$ | (779,648 | ) |
| | |
| | | |
| | |
| Net loss per share | |
| | | |
| | |
| (Basic and fully diluted) | |
$ | (0.13 | ) | |
$ | (0.07 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding | |
| 14,599,419 | | |
| 11,593,908 | |
The
accompanying notes are an integral part of these consolidated financial statements.
FMC
GlobalSat Holdings, Inc.
Consolidated
Statement of Changes in Stockholders’ Equity
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance at April 19, 2017-inception | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock to FMC GlobalSat Founders | |
| 10,500,000 | | |
| 1,050 | | |
| (1,050 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock and warrants to FMC GlobalSat Holdings Founders pursuant to the merger agreement | |
| 2,500,000 | | |
| 250 | | |
| | | |
| | | |
| 250 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock and warrants in private placements, net of costs | |
| 1,503,000 | | |
| 150 | | |
| 1,316,459 | | |
| | | |
| 1,316,609 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock in conversion of promissory notes and accrued interest, including recognition of $139,945 debt discount | |
| 510,460 | | |
| 51 | | |
| 389,894 | | |
| | | |
| 389,945 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| | | |
| | | |
| | | |
| (779,648 | ) | |
| (779,648 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2017 | |
| 15,013,460 | | |
$ | 1,501 | | |
$ | 1,705,303 | | |
$ | (779,648 | ) | |
$ | 927,156 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock and warrants in private placement offering, net of costs | |
| 1,180,000 | | |
| 118 | | |
| 1,158,832 | | |
| | | |
| 1,158,950 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation from the issuance of stock options and warrants | |
| | | |
| | | |
| 247,146 | | |
| | | |
| 247,146 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cancellation of shares | |
| (5,310,000 | ) | |
| (531 | ) | |
| 531 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Forgiveness of salaries by related parties | |
| | | |
| | | |
| 148,033 | | |
| | | |
| 148,033 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (1,943,182 | ) | |
| (1,943,182 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2018 | |
| 10,883,460 | | |
$ | 1,088 | | |
$ | 3,259,845 | | |
$ | (2,722,830 | ) | |
$ | 538,103 | |
The
accompanying notes are an integral part of these consolidated financial statements.
FMC
GlobalSat Holdings, Inc.
Consolidated
Statements of Cash Flows
| | |
For the Year Ended | |
| | |
December 31, | |
| | |
2018 | | |
2017 | |
| Cash Flows From Operating Activities: | |
| | |
| |
| Net (loss) | |
$ | (1,943,182 | ) | |
$ | (779,648 | ) |
| Adjustments to reconcile net income to net cash used in operating activities | |
| | | |
| | |
| Depreciation and amortization | |
| 13,052 | | |
| 139,945 | |
| Bad debt expense | |
| 40,912 | | |
| | |
| Stock-based compensation | |
| 247,146 | | |
| | |
| Changes in operating assets and liabilities | |
| | | |
| | |
| Accounts receivable | |
| (105,891 | ) | |
| (1,403 | ) |
| Inventory | |
| 30,908 | | |
| (50,267 | ) |
| Prepaid expenses and other current assets | |
| (54,340 | ) | |
| (15,877 | ) |
| Other assets | |
| (2,000 | ) | |
| (9,752 | ) |
| Accounts payable and accrued expenses | |
| 56,250 | | |
| 239,720 | |
| Deferred revenue | |
| 6,927 | | |
| 138 | |
| Net cash used in operating activities | |
| (1,710,218 | ) | |
| (477,144 | ) |
| | |
| | | |
| | |
| Cash flows from Investing Activities | |
| | | |
| | |
| Purchase of property and equipment | |
| (349,257 | ) | |
| - | |
| Net cash used in investing activity | |
| (349,257 | ) | |
| - | |
| | |
| | | |
| | |
| Cash Flows From Financing Activities: | |
| | | |
| | |
| Cash advances from officer | |
| 40,712 | | |
| | |
| Proceeds from the sale of common stock, net | |
| 1,158,950 | | |
| 1,316,859 | |
| Repayments of convertible notes | |
| (70,000 | ) | |
| | |
| Proceeds from the issuance of convertible notes | |
| 70,000 | | |
| 250,000 | |
| Net cash provided by financing activities | |
| 1,199,662 | | |
| 1,566,859 | |
| | |
| | | |
| | |
| Net Increase (Decrease) In Cash | |
| (859,813 | ) | |
| 1,089,715 | |
| Cash At The Beginning Of The Period | |
| 1,089,715 | | |
| - | |
| Cash At The End Of The Period | |
$ | 229,902 | | |
$ | 1,089,715 | |
| | |
| | | |
| | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for income taxes
| |
$ | - | | |
| - | |
Cash paid for interest
| |
$ | 690 | | |
| - | |
Supplemental disclosure of non-cash financing activities:
| |
| | | |
| | |
| | |
| | | |
| | |
Warrants issued to former Founders of FMC GlobalSat Holdings, Inc.
| |
| - | | |
$ | 500,000 | |
Conversion of convertible notes and accrued interest to common stock
| |
| - | | |
$ | 255,230 | |
Warrants issued related to December private placement offerings
| |
$ | - | | |
$ | 1,878,750 | |
The
accompanying notes are an integral part of these consolidated financial statements.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Note
1 – Business Organization, Nature of Operations
FMC
GlobalSat Holdings, Inc., (“FGH” or the “Company”) along with FMC Globalsat, Inc.,
(“FG” or “FMC Global Sat”), its wholly owned subsidiary, is a provider of global connectivity
services. It is a party to a distributor agreement with Kymeta Corporation (“Kymeta”) to resell its satellite
antenna products and connectivity services. The Company is also party to reseller agreements with wireless carriers. The
Company has applications for fixed terrestrial, mobile terrestrial, and maritime applications. The Company’s primary
activities since inception have been the development of its business plan, negotiating strategic alliances and other
agreements, and raising capital.
FGH was formed as a corporation on
August 31, 2017. On October 6, 2017, the Company executed an agreement with FG, pursuant to which the Company agreed to
acquire all of the issued and outstanding securities of FG in exchange for 10,500,000 newly issued shares of the
Company’s Common Stock. FG was formed as a Florida Limited Liability Company on April 19, 2017 and was later changed to
a corporation on November 2, 2017, with an effective date as of April 19, 2017. This transaction was accounted for as a
reverse recapitalization and FG was the
acquirer for accounting purposes and, consequently, the assets and liabilities and the historical operations that are
reflected in the financial statements herein are those of FG.
Note
2 – Going Concern and Management’s Plans
The
Company is in its early stage with limited operations and has incurred net losses since inception. The Company’s primary
source of operating funds since inception has been from the issuance of convertible notes, the sale of common stock and warrants
in private placements.
During
the year ended December 31, 2018, we incurred a net loss of $1,943,182. We have generated minimal revenues and incurred net losses
since inception. As of December 31, 2018 we had a working capital surplus of $190,145 and a retained earnings deficit of $2,722,830.
The
Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon the Company
obtaining additional financing and generating positive cash flows from its operations. The Company will need to raise additional
capital through debt or equity financing or by increasing operating cash flows from revenues generated from the sales of product
and services to new customers. There are no assurances that the Company will be able to raise capital on terms acceptable to the
Company or its stockholders or that sufficient cash flows are generated from its operations.
Management
has determined that there is substantial doubt about the Company’s ability to continue its operations as a going concern
within one year from the date the financial statements are issued. The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities
in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not
necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Note
3 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of FMC GlobalSat Holdings, Inc. and FMC GlobalSat, Inc.,
its wholly owned subsidiary. All significant intercompany transactions have been eliminated in the consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements
as well as the reported expenses during the reporting periods.
The
Company’s significant estimates and assumptions include the recognition of revenue, valuation of the Company’s
common stock options and warrants, the allowance for doubtful accounts, inventory assembly parts reserves, the
useful life of equipment currently leased and used by customers, and the valuation allowance related to deferred tax assets.
Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at
the time the estimates and assumptions were made, and any adjustment could be significant.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash
is deposited with a limited number of financial institutions. The balances held at any one financial institution may be in excess
of Federal Deposit Insurance Corporation (“FDIC”) insurance limits.
Credit
is extended to customers based on an evaluation of their financial condition and other factors. The Company generally does not
require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for doubtful accounts.
During
the year ended December 31, 2018 one customer accounted for 39% of our total revenue; and there were four additional customers
with revenue each in excess of 10% of our total revenue. These five customers accounted for 91% of our sales. As of December 31,
2018, one customer accounted for approximately 60% of our accounts receivable balances and three customers accounted for approximately
92.5% of our accounts receivable balance.
During
the period ended December 31, 2018 and 2017, there was one significant vendor, Kymeta, that the Company relies upon for its
equipment to distribute/resell. This vendor supplies the main component in our hardware sales.
Cash
The
Company considers all highly liquid instruments with an original maturity of three months or less, to be cash equivalents.
There were no cash equivalents at December 31, 2018 or 2017.
Accounts
Receivable
Accounts
receivable are stated at a gross invoice amount less an allowance for doubtful accounts. The Company estimates its allowance for
doubtful accounts by evaluating specific accounts where information indicates customers may have an inability to meet financial
obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond
contractual terms. The Company uses assumptions and judgment based on the best available facts and circumstances to record an
allowance to reduce the receivable to the amount expected to be collected. These allowances are evaluated and adjusted as additional
information is received. As of December 31, 2018 and 2017, the reserve for doubtful accounts was $40,912 and $-0-, respectively.
Inventory
Inventories,
which consist solely of equipment components and assembly parts, are stated at the lower of cost, as determined by the first-in,
first-out basis or net realizable value. The Company continually analyzes its slow-moving and excess inventories. The Company
will establish reserves based on historical and projected service and assembly requirements. Inventory that is in excess
of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that
are determined to be obsolete are written down to net realizable value. As of December 31, 2018 and 2017, the Company determined
that no such reserves were necessary.
Property
and equipment
Property
and equipment are stated at cost or fair value if acquired as part of a business combination. Depreciation is computed by the
straight-line method and is charged to operations over the estimated useful lives of the assets. Leasehold improvements are depreciated
over the shorter of the estimated useful lives of the assets or the term of the related lease.
Maintenance
and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the shorter of the estimated useful
lives of the assets or the term of the related lease.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
The
Company depreciates only equipment installed on customer sites.
The
carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and
any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers,
software and office equipment |
|
1 –
5 years |
| Leasehold improvements |
|
Lesser of the lease
term or estimated useful life |
| Equipment
leased to customers |
|
5
years |
| Equipment
not yet in service |
|
Not
depreciated until placed in service |
Long-Lived Assets
The Company evaluates the recoverability
of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable.
Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant
adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the
amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated
undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying
value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount
by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available.
If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted
value of estimated future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future
cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ
from assumed and estimated amounts.
The Company recorded no asset impairment
charges in 2018 or 2017.
Revenue
Recognition
The
Company derives revenue from the sale and support of its satellite and wireless communications products and ancillary services
related to the deployment of these products. The Company’s products consist of its equipment and satellite and cellular
service plans. The Company sells its products through its own internal sales force and external resellers. The Company extends
to the customer the manufacturer’s limited warranty of the satellite hardware for 24 months from shipment and invoicing
dates. The warranty with respect to defective products is discharged, at Kymeta’s sole discretion and at its expense by
1) repairing or replacing the defective products, or 2) crediting or refunding the price of the defective products, less any applicable
discounts, rebates, or credits. The Company has the responsibility to ship the defective product to Kymeta’s facility at
its own expense. The Company will estimate this expense on an annual basis depending on the number of systems installed and covered
under the limited warranty. After 24 months, in order to maintain the hardware and software warranty, customers may purchase a
maintenance plan or an extended warranty plan to continue coverage. The Company also provides ancillary services directly related
to the sale of its communications products including, installation, system engineering, product training, and onsite support.
In
accordance with U.S. GAAP, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectability is reasonably assured. For arrangements that require acceptance of the product,
system, or solution as specified by the customer, revenue is deferred until the acceptance criteria have been met.
Most
of the Company’s products have both equipment and service components that function together to deliver the products’
essential functionality. For these multiple deliverable arrangements, the Company allocates revenue to the deliverables based
on their relative selling prices. To the extent that a deliverable is subject to specific guidance on whether and/or how to allocate
the consideration in a multiple deliverable arrangement, that deliverable is accounted for in accordance with such specific guidance.
The Company limits the amount of revenue recognition for delivered items to the amount that is not contingent on the future delivery
of products or services or meeting other future performance obligations.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Advertising
Costs
The
Company expenses all advertising and marketing costs as incurred. Advertising and marketing expenses were $10,822 and $25,222,
respectively for the period ended December 31, 2018 and 2017, respectively.
Income
Tax
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
Management
has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial
statements as of December 31, 2018. The Company does not expect any significant changes in the unrecognized tax benefits within
twelve months of the reporting date.
The
Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax
expense. No interest or penalties have been recognized from April 19, 2017 (inception) through the period ended December 31, 2018.
Net
Loss per Share
Basic
net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares
outstanding, plus the issuance of common share, if dilutive, resulting from the exercise of stock options and warrants. Potential
common shares consist of the incremental common shares issuable upon the exercise of stock options or stock warrants (using the
treasury stock method). The computation of basic loss per share for the year ended December 31, 2018 and 2017, includes potentially
dilutive securities.
Potentially
dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because
the effect of their inclusion would have been anti-dilutive as of December 31, 2018 and 2017:
| | |
December 31,
2018 | | |
December 31,
2017 | |
| | |
| | |
| |
| Warrants | |
| 1,841,500 | | |
| 1,251,500 | |
| Stock Options | |
| 1.935,000 | | |
| - | |
| Total dilutive securities | |
| 3,776,500 | | |
| 1,251,000 | |
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Fair
Value of Financial Instruments
The
Company measures the fair value of the financial assets based on the guidance of ASC 820 “Fair Value Measurements and Disclosures”
which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The carrying amounts of cash, accounts receivable, accounts payable are approximate fair value due to the short-term nature of
these instruments.
Convertible
Instruments
U.S.
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional.
The Company records, when necessary, discounts to convertible notes
for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of
the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the
note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Accounting
for Common Stock Warrants
The
Company classifies as equity any contracts that (a) require physical settlement or net-share settlement or (b) gives the Company
a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies
as assets or liabilities any contracts that (a) require net-cash settlement (including a requirement to net-cash settle the contract
if an event occurs and if that event is outside the control of the Company) or (b) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share settlement).
The
Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date
to determine whether a change in classification between assets and liabilities is required. The Company’s free standing
derivatives consist of warrants to purchase common stock that were issued to the Company’s founders and private placement
offering investors. The Company evaluated these warrants to assess their proper classification using the applicable criteria enumerated
under U.S. GAAP and determined that the common stock purchase warrants meet the criteria for equity classification in the accompanying
balance sheet as of December 31, 2018 and 2017.
Recent
Accounting Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes
the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance
throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as
requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize 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. ASC 606 defines a five-step process to achieve this core principle and, in doing so,
it is possible more judgment and estimates may be required within the revenue recognition process than required under existing
U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires
enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the
financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective
date (modified retrospective approach). As an emerging growth company, the standard is effective for the Company’s 2019 annual reporting period and for the interim periods
after 2019. The Company is in the initial phase of analyzing the potential impact this standard will have on its consolidated
financial position and results of operations. The Company expects to apply the modified retrospective method upon adoption.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial
statements.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
In
July 2017, FASB issued ASU No. 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives
and Hedging (Topic 815). ASU 2017-11 consists of two parts. The amendments in Part I of this Update change the classification
analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether
certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes
equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify
existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument
(or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present
earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments
with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480
that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update
are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December
15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the
amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that
interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not
have an accounting effect. The Company adopted the standard during 2018 and did not have a material impact on the Company’s
consolidated financial position and results of operations.
Management’s
Evaluation of Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date through the date which the financial statements are issued.
Based on the review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the
consolidated financial statements, except as disclosed.
Note
4 – Property and Equipment, net
The
following table sets forth the components of the Company’s property and equipment at December 31, 2018 and December 31,
2017:
| |
December 31, 2018 | | |
December 31, 2017 | |
| | |
Gross Carrying Amount | | |
Accumulated Depreciation | | |
Net Book Value | | |
Gross Carrying Amount | | |
Accumulated Depreciation |
|
Net Book Value | |
| | |
| | |
| | |
| | |
| | |
|
|
|
| |
| Computers, and office equipment | |
$ | 9,388 | | |
| (1,802 | ) | |
$ | 7,586 | | |
$ | - | | |
| - |
|
$ | - | |
| Leasehold improvements | |
| 8,056 | | |
| (3,403 | ) | |
| 4,653 | | |
| - | | |
| - |
|
| - | |
| Equipment leased to customers | |
| 242,512 | | |
| (7,846 | ) | |
| 234,666 | | |
| - | | |
| - |
|
| - | |
| Equipment not yet in service | |
| 89,300 | | |
| | | |
| 89,300 | | |
| | | |
| |
|
| | |
| Total fixed assets | |
$ | 349,256 | | |
| 13,051 | | |
$ | 336,205 | | |
$ | - | | |
| - |
|
$ | - | |
The Company only depreciates equipment
installed on customer sites. $89,300 of equipment is not subject to depreciation because it is not yet in service.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Note
5 – Related Party Activity
Convertible
Promissory Notes
On
September 21, 2018, the Company issued a short term unsecured convertible promissory note with a maturity date as of December
20, 2018, to a member of the Company’s Board of Directors and executive officer, for an aggregate principal amount of $70,000.
The promissory note bears interest at the rate of 8% per annum and is convertible into the Company’s shares, based on the
price per share of the equity securities issued in the next equity financing(s) of at least $1,000,000, in the aggregate, subject
to a minimum price per share of $2.00 to qualify for conversion, unless the holder elects to be paid in cash in lieu of being
converted to equity securities. The Convertible Promissory Note was repaid in full during the three month period ended December
31, 2018.
Accounts
payable-Related Party
As
of December 31, 2018, the Company’s Chief Executive Officer, Emmanuel Cotrel had provided cash advances amounting to $40,712.
Additionally, Robert Kubat, the Company’s former Chief Financial Officer, who resigned on January 2, 2019, was owed $8,000
for unpaid consulting fees.
Equity
transactions
In connection with
the Company’s December 2018 Private Placement during 2018, Adam Ferguson, the Company’s Chief Technology Officer
and a Director and Christopher MacDonald, the Company’s Chief Operating Officer and a Director, entered into
letter agreements pursuant to which each agreed to cancel 2,125,000 and 2,485,000 shares of common stock owned by each of
them respectively. Additionally, two of the Company’s shareholders, agreed to cancel 700,000 shares for a total
5,310,000 shares that were retired. The retired shares had a value of approximately $4,673,000, or $0.88 per share
based upon the value of the Company’s common stock offered in the December 2018 Private Placement. Mr. Ferguson and Mr.
MacDonald agreed to terminate their respective employment agreements with the Company including all payments, benefits and
severance rights and the waiver of any deferred accrued salary of approximately $98,000 and on November 15, 2018, Adam
Ferguson and Chris MacDonald resigned from their Officer and Director positions with the Company.
Mr.
Cotrel invested $200,000 in the December 2018 Private Placement. In connection with the December 2018 Private Placement, Mr. Cotrel
agreed to terminate his employment agreement and all related payments, benefits and severance rights. Mr. Cotrel also waived any
deferred salary which were accrued and amounting to $53,000, and the Company and Mr. Cotrel agreed that he will continue
serving as the Company’s Chief Executive Officer. In consideration for the foregoing, on November 1, 2018, the Company agreed
to issue Mr. Cotrel a stock option award exercisable for five years, to purchase 850,000 shares of common stock at an exercise
price of $0.62 per share which was equivalent to the estimated fair market value per share, on the date of such grant. These options
were valued at $306,765. 62,500 of the options vested immediately. The remainder of 787,500 options shall vest in 36 equal monthly
installments provided Mr. Cotrel remains an officer, director or employee of the Company.
The
Company will record stock-based compensation expense on the amount of $6,591 per month over a 36 month period.
Two
members of Mr. Cotrel’s family invested an aggregate of $140,000 in the December 2018 Private Placement.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Note
6 – Commitments and Contingencies
Except
as disclosed below, the Company has not entered into any material agreements during 2018 and 2017 which would commit the Company
to a minimum purchase amount.
Litigations,
Claims, and Assessments
The
Company may be involved in legal proceedings, claims, and assessments arising in the ordinary course of business. Such matters
are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such matters as of December 31,
2018 and 2017.
Rental
commitment
The
Company’s principal executive offices are located at 3301 SE 14th Avenue, Fort Lauderdale, FL 33316. The property was leased
for two years beginning March 1, 2018, and ending February 28, 2020, at a monthly rent of $4,452. The lease contains two renewal
options each for an additional two-year lease term at the same monthly rent. The total rent for 2019 will be $53,424, and $8,904
for the two months of January and February 2020.
Note
7 – Stockholders’ Equity
2018
On
June 13, 2018, the Board of Directors approved an increase in the number of authorized shares of the Company’s common
stock from 20,000,000 shares to 30,000,000 shares. The Company plans to seek shareholder approval of the amendment by
December 31, 2019, to its articles of incorporation to effect an increase in authorized shares. As of December 31, 2018 and
December 31, 2017 there were 10,883,460 and 15,013,460 shares outstanding respectively.
The
Company sold 190,000 shares of common stock in a private placement for an aggregate price of $190,000 on January 27, 2018. The
Company has received net cash proceeds of $189,500 relating to this transaction. The Company also issued to the private placement
offering investors, warrants to purchase up to 95,000 shares of common stock of the Company at a per share exercise price of $2.50.
Between
November 14, 2018, and December 21, 2018, the Company sold an aggregate of $990,000 of units of securities pursuant to separate
purchase agreements with accredited investors (the “Investors”), at a purchase price of $1.00 per unit. Each
unit consists of one share of Common Stock, and a five-year warrant to purchase one half (1/2) of one share of Common Stock, at
an exercise price of $2.50 per warrant. The Company’s Chief Executive Officer, invested $200,000 out of the $990,000 raised
in these private placements.
Except
for certain issuances, for a period beginning on the final closing date of the December 2018 Private Placement and ending on the
date that is 24 months thereafter, in the event that the Company issues any shares of Common Stock or securities convertible into
Common Stock at a price per share or conversion price or exercise price per share that is less than $1.00, the Company shall issue
to the Investors such additional number of units such that the Investor shall own an aggregate total number of units as if they
had purchased the units at the price of the lower price issuance. No adjustment to the exercise price of the warrants is
required in connection with a lower priced issuance.
The
warrants are exercisable, at any time on or after the closing date of the December 2018 Private Placement, at a price of $2.50
per share, subject to adjustment, and expire five years from the date of issuance.
At
any time after the Liquidity Date (as such term is defined in the governing securities purchase agreement), the Company shall
have the option, subject to certain conditions, to redeem the then outstanding warrants at a price of $0.0001 per share, upon
not less than thirty (30) days and not more than sixty (60) days prior written notice to the holder, provided (i) there is an
effective registration statement covering the resale of the shares of Common Stock underlying the warrants and (ii) the closing
bid price of the Company’s Common Stock for each of the twenty (20) of the thirty (30) consecutive prior trading days is
at least Five Dollars ($5.00).
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
In
connection with the December 2018 Private Placement, certain existing shareholders agreed to cancel an aggregate of 5,310,000
shares of Common Stock held by them.
In
connection with our December 2018 Private Placement, Emmanuel Cotrel, our Chief Executive Officer, agreed to terminate his employment
agreement and all related payments, benefits and severance rights thereunder pursuant to a letter agreement. Pursuant to the letter
agreement, Mr. Cotrel waived any deferred salary amount to $50,000 may have accrued to the date of the letter agreement, and the
Company and Mr. Cotrel agreed that he will continue serving as the Company’s Chief Executive Officer but will not draw a
salary until such time as the Company achieves a mutually agreeable revenue milestone (and until such milestone is reached, no
salary will be accrued or considered deferred). In consideration for the foregoing, the Company agreed to issue Mr. Cotrel an
option award to purchase up to Six Hundred Thousand (600,000) shares of Common Stock at an exercise price equal to the fair market
value on the date of such grant, which shall vest in 36 equal monthly installments provided Mr. Cotrel remains employed by
the Company.
Additionally,
in connection with the December 2018 Private Placement, Adam Ferguson, the Company’s then-Chief Technology Officer and Director,
and Christopher MacDonald, the Company’s then-Chief Operating Officer and Director, entered into separate letter agreements
with the Company, pursuant to which Adam Ferguson agreed to cancel 2,125,000, and Christopher MacDonald agreed to cancel 2,485,000
of their respective shares of Common Stock, effective upon the initial closing of the December 2018 Private Placement. Pursuant
to their respective letter agreements, each of Mr. Ferguson and Mr. MacDonald agreed to terminate their respective employment
agreements with the Company (including all payments, benefits and severance rights and the waiver of any deferred accrued salary),
effective as of the initial closing of the December 2018 Private Placement.
2017
The
Company sold 2,500,000 shares of common stock to its founders for an aggregate price of $250 in September 2017. On December 28,
2017, the Company issued to the original founders of the FGH, warrants to purchase up to 500,000 shares of common stock of the
Company at a per share exercise price of $1.00. The warrants, based on the terms of the agreement, will expire five years from
the date of the grant and were fully vested upon the date of issuance.
The
Company sold 1,503,000 shares of common stock in a private placement for an aggregate price of $1,503,000 on December 28, 2017.
The Company has received net cash proceeds of $1,316,859 relating to this transaction. The Company also issued to the private
placement offering investors, warrants to purchase up to 751,500 shares of common stock of the Company at a per share exercise
price of $2.50. The warrants, based on the terms of the agreement, will expire five years from the date of the grant and were
fully vested upon the date of issuance.
Stock
Purchase Warrants
2018
The
Company sold 190,000 shares of common stock in a private placement for an aggregate price of $190,000 on January 27, 2018. The
Company has received net cash proceeds of $189,500 relating to this transaction. The Company also issued to the private placement
offering investors, warrants to purchase up to 95,000 shares of common stock of the Company at a per share exercise price of $2.50.
Between
November 14, 2018, and December 21, 2018, we sold an aggregate of $990,000 of units of securities pursuant to separate purchase
agreements with accredited investors at a purchase price of $1.00 per unit. Each unit consists of one share of Common Stock,
and a five-year warrant to purchase one half (1/2) of one share of Common Stock, at an exercise price of $2.50 per warrant.
All
of the warrants issued in 2018, based on the terms of the agreement, will expire five years from the date of the grant and were
fully vested upon the date of issuance.
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
2017
The
Company sold 2,500,000 shares of common stock to its founders for an aggregate price of $250 in September 2017. On December 28,
2017, the Company issued to the original founders of the FGH, warrants to purchase up to 500,000 shares of common stock of the
Company at a per share exercise price of $1.00. The warrants, based on the terms of the agreement, will expire five years from
the date of the grant and were fully vested upon the date of issuance.
The
Company sold 1,503,000 shares of common stock in a private placement for an aggregate price of $1,503,000 on December 28, 2017.
The Company has received net cash proceeds of $1,316,859 relating to this transaction. The Company also issued to the private
placement offering investors, warrants to purchase up to 751,500 shares of common stock of the Company at a per share exercise
price of $2.50. The warrants, based on the terms of the agreement, will expire five years from the date of the grant and were
fully vested upon the date of issuance.
The
following table represents the warrant activity for the years ended December 31, 2018 and 2017:
| | |
| | |
Weighted Average | |
| | |
Number of
Shares | | |
Exercise
Price | | |
Remaining
Life (Years) | |
| | |
| | |
| | |
| |
| Outstanding April 19, 2017 (inception) | |
| - | | |
$ | - | | |
| - | |
| Granted | |
| 1,251,500 | | |
| 1.90 | | |
| 4.99 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| - | |
| Outstanding and Exercisable, December 31, 2017 | |
| 1,251,500 | | |
$ | 1.90 | | |
| 4.99 | |
| Granted | |
| 590,000 | | |
| 2.50 | | |
| 4.8 | |
| Exercised | |
| - | | |
| | | |
| | |
| Forfeited | |
| - | | |
| | | |
| | |
| Outstanding and Exercisable, December 31, 2018 | |
| 1,841,500 | | |
$ | 2.09 | | |
| 4.2 | |
The
remaining contractual life of the warrants outstanding ranges from 4.0 years to 5.0 years and the strike price range from $1.00
to $2.50.
| Warrants Outstanding | |
Warrants Exercisable | |
| | |
| | |
| | |
Weighted Average | | |
| |
| | |
| | |
Outstanding | | |
Remaining | | |
Exercisable | |
| | |
Exercise | | |
Number of | | |
Life in | | |
Number of | |
| Grant Date | |
Price | | |
Warrants | | |
Years | | |
Warrants | |
| December 28, 2017 | |
$ | 1.00 | | |
| 500,000 | | |
| 3.99 | | |
| 500,000 | |
| December 28, 2017 | |
| 2.50 | | |
| 751,500 | | |
| 3.99 | | |
| 751,500 | |
| January 27, 2018 | |
| 2.50 | | |
| 95,000 | | |
| 4.08 | | |
| 95,000 | |
| November 14, 2018 | |
| 2.50 | | |
| 312,500 | | |
| 4.87 | | |
| 312,500 | |
| December 16, 2018 | |
| 2.50 | | |
| 182,500 | | |
| 4.96 | | |
| 182,500 | |
| | |
| | | |
| 1,841,500 | | |
| 4.24 | | |
| 1,841,500 | |
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
Stock
options
As
of December 31, 2017, no stock options had been issued by the Company. Pursuant to the terms of the Company’s “2017
Equity Incentive Plan” described in this Report, in 2018 the Company issued 1,935,000 options, to its employees, strategic
consultants, and its management. The options issued were calculated using the Black-Scholes option pricing model, based on the
following weighted-average assumptions:
| Risk-free interest rate | |
| 2.98 | % |
| Dividend Yield | |
| — | |
| Expected term (in years) | |
| 5.0 | |
| Expected volatility | |
| 52.78 | % |
This
resulted in $912,177 in stock-based compensation expense that will be expensed by the Company over a five year period. During
the year ended December 31, 2018, the stock-based compensation expense recognized by the Company was $247,146.
As
of December 31, 2018 and 2017, total unrecognized expense related to employee stock options was $665,031 and -0-,
respectively, which is expected to be recognized over a weighted average period of 4.8 years.
The
following table summarizes 2018 stock option activity:
| | |
Number of options | | |
Weighted-
average
exercise
price ($) | | |
Weighted-
average
remaining
contractual
term
(in years) | |
| Employee Awards | |
| | |
| | |
| |
| Outstanding at December 31, 2017 | |
| - | | |
$ | - | | |
| - | |
| Granted | |
| 1,935,000 | | |
$ | 0.62 | | |
| 5.0 | |
| Exercised | |
| - | | |
| | | |
| | |
| Forfeited | |
| - | | |
| | | |
| | |
| Outstanding at December 31, 2018 | |
| 1,935,000 | | |
$ | 0.62 | | |
| 4.8 | |
Note
8 – Income Taxes
Income
Taxes
The
approximate tax effects of temporary and permanent differences that give rise to deferred tax assets as of December 31, 2018 and
2017 are presented below:
| | |
2018 | | |
2017 | |
| Deferred Tax Assets: | |
| | |
| |
| Net Operating loss carryover | |
$ | 648,960 | | |
$ | 204,886 | |
| Total Deferred Tax Asset | |
| 648,960 | | |
| 204,886 | |
| Valuation allowance | |
| (648,960 | ) | |
| (204,886 | ) |
| | |
| | | |
| | |
| Deferred Tax Asset, Net of Valuation Allowance | |
| - | | |
| - | |
A
reconciliation of the provision for income taxes with the amounts computed by applying the statutory Federal income tax rate to
income from operations before the provision for income taxes is as follows:
| | |
2018 | | |
2017 | |
| U.S. federal statutory rate | |
| (21.0 | )% | |
| (34.0 | )% |
| State taxes, net of federal benefit | |
| (5.5 | )% | |
| (5.5 | )% |
| Change in tax rate | |
| - | | |
| 13.0 | % |
| Temporary difference | |
| 3.3 | % | |
| - | |
| Permanent differences | |
| 0.3 | % | |
| 0.2 | % |
| Valuation allowance | |
| 22.9 | % | |
| 26.3 | % |
| Effective income tax rate | |
| - | % | |
| - | % |
FMC
GlobalSat Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
The
income tax expense (benefit) for the period for the periods ended December 31, 2018 and 2017 are as follows:
| Federal | |
| | |
| |
| Current | |
$ | - | | |
$ | - | |
| Deferred | |
| (351,908 | ) | |
| (162,362 | ) |
| State and Local | |
| | | |
| | |
| Current | |
| - | | |
| - | |
| Deferred | |
| (92,166 | ) | |
| (42,524 | ) |
| Change in the valuation allowance | |
| 444,074 | | |
| 204,886 | |
| Effective income tax rate | |
$ | - | | |
$ | - | |
At
December 31, 2018, the Company had approximately $2,449,000 of operating losses after federal and state taxable income adjustment
that may be available to offset future taxable income. The Company will not be able to utilize these carry-forwards until its
initial corporate tax returns are filed which is expected to be in 2019. The net operating loss carryover for 2017, if not utilized,
will expire 20 years from the date that the Company’s initial tax returns were required to be filed for federal and state tax purposes.
The 2018 net operating loss will carryover indefinitely.
The
Company assesses the likelihood that deferred tax assets will be realized. If the extent that realization is not likely, a valuation
allowance is established. Based upon the Company’s losses since inception, management believes that it is more likely
than not that future benefits of deferred tax assets will not be realized and has therefore established a full valuation allowance
as of December 31, 2018.
Note
9 – Subsequent Events
In
March 2019, the Company issued 30,000 shares of its common stock, and a warrant to purchase 240,000 shares of its common stock,
respectively, to two separate providers of strategic advisory services under agreements with such providers.
On September 5, 2019, Mr. Cotrel, the Company’s Chief Executive Officer and Principal Financial and Accounting Officer, and a
Director, entered into a new employment agreement with the Company (“New Employment Agreement”), with a base salary
of $250,000 retroactive to April 1, 2019. For calendar year 2019, 50% of the base salary will be paid in cash pursuant to standard
payroll practice and frequency, and 50% will be deferred and accrued, to be paid at such time as determined by the Board of Directors
(or when formed, the Compensation Committee of the Board), and to the extent that any portion of the deferred salary amount remains
unpaid in cash at the end of calendar year 2019, the Board of Directors or Compensation Committee (if formed) may elect in its
discretion for the Company to convert all or a portion of such remaining deferred amount into shares of the Company’s common
stock, at a price per share equal to that at which shares of common stock were most recently sold by the Company to outside investors.
He has a notice period of 2 months. Under the New Employment Agreement, Mr. Cotrel would be entitled to a 6-month severance base
salary, which severance could be increased to 12 months if the Company elects for the non-compete period to apply for a 12-month
period. The New Employment Agreement provides for annual bonus payments of up to 100% of base compensation, subject to meeting
targets set by the Board of Directors.
On April 26, 2019, the Company issued a
convertible promissory note (the “April Note”) in the aggregate principal amount of $225,000 to an accredited
investor (the “April Note Holder”). The April Note matures on October 26, 2020 (“April Note Maturity Date”)
and bears interest at a rate of 12% per annum, payable monthly. The entire then outstanding principal amount, and any accrued but
unpaid interest, of the April Note shall be automatically converted into shares of the Company’s common stock on the April
Note Maturity Date. Notwithstanding the foregoing, the April Note Holder may convert the then outstanding principal and any accrued
but unpaid interest beginning on the date the Company’s Common Stock is publicly traded and ending on the April Note Maturity
Date at a conversion price of $1.50 per share. The Company may prepay all or any portion of the April Note at any time without
penalty.
On August 23, 2019, the Company issued
a convertible promissory note (the “August Note”) in the aggregate principal amount of $150,000 to an accredited
investor (the “August Note Holder”). The August Note matures on February 23, 2021 (“August Note Maturity Date”)
and accrues interest at a rate of 12% per annum, payable upon the August Note Maturity Date. The entire then outstanding principal
amount, and any accrued but unpaid interest, of the Note shall be automatically converted into shares of the Company’s common
stock on the August Note Maturity Date. Notwithstanding the foregoing, the Company may at any time prior to convert the then outstanding
principal and any accrued but unpaid interest at a conversion price of $1.50 per share. The Company may prepay all or any portion
of the August Note at any time without penalty.
The Company determined that there was no beneficial conversion
feature related to either the April Note or August Note.
On August 23, 2019, Edward Stern resigned from the Board of
Directors.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive
Officer (“CEO”) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Form 10-K. Based
on this evaluation, our Chief Executive Officer (“CEO”) and our former Chief Financial Officer, concluded that as a
result of the material weaknesses in our internal controls over financial reporting discussed below, our disclosure controls and
procedures were not effective at ensuring that information required to be disclosed in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms and that such information is accumulated and communicated to our management, including our CEO.
Attestation Report of the Registered Public Accounting Firm
Our independent registered public accounting
firm will not be required to formally attest to the effectiveness of our internal controls over financial reporting for as long
as we are an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act.
Management’s Report on Internal
Control Over Financial Reporting
Our CEO is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management
conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018. In making
this assessment, management used the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management concluded that our internal controls
over financial reporting were, and continue to be ineffective, as of December 31, 2018 due to material weaknesses in our internal
controls due to the following:
| |
● |
The Company failed to maintain effective controls over the period-end financial reporting process, including controls with respect to journal entries, account reconciliations, and proper segregation of duties. |
| |
● |
The Company did not maintain proper segregation of duties. In certain instances, persons responsible to review transactions for validity, completeness and accuracy were also responsible for preparation. |
| |
● |
The Company’s financial reporting team did not possess the requisite skill sets, knowledge, education or experience to prepare the consolidated financial statements and notes to consolidated financial statements in accordance with US GAAP, or to review the financial statements and notes to the financial statements prepared by external consultants and professionals to ensure accuracy and completeness. |
| |
● |
the lack of an Audit Committee heightening the risk of error or fraud. |
A material weakness is a control deficiency
(within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard 1305) or combination
of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
It should be noted that any system of controls,
however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are
met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events.
Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions, regardless of how remote.
In light of the material weakness described
above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance
with generally accepted accounting principles. In addition, we hired an outside consultant, and our systems will be upgraded when
we determine that it becomes economically feasible.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal controls
over financial reporting that occurred during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K
that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting
ITEM 9B.
OTHER INFORMATION
On
September 5, 2019, Mr. Cotrel entered into a new employment agreement with the Company (“New Employment Agreement”),
with a base salary of $250,000 (salary is retroactively effective to April 1, 2019). For calendar year 2019, 50% of the base salary
will be paid in cash pursuant to standard payroll practice and frequency, and 50% will be deferred and accrued, to be paid at
such time as the determined by the Board of Directors (or when formed, the Compensation Committee of the Board), and to the extent
that any portion of the deferred salary amount remains unpaid in cash at the end of the calendar year 2019, the Board of Directors
or Compensation Committee (if formed) may elect in its discretion for the Company to convert all or a portion of such remaining
deferred amount into shares of the Company’s common stock, at a price per share equal to that at which shares of common
stock were most recently sold by the Company to outside investors. He has a notice period of 2 months. Under the New Employment
Agreement, Mr. Cotrel would be entitled to a 6-month severance base salary, which severance could be increased to 12 months if
the employer elects for the non-compete period to apply for a 12-month period. The New Employment Agreement provides for annual
bonus payments of up to 100% of base compensation, subject to meeting targets set by the Board of Directors.
PART
III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The
following table and paragraphs that follow provide information concerning each of our directors and executive officers.
| Name |
|
Age |
|
Position
or Office |
| Emmanuel Cotrel |
|
38 |
|
Chief Executive Officer, Chairman, and Principal
Financial and Accounting Officer |
| Ian Thompson |
|
50 |
|
Secretary and General Counsel |
| Edward M. Stern* |
|
60 |
|
Director |
| David Montanaro |
|
72 |
|
Director |
* Resigned effective August 23, 2019.
Emmanuel
Cotrel, Chief Executive Officer, Principal Financial and Accounting Officer, and Director. Mr. Cotrel is a Co-founder of FMC
GlobalSat, Inc. In 2012, Mr. Cotrel founded BlueNRGY LLC, which is a subsidiary of BlueNRGY Group Ltd., which was a leading independent
software company for solar power plants, providing data acquisition, control systems and big data analytics for solar power plants.
From 2009 to 2013, he was a co-founder and principal of an investment fund, L14 FCP SIF, affiliated with the Edmond de Rothschild
Bank; the fund targeted investments in or acquisition of renewable energy infrastructure projects across Europe, specifically
wind and solar power generation systems. Prior to that, from 2004, Mr. Cotrel was a co-founder of SeaMobile, Inc. (USA), currently
an industry leader in global maritime telecommunications where he was active in acquisitions and other development matters until
2008. Prior to his involvement with SeaMobile, Mr. Cotrel worked in the International Private Banking division at HSBC Private
Bank in New York. He is an active member of the US-based Cotrel Spinal Research Foundation and the France-based Yves Cotrel Foundation
affiliated with the Institut de France. Mr. Cotrel graduated from IMIP MBA Institute (INSEEC business school in Paris, France)
in 2004. Mr. Cotrel is qualified to serve as a member of our Board of Directors due to due to his executive leadership and industry
experience.
Ian
Thompson, Secretary, and General Counsel. Mr. Thompson provides general corporate and transactional legal services to
technology and satellite service companies. Mr. Thompson has served as our Secretary and General Counsel since January 1, 2018.
He has 20 plus years’ experience in negotiating complex customer, vendor and partner agreements, equity and debt financing,
corporate governance, regulatory compliance, and mergers and acquisitions, and nearly 10 years’ executive experience in
the VSAT satellite industry, including global satellite regulatory issues. Mr. Thompson was previously part of the executive leadership
team at SeaMobile, Inc., the parent company of MTN Satellite Communications, a leading provider of satellite and terrestrial communications
services to the global maritime industry and U.S. government. He served as Executive Vice President, General Counsel and Secretary
of SeaMobile from 2006 until its sale to Emerging Markets Communications (EMC) in July 2015. In that capacity, Mr. Thompson oversaw
all legal and regulatory affairs for SeaMobile and played an active role in strategic planning, M&A activity, managing operations
and overseeing compliance functions. Mr. Thompson also administered all post-closing matters on behalf of the selling shareholders
(including escrow releases) as General Counsel to the SeaMobile Shareholders’ Representatives Committee from July 2015 to
July 2017. He was founder and principal of his own law firm form August 2015 to December 2018 and has been a partner at Ascent
Law Partners, LLP, based in Seattle, WA, since January 2019. Prior to joining SeaMobile, Mr. Thompson was a partner at Beacon
Law Advisors, PLLC from 2003-2006, an associate attorney at Perkins Coie, LLP from 1999-2002, and an associate attorney at Williams
& Jensen, P.C. (Washington, D.C.) from 1997-1999. Mr. Thompson received his B.A. in History from Trinity College (Hartford,
Connecticut) and his J.D. cum laude from Washington and Lee University School of Law (Lexington, Virginia). He
is a member of the Washington Bar.
Edward
M. Stern, Director. Mr. Stern has served as a director of the Company since December 2017 and has been the President
and CEO of PowerBridge, the leading developer of non-utility, privately financed, electric transmission systems in the U.S. since
2005. PowerBridge has developed, financed and constructed – and now operates – more than 1300 MW’s of transmission
capacity, with a total investment in excess of $1.5 billion. Mr. Stern has over 30 years of experience leading the successful
development, financing, construction, operation and ownership of major energy and infrastructure projects. From 1991 through 2004,
Mr. Stern was employed by Enel North America, Inc., the North American subsidiary of the Italian electric utility Enel SpA, and
its predecessor, CHI Energy, Inc., an energy company specializing in renewable energy technologies including hydroelectric and
wind. While at Enel North America, Inc. and CHI Energy, Inc., Mr. Stern served as General Counsel and, commencing in 1999, as
President, Director and Chief Executive Officer. Prior to joining CHI Energy, Inc., Mr. Stern was a vice president with BayBanks,
Inc., a Boston-based $10 billion financial services organization, where for six years he specialized in energy project finance,
real estate restructurings and asset management. Mr. Stern has served on numerous public and private boards, including most recently
the boards of CAN Capital, Inc., a financial services company; Deepwater Wind Holdings, LLC, a developer of offshore wind projects;
and, on the advisory board of Starwood Energy Group Global, LLC, a private equity firm specializing in energy and infrastructure
investments. Mr. Stern received B.A., J.D. and M.B.A. degrees from Boston University. He is a member of the Massachusetts
Bar and the Federal Energy Bar. Mr. Stern is qualified to serve as a member of our board of directors due to his experience as
a lawyer, business executive, a director of companies (both public and private) and his specific experience in the renewable energy
industry.
David
Montanaro, Director. Mr. Montanaro has served as a director of the Company since April 2019 and has been the Founder
and CEO of Strategic Advisory Associates, which provides advisory and consulting services for growth companies, since 2009. Most
recently, from 2012-2016, he was CEO and Chairman of the Board of IQMax, Inc., and from 2010-2015, was a director of CloudSmartz/IPLogic,
Inc. Mr. Montanaro has deep expertise in several technologies that are directly related to FMC GlobalSat. Among these include
IoT, mobile communications, and data networking. Mr. Montanaro also has significant experience in business development, sales,
and management. He has spent more than 35 years in executive management, which include serving as chairman and chief executive
officer of NEC eLuminant Technologies, a market-leading optical networking company. Mr. Montanaro is a founding member of Seed
Capital Fund of Central New York, executive advisor, mentor and business judge for the Genius New York Drone/UAS program. Mr.
Montanaro is qualified to serve as a member of our board of directors due to this experience as a business executive, a director
of companies (both public and private) and his specific experience in the telecommunications industry.
Family
Relationship
There
are no family relationships among our executive officers and directors.
Board
Committees
The Company currently maintains a board
of directors that is not composed of a majority of “independent” directors and does not currently maintain an audit
committee, nominating committee and/or compensation committee, or adopted charters relative to each such committee.
Director
Nominations by Shareholders
We
do not have procedures by which a security holder may recommend director nominees to our Board of Directors.
Code
of Business Conduct and Ethics
We have not adopted a written code of business
conduct and ethics that applies to our directors, officers, and employees, including our Chief Executive Officer. Our failure to
adopt a written code of ethics is due to our early stage and focus on organizational activities.
Involvement
in Certain Legal Proceedings
To
our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
| |
● |
been convicted in
a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| |
● |
had any bankruptcy
petition filed by or against the business or property of the person, or of any partnership, corporation or business association
of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior
to that time; |
| |
● |
been subject to
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or
federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement
in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity; |
| |
● |
been found by a
court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated
a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| |
● |
been the subject
of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed,
suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged
violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| |
● |
been the subject
of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity
Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members
or persons associated with a member. |
Section
16(a) Beneficial Ownership Compliance
As
a filer under Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our executive
officers, directors, and greater than 10% holders are not subject to the reporting requirements under Section 16(a) of the Exchange
Act.
ITEM
11. EXECUTIVE COMPENSATION
Remuneration
Policy
All
key executives are eligible to receive a base salary, post-employment benefits (including post-termination severance payments
in certain circumstances), fringe benefits (including payment of a car allowance) and performance incentives, including equity-linked
compensation. Performance incentives are generally only paid once predetermined key performance indicators have been met. The
employment terms and conditions for our key executives and directors have historically been formalized in employment agreements.
In those cases, where employment agreements are applicable, termination payments are not payable upon resignation or under the
circumstances where there is cause for termination. The remuneration of directors and key executives is determined by the Board
of Directors, or when formed, the Compensation Committee. It is our objective to review and adjust executive compensation and
performance incentives on an annual basis. All remuneration paid to key management personnel is valued at the cost to the company
and expensed.
Named
Executive Officer Employment Arrangements
Executive
Employment Arrangement
Emmanuel
Cotrel is employed by FMC GlobalSat Holdings, Inc. as a permanent, full-time employee. Mr. Cotrel was appointed as President
and Chief Executive Officer of the Company effective December 28, 2017, and was appointed as Principal Financial and Accounting
Officer effective April 8, 2019, and under a prior employment agreement with the Company (“Prior Employment Agreement”),
had a base salary of a minimum of $125,000 for 2017 which was to have been adjusted up to $250,000 subject to the Company’s
financial performance over 2018 and 2019. He had a notice period of 2 months under the Prior Employment Agreement. Under
the Prior Employment Agreement, Mr. Cotrel would be entitled to a 6-month severance base salary, which severance could be increased
to 12 months if the employer had elected for the non-compete period to apply for a 12-month period. The Prior Employment Agreement
had provided for annual bonus payments of up to 100% of base compensation, subject to meeting targets set by the Board of Directors.
In connection with our December 2018 Private Placement, Mr. Cotrel agreed to terminate his Prior Employment Agreement and all
related payments, benefits and severance rights thereunder pursuant to a letter agreement. Pursuant to the letter agreement, Mr.
Cotrel waived any deferred salary which may have accrued to date, and the Company and Mr. Cotrel agreed that he will continue
serving as the Company’s Chief Executive Officer but would not draw a salary until such time as the Company achieves a mutually
agreeable revenue milestone (and until such milestone is reached, no salary was accrued or considered deferred). In consideration
for the foregoing, the Company agreed to issue Mr. Cotrel an option award to purchase up to Six Hundred Thousand (600,000) shares
of Common Stock at an exercise price equal to the fair market value on the date of such grant, which shall vest in 36 equal monthly
installments. Mr. Cotrel received an additional 250,000 stock options for his duties as Chief Executive Officer, vesting
under the same terms. On September 5, 2019, the Company and Mr. Cotrel entered into the New Employment Agreement.
Christopher
MacDonald served as Chief Operating Officer of the Company from December 28, 2017 to November 15, 2018. His total compensation
for 2018 was $65,500.
Adam
Ferguson served as Chief Technology Officer of the Company from December 28, 2017 to November 15, 2018. His total compensation
for 2018 was: $65,500.
In
connection with the December 2018 Private Placement, Adam Ferguson, the Company’s then-Chief Technology Officer and Director,
and Christopher MacDonald, the Company’s then-Chief Operating Officer and Director, entered into separate letter agreements
with the Company, pursuant to which Adam Ferguson agreed to cancel 2,125,000 and Christopher MacDonald agreed to cancel 2,485,000
of their respective shares of Common Stock, effective upon the initial closing of the December 2018 Private Placement. Pursuant
to their respective letter agreements, each of Mr. Ferguson and Mr. MacDonald agreed to terminate their respective employment
agreements with the Company (including all payments, benefits and severance rights and the waiver of any deferred accrued salary),
effective as of the initial closing of the December 2018 Private Placement. On November 15, 2018, Mr. MacDonald and Mr. Ferguson
resigned from their positions as the Company’s Chief Operations Officer and Chief Technology Officer, respectively, and
from their respective roles as directors of the Company.
Robert
Kubat served as Chief Financial Officer of the Company from December 29, 2017 to January 2, 2019 with a base salary of
a minimum of $100,000 and to be adjusted up to $195,000 subject to the Company’s financial performance over 2018 and 2019.
He had a notice period of 1 month. Mr. Kubat would be entitled to a 6-month severance base salary, which severance is increased
to 12 months if the employer elects for the non-compete period to apply for a 12-month period. The contract provides for bonus
payments of up to 100% of base compensation, subject to meeting targets set by the Board of Directors.
On
January 2, 2019, the Company and Mr. Kubat entered into a letter agreement pursuant to which the Company and
Mr. Kubat agreed to terminate Mr. Kubat’s employment agreement, and Mr. Kubat agreed to resign from his position as Chief
Financial Officer. Due to his voluntary resignation, Mr. Kubat was not entitled to receive any severance payments. On January
2, 2019, the Company and Mr. Kubat entered into an Independent Consultant Agreement pursuant to which Mr. Kubat agreed to provide
certain financial and accounting services to the Company. Pursuant to the Agreement, the Company will pay Mr. Kubat an hourly
rate of $100 in consideration for the services provided. The Agreement had a six (6) week term and was not extended by the Company.
Summary
Compensation Table
The
following table presents information regarding the total compensation awarded to, earned by, or paid to our chief executive officer
and the three most highly-compensated executive officers (other than the chief executive officer) who were serving as executive
officers as of December 31, 2018.
| Name and Principal Position | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
Option Awards
($) | | |
All Other Compensation
($) | | |
Total
($) | |
| Emmanuel Cotrel (1) | |
2018 | | |
| 75,000 | | |
| | | |
| 306,765 | | |
| | | |
| 381,765 | |
Chief Executive Officer and
Chief Financial Officer | |
2017 | | |
| 125,000 | | |
| 0 | | |
| | | |
| 0 | | |
| 125,000 | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Adam Ferguson (1) | |
2018 | | |
| 65,500 | | |
| | | |
| | | |
| | | |
| 65,500 | |
| Chief Technology Officer | |
2017 | | |
| 100,000 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 100,000 | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Christopher McDonald (1) | |
2018 | | |
| 65,500 | | |
| | | |
| | | |
| | | |
| 65,500 | |
| Chief Operating Officer | |
2017 | | |
| 100,000 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 100,000 | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Robert Kubat (1) | |
2018 | | |
| 122,570 | | |
| | | |
| | | |
| | | |
| 122,570 | |
| Chief Financial Officer(former) | |
2017 | | |
| - | | |
| | | |
| | | |
| | | |
| - | |
| (1) |
Prior to the merger
with the Company, FMC GlobalSat, Inc. entered into two-year employment agreements with each of Emmanuel Cotrel, Robert Kubat,
Adam Ferguson, and Christopher McDonald, effective from the merger as of December 28, 2017. Mr. Ferguson and Mr.
McDonald resigned from their positions on November 15, 2018. Mr. Kubat resigned on January 2, 2019. |
| (2) |
On November 1, 2018,
Mr. Cotrel was awarded 850,000 stock options at a strike price of $0.62. 62,500 of this grant vested immediately, the remainder
vests pro rata over a 36 month period These grants were valued at $306,765 using Black Scholes methodology outlined in the
Company’s financial statements in Note 7 – Stockholders’ Equity. |
Director
Compensation
2018
Director Compensation Table (2)
Name |
|
Year |
|
|
Fees
Earned
or Paid
in Cash
($) |
|
|
Stock
Awards |
|
|
Option(1)
Awards |
|
|
Non-Equity
Incentive Plan
Compensation |
|
|
Nonqualified
Deferred
Compensation |
|
|
All
Other
Compensation |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Edward Stern |
|
|
2018 |
|
|
$ |
20,000 |
|
|
|
|
|
|
$ |
10,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,226 |
|
| (1) |
The amount in this
column reflects the grant date fair value of stock options granted in 2018, computed in accordance with FASB Statement of
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718,
Compensation-Stock Compensation. The methodology to determine the value of this grant is outline in the Company’s financial
statements, Note 7 - Equity. |
| (2) |
This director compensation
table excludes Adam Ferguson and Christopher McDonald who served as directors in 2017 but were compensated as officers. |
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information concerning unexercised options for each executive officer named in the Summary Compensation
Table as of December 31, 2018:
| |
|
Option
Awards |
|
|
Stock
Awards |
|
| Name |
|
Number
of
Securities Underlying Unexercised Options (#) Exercisable (1) |
|
|
Number
of
Securities Underlying Unexercised Options (#) Unexercisable (1) |
|
|
Equity
incentive
plan awards: number of securities underlying unexercised unearned
options (#) |
|
|
Option
Exercise
Price |
|
|
Option
Expiration Date |
|
|
Number
of Shares of Stock (#) Unvested (6) |
|
|
Market
Value of Shares of Stock ($) Unvested (7) |
|
| Emmanuel
Cotrel |
|
|
106,250 |
|
|
|
743,750 |
|
|
|
743,750 |
|
|
$ |
0.62 |
|
|
|
11/1/2023 |
|
|
|
743,750 |
|
|
$ |
654,500 |
|
2017
Equity Compensation Plan
General
On
November 16, 2017, our Board of Directors adopted the Company’s 2017 Equity Compensation Plan (the “2017 Plan”).
The 2017 Plan was approved by the stockholders on December 27, 2017. On December 31, 2018, our Board of Directors approved an
amendment to the 2017 Plan to increase the aggregate number of shares of Common Stock available for issuance in connection with
options and awards granted under the 2017 Plan from 1,000,000 to 2,700,000.
The
general purpose of the 2017 Plan is to provide an incentive to our employees, directors, consultants, and advisors by enabling
them to share in the future growth of our business. Our Board of Directors believes that the granting of stock options, restricted
stock awards, unrestricted stock awards, and similar kinds of equity-based compensation promotes continuity of management and
increases incentive and personal interest in the welfare of our Company by those who are primarily responsible for shaping and
carrying out our long-range plans and securing our growth and financial success.
Our
Board of Directors believes that the 2017 Plan will advance our interests by enhancing our ability to (a) attract and retain employees,
consultants, directors, and advisors who are in a position to make significant contributions to our success; (b) reward our employees,
consultants, directors and advisors for these contributions; and (c) encourage employees, consultants, directors and advisors
to take into account our long-term interests through ownership of our shares.
Description
of the 2017 Equity Incentive Plan
The
following description of the principal terms of the 2017 Plan is a summary and is qualified in its entirety by the full text of
the 2017 Plan.
Administration. The
2017 Plan will be administered by our Board of Directors. Our Board of Directors may grant options to purchase shares of our Common
Stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of our Common Stock, performance shares,
performance units, other cash-based awards, and other stock-based awards. The Board of Directors also has broad authority to determine
the terms and conditions of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the
administration of the 2017 Plan and amend or modify outstanding options, grants, and awards. The Board of Directors may delegate
authority to the chief executive officer and/or other executive officers to grant options and other awards to employees (other
than themselves), subject to applicable law and the 2017 Plan. No options, stock purchase rights or awards may be made under the
Plan on or after the ten year anniversary of the adoption of the 2017 Plan by our Board of Directors, but the 2017 Plan will continue
thereafter while previously granted options, stock appreciation rights or awards remain subject to the 2017 Plan.
Eligibility. Persons
eligible to receive options, stock appreciation rights or other awards under the 2017 Plan are those employees, consultants, advisors,
and directors of our Company and our subsidiaries who, in the opinion of the Board of Directors, are in a position to contribute
to our success.
Shares
Subject to the 2017 Plan. The aggregate number of shares of Common Stock available for issuance in connection with
options and awards granted under the 2017 Plan is 2,700,000, subject to customary adjustments for stock splits, stock dividends
or similar transactions. Incentive Stock Options may be granted under the 2017 Plan with respect to all of those shares. If any
option or stock appreciation right granted under the 2017 Plan terminates without having been exercised in full or if any award
is forfeited, or if shares of Common Stock are withheld to cover withholding taxes on options or other awards, the number of shares
of Common Stock as to which such option or award was forfeited, or which were withheld, will be available for future grants under
the 2017 Plan. No employee, consultant, advisor or director may receive options or stock appreciation rights relating to more
than 1,000,000 shares of our Common Stock in the aggregate in any calendar year.
Terms
and Conditions of Options. Options granted under the 2017 Plan may be either “incentive stock options”
that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)
or “nonstatutory stock options” that do not meet the requirements of Section 422 of the Code. The Board of Directors
will determine the exercise price of options granted under the 2017 Plan. The exercise price of stock options may not be less
than the fair market value, on the date of grant, per share of our Common Stock issuable upon exercise of the option (or 110%
of fair market value in the case of incentive options granted to a ten-percent stockholder).
If
on the date of the grant the Common Stock is listed on a stock exchange or is quoted on the automated quotation system of Nasdaq,
the fair market value shall generally be the closing sale price on the last trading day before the date of grant. If no such prices
are available, the fair market value shall be determined in good faith by the Board of Directors based on the reasonable application
of a reasonable valuation method.
No
option may be exercisable for more than ten years (five years in the case of an incentive stock option granted to a ten-percent
stockholder) from the date of grant. Options granted under the 2017 Plan will be exercisable at such time or times as the Board
of Directors prescribes at the time of grant. No employee may receive incentive stock options that first become exercisable in
any calendar year in an amount exceeding $100,000. The Board of Directors may, in its discretion, permit a holder of an option
to exercise the option before it has otherwise become exercisable, in which case the shares of our Common Stock issued to the
recipient will continue to be subject to the vesting requirements that applied to the option before exercise.
Generally,
the option price may be paid (a) in cash or by certified bank check, (b) through the delivery of shares of our Common Stock having
a fair market value equal to the purchase price, or (c) a combination of these methods. The Board of Directors is also authorized
to establish a cashless exercise program and to permit the exercise price (or tax withholding obligations) to be satisfied by
reducing from the shares otherwise issuable upon exercise a number of shares having a fair market value equal to the exercise
price.
No
option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime,
an option may be exercised only by the recipient. However, the Board of Directors may permit the holder of an option, stock appreciation
right or other award to transfer the option, right or other award to immediate family members or a family trust for estate planning
purposes. The Board of Directors will determine the extent to which a holder of a stock option may exercise the option following
termination of service with us.
Stock
Appreciation Rights. The Board of Directors may grant stock appreciation rights independent of or in connection with
an option. The Board of Directors will determine the other terms applicable to stock appreciation rights. The exercise price per
share of a stock appreciation right will be determined by the Board of Directors, but will not be less than 100% of the fair market
value of a share of our Common Stock on the date of grant, as determined by the Board of Directors. The maximum term of any SAR
granted under the 2017 Plan is ten years from the date of grant. Generally, each SAR stock appreciation right will entitle a participant
upon exercise to an amount equal to:
| |
● |
the excess of the
fair market value on the exercise date of one share of our Common Stock over the exercise price, multiplied by |
| |
● |
the number of shares
of Common Stock covered by the stock appreciation right. |
Payment
may be made in shares of our Common Stock, in cash, or partly in Common Stock and partly in cash, all as determined by the Board
of Directors.
Restricted
Stock and Restricted Stock Units. The Board of Directors may award restricted Common Stock and/or restricted
stock units under the 2017 Plan. Restricted stock awards consist of shares of stock that are transferred to a participant subject
to restrictions that may result in forfeiture if specified conditions are not satisfied. Restricted stock units confer the right
to receive shares of our Common Stock, cash, or a combination of shares and cash, at a future date upon or following the attainment
of certain conditions specified by the Board of Directors. The Board of Directors will determine the restrictions and conditions
applicable to each award of restricted stock or restricted stock units, which may include performance-based conditions. Dividends
with respect to restricted stock may be paid to the holder of the shares as and when dividends are paid to stockholders or at
the time that the restricted stock vests, as determined by the Board of Directors. Dividend equivalent amounts may be paid with
respect to restricted stock units either when cash dividends are paid to stockholders or when the units vest. Unless the Board
of Directors determines otherwise, holders of restricted stock will have the right to vote the shares.
Performance
Shares and Performance Units. The Board of Directors may award performance shares and/or performance units
under the 2017 Plan. Performance shares and performance units are awards, denominated in either shares or U.S. dollars, which
are earned during a specified performance period subject to the attainment of performance criteria, as established by the Board
of Directors. The Board of Directors will determine the restrictions and conditions applicable to each award of performance shares
and performance units.
Effect
of Certain Corporate Transactions. The Board of Directors may, at the time of the grant of an award, provide for
the effect of a change in control (as defined in the 2017 Plan) on any award, including (i) accelerating or extending the time
periods for exercising, vesting in, or realizing gain from any award, (ii) eliminating or modifying the performance or other conditions
of an award, or (iii) providing for the cash settlement of an award for an equivalent cash value, as determined by the Board of
Directors. The Board of Directors may, in its discretion and without the need for the consent of any recipient of an award, also
take one or more of the following actions contingent upon the occurrence of a change in control: (a) cause any or all outstanding
options and stock appreciation rights to become immediately exercisable, in whole or in part; (b) cause any other awards to become
non-forfeitable, in whole or in part; (c) cancel any option or stock appreciation right in exchange for a substitute option; (d)
cancel any award of restricted stock, restricted stock units, performance shares or performance units in exchange for a similar
award of the capital stock of any successor corporation; (e) redeem any restricted stock, restricted stock unit, performance share
or performance unit for cash and/or other substitute consideration with a value equal to the fair market value of an unrestricted
share of our Common Stock on the date of the change in control; (f) cancel any option or stock appreciation right in exchange
for cash and/or other substitute consideration based on the value of our Common Stock on the date of the change in control, and
cancel any option or stock appreciation right without any payment if its exercise price exceeds the value of our Common Stock
on the date of the change in control; or (g) make such other modifications, adjustments or amendments to outstanding awards as
the Board of Directors deems necessary or appropriate.
Amendment,
Termination. The Board of Directors may amend the terms of awards in any manner not inconsistent with the 2017 Plan,
provided that no amendment shall adversely affect the rights of a participant with respect to an outstanding award without the
participant’s consent. In addition, our Board of Directors may at any time amend, suspend, or terminate the 2017 Plan, provided
that (i) no such amendment, suspension or termination shall materially and adversely affect the rights of any participant under
any outstanding award without the consent of such participant and (ii) to the extent necessary to comply with any applicable law
or stock exchange rule, the 2017 Plan requires us to obtain stockholder consent. Stockholder approval is required for any plan
amendment that increases the number of shares of Common Stock available for issuance under the 2017 Plan or changes the persons
or classes of persons eligible to receive awards.
Tax
Withholding
As
and when appropriate, we shall have the right to require each optionee purchasing shares of Common Stock and each grantee receiving
an award of shares of Common Stock under the 2017 Plan to pay any federal, state or local taxes required by law to be withheld.
Option
Grants and Stock Awards
The
grant of options and other awards under the 2017 Plan is discretionary, and we cannot determine how the specific number or type
of options or awards to be granted in the future to any particular person or group.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the number
of shares of Common Stock beneficially owned as of August 22, 2019 by:
| |
● |
each of our stockholders
who is known by us to beneficially own 5% or more of our Common Stock; |
| |
● |
each of our executive
officers; |
| |
● |
each of our directors;
and |
| |
● |
all of our directors
and current executive officers as a group. |
Beneficial
ownership is determined based on the rules and regulations of the Commission. A person has beneficial ownership of shares if such
individual has the power to vote and/or dispose of shares. This power may be sold or shared and direct or indirect. Applicable
percentage ownership in the following table is based on the total of 10,913,450 shares
of Common Stock issued and outstanding as of April 1, 2019. In computing, the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock that are subject to options or warrants held by that person
and exercisable as of, or within 60 days of April 1, 2019, are included. These shares, however, are not counted as outstanding
for the purposes of computing the percentage ownership of any other person(s). Except as may be indicated in the footnotes to
this table and pursuant to applicable community property laws, each person named in the table has sole voting and dispositive
power with respect to the shares of Common Stock set forth opposite that person’s name. Unless indicated below, the address
of each individual listed below is c/o FMC GlobalSat Holdings, Inc., 3301 SE 14th Avenue, Fort Lauderdale, FL
33316.
| Stockholder | |
Shares
Beneficially
Owned
Number of
Shares | | |
Percentage | |
| Emmanuel Cotrel | |
| 5,295,625 | | |
| 47.6 | % |
| Ian Thompson | |
| 79,166 | | |
| * | |
| Edward Stern | |
| 50,000 | | |
| * | |
| Brett Nesland | |
| 676,246 | | |
| 6.2 | % |
| Donovan Strangle | |
| 650,000 | | |
| 5.96 | % |
| Sean Martin | |
| 851,219 | | |
| 7.8 | % |
| Mitchell Lampert | |
| 601,246 | | |
| 5.5 | % |
| All Officer and Directors (3) | |
| 5,424,791 | | |
| 48.4 | % |
*
Less than 1%.
Equity
Compensation Plan Information
| Plan category | |
Number of
securities to
be issued upon
exercise of
outstanding
options,
warrants, and rights | | |
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights | | |
Number of
securities
remaining
available for
future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a) | |
| | |
(a) | | |
(b) | | |
(c) | |
| Equity compensation plans approved by security holders | |
| 2,000,000 | | |
$ | 0.62 | | |
| 65,000 | |
| Equity compensation plans not approved by security holders | |
| 1,000,000 | | |
$ | - | | |
| 1,000,000 | |
| Total | |
| 3,000,000 | | |
$ | 0.62 | | |
| 1,065,000 | |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Unless
described below, for the years ended December 31, 2018 and 2017, there are no transactions or series of similar transactions to
which we were a party or will be a party, in which:
| |
● |
the amounts involved
exceeded or will exceed $120,000; and |
| |
● |
any of our directors,
executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing
persons, had or will have a direct or indirect material interest. |
2017
Activity
On November 16, 2017, prior to the transaction
by which FGH acquired FG, FG entered into an agreement with SMB FMC SAT Distributors LLC (“SMB”), a limited liability
company owned by Sean Martin, the Company’s then Chief Executive Officer and a Director, Brett Nesland, the Company’s
then Secretary and a Director, and Mitchell Lampert, a partner in the law firm that represented the Company, pursuant to which
FG agreed to compensate SMB for referrals it made that result in sales of Kymeta products and services by FMC GlobalSat Inc. The
terms of the agreement also provided for the issuance of 500,000 warrants to purchase shares of FG’s common stock to SMB,
each exercisable at a price of $1.00 per share for a period of five (5) years, which warrants were exchanged for identical warrants
of the Company upon completion of the merger by and between the Company and FG. The warrants were distributed to Messrs. Martin,
Nesland and Lampert as follows: 50,000 to Mr. Martin, 300,000 to Mr. Nesland and 150,000 to Mr. Lampert.
2018
Activity
On
September 21, 2018, we entered into a financing transaction with Christopher MacDonald, who at the time was the Company’s
Chief Operating Officer and a member of the Board of Directors. As part of the financing, the Company issued to Mr. MacDonald
a convertible promissory note in the original principal amount of $70,000 (the “Note”) pursuant to the terms of a
note purchase agreement. The Note bears interest at the rate of 8% per annum. Interest payments accrued are due on the maturity
date. Both the principal and the interest under the Note were repaid on November 15, 2018.
In
connection with our December 2018 Private Placement, Emmanuel Cotrel, our Chief Executive Officer, agreed to terminate his employment
agreement and all related payments, benefits and severance rights thereunder pursuant to a letter agreement. Pursuant to the letter
agreement, Mr. Cotrel waived any deferred salary which may have accrued to date, and the Company and Mr. Cotrel agreed that he
will continue serving as the Company’s Chief Executive Officer but will not draw a salary until such time as the Company
achieves a mutually agreeable revenue milestone (and until such milestone is reached, no salary will be accrued or considered
deferred). In consideration for the foregoing, the Company agreed to issue Mr. Cotrel an option award to purchase up to Six Hundred
Thousand shares of Common Stock at an exercise price equal to the fair market value on the date of such grant, which shall vest
in 36 equal monthly installments provided.
Additionally,
in connection with the December 2018 Private Placement, Adam Ferguson, the Company’s then-Chief Technology Officer and Director
and Christopher MacDonald, the Company’s then-Chief Operating Officer and Director, entered into separate letter agreements
with the Company, pursuant to which Adam Ferguson agreed to cancel 2,125,000 and Christopher MacDonald agreed to cancel 2,485,000
shares of their respective Common Stock, effective upon the initial closing of the December 2018 Private Placement. Pursuant to
their respective letter agreements, each of Mr. Ferguson and Mr. MacDonald agreed to terminate their respective employment agreements
with the Company (including all payments, benefits and severance rights and the waiver of any deferred accrued salary), effective
as of the initial closing of the December 2018 Private Placement, in consideration for which the Company agreed to issue each
officer an option award to purchase up to 600,000 shares of Common Stock at an exercise price equal to the fair market value on
the date of such grant, which shall vest in 36 equal monthly installments provided the holder remains an officer, director or
employee of the Company. The issuance of the Option Grants are subject to the increase of the number of shares of Common Stock
reserved for issuance under the Company’s existing stock plan.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following table summarizes the aggregate fees billed to the Company by Marcum LLP in relation to the audits and quarterly reviews
of the Company for the years ended December 31, 2018 and 2017:
| | |
Year Ended
December 31,
2018 | | |
Year ended December 31,
2017 | |
| | |
| | |
| |
| Audit Fees (1) | |
$ | 142,101 | | |
$ | 50,985 | |
| Audit-Related Fees (2) | |
$ | - | | |
$ | - | |
| Tax Fees (3) | |
$ | - | | |
$ | - | |
| All Other Fees (4) | |
$ | - | | |
$ | - | |
| (1) |
Audit Fees. Audit
fees include fees for professional services performed for the audit of our annual consolidated financial statements,
review of quarterly consolidated financial statements included in our SEC filings, and assistance and issuance of consents
associated with other SEC filings. |
| |
|
| (2) |
Audit-Related
Fees. Audit-related fees are fees for assurance and related services that are reasonably related to the audit. This
category includes fees related to assistance consulting on financial accounting/reporting standards. |
| |
|
| (3) |
Tax Fees. Tax
fees primarily include professional services performed with respect to the preparation of our federal and state tax returns
for our consolidated subsidiaries. |
| |
|
| (4) |
All Other Fees. All
other fees include products and services provided, other than the services reported comprising Audit Fees, Audit-Related Fees
and Tax Fees. |
The
Board of Directors has reviewed the services provided by Marcum LLP during the fiscal year ended December 31, 2018 and the amounts
billed for such services, and after consideration, has determined that the receipt of these fees by Marcum LLP is compatible with
the provision of independent audit services. The Board has discussed these services and fees with Marcum LLP and Company management
to determine that they are appropriate under the rules and regulations concerning auditor independence promulgated by the U.S.
Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as under guidelines of the American Institute
of Certified Public Accountants.
Our
policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services
may include audit services, audit-related services, tax services and other services.
PART
IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits:
Exhibit
Number |
|
Description |
| |
|
|
| 3.1 |
|
Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 filed on
May 14, 2018). |
| |
|
|
| 3.2 |
|
Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 4.1 |
|
Form of Investor Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 4.2 |
|
Form
of SMB Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1 filed on May
14, 2018). |
| |
|
|
| 4.3 |
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed
on November 16, 2018). |
| |
|
|
| 9.1 |
|
Employment Agreement, dated September 5, 2019, between of FMC GlobalSat Holdings, Inc. and Emmanuel Cotrel. * |
| |
|
|
| 10.1 |
|
Form of Subscription Agreement for FMC GlobalSat Holdings, Inc.’s December 2017 Private Placement (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.2 |
|
FMC GlobalSat Holdings, Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.3 |
|
Form of FMC GlobalSat Holdings, Inc. Stock Option Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.4 |
|
Employment Agreement, dated December 28, 2017, between of FMC GlobalSat Holdings, Inc. and Emmanuel Cotrel (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.5 |
|
Employment Agreement, dated December 28, 2017, between of FMC GlobalSat Holdings, Inc. and Adam Ferguson (incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.6 |
|
Employment Agreement, dated December 28, 2017, between of FMC GlobalSat Holdings, Inc. and Christopher MacDonald (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.7 |
|
Employment Agreement, dated December 28, 2017, between of FMC GlobalSat Holdings, Inc. and Robert Kubat (incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| |
|
|
| 10.8 |
|
Master
Agreement between Kymeta Corporation and FMC GlobalSat, Inc. dated May 4, 2017 (incorporated by reference to Exhibit 10.8 of the
Company’s Registration Statement on Form S-1/A filed on July 16, 2018). |
| |
|
|
| 10.9 |
|
Convertible Promissory Note dated September 21, 2018 between FMC GlobalSat Holdings, Inc. and Christopher MacDonald (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 26, 2018). |
| |
|
|
| 10.10 |
|
Form of Letter Agreement between FMC GlobalSat Holdings, Inc. and Robert Kubat (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 8, 2019). |
| |
|
|
| 10.11 |
|
Form of Independent Consultant Agreement between FMC GlobalSat Holdings, Inc. and Robert Kubat (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 8, 2019). |
| |
|
|
| 10.12 |
|
Form of Securities Purchase Agreement * |
| |
|
|
| 10.13 |
|
Form of First Amendment to Securities Purchase Agreement * |
| |
|
|
| 10.14 |
|
Form of Office Lease Agreement dated as of January 8 2018 between Farrell Marine Holdings, JJ Center, LLC and FMC GlobalSat, Inc.* |
| |
|
|
| 21.1 |
|
List of Subsidiaries of FMC GlobalSat Holdings, Inc. (incorporated by reference to Exhibit 21.1 of the Company’s Registration Statement on Form S-1 filed on May 14, 2018). |
| † | Denotes
management contract or compensatory plan or arrangement |
ITEM
16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
FMC GLOBALSAT HOLDINGS, INC. |
| |
|
|
|
| September 6, 2019 |
By: |
/s/
Emmanuel Cotrel |
| |
|
Name: |
Emmanuel Cotrel |
| |
|
Title: |
Chief Executive Officer,
Principal Financial
and
Accounting Officer |
Pursuant
to the requirements of the Securities Act, this report has been signed below by the following persons in the capacities and on
the dates indicated.
| Person |
|
Capacity |
|
Date |
| |
|
|
|
|
| /s/
Emmanuel Cotrel |
|
Chief Executive Officer and Director |
|
September 6, 2019
|
| Emmanuel Cotrel |
|
(Principal Executive Officer/Principal Accounting Officer) |
|
|
| |
|
|
|
|
| /s/
David Montanaro |
|
Director |
|
September 6, 2019 |
| David Montanaro |
|
|
|
|
