(Address, including
zip code, and telephone number, including area code, of registrant’s principal
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copies of communications, including communications
sent to agent for service, should be sent to:
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2
of the Exchange Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus, the applicable prospectus
supplement and the information incorporated by reference in this prospectus contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”), which represent our expectations or beliefs concerning future
events. Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events
or conditions, and/or which include words such as “believes,” “plans,” “intends,” “anticipates,”
“estimates,” “expects,” “may,” “will” or similar expressions. In addition, any
statements concerning future financial performance, ongoing strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and
projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market
factors, and the industry in which we do business, among other things. These statements are not guarantees of future performance,
and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by law. Actual events and results may differ materially from those expressed or forecasted
in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions
to differ materially from any forward-looking statements include, but are not limited to, those discussed under the heading “Risk
Factors” in any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. The
forward-looking statements in this prospectus, the applicable prospectus supplement and the information incorporated by reference
in this prospectus represent our views as of the date such statements are made. These forward-looking statements should not be
relied upon as representing our views as of any date subsequent to the date such statements are made.
PROSPECTUS SUMMARY
This summary highlights selected information
contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider
before investing in our common stock. You should read the entire prospectus and the documents incorporated by reference herein
carefully before making an investment decision.
Our Company
The overarching strategy of xG Technology,
Inc. is to design, develop and deliver advanced wireless communications solutions across its business units that provide customers
in our target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and
missions.
xG Technology is comprised of two business
units: our xMax® unit, which provides product and service solutions marketed under the xMax® brand name, and Integrated
Microwave Technology (“IMT”) our wholly-owned subsidiary, which provides product and service solutions marketed under
the brand names Nucomm, RF Central and IMT. Nucomm is a premium brand of digital broadcast microwave video systems. RF Central
is a well-established brand of compact microwave video equipment for licensed and license-free sports and entertainment applications.
The IMT products are focused on providing mission-critical wireless video solutions to state, local and federal police departments.
While the brands of xMax® and IMT are managed as separate reporting units and operate independently, there is considerable
brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration
opportunities.
xMax®:
Our xMax® unit develops, manufactures
and sells equipment that utilizes a broad portfolio of innovative intellectual property to enhance wireless communications. Our
intellectual property is embedded in proprietary software algorithms that offer cognitive interference mitigation and spectrum
access solutions for numerous applications using commercial off-the-shelf devices. The implementation of our cognitive radio intellectual
property is called “xMax®”. The xMax® product and service suite includes access points, mobile switching centers,
network management systems, deployment tools and proactive customer support. Customers within this market include telecommunication
services, public safety, telemedicine as well as the U.S. Government and Department of Defense.
Given the proliferation of smartphones,
in 2013, the Company introduced an improved product line that could handle both voice and data services. These products, the CN1100
Access Point (“CN1100”), the CN5100 Mobile Hotspot (“CN5100”), and the CN3100 Vehicle Modem (“CN3100”),
are able to communicate with any Wi-Fi enabled commercial off-the-shelf device.
We believe that the wireless communications
industry is facing a “spectrum crisis” because the demand for flexible, affordable voice and data access continues
to increase rapidly while the amount of available spectrum remains relatively constant. We have developed frequency-agnostic cognitive
radio solutions to address this increasing demand by eliminating the need to acquire scarce and expensive licensed radio spectrum,
and thus ideally lowering the total cost of ownership for wireless broadband access. With fast-growing demand straining network
capacity, our intellectual property is also designed to help wireless broadband network operators make more efficient use of their
existing spectrum allocations.
We believe that the xMax® system is
the only commercially available cognitive radio network system that includes our interference mitigation and spatial processing
technologies. These proprietary technologies enable our xMax® system to increase capacity on already crowded airwaves by improving
interference tolerance, thereby enabling the delivery of higher Quality of Service (“QoS”) than other technologies
that would not be able to cope with the interference. We believe that the xMax® system will also, when operating on more than
one radio channel, deliver dynamic spectrum access by using our patented self-organizing network techniques. Furthermore, the xMax®
system can be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the
licensed spectrum. Although currently designed to operate within the 902 – 928 MHz unlicensed band of spectrum,
our system is frequency agnostic.
xMax® also serves as a mobile voice
over internet protocol (“VoIP”) and broadband data system that utilizes an end-to-end Internet Protocol (“IP”)
system architecture.
The xMax® system allows mobile operators
to utilize free, unlicensed 902 – 928 MHz ISM band spectrum (which spectrum is available in all of the Americas
except French Guiana) instead of purchasing scarce and expensive licensed spectrum. Our xMax® system will also enable enterprises
to set up a mobile communications network in an expeditious and cost-effective manner.
IMT:
Our IMT unit, which provides product and
service solutions marketed under the brand names Nucomm, RF Central and IMT, develops, manufactures and sells microwave communications
equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. Its products are primarily used in the
transmission of video to address three major market areas: Broadcasting, Sports and Entertainment, and Surveillance (Military and
Government). COFDM is a transmission technique that combines encoding technology with OFDM (Orthogonal Frequency Division Multiplexing)
modulation to provide the low latency and high image clarity required for real-time live broadcasting video transmissions. IMT
has an established reputation of delivering complex bespoke engineering solutions managed to tight deadlines for the past 20 years
and is considered a leader in ultra compact COFDM wireless technology. IMT’s experience with this technology has allowed
it to develop integrated solutions that deliver reliable video footage captured from both aerial and ground-based sources to fixed
and mobile receiver locations.
The Broadcasting market consists of electronic
news gathering, wireless camera systems, portable microwave, and fixed point to point systems. Customers within this market are
blue-chip tier-1 major network TV stations that include over-the-air broadcasters, and cable and satellite news providers. For
this market, IMT designs, develops and markets solutions for use in news helicopters, ground-based news vehicles, camera operations,
central receive sites, remote onsite and studio newscasts and live television events.
The Sports and Entertainment market consists
of key segments that include Sports Production, Sports Venue Entertainment systems, movie director video assist, and the non-professional
user segment. Customers within this market are major professional sports teams, movie production companies, live video production
service providers, system integrators and a growing segment of drone and unmanned ground vehicle providers. Among the key solutions
IMT provides to this market are wireless camera systems and mobile radios.
The Government/Surveillance market consists
of key segments that include state and local law enforcement agencies, Federal “3-letter” agencies and military system
integrators. Customers within this market include recognizable state police forces, sheriff’s departments, fire departments,
first responders, the Department of Justice and the Department of Home Land Security. The key solutions IMT provides to this market
are manned and unmanned aerial and ground systems, mobile and handheld receive systems and transmitters for concealed video surveillance.
Our Strategy
For xMax®, we have developed a broad
portfolio of innovative intellectual property that we believe will enhance wireless communications. Leveraging elements of this
intellectual property portfolio, we plan to introduce a range of spectrum agnostic, cognitive radio solutions for numerous industries
and applications. We believe that sales of these products and services, together with our ability to leverage our patent portfolio,
present us with an attractive revenue model. Our current strategy is to commercialize our intellectual property portfolio by developing
and selling network products using our proprietary software algorithms to offer cognitive interference mitigation and spectrum
access solutions. Our future strategies are for our intellectual property to be embedded by partners in a semiconductor chip that
could be sold to third-party equipment manufacturers and inserted in their devices, and to license our intellectual property to
other customers in industry verticals world-wide.
For our IMT unit, the overarching strategy
is to offer a comprehensive suite of services and product offerings in each of the markets it is active in. Leveraging IMT’s
heritage as a leader in the broadcast industry that dates back to 1990, IMT’s key sector strategies are to expand the various
markets for existing miniature wireless video products which include educational sectors, videographers, and video service providers,
provide complete end-to-end solutions for the video surveillance market and introduce complete end-to-end IP technology into the
Broadcast Market.
Risks That We Face
An investment in our securities
involves a high degree of risk. You should carefully consider the risks summarized below. The risks are discussed more fully in
the “Risk Factors” section of this prospectus immediately following this prospectus summary.
These risks include, but are not
limited to:
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we have a history of operating losses and we may continue to realize net losses for at least the next 12 months;
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we may not be able to continue as a going concern and may not be able to operate in the future;
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we may not fully realize the anticipated benefits from our recent acquisition of the assets and liabilities of IMT;
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our business depends upon our ability to generate sustained sales of our products and technology;
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our business depends on our ability to continually develop and commercialize new products and technologies and penetrate new markets;
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we need to obtain or maintain patents or other appropriate protection for the intellectual property utilized in our technologies;
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our industry is highly competitive and we may not be able to compete with companies with larger resources than we have;
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we may require additional capital to develop new products; and
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new regulations or standards or changes in existing regulations or standards related to our products may result in unanticipated costs or liabilities.
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Company Information
We were organized as a limited
liability company under the laws of the State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On March 21,
2003, we changed our name to xG Technology, LLC. Pursuant to a certificate of conversion and a certificate of incorporation filed
with the State of Delaware on November 8, 2006, xG Technology, LLC converted to a Delaware corporation under the name xG Technology,
Inc. We run our operations through xG Technology, Inc., as well as through Integrated Microwave Technology, LLC, our wholly-owned
subsidiary.
We are an “emerging growth
company” as defined in the JOBS Act. We could remain 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 revenue exceeds $1 billion, (ii) the date that we become
a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act which would occur if the market value of
our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed
second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding
three-year period. Pursuant to Section 102 of the JOBS Act, we have provided reduced executive compensation disclosure and have
omitted a compensation discussion and analysis from this prospectus. Pursuant to Section 107 of the JOBS Act, we have elected to
utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards.
Where You Can Find Us
Our executive offices are located at 240
S. Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035. Our website address is
www.xgtechnology.com
. Information contained on our website does not form part of the prospectus and is intended for informational purposes only.
The Offering
Common Stock Offered by the Selling Stockholders:
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Up to 1,666,672 shares of Common Stock.
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Common Stock Outstanding after this Offering
(assuming conversion of all of the Series D Shares):
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24,415,548 shares of Common Stock (based on 22,748,876 shares of common stock outstanding
as of December 2, 2016).
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Terms of the Offering:
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The selling stockholder will determine when and how it sells the Common Stock offered in this prospectus, as described in “Plan of Distribution.”
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Use of Proceeds:
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We will not receive any of the proceeds from the sale of the shares of Common Stock being offered under this prospectus. See “Use of Proceeds.”
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NASDAQ Symbol:
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Our Common Stock is listed on the NASDAQ Capital Market under the symbol “XGTI”.
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Risk Factors:
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You should read the “Risk Factors” section of this prospectus for a discussion of factors to carefully consider before deciding to invest in shares of our Common Stock.
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Recent Developments
Letter of Intent with Vislink PLC
On October 13, 2016, we signed a binding Letter of Intent
(“LOI”) with Vislink PLC (“Vislink”), an England and Wales public limited company (the “Seller”),
regarding the acquisition by us of certain assets and liabilities relating to the hardware segment of Vislink (“Vislink
Communications Systems” or “VCS”) (the “Acquisition”). The purchase price of the Acquisition will
be $16 million (the “Purchase Price”). We are required to raise at least one-third of the Purchase Price and place
it in a restricted account to be used for closing of the Acquisition within twenty (20) days of the receipt of certain pro-forma
financial information relating to VCS (the “Financing Condition”). The parties intend to negotiate and execute a definitive
asset purchase and sale agreement for the Acquisition (the “Definitive Agreement”) in accordance with the terms of
the LOI.
The Definitive Agreement will include
customary closing conditions including necessary approvals for an asset purchase of this size and scope. We and the Seller have
agreed not to initiate or enter into any discussion with any other prospective purchaser of the assets and/or liabilities, or
of the stock or business of VCS prior to December 31, 2016. The LOI will terminate immediately if the Financing Condition is not
met.
No assurance can be given that the
parties will be able to negotiate and execute a mutually satisfactory Definitive Agreement, that the Financing Condition and the
other conditions precedent to the consummation of the Acquisition will be satisfied or that the Acquisition will be consummated
or as to the timing thereof.
Vislink Communications Systems
VCS specializes in the wireless capture,
delivery and management of secure, high-quality, live video from the field to the point of usage. VCS designs and manufactures
products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated
amplifier items. VCS serves two core markets: broadcast & media and public safety & surveillance. In the broadcast &
media market, VCS provides broadcast communication links for the collection of live news, sports and entertainment events. Customers
in this market include national broadcasters, multi-channel broadcasters, network owners and station groups, sports and live broadcasters
and hosted service providers. In the public safety and surveillance markets, VCS provides secure video communications and mission-critical
solutions for law enforcement, defense and homeland security applications. Its public safety & surveillance customers include
metropolitan, regional and national law enforcement agencies as well as domestic and international defense agencies and organizations.
The acquisition of VCS is expected to offer us the opportunity to realize synergies with our IMT business
unit. There is currently limited overlap in product offerings, sales channels and market overlap between the two companies. For
example, VCS has a substantial client base in international markets where we have had a limited presence. In addition, we have
a product portfolio targeted to US federal law enforcement and high-end sports broadcasting customers who will now have access
to additional solutions based on VCS’s product configurations. Finally, VCS has traditionally focused on licensed spectrum
solutions where we have pioneered the use of non-licensed spectrum for many applications. Combining our shared spectrum and interference
mitigation techniques with an expanded IMT/VCS product lineup will provide an opening into additional customer bases that currently
do not have access to licensed spectrum.
July 2016 Financing
On July 20, 2016, we completed an underwritten
public offering of 7,300,000 Units, each of which consists of one share of our common stock, par value $0.00001 per share,
and 1.25 of a warrant to purchase one share of our common stock at an exercise price of $0.685 per share. On July 15, 2016,
the underwriters exercised their over-allotment option to purchase warrants to purchase 1,368,750 shares of common stock.
We received approximately $4.44 million in net proceeds from the offering, including exercise of the over-allotment option, after
deducting the underwriting discount and estimated offering expenses payable by us. Roth Capital Partners acted as sole book-running
manager for the offering. Aegis Capital Corp. acted as co-lead manager for the offering.
May 2016 Financing
On May 16, 2016, we closed an offering
of units in which we offered 1,166,668 Units, at a price of $0.84 per Unit, each of which consists of one share of our common stock,
par value $0.00001 per share, and one warrant to purchase one share of our common stock at an exercise price of $1.3788 per share.
We received approximately $980,000 in gross proceeds from the offering, before deducting underwriter fees and offering expenses
payable by us. Roth Capital Partners acted as sole underwriter for the offering.
The Warrants will be exercisable beginning
on November 16, 2016 at an exercise price of $1.3788 per share. The Warrants will expire on the fifth (5
th
) anniversary
of the initial date of issuance.
Acquisition of Integrated Microwave
Technologies, LLC
On January 29, 2016, we completed the acquisition
of Integrated Microwave Technologies, LLC, a Delaware limited liability company (“IMT”) pursuant to an asset purchase
agreement by and between us and IMT (the “Asset Purchase Agreement”). Pursuant to the terms of the Asset Purchase Agreement,
we acquired substantially all of the assets and liabilities of IMT in connection with, necessary for or material to IMT’s
business of designing, manufacturing and supplying Coded Orthogonal Frequency Division Multiplexing microwave transmitters and
receivers serving the broadcast, sports and entertainment, military, aerospace and government markets (the “Transaction”).
The Asset Purchase Agreement set the purchase price for the Transaction as $3,000,000, which was to be paid through: (i) a promissory
note in the principal amount of $1,500,000, due March 31, 2016 (the “Initial Payment Note”); and (ii) a promissory
note in the principal amount of $1,500,000 due July 29, 2017 (the “Deferred Payment Note,” and together with the Initial
Payment Note, the “Payment Notes”).
On March 3, 2016, our Board of Directors
approved the issuance of up to $300,000 in shares of common stock to MB Technology Holdings, LLC (“MBTH”) as compensation
for financial services in connection with the IMT acquisition. Such shares of common stock were to be issued to MBTH in an initial
tranche in the amount of $150,000 on March 15, 2016, which shares of common stock have not yet been issued, and a second tranche
to MBTH of up to $150,000 in shares of common stock if IMT achieves certain performance goals by December 31, 2016. On August 10,
2016, the disinterested members of the Board of Directors believing it is in the best interest of the Company, have resolved to
pay the award in cash instead of shares. The Company accrued $150,000 in the due to related party balance owed to MBTH and has
not been paid as of the date of this report. MBTH is an affiliate of Roger Branton, our Chief Financial Officer, George Schmitt,
our Executive Chairman and Chief Executive Officer, and Richard Mooers, a member of our Board of Directors. Mr. Branton and Mr.
Schmitt are directors of MBTH and Mr. Mooers is the Chief Executive Officer and a director of MBTH.
On April 12, 2016, we entered into
an Asset Purchase Modification Agreement (the “Asset Purchase Modification Agreement”) with IMT, which terminated
the Payment Notes, cancelling all principal due, or to become due thereunder and in their stead obligated us to: (i) upon execution
of the Asset Purchase Modification Agreement, pay to IMT $500,000 plus any interest accumulated on the Payment Notes prior to
their being cancelled; and (ii) prior to December 31, 2016, deliver to IMT shares of the Company’s Series D Convertible
Preferred Stock, par value $0.00001 per share, (the “Series D Preferred Stock”) having an aggregate value of cash
proceeds (“Cash Proceeds”), upon conversion of such Series D Shares into shares of common stock underlying such Series
D Shares, of not less than $2,500,000, plus interest accrued thereon at 9% per annum, with such Series D Shares to be issued in
tranches of $250,000 (the “Tranches”). If IMT does not realize Cash Proceeds of at least $2,500,000 by December 31,
2016, we will be required to either issue additional shares of common stock to IMT, or otherwise raise additional funds to cover
the shortfall. Cash Proceeds is determined by the cash or cash equivalents received by IMT upon sale of the shares of common stock
issued to IMT upon conversion of any Series D Shares, net of any transaction costs or expenses. Each time a new Tranche is issued,
IMT shall be obligated to provide evidence of its current Cash Proceeds and the remaining amount of the $2,500,000 (plus interest)
due. The first Tranche was due within ten days of the execution of the Asset Purchase Modification Agreement, and subsequent Tranches
are due upon notice from IMT that IMT disposed of the Series D Shares of the prior Tranche. We paid IMT $500,000 plus accrued
interest on April 15, 2016. As of December 2, 2016, 5,750,000 shares of Series D Convertible Preferred Stock have been issued,
of which 3,750,000 have been converted into 3,125,010 shares of common stock. Through the sale of such shares, IMT has reduced
the principal by approximately $1,071,000, leaving a balance of approximately $1,429,000.
In connection with the Asset Purchase Modification Agreement, we agreed to register the shares underlying
each Tranche on a registration statement on Form S-1 or Form S-3 within five (5) business days of the issuance of each Tranche.
As of December 2, 2016, 3,125,010 shares of common stock underlying the Series D Shares have been registered. The registration
statement of which this prospectus forms a part is registering 1,666,672 shares of common stock underlying the Series D Shares.
We will not register the Series D Shares.
RISK FACTORS
Our business faces many risks and an
investment in our securities involves significant risks. Prospective investors are strongly encouraged to consider carefully the
risks described below, as well as other information contained herein, before investing in our securities. Investors are further
advised that the risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that
we currently think are immaterial, may also negatively impact our business operations or financial results. If any of the events
or circumstances described in this section occurs, our business, financial condition or results of operations could suffer. Prospective
investors in our securities should consider the following risks before deciding whether to purchase our securities.
Risks Relating to our Securities
Our stockholders may experience significant
dilution.
The issuance of material amounts of Common
Stock by us might cause our existing stockholders to experience significant dilution in their investment in our company. In addition,
if we obtain additional financing involving the issuance of equity securities or securities convertible into equity securities,
our existing stockholders’ investment would be further diluted. Such dilution could cause the market price of our Common
Stock to decline, which could impair our ability to raise additional financing.
In addition, pursuant to the Asset
Purchase Modification Agreement, the Company is required to issue Series D Shares to IMT on an on-going basis until IMT realizes
cash proceeds of at least $2,500,000. If by December 31, 2016, IMT does not realize cash proceeds of at least $2,500,000, the
Company will be required to either issue additional shares of the Company’s common stock to IMT, or otherwise raise additional
funds to cover the shortfall. Until IMT has been paid in full, there will be significant additional dilution to the Company, which
cannot be quantified at this time, as the Company cannot predict with certainty the price of the Company’s shares of common
stock at the time of issuance of any future Tranche, or how many shares of common stock will need to be issued for IMT to defease
remaining principal owed. Currently, through the sale of previously issued shares, IMT has reduced the principal by approximately
$1,071,000, leaving a balance of approximately $1,429,000.
Sales of a significant number of
shares of our common stock in the public markets or significant short sales of our common stock, or the perception that such sales
could occur, could depress the market price of our common stock and impair our ability to raise capital.
Sales of a substantial number of shares
of our common stock or other equity-related securities in the public markets, including any shares of Common Stock issued upon
conversion of the Series D Shares, could depress the market price of our Common Stock. If there are significant short sales of
our common stock, the price decline that could result from this activity may cause the share price to decline more so, which, in
turn, may cause long holders of the common stock to sell their shares, thereby contributing to further sales of common stock in
the market. Such sales also may impair our ability to raise capital through the sale of additional equity securities in the future
at a time and price that our management deems acceptable, if at all.
We may not be able to maintain effectiveness
of the registration statement of which this prospectus forms a part, which could impact the liquidity of our Common Stock.
If this registration statement is not effective,
the selling stockholder’s ability to sell the shares of Common Stock underlying the Series D Shares may be limited, which
would have a material adverse effect on the liquidity of our Common Stock.
If we are not able to comply with
the applicable continued listing requirements or standards of the NASDAQ Capital Market, NASDAQ could delist our common stock.
Our common stock is currently listed on
the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements
and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity,
minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with
the applicable listing standards.
On September 29, 2015, we received
written notice from NASDAQ notifying us that we were not in compliance with the minimum bid price requirement set forth in NASDAQ
Listing Rule 5550(a)(2) for continued listing on the NASDAQ, as the closing bid price for our common stock was below $1.00 per
share for the last thirty (30) consecutive business days. In accordance with NASDAQ listing rules, we were afforded 180 calendar
days, or until March 28, 2016, to regain compliance with NASDAQ Listing Rule 5550(a)(2). We were unable to regain compliance with
the bid price requirement by March 28, 2016.
On March 29, 2016, we received written
notice (the “Notice”) from NASDAQ that it had granted the Company an additional 180 calendar days, or until September
26, 2016, to regain compliance with the minimum bid price requirement of $1.00 per share for continued listing on NASDAQ, pursuant
to NASDAQ Listing Rule 5810(c)(3)(A)(ii).
The NASDAQ determination to grant the second
compliance period was based on our meeting the continued listing requirement for market value of publicly held shares and all other
applicable requirements for initial listing on the NASDAQ, with the exception of the bid price requirement, and our written notice
of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
To regain compliance, the bid price
of our common stock must have a closing bid price of at least $1.00 per share for a minimum of ten (10) consecutive business days
at any time during the second 180-day compliance period. On June 20, 2016, we effected a 1-for-12 reverse stock split of our outstanding
common stock as a measure to regain compliance. On August 19, 2016, we filed a Definitive Proxy for a special shareholders meeting
to be held on September 22, 2016, asking for the shareholders to grant the Board of Directors approval to execute another reverse
stock split, if necessary. The meeting was adjourned to November 23, 2016 to allow additional time for the stockholders to vote
on the proposal. On November 23, 2016, our shareholders granted a proposal to authorize the Board to amend our Certificate of
Incorporation to effect a reverse stock split of all of the outstanding shares of the Company’s common stock at a specific
ratio within a range from one-for-three to one-for-twenty, at any time before May 15, 2017 with such range and timing to be left
to the complete discretion of the Board.
On September 27, 2016, we received
a determination letter (the “Letter”) from the staff of NASDAQ stating that we had not regained compliance with the
NASDAQ minimum bid price of $1.00 requirement for continued listing set forth in NASDAQ Listing Rule 5550(a)(2) and unless we
requested a hearing to appeal this determination our common stock will be delisted from The Nasdaq Capital Market. We requested
a hearing before a Nasdaq Hearing Panel (the “Panel”), which hearing occurred on November 17, 2016. On November 21,
2016 the Panel granted the Company’s request for continued listing, subject to (i) providing updates to the Panel on the
status of the Acquisition, (ii) implementing a reverse stock split prior to January 3, 2017, in a ratio sufficient to enable us
to demonstrate compliance with the minimum bid requirement, and (iii) having evidenced a closing bid price of $1.00 or more for
a minimum of ten prior consecutive trading days by January 17, 2017. In the event the Company is unable to comply with the above,
its securities may be delisted from The Nasdaq Stock Market.
In the event that our common stock is delisted
from the NASDAQ, and is not eligible for quotation on another market or exchange, trading of our common stock could be conducted
in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheet or
the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our
common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could
cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are
not listed on a major exchange.
In the event that our common stock
is delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because
they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to
regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks”
generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our shares of common stock have in the past constituted, and may again
in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common
stock, which could severely limit the market liquidity of such shares of common stock and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
An active, liquid trading market
for our common stock may not continue, which may cause our common stock to trade at a discount from the initial offering price
and make it difficult for you to sell the common stock you purchase.
Our common stock is currently listed on
the NASDAQ Capital Market. However, there can be no assurance that an active liquid trading market for our common stock will continue.
If an active and liquid trading market does not continue, you may have difficulty selling any of our common stock that you purchase.
The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares
of our common stock at or above the price you paid, or at all.
If and when a larger trading market
for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the price at which you acquired them.
The market price of our common stock is
likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control,
including, but not limited to:
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Variations in our revenues and operating expenses;
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Actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally;
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Market conditions in our industry, the industries of our customers and the economy as a whole;
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Actual or expected changes in our growth rates or our competitors’ growth rates;
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Developments in the financial markets and worldwide or regional economies;
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Announcements of innovations or new products or services by us or our competitors;
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Announcements by the government relating to regulations that govern our industry;
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Sales of our common stock or other securities by us or in the open market; and
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Changes in the market valuations of other comparable companies.
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In addition, if the market for technology
stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline
for reasons unrelated to our business, financial condition or operating results. The trading price of our shares of common stock
might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect
us. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention
and resources, which could materially and adversely affect our business, operating results and financial condition.
Exercise of options or warrants or
conversion of convertible securities may have a dilutive effect on your percentage ownership and may result in a dilution of your
voting power and an increase in the number of shares of common stock eligible for future resale in the public market, which may
negatively impact the trading price of our shares of common stock.
The exercise or conversion of some or all
of our outstanding options, warrants, or convertible securities could result in significant dilution in the percentage ownership
interest of investors in this offering and in the percentage ownership interest of our existing common stockholders and in a significant
dilution of voting rights and earnings per share.
As of December 2, 2016, we have outstanding
warrants to purchase up to 11,910,702 shares of our common stock at prices ranging from $0.685 to $4,200 per share.
Additionally, the issuance of up to 17,886
shares of common stock upon exercise of stock options outstanding under our stock incentive plans will further dilute our stockholders’
voting interests. To the extent options and/or warrants and/or conversion rights are exercised, additional shares of common stock
will be issued, and such issuance will dilute stockholders.
As of December 2, 2016, 1,666,672 shares
of our common stock may be issued upon conversion of 2,000,000 Series D Convertible Preferred Stock based on a conversion price
of $1.20. Pursuant to the Asset Purchase Modification Agreement, the Company is required to issue Series D Shares to IMT on an
on-going basis until IMT realizes cash proceeds of at least $2,500,000. If by December 31, 2016, IMT does not realize cash proceeds
of at least $2,500,000, the Company will be required to either issue additional shares of the Company’s common stock to
IMT, or otherwise raise additional funds to cover the shortfall. Until IMT has been paid in full, there will be significant additional
dilution to the Company, which cannot be quantified at this time, as the Company cannot predict with certainty the price of the
Company’s shares of common stock at the time of issuance of any future Tranche, or how many shares of common stock will
need to be issued for IMT to defease remaining principal owed. Currently, through the sale of previously issued shares, IMT has
reduced the principal by approximately $1,071,000, leaving a balance of approximately $1,429,000.
In addition to the dilutive effects described
above, the exercise of those securities would lead to an increase in the number of shares of common stock eligible for resale in
the public market. Sales of substantial numbers of such shares of common stock in the public market could adversely affect the
market price of our shares of common stock. Substantial dilution and/or a substantial increase in the number of shares of common
stock available for future resale may negatively impact the trading price of our shares of common stock.
We may seek to raise additional funds,
finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the
terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares
of common stock.
We have financed our operations, and we
expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity
and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further,
any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or
pari
passu
with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market
price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market
price of our common stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale
of other securities or instruments senior to our shares of common stock. The holders of any securities or instruments we may issue
may have rights superior to the rights of our common stockholders. If we experience dilution from the issuance of additional securities
and we grant superior rights to new securities over common stockholders, it may negatively impact the trading price of our shares
of common stock and you may lose all or part of your investment.
The market price of our shares of
common stock is particularly volatile given our status as a relatively unknown company with a generally small and thinly traded
public float and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your shares
of common stock at or above your purchase price, which may result in substantial losses to you.
The market for our shares of common stock
is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on
a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile
than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable
to a number of factors. First, as noted above, our shares of common stock are, compared to the shares of such larger, more established
companies, sporadically and thinly traded. The price for our shares of common stock could, for example, decline precipitously in
the event that a large number of our shares of common stock are sold on the market without commensurate demand. Secondly, we are
a speculative or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more
risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress,
be more inclined to sell their shares of common stock on the market more quickly and at greater discounts than would be the case
with the stock of a larger, more established company that trades on a national securities exchange and has a large public float.
Many of these factors are beyond our control and may decrease the market price of our shares of common stock, regardless of our
operating performance.
Our charter documents and Delaware
law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our common stock.
Our amended and restated certificate of
incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our Company.
These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These
provisions include:
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authorizing the Board of Directors to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
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limiting the persons who may call special meetings of stockholders; and
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requiring advance notification of stockholder nominations and proposals.
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In addition, the provisions of Section
203 of the Delaware General Corporation Law govern us. These provisions may prohibit large stockholders, in particular those owning
15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent
of our Board of Directors.
These and other provisions in our amended
and restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential
takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result
in the market price of our common stock being lower than it would be without these provisions.
We have not paid dividends in the
past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future
appreciation in the value of our common stock.
We currently intend to retain any future
earnings to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of
common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors
after taking into account various factors, including without limitation, our financial condition, operating results, cash needs,
growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends,
our shares of common stock may be less valuable because a return on investment will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as
the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return
on investment. Investors seeking cash dividends should not purchase our common stock.
Non-U.S. investors may have difficulty
effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.
We are incorporated under the laws of the
state of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S. investors
to effect service of process within their own jurisdictions upon our company and our directors and officers. In addition, it may
not be possible for non-U.S. investors to collect from our company and our directors and officers judgments obtained in courts
in such non-U.S. jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock adversely, our share price and trading volume could decline.
The trading market for our shares of common
stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our
market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely,
or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could cause our common stock price or trading volume to decline.
The requirements of being a U.S.
public company may strain our resources and divert management’s attention.
As a U.S. public company, we are subject
to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ,
and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and
financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems
and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business
and operating results.
As a result of disclosure of information
in this prospectus and in filings required of a public company, our business and financial condition is more visible, which we
believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful,
our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business
and operating results.
We acknowledge material weaknesses
in the controls and procedures of our financial reporting and may identify additional material weaknesses in the future that may
cause us to fail to meet our reporting obligations, including timeliness, or result in material misstatements of our financial
statements. If we continue to fail to remediate our material weaknesses or if we fail to implement effective controls and procedures
for our financial reporting, our ability to accurately and timely report our financial results could be adversely affected, which
likely would adversely affect the value of our common stock.
Our management has previously identified
a material weakness regarding inadequate accounting resources to maintain adequate segregation of duties due to the need to hire
accounting personnel with the requisite knowledge of U.S. GAAP. Additionally, management has not performed on effective risk assessment
of, or monitored internal controls over, financial reporting. Due to these material weaknesses as well as the recent loss of accounting
personnel through cost cutting measures and the need to deal with complex accounting transactions, we believe that our disclosure
controls and internal controls over financial reporting are not yet effective.
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 internal control systems to
prevent error or fraud could materially adversely impact us, could lead to restatements of our financial statements and investors
not being able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC, and
could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.
Any such failure could also cause investors to lose confidence in our reported financial information or our ongoing ability to
meet SEC filing deadlines, which likely would adversely affect the value of our common stock and severely limit or even eliminate
the prospects for our success in obtaining new capital.
Risks Related to Our Business
We have a history of operating losses
and we expect to continue to realize net losses for at least the next 12 months.
We have recorded a net loss in each
reporting period since our inception. Our net loss for the year ended December 31, 2015, and the nine months ended September 30,
2016 was approximately $17,857,000 and $11,750,000, respectively. Our accumulated deficit at September 30, 2016 was approximately
$200,147,000. We began our research and development activities in 2002, and we have had significant net losses and will likely
continue to incur net losses until we can successfully commercialize our products and technology. Our independent registered public
accounting firm has expressed substantial doubt concerning our ability to continue as a going concern. Our ability to continue
as a going concern is dependent upon our ability to raise additional capital, obtain other financing and/or close on our potential
revenue producing opportunities. We expect to continue to have development costs as we develop the next generation of products.
In addition, at this stage of our development we are subject to the following risks:
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our results of operations may fluctuate significantly, which may adversely affect the value of an investment in our common stock;
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we may be unable to develop and commercialize our products; and
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it may be difficult to forecast accurately our key operating and performance metrics because of our limited operating history.
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We are uncertain of our ability to
continue as a going concern, indicating the possibility that we may not be able to operate in the future.
To date, we have completed only the initial
stages of our business plan and we can provide no assurance that we will be able to generate a sufficient amount of revenue, if
at all, from our business in order to achieve profitability. It is not possible for us to predict at this time the potential
success of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we
cannot continue as a viable entity, you may lose some or all of your investment in our company.
We are an early stage entity and have incurred
net losses since inception. Our ability to continue as a going concern is contingent upon, among other factors, our ability to
raise additional cash from equity financings, secure debt financing, and/or generate revenue from the sales of our products. We
cannot provide any assurance that we will be able to raise additional capital. If we are unable to secure additional capital,
we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to
conserve our cash in amounts sufficient to sustain operations and meet our obligations.
We may require additional capital
in the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects,
financial condition and results of operations will be adversely affected.
We may require additional capital in the
future to develop new products. We may not be able to secure adequate additional financing when needed on acceptable terms, or
at all. To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially
at a price lower than the public offering price in this offering or the market price of our common stock at the time of such issuance.
If we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate
future product development.
Defects or errors in our products
and services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability.
If we experience product recalls, we may incur significant expenses and experience decreased demand for our products.
Our products are inherently complex and
may contain defects and errors that are only detectable when the products are in use. Because our products are used for both personal
and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation,
harm our customer relationships and expose us to liability. Defects or impurities in our components, materials or software, equipment
failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis
as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues
and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component
or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty
reserves.
We may not fully realize anticipated
benefits from our recent acquisitions.
On January 29, 2016, we completed the acquisition
of certain assets and liabilities that constitute the business of IMT. Although we expect to realize strategic, operational and
financial benefits as a result of the acquisition, we cannot predict whether and to what extent such benefits will be achieved,
or that any operational or financial benefits will be achieved. The success of the acquisition will depend upon, among other things,
our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain
and motivate key personnel of IMT and to retain their customers. Any acquisition may result in diversion of management’s
attention from other business concerns, and may result in unanticipated costs and operational challenges.
We may not consummate the Acquisition.
We have not yet entered into a Definitive
Agreement to finalize closing conditions and terms for the Acquisition and we may never enter into such agreement. As such, if
the Acquisition is delayed, terminated or consummated on terms different than those described herein, the price of our common
stock may decline to the extent that the current market price of our common stock reflects a market assumption that the Acquisition
will be consummated on the terms described herein. Further, a failed transaction may result in negative publicity or negative
impression of us in the investment community and may affect our relationships with our business partners.
Risks related to the assets to
be acquired in the Acquisition, if consummated, may adversely affect our business, financial condition and results of operation.
Any acquisition, including the Acquisition,
involves potential risks, including, among other things:
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the
validity of our assumptions about sales, revenues, operating expenses, and costs;
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the
assumption of unknown liabilities, losses or costs for which we are not indemnified or,
where cover is excluded or limited under the warranty and indemnity insurance policy;
and
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an
inability to obtain satisfactory title to the assets we acquire.
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If we consummate the Acquisition and
if any of these risks were to materialize, the benefits of the Acquisition may not be fully realized, if at all, and our business,
financial condition and results of operations could be negatively impacted.
The Acquisition involves risks
associated with acquisitions and integrating acquired businesses, and the intended benefits of the Acquisition may not be realized.
The Acquisition involves risks associated
with acquisitions and integrating acquired businesses into existing operations, including that:
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our
senior management’s attention may be diverted from the management of daily operations
to the integration of the assets acquired in the Acquisition;
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the
VCS business may not perform as well as we anticipate; and
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unexpected
costs, delays and challenges may arise in integrating the assets acquired in the Acquisition
into our existing operations, and closing certain operations which are not being sold
to the operating partners.
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Even if we successfully integrate the
VCS assets that we acquire into our operations, it may not be possible to realize the full benefits we anticipate or we may not
realize these benefits within the expected timeframe. If we fail to realize the benefits we anticipate from the Acquisition, our
business, results of operations and financial condition may be adversely affected.
Although certain technical problems
experienced by users may not be caused by our products, our business and reputation may be harmed if users perceive our solutions
as the cause of a slow or unreliable network connection, or a high profile network failure.
We expect that our products will be in
many different locations and user environments and will be capable of providing mobile broadband connectivity and interference
mitigation, among other applications. The ability of our products to operate effectively can be negatively impacted by many different
elements unrelated to our products. Although certain technical problems experienced by users may not be caused by our products,
users often may perceive the underlying cause to be a result of poor performance of our technology. This perception, even if incorrect,
could harm our business and reputation. Similarly, a high profile network failure may be caused by improper operation of the network
or failure of a network component that we did not supply, but other service providers may perceive that our products were implicated,
which, even if incorrect, could harm our business, operating results and financial condition.
Our ability to sell our products
will be highly dependent on the quality of our support and services offerings, and our failure to offer high-quality support and
services would have a material adverse effect on our sales and results of operations.
Once our products are deployed, our channel
partners and end-customers will depend on our support organization to resolve any issues relating to our products. A high level
of support will be important for the successful marketing and sale of our products. In many cases, our channel partners will likely
provide support directly to our end-customers. We will not have complete control over the level or quality of support provided
by our channel partners. These channel partners may also provide support for other third-party products, which may potentially
distract resources from support for our products. If we and our channel partners do not effectively assist our end-customers in
deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide effective ongoing
support, our ability to sell our products to existing end-customers could be adversely affected and our reputation with potential
end-customers could be harmed. In some cases, we guarantee a certain level of performance to our channel partners and end-customers,
which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems were to arise.
We may fail to recruit and retain
qualified personnel.
We expect to rapidly expand our operations
and grow our sales, development and administrative operations. This expansion is expected to place a significant strain on our
management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel
in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the
areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable
to continue our marketing and development activities, and this could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
We rely on key executive officers,
and their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our executive
officers because of their expertise and experience in the telecommunications industry. We have agreements with our executive officers
containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key
person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry
expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion
of management resources, which could adversely affect our operating results.
We purchase some components, subassemblies
and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain
orders and fulfill sales as we design and qualify new components.
We rely on third party components and technology
to build and operate our products, and, until full integration with IMT, we rely on our contract manufacturers to obtain the components,
subassemblies and products necessary for the manufacture of our products. Shortages in components that we use in our products are
possible, and our ability to predict the availability of such components is limited. While components and supplies are generally
available from a variety of sources, we and our contract manufacturers currently depend on a single or limited number of suppliers
for several components for our products. If our suppliers of these components or technology were to enter into exclusive relationships
with other providers of wireless networking equipment or were to discontinue providing such components and technology to us and
we were unable to replace them cost effectively, or at all, our ability to provide our products would be impaired. We and our contract
manufacturers generally rely on purchase orders rather than long-term contracts with these suppliers. As a result, even if available,
we and our contract manufacturers may not be able to secure sufficient components at reasonable prices or of acceptable quality
to build our products in a timely manner. Therefore, we may be unable to meet customer demand for our products, which would have
a material adverse effect on our business, operating results and financial condition.
We do not have long-term contracts
with our existing contract manufacturers. The loss of any of our existing contract manufacturers could have a material adverse
effect on our business, operating results and financial condition.
We do not have long-term contracts with
our existing contract manufacturers. If any of our existing contract manufacturers are unable or unwilling to manufacture our products
in the future, the loss of such contract manufacturers could have a material adverse effect on our business, operating results
and financial condition.
Our intellectual property protections
may be insufficient to properly safeguard our technology.
Our success and ability to compete
effectively are, in large part, dependent upon proprietary technology that we have developed internally. Given the rapid pace
of innovation and technological change within the wireless and broadband industries, the technological and creative skill of our
personnel, consultants and contractors and their ability to develop, enhance and market new products and upgrades to existing
products are critical to our continued success. We rely primarily on patent laws to protect our proprietary rights. As of December
2, 2016, in the United States, we have 58 patents granted, 1 patent application pending and 1 provisional application pending.
Internationally, we have 51 patents granted and 26 patent applications pending. There can be no assurance that patents pending
or future patent applications will be issued, or that if issued, we would have the resources to protect any such issued patent
from infringement. Further, we cannot patent much of the technology that is important to our business. To date, we have relied
on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention
assignment agreements and licensing arrangements with our employees, consultants, contractors, customers and vendors, to establish
and protect our rights to this technology and, to the best extent possible, control the access to and distribution of our technology,
software, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is difficult.
There can be no assurance that the steps we take or will take will prevent misappropriation of, or prevent an unauthorized third
party from obtaining or using, the technology we rely on. In addition, effective protection may be unavailable or limited in some
jurisdictions. Litigation may be necessary in the future to enforce or protect our rights.
We may be subject to claims of intellectual
property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property
rights could adversely affect our business.
Competitors and others may infringe on
our intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation
of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our
proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property or defending our
use of intellectual property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on
our future cash flows and results of operations. If we are found to infringe on the rights of others we could be required to discontinue
offering certain products or systems, to pay damages, or purchase a license to use the intellectual property in question from its
owner. Litigation can also distract management from the day-to-day operations of the business.
Enforcement of our intellectual property
rights abroad, particularly in China, is limited and it is often difficult to protect and enforce such rights.
Patent protection outside the United States
is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where
our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement
in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries
where we sell, or intend to sell, products or have our products manufactured.
In particular, the legal regime relating
to intellectual property rights in China is limited and it is often difficult to protect and enforce such rights. The regulatory
scheme for enforcing China’s intellectual property laws may not be as developed as regulatory schemes in other countries.
Any advancement of an intellectual property enforcement claim through China’s regulatory scheme may require an extensive
amount of time, allowing intellectual property infringers to continue largely unimpeded, to our commercial detriment in the Chinese
and other export markets. In addition, rules of evidence may be unclear, inconsistent or difficult to comply with, making it difficult
to prove infringement of our intellectual property rights. As a result, enforcement cases involving technology, such as copyright
infringement of software code, or unauthorized manufacture or sale of products containing patented inventions, may be difficult
or not possible to sustain.
These factors may make it increasingly
complicated for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products
without our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting
the pricing for our products, reducing our own sales and diluting our brand or product quality reputation.
The intellectual property rights
of others may prevent us from developing new products or entering new markets.
The telecommunications industry is characterized
by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets
that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate
new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual
property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets
created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies,
our financial condition, operating results or prospects may be harmed.
Further impairment charges could
have a material adverse effect on our financial condition and results of operations.
We are required to test our finite-lived
intangible assets for impairment if events occur or circumstances change that would indicate the remaining net book value of the
finite-lived intangible assets might not be recoverable. These events or circumstances could include a significant change in the
business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance
indicators, competition, sale or disposition of a significant portion of our business, potential government actions and other factors.
If the fair value of our finite-lived intangible assets is less than their book value in the future, we could be required to record
impairment charges. During 2015, we recognized an impairment charge of $2.1 million on software development costs due to our analysis
of the net realizable value of our capitalized software costs. The amount of any further impairment could be significant and could
have a material adverse effect on our reported financial results for the period in which the charge is taken.
We rely on the availability of third-party
licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and operating
results would be harmed.
We have incorporated third-party licensed
technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products
or to seek additional licenses for existing or new products. There can be no assurance that the necessary licenses will be available
on acceptable terms or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights
on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in product releases until
such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products and might
have a material adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products
of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary
rights in our products.
Our customers could also become the
target of litigation relating to the patent and other intellectual property rights of others.
Any litigation relating to the intellectual
property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that
we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating
to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification
to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships
with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will
not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial
conditions.
We expect to base our inventory purchasing
decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate, our operating results could be materially
harmed.
As our customer base increases, we expect
to place orders with our contract manufacturers based on our forecasts of our customers’ demand. Our forecasts will be based
on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our
customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may
need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer
relations, or we may incur additional costs in order to rush the manufacture and delivery of additional products. If we underestimate
customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely,
if we overestimate customer demand, we may purchase more inventory than we are able to sell at any given time or at all. In addition,
we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including
obsolete inventory. As a result of our failure to properly estimate demand for our products, we could have excess or obsolete inventory,
resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our
failure to accurately manage inventory relative to demand would adversely affect our operating results. We have not yet fully integrated
IMT into our organization and are therefore not able to determine whether we can meet such demand.
If our technology does not work as
well as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business and
operating results would suffer.
Our success and ability to compete are
dependent on technology which we have developed or may develop in the future. There is a risk that the technology that we have
developed or may develop may not work as intended, or that the marketing of the technology may not be as successful as anticipated.
Further, the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing
technologies and technological obsolescence. Our ability to compete successfully depends on our ability to design, develop, manufacture,
assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market
needs and satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm our competitive
position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing
technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenue
and a loss of customer wins to our competitors. The development of new technologies and products generally require substantial
investment and can require long development and testing periods before they are commercially viable. We intend to continue to make
substantial investments in developing new technologies and products and it is possible that that we may not successfully be able
to develop or acquire new products or product enhancements that compete effectively within our target markets or differentiate
our products based on functionality, performance or cost and that our new technologies and products will not result in meaningful
revenue. Any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers.
Any technical flaws in product releases could diminish the innovative impact of our products and have a negative effect on customer
adoption and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do
not achieve market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and our operating
results and competitive position would suffer.
Computer malware, viruses, hacking
and phishing attacks could harm our business and results of operations.
Computer malware, viruses, and computer
hacking and phishing attacks have become more prevalent in our industry and may occur on our systems in the future. Though it is
difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain
performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users
may harm our reputation and our ability to attract and retain customers.
Our operating expenses will increase
as we make further expenditures to enhance and expand our operations in order to support additional growth in our business.
Historically, we limited our investment
in infrastructure; however, in the future we expect our infrastructure investments to increase substantially to support our anticipated
growth. We intend to make additional investments in systems and personnel in order to expand our business and continue to expand
our operations to support anticipated growth in our business. In addition, we may determine the need in the future to make changes
to our sales model, which changes may result in higher selling, general and administrative expenses as a percentage of our revenues.
As a result of these factors, we expect our operating expenses to increase.
If we do not effectively manage changes
in our business, these changes could place a significant strain on our management and operations.
Our ability to grow successfully requires
an effective planning and management process. The expansion and growth of our business could place a significant strain on our
management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand
our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate
to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business,
including acquisitions, this could have a material adverse effect on our business, financial condition, results of operations and
future prospects.
Our sales cycle is unpredictable,
and a failure to generate consistent sales of our products could materially affect our financial position and operating results.
To date, we have not yet established a
consistent sales cycle for our products. In addition, in our industry it is customary for potential customers to request a trial
of products prior to making a purchase. There can be no assurance that such trials of our products will produce sales. If we cannot
generate consistent sales of our products, our financial position and operating results could be materially affected.
If we are unable to expand our sales
and marketing capabilities or enter into more agreements with third parties to sell and market any products we may develop, we
may be unable to generate product revenue.
We are currently building our internal
sales organization for the sales, marketing and distribution of our products. In order to commercialize xMax® or any of our
other products, we must build our sales, marketing, distribution, managerial and other non-technical capabilities or make arrangements
with other parties to perform these services. The expansion of our own sales force to market any products we may develop will increase
our operating costs and be time consuming. We cannot be certain that we would be able to successfully develop this capacity. If
we are unable to expand our sales and marketing capability or any other non-technical capabilities necessary to commercialize any
product we may develop, we will need to contract with other parties to market and sell any products we may develop. If we are unable
to establish adequate sales, marketing and distribution capabilities, whether independently or with other parties, we may not be
able to generate product revenue and may not become profitable. Further, we have not yet fully integrated IMT into our model.
If our estimates relating to our
critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results
could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements
in conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported
in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results
may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock
price. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability
of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative
instruments, and debt discounts and the valuation of the assets and liabilities acquired in the transaction.
Our exposure to the credit risks
of our customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial
condition.
In the course of our sales to customers,
we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts
receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. While we will attempt
to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have
written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable
write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating
results for the period in which they occur.
Demand for our defense-related
products and products for emergency response services depends on government spending.
The U.S. military market is largely dependent
upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation.
Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on
a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only
partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that
an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense
spending or the government’s termination of, or failure to fully fund, one or more of the contracts for which our products
may be utilized could have a material adverse effect on our financial position and results of operations.
In addition, the sale of our products
to local municipalities for emergency response services depends on government spending allocated to such areas. There can be no
assurance that government spending will be allocated to emergency response services at a level that would benefit our business.
A decrease in levels of government spending for emergency response services, or the government’s termination of, or failure
to fully fund, one or more of the contracts for which our products may be utilized with respect to emergency response services,
could have a material adverse effect on our financial position and results of operations.
Our failure to obtain and maintain
required certifications could impair our ability to bid on defense contracts.
In order for us to participate in certain
government programs we could be required to obtain and maintain quality certification and certain standards for Department of Defense
wireless security such as certification by the Joint Interoperability and Test Command (JITC) and to meet production standards
in order to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification
which may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently, our
ability to continue in business.
Regulation of the telecommunications
industry could harm our operating results and future prospects.
The traditional telecommunications industry
is highly regulated, and our business and financial condition could be adversely affected by changes in regulations relating to
the Internet telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce
on IP networks, but future regulations could include sales taxes and tariffs in previously unregulated areas and provider access
charges. We could be adversely affected by regulation of IP networks and commerce in any country where we market equipment and
services to service or content providers. Regulations governing the range of services and business models that can be offered by
service providers or content providers could adversely affect those customers’ needs for products designed to enable a wide
range of such services or business models. For instance, the U.S. Federal Communications Commission has issued regulations governing
aspects of fixed broadband networks and wireless networks. These regulations might impact service provider and content provider
business models and as such, providers’ needs for Internet telecommunications equipment and services. In addition, many jurisdictions
are evaluating or implementing regulations relating to cyber security, privacy and data protection, which could affect the market
and requirements for networking and security equipment.
In addition, environmental regulations
relevant to electronic equipment manufacturing or operations may impact our business and financial condition adversely. For instance,
the European Union has adopted regulations on Electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment
(“WEEE”), Restriction of the Use of Certain Hazardous Substances (“ROHS”) and Registration, Evaluation,
Authorisation and Restriction of Chemical substances (“REACH”). Furthermore, some governments have regulations prohibiting
government entities from purchasing security products that do not meet specified indigenous certification criteria even though
those criteria may be in conflict with accepted international standards. Similar regulations are in effect or under consideration
in several jurisdictions where we do business.
The adoption and implementation of such
regulations could decrease demand for our products, increase the cost of building and selling our products and impact our ability
to ship products into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse
effect on our business, financial condition, and results of operations.
As an emerging growth company as
defined in the JOBS Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements
will make our common stock less attractive to investors.
We are an emerging growth company as defined
in the JOBS Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified
disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and
omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on
executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including
the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal
control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this
extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards as they become applicable to public companies. We cannot predict if investors will find our
common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We could remain 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 revenue exceeds
$1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three-year period.
We have not engaged our independent registered
public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for
any period reported in our financial statements. Had our independent registered public accounting firm performed an audit of our
internal control over financial reporting, additional material weaknesses may have been identified. For so long as we qualify as
an emerging growth company under the JOBS Act, which may be up to five years following this offering, we will not have to provide
an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section
404(b) of the Sarbanes-Oxley Act. During the course of the evaluation, documentation or attestation, we or our independent registered
public accounting firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all
as a result of the deferred implementation of this additional level of review.
Risks Relating to Our Industry
Our industry is subject to rapid
technological change, and we must make substantial investments in new products, services and technologies to compete successfully.
New technological innovations generally
require a substantial investment before they are commercially viable. We intend to continue to make substantial investments in
developing new products and technologies, and it is possible that our development efforts will not be successful and that our new
technologies will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce
new products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace
with technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations,
price our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies
and the emergence of new industry standards could render our existing products and technologies, and products and technologies
currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments
or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies
in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies
could decrease, and our competitive position could be damaged.
We may be subject to infringement
claims in the future.
We may be unaware of filed patent applications
and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain
injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology
and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s
efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the
merits of such claims. These outcomes may (i) require us to stop selling products or using technology that contains the allegedly
infringing intellectual property; (ii) require us to redesign those products that contain the allegedly infringing intellectual
property; (iii) require us to pay substantial damages to the party whose intellectual property rights we may be found to be infringing;
(iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a
license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi)
materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price
to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations
as they become due; or (ix) lead to our bankruptcy or liquidation.
Our industry is highly competitive
and we may not be able to compete effectively.
The communications industry is highly competitive,
rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors.
Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and experience
than we do. In the event that a competitor expends significant resources we may not be able to successfully compete. In addition,
the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies
to provide products. If our competitors were to provide better and more cost effective products than our products we may not be
able to capture any significant market share.
Regulation of Voice over Internet
Protocol (“VoIP”) services is developing and therefore uncertain and future legislative, regulatory or judicial actions
could adversely affect our business.
VoIP services have developed in an environment
largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority
over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us
and our prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or
other regulatory actions could have a negative effect on our business. In addition, future regulatory developments could increase
our cost of doing business and limit our growth.
Changes in current laws or regulations
or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business.
Although our technology is designed to
be frequency agnostic (i.e., capable of operating at any frequency) our current range of products is being designed to be optimized
for operation in the 902 – 928 MHz band, which is presently a spectrum that is not licensed in the United States.
Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding
the usage of unlicensed spectrum may materially and adversely impact our future prospects, the viability of our current business
model, our expectations for future sales of our products and our business, financial condition and results of operations.
New regulations or standards or changes
in existing regulations or standards in the United States or internationally related to our products may result in unanticipated
costs or liabilities, which could have a material adverse effect on our business, results of operations and future sales, and could
place additional burdens on the operations of our business.
Our products may be subject to governmental
regulations in a variety of jurisdictions. In order to achieve and maintain market acceptance, our technology and products will
have to comply with these regulations as well as a significant number of industry standards. In the United States, our technology
and products will have to comply with various regulations defined by the Federal Communications Commission, or FCC, and others.
We may also have to comply with similar international regulations. For example, our wireless communication products operate through
the transmission of radio signals, and radio emissions are subject to regulation in the United States and in other countries in
which we intend to do business. In the United States, various federal agencies including the Center for Devices and Radiological
Health of the Food and Drug Administration, the FCC, the Occupational Safety and Health Administration and various state agencies
have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of the European
Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions, and chemical
substances and use standards.
As these regulations and standards evolve,
and if new regulations or standards are implemented, we may be required to modify our technology or products or develop and support
new versions of our technology or products, and our compliance with these regulations and standards may become more burdensome.
The failure of technology or our products to comply, or delays in compliance, with the various existing and evolving industry regulations
and standards could prevent or delay introduction of our technology or products, which could harm our business. End-customer uncertainty
regarding future policies may also affect demand for communications products, including our products. Moreover, channel partners
or end-customers may require us, or we may otherwise deem it necessary or advisable, to alter our technology or products to address
actual or anticipated changes in the regulatory environment. Our inability to alter our technology or products to address these
requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.
Compliance with environmental, health
and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability
to utilize supply chains, and force design changes to our products.
Our operations are subject to a variety
of environmental, health and safety laws and regulations and equivalent local, state, and regulatory agencies in each of the jurisdictions
in which we currently operate or may operate in the future. The manufacturing of our products uses substances regulated under various
federal, state, local laws and regulations governing the environment and worker health and safety. If we, including any contract
manufacturers that we may employ, do not comply with these laws including any new regulations, such non-compliance could reduce
the net realizable value of our products, which would result in an immediate charge to our income statements. Our non-compliance
with such laws could also negatively impact our operations and financial position as a result of fines, penalties that may be imposed
on us, and increase the cost of mandated remediation or delays to any contract manufacturers we may utilize, thus we may suffer
a loss of revenues, be unable to sell our products in certain markets and/or countries, be subject to penalties and enforced fees
and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations and/or similar future laws and regulations,
if applicable, could include costs associated with modifying our products, recycling and other waste processing costs, legal and
regulatory costs and insurance costs. We cannot assure you that the costs to comply with these new laws or with current and future
environmental and worker health and safety laws will not have a material adverse effect on our business, operating results and
financial condition.
Governmental regulations affecting
the import or export of products or affecting products containing encryption capabilities could negatively affect our revenues.
The United States and various foreign governments
have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption
technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology,
such as requiring certification, notifications, review of source code, or the escrow and governmental recovery of private encryption
keys. For example, Russia and China recently have implemented new requirements relating to products containing encryption and India
has imposed special warranty and other obligations associated with technology deemed critical. Governmental regulation of encryption
or IP networking technology and regulation of imports or exports, or our failure to obtain required import or export approval for
our products, could harm our international and domestic sales prospects and adversely affect our revenue expectation. In addition,
failure to comply with such regulations could result in penalties, costs, and restrictions on import or export privileges or adversely
affect sales to government agencies or government funded projects.
If wireless devices pose safety risks,
we may be subject to new regulations, and demand for our products and those of our licensees and customers may decrease.
Concerns over the effects of radio frequency
emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for our
products and those of our licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines
and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless
devices. In addition, interest groups have requested that the FCC investigate claims that wireless communication technologies pose
health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the
possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation
that may be adopted in response to these expressions of concern could reduce demand for our products and those of our licensees
and customers in the United States as well as foreign countries.
USE OF PROCEEDS
The selling stockholder will receive all
of the proceeds from the sale of shares of Common Stock under this prospectus. We will not receive any proceeds from these sales.
The selling stockholder will pay any agent’s commissions and expenses they incur for brokerage, accounting, tax or legal
services or any other expenses they incur in disposing of the shares of Common Stock. We will bear all other costs, fees and expenses
incurred in effecting the registration of the shares of Common Stock covered by this prospectus and any prospectus supplement.
These may include, without limitation, all registration and filing fees, SEC filing fees and expenses of compliance with state
securities or “blue sky” laws.
PRO FORMA FINANCIAL DATA
The
unaudited pro forma condensed combined balance sheet as of September 30, 2016 and condensed combined pro forma statements
of operations for the nine months ended September 30, 2016 and year ended December 31, 2015 present our consolidated results
of operations giving pro forma effect to the recent and proposed acquisitions described under “Prospectus Summary–Recent Developments” as if such transactions occurred on September 30, 2016. The pro forma adjustments are based on
available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions on the historical financial information of the Company.
The
unaudited pro forma consolidated financial information are based on our consolidated financial statements and related
notes which are incorporated herein by reference, the financial statements of IMT and related notes which were filed on
Current Report to Form 8-K/A on April 13, 2016, and are incorporated herein by reference, and the financial statements of
Vislink, which are included elsewhere in this prospectus.
The
unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect
the Company’s results of operations or financial position that would have occurred had we operated as a combined entity
with our recent acquisitions during the periods presented. The unaudited pro forma consolidated financial information should not
be relied upon as being indicative of our results of operations or financial position had the acquisitions and financings referred
to below. The unaudited pro forma consolidated financial information also does not project our results of operations
or financial position for any future period or date.
The
pro forma adjustments principally give effect to:
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|
the
acquisition of substantially all of the assets and liabilities that constitute the business of IMT on January 29, 2016;
|
|
•
|
the
proposed acquisition of VCS;
|
|
•
|
the
contemplated offering the Company is attempting to complete on Form S-1 (File No. 333-214874) previously filed with the SEC
on December 2, 2016. For purposes of the pro forma condensed combined balance sheet, we assumed gross proceeds of
$16 million are raised in order to complete the proposed acquisition of VCS for a $16 million
purchase price.
|
The
valuation of assets acquired and liabilities assumed in the acquisition has not yet been finalized. As a result, the Company recorded
the assets acquired and liabilities assumed as of the acquisition date at historical book value for purposes of this pro forma
financial information. The final allocation could differ materially from the preliminary allocation. The final allocation may
include: (i) changes in fair values of inventory and property, plant and equipment, (ii) the identification of or changes in allocations
to intangible assets such as trade names, customer relationships, and goodwill, and (iii) other changes to assets and liabilities.
The
assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described
in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
xG Technology, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2016
(In thousands)
|
|
XGTI
|
|
|
Vislink
PLC
|
|
|
Assets
&
Liabilities not
acquired
|
|
|
VCS
|
|
|
Adj.
|
|
|
Notes
|
|
Combined
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,832
|
|
|
$
|
634
|
|
|
$
|
(634
|
)
|
|
$
|
—
|
|
|
$
|
(100
|
)
|
|
(A)(E)
|
|
$
|
1,732
|
|
Accounts
receivable
|
|
|
1,667
|
|
|
|
17,733
|
|
|
|
(2,133
|
)
|
|
|
15,600
|
|
|
|
|
|
|
|
|
|
17,267
|
|
Inventories,
net
|
|
|
3,042
|
|
|
|
11,264
|
|
|
|
(314
|
)
|
|
|
10,950
|
|
|
|
|
|
|
|
|
|
13,992
|
|
Prepaid
expenses and other current assets
|
|
|
76
|
|
|
|
4,428
|
|
|
|
(3,244
|
)
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
1,260
|
|
Total current
assets
|
|
|
6,617
|
|
|
|
34,059
|
|
|
|
(6,325
|
)
|
|
|
27,734
|
|
|
|
|
|
|
|
|
|
34,251
|
|
Inventories,
net
|
|
|
2,078
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
(B)
|
|
|
2,078
|
|
Property
and equipment, net
|
|
|
1,166
|
|
|
|
2,576
|
|
|
|
(1,033
|
)
|
|
|
1,543
|
|
|
|
|
|
|
(B)
|
|
|
2,709
|
|
Intangible
assets, net
|
|
|
9,603
|
|
|
|
15,949
|
|
|
|
(10,596
|
)
|
|
|
5,353
|
|
|
|
|
|
|
(B)
|
|
|
14,956
|
|
Deferred
tax assets
|
|
|
—
|
|
|
|
56
|
|
|
|
(7
|
)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
49
|
|
Total
assets
|
|
$
|
19,464
|
|
|
$
|
52,640
|
|
|
$
|
(17,961
|
)
|
|
$
|
34,679
|
|
|
$
|
(100
|
)
|
|
|
|
$
|
54,043
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,836
|
|
|
$
|
3,721
|
|
|
$
|
(2,213
|
)
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
$
|
3,344
|
|
Accrued
expenses
|
|
|
1,688
|
|
|
|
9,967
|
|
|
|
(3,391
|
)
|
|
|
6,576
|
|
|
|
|
|
|
|
|
|
8,264
|
|
Deferred
tax liabilities
|
|
|
—
|
|
|
|
1,416
|
|
|
|
(1,416
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
Accrued
interest
|
|
|
164
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
164
|
|
Due to related
parties
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
27
|
|
Deferred
revenue and customer deposits
|
|
|
215
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
215
|
|
Deferred
rent
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
47
|
|
Notes payable
|
|
|
—
|
|
|
|
19,454
|
|
|
|
(19,454
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
Obligation
under capital leases
|
|
|
54
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
54
|
|
Derivative
liabilities
|
|
|
2,423
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
2,423
|
|
Total current
liabilities
|
|
|
6,454
|
|
|
|
34,558
|
|
|
|
(26,474
|
)
|
|
|
8,084
|
|
|
|
|
|
|
|
|
|
14,538
|
|
Long-term
obligation under capital leases, net of current portion
|
|
|
67
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
67
|
|
Convertible
note payable
|
|
|
2,000
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Total
liabilities
|
|
|
8,521
|
|
|
|
34,558
|
|
|
|
(26,474
|
)
|
|
|
8,084
|
|
|
|
|
|
|
|
|
|
16,605
|
|
Additional
paid in capital
|
|
|
211,112
|
|
|
|
74,110
|
|
|
|
(29,242
|
)
|
|
|
44,868
|
|
|
|
(44,868
|
)
|
|
(C)
|
|
|
227,112
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
(D)
|
|
|
|
|
Treasury
stock, at cost – 19 shares at September 30, 2016 and December 31, 2015, respectively
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Equity adjustment
from foreign currency translation
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
5,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
Accumulated
deficit
|
|
|
(200,147
|
)
|
|
|
(51,028
|
)
|
|
|
32,755
|
|
|
|
(18,273
|
)
|
|
|
28,768
|
|
|
(E)
|
|
|
(189,652
|
)
|
Total
stockholders’ equity
|
|
|
10,943
|
|
|
|
18,082
|
|
|
|
8,513
|
|
|
|
26,595
|
|
|
|
(100
|
)
|
|
|
|
|
37,438
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
19,464
|
|
|
$
|
52,640
|
|
|
$
|
(17,961
|
)
|
|
$
|
34,679
|
|
|
$
|
(100
|
)
|
|
|
|
$
|
54,043
|
|
xG Technology, Inc.
Unaudited Pro forma Condensed Combined Statement of Operations
For the nine months ended September 30, 2016
(In thousands except net loss per share data)
|
|
XGTI
|
|
|
Vislink
PLC
|
|
|
Assets
& Liabilities not acquired
|
|
|
VCS
|
|
|
Adj.
|
|
|
Notes
|
|
|
Combined
|
|
Revenue
|
|
$
|
4,497
|
|
|
$
|
45,217
|
|
|
|
(11,762
|
)
|
|
$
|
33,455
|
|
|
|
|
|
|
|
|
|
|
$
|
37,952
|
|
Cost
of revenue and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
components and personnel
|
|
|
2,210
|
|
|
|
20,449
|
|
|
|
(2,180
|
)
|
|
|
18,269
|
|
|
|
|
|
|
|
|
|
|
|
20,479
|
|
Inventory
valuation adjustments
|
|
|
192
|
|
|
|
8,190
|
|
|
|
—
|
|
|
|
8,190
|
|
|
|
|
|
|
|
(F)
|
|
|
|
8,382
|
|
General
and administrative expenses
|
|
|
6,671
|
|
|
|
23,900
|
|
|
|
(7,694
|
)
|
|
|
16,206
|
|
|
|
|
|
|
|
|
|
|
|
22,877
|
|
Research
and development expenses
|
|
|
4,627
|
|
|
|
6,881
|
|
|
|
(1,958
|
)
|
|
|
4,923
|
|
|
|
|
|
|
|
|
|
|
|
9,550
|
|
Impairments
|
|
|
—
|
|
|
|
39,925
|
|
|
|
(1,062
|
)
|
|
|
38,863
|
|
|
|
|
|
|
|
(F)
|
|
|
|
38,863
|
|
Amortization
and depreciation
|
|
|
4,118
|
|
|
|
4,211
|
|
|
|
(2,248
|
)
|
|
|
1,963
|
|
|
|
|
|
|
|
(G)
|
|
|
|
6,081
|
|
Total
cost of revenue and operating expenses
|
|
|
17,818
|
|
|
|
103,556
|
|
|
|
(15,142
|
)
|
|
|
88,414
|
|
|
|
|
|
|
|
|
|
|
|
106,232
|
|
Loss
from operations
|
|
|
(13,321
|
)
|
|
|
(58,339
|
)
|
|
|
3,380
|
|
|
|
(54,959
|
)
|
|
|
|
|
|
|
|
|
|
|
(68,280
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in fair value of derivative liabilities
|
|
|
1,305
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,305
|
|
Offering
expenses
|
|
|
(684
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(684
|
)
|
Gain on
bargain purchase
|
|
|
2,749
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,749
|
|
Other expense
|
|
|
(981
|
)
|
|
|
(37
|
)
|
|
|
37
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(981
|
)
|
Income tax
|
|
|
—
|
|
|
|
(60
|
)
|
|
|
60
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Interest
expense, net
|
|
|
(818
|
)
|
|
|
(345
|
)
|
|
|
338
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(825
|
)
|
Total
other income (expense)
|
|
|
1,571
|
|
|
|
(442
|
)
|
|
|
435
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
1,564
|
|
Net
income (loss) attributable to common shareholders
|
|
|
(11,750
|
)
|
|
|
(58,781
|
)
|
|
|
3,815
|
|
|
|
(54,966
|
)
|
|
|
|
|
|
|
|
|
|
|
(66,716
|
)
|
Preferred
stock dividends and deemed dividends
|
|
|
(1,808
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1,808
|
)
|
Net
income (loss) attributable to common shareholders
|
|
$
|
(13,558
|
)
|
|
$
|
(58,781
|
)
|
|
$
|
3,815
|
|
|
$
|
(54,966
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(68,524
|
)
|
Basic and
diluted net loss per share
|
|
$
|
(1.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H)
|
|
|
$
|
(8.55
|
)
|
Weighted average number of
shares outstanding basic and diluted
|
|
|
8,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,018
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on currency translation adjustment
|
|
|
—
|
|
|
|
(12,169
|
)
|
|
|
12,169
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Comprehensive
income (loss)
|
|
$
|
(13,558
|
)
|
|
$
|
(70,950
|
)
|
|
$
|
15,984
|
|
|
$
|
(54,966
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(68,524
|
)
|
xG Technology, Inc.
Unaudited Pro forma Condensed Combined Statement of Operations
For the year ended December 31, 2015
(In thousands except net loss per share data)
|
|
Historical
XGTI
|
|
|
Historical
IMT
|
|
|
Vislink
PLC
|
|
|
Assets
& Liabilities not acquired
|
|
|
VCS
|
|
|
Adj.
|
|
|
Notes
|
|
|
Combined
|
|
Revenue
|
|
$
|
932
|
|
|
$
|
7,228
|
|
|
$
|
88,275
|
|
|
$
|
(16,719
|
)
|
|
$
|
71,556
|
|
|
|
|
|
|
|
|
|
|
$
|
79,716
|
|
Cost
of revenue and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
components and
personnel
|
|
|
510
|
|
|
|
3,437
|
|
|
|
39,961
|
|
|
|
85
|
|
|
|
40,046
|
|
|
|
|
|
|
|
|
|
|
|
43,993
|
|
Inventory
valuation adjustments
|
|
|
861
|
|
|
|
2,968
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
3,829
|
|
General
and administrative expenses
|
|
|
6,259
|
|
|
|
3,601
|
|
|
|
29,901
|
|
|
|
(8,772
|
)
|
|
|
21,129
|
|
|
|
|
|
|
|
|
|
|
|
30,989
|
|
Research
and development expenses
|
|
|
4,658
|
|
|
|
781
|
|
|
|
8,791
|
|
|
|
(2,519
|
)
|
|
|
6,272
|
|
|
|
|
|
|
|
|
|
|
|
11,711
|
|
Stock based
compensation
|
|
|
1,584
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,584
|
|
Impairments
|
|
|
2,092
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,092
|
|
Amortization
and depreciation
|
|
|
4,829
|
|
|
|
139
|
|
|
|
6,085
|
|
|
|
(2,607
|
)
|
|
|
3,478
|
|
|
|
52
|
|
|
|
(I)
|
|
|
|
8,498
|
|
Total
cost of revenue and operating expenses
|
|
|
20,793
|
|
|
|
10,926
|
|
|
|
84,738
|
|
|
|
(13,813
|
)
|
|
|
70,925
|
|
|
|
|
|
|
|
|
|
|
|
102,696
|
|
Loss
from operations
|
|
|
(19,861
|
)
|
|
|
(3,698
|
)
|
|
|
3,537
|
|
|
|
(2,906
|
)
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
(22,980
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in fair value of derivative liabilities
|
|
|
2,559
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,559
|
|
Offering
expenses (See Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Gain on
bargain purchase
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Other expense
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
(4,689
|
)
|
|
|
304
|
|
|
|
(4,385
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,411
|
)
|
Income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
137
|
|
|
|
223
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
360
|
|
Interest
income (expense), net
|
|
|
(529
|
)
|
|
|
—
|
|
|
|
(366
|
)
|
|
|
(377
|
)
|
|
|
(743
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,272
|
)
|
Total
other income (expense)
|
|
|
2,004
|
|
|
|
—
|
|
|
|
(4,918
|
)
|
|
|
150
|
|
|
|
(4,768
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,764
|
)
|
Net
income (loss) attributable to common shareholders
|
|
|
(17,857
|
)
|
|
|
(3,698
|
)
|
|
|
(1,381
|
)
|
|
|
(2,756
|
)
|
|
|
(4,137
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,744
|
)
|
Preferred
stock dividends and deemed dividends
|
|
|
(3,079
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(3,079
|
)
|
Net
income (loss) attributable to common shareholders
|
|
$
|
(20,936
|
)
|
|
$
|
(3,698
|
)
|
|
$
|
(1,381
|
)
|
|
$
|
(2,756
|
)
|
|
$
|
(4,137
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(28,823
|
)
|
Basic and
diluted net loss per share
|
|
$
|
(33.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(45.54
|
)
|
Weighted average number of
shares outstanding basic and diluted
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H)
|
|
|
|
633
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,115
|
)
|
|
|
233
|
|
|
|
(3,882
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,882
|
)
|
Comprehensive
income (loss)
|
|
$
|
(20,936
|
)
|
|
$
|
(3,698
|
)
|
|
$
|
(5,496
|
)
|
|
$
|
(2,523
|
)
|
|
$
|
(8,019
|
)
|
|
$
|
52
|
|
|
|
|
|
|
$
|
(32,705
|
)
|
1. BASIS OF PREPARATION
The
Unaudited Pro Forma Condensed Combined Balance Sheet combines the Company and Vislink's historical consolidated condensed balance
sheets as of September 30, 2016. Pro forma adjustments have been made to eliminate certain assets and liabilities that are not
being acquired.
The
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2015 combines the historical year
ended December 31, 2015 results for the Company and Vislink. Pro forma adjustments have been made to eliminate operations that
are not being acquired.
The
Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016 combines the historical
year ended September 30, 2016 results for the Company and Vislink for the nine months ended September 30, 2016. Pro forma adjustments
have been made to eliminate operations that are not being acquired.
The
historical consolidated condensed financial statements have been adjusted in the pro forma condensed combined financial statements
to give effect to pro forma events that are: (i) directly attributable to the business combination, (ii) factually supportable,
and (iii) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the
combined results following the business combination.
The
historical financial information of Vislink was prepared in British Pounds Sterling. The historical financial information was
translated from British Pounds Sterling to US dollars using the following historical exchange rates:
|
|
£/$
|
|
Weighted average
exchange rate for the nine months ended September 30, 2016 (Statement of Operations)
|
|
|
1.42
|
|
Historical exchange rate as
of September 30, 2016 (Balance Sheet)
|
|
|
1.30
|
|
Weighted average exchange
rate for the year ended December 31, 2015 (Statement of Operations)
|
|
|
1.53
|
|
Certain
reclassifications were made to conform to the Company’s financial statement presentation. These reclassifications primarily
consist of reclassifying sales and marketing expenses into general and administrative expenses.
The
business combination is to be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business
Combinations. The valuation of assets acquired and liabilities assumed in the acquisition has not yet been finalized. As a result,
the Company recorded the assets acquired and liabilities assumed as of the acquisition date at historical book value. The final
allocation could differ materially from the preliminary allocation. The final allocation may include: (i) changes in fair values
of inventory and property, plant and equipment, (ii) the identification of or changes in allocations to intangible assets such
as trade names, customer relationships, and goodwill, and (iii) other changes to assets and liabilities.
After
reviewing the preparation of Vislink's financial statements in accordance with International Financial Reporting Standards (“IFRS”),
the Company has determined there are no material pro forma adjustments to conform XG's financial statements to U.S. Generally
Accepted Accounting Principles (“GAAP”).
The
pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition
or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting
the future financial condition and results of operations of the combined company. The actual financial position and results of
operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The
condensed combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies
from the acquisition of VCS as a result of restructuring activities and other planned cost savings initiatives following the completion
of the business combination.
2. PRO FORMA ADJUSTMENTS FOR THE
COMBINED BALANCE SHEET
The
Company is eliminating all the assets and liabilities of the Pebble Beach Systems, Ltd and Central unit as those divisions of
Vislink are not being acquired.
The
pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments
have been reflected in the unaudited pro forma condensed combined balance sheet:
Unaudited
Pro Forma Condensed Combined Balance Sheet as of September 30, 2016
(A)
Represents estimated fees associated with the completion of the acquisition which were expensed at the time of the acquisition
and are also included in the accumulated deficit.
(B)
Items to be adjusted or eliminated once third party fair valuation is completed.
(C)
Represents Vislink’s paid-in capital extinguished in the acquisition.
(D)
Adjustment in connection with potential capital raise in order to purchase certain assets and liabilities of Vislink for $16 million.
(E)
Represents the elimination of Vislink's accumulated deficit of $18.273 million, combined with the preliminary gain on bargain
purchase of $10.595 million (calculated as the net assets acquired total of $26.595 million less the consideration paid of $16
million equals our preliminary bargain purchase gain of $10.595 million) less the inclusion of approximately $100,000 in costs
associated with the proposed acquisition.
3. PRO FORMA ADJUSTMENTS FOR THE
COMBINED STATEMENTS OF OPERATIONS
The
Company is eliminating all revenue and operating expenses of the Pebble Beach Systems, Ltd and Central unit as those divisions
of Vislink are not being acquired. The Company is also eliminating the rent expense of the facility in Hemel, United Kingdom as
it will not be contractually obligated to that facility after the acquisition.
The
pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments
have been reflected in the unaudited pro forma condensed combined income statement:
Unaudited
Pro Forma Condensed Combined Statements of Operations as of September 30, 2016
(F)
Included in the Vislink PLC consolidated numbers to September 30, 2016 were the effects of goodwill impairment charge and inventory
write down. The Company did not adjust for the effects of these items on the basis that the goodwill impairment charge and inventory
write down were not directly attributable to the acquisition of Vislink Communication Systems by the Company. However, we note
that this goodwill impairment charge and inventory write down are expected to be non-recurring.
(G)
Amortization of intangible assets has not been recorded as we are awaiting a third party valuation of the acquiree's intangible
assets.
(H)
It is unknown at the time of the filing of this document the number of common shares to be issued in connection with the contemplated
offering we are attempting to complete under Form S-1 (File No. 333-214874) previously filed with the SEC on December 2, 2016
in order to acquire Vislink.
Unaudited Pro Forma Condensed Combined
Statements of Operations as of December 31, 2015
(H)
It is unknown at the time of the filing of this document the number of common shares to be issued in connection with the contemplated
offering we are attempting to complete under Form S-1 (File No. 333-214874) previously filed with the SEC on December 2, 2016
in order to acquire Vislink.
(I)
Represents one year of amortization expense of the identified intangible assets acquired in the IMT acquisition. Amortization
expense for the one month in 2016 the Company did not own IMT was immaterial.
4. NON-RECURRING ITEMS
Included
in the Vislink PLC consolidated numbers to September 30, 2016 were the effects of goodwill impairment charge and inventory write
down. The Company did not adjust for the effects of these items on the basis that the goodwill impairment charge and inventory
write down were not directly attributable to the acquisition of Vislink Communication Systems by the Company. However, we note
that this goodwill impairment charge and inventory write down are expected to be non-recurring.
ISSUANCE OF SERIES D SHARES
On January 29, 2016, the Company completed
the acquisition of certain assets and liabilities of IMT. Pursuant to the terms of the Asset Purchase Agreement, the Company acquired
substantially all of the assets and liabilities of IMT in connection with, necessary for or material to IMT’s business of
designing, manufacturing and supplying Coded Orthogonal Frequency Division Multiplexing microwave transmitters and receivers serving
the broadcast, sports and entertainment, military, aerospace and government markets (the “Transaction”). The Asset
Purchase Agreement set the purchase price for the Transaction as $3,000,000, which was to be paid through: (i) the issuance of
a promissory note in the principal amount of $1,500,000, due March 31, 2016 (the “Initial Payment Note”); and (ii)
the issuance of a promissory note in the principal amount of $1,500,000 due July 29, 2017 (the “Deferred Payment Note,”
and together with the Initial Payment Note, the “Payment Notes”).
On April 12, 2016, the Company and
IMT entered into the Asset Purchase Modification Agreement, which terminated the Payment Notes, cancelling all principal and interest
due, or to become due thereunder and in their stead obligated the Company to; (i) at the time of execution of the Asset Purchase
Modification Agreement, pay to IMT $500,000 plus any interest accumulated on the Payment Notes prior to their being cancelled;
and (ii) prior to December 31, 2016, deliver to IMT Series D Shares having an aggregate value of Cash Proceeds, upon conversion
of such Series D Shares into the shares of common stock underlying such Series D Shares, of not less than $2,500,000, plus interest
accrued thereon at 9% per annum, with such Series D Shares to be issued in tranches of $250,000 (the “Tranches”).
If IMT does not realize cash proceeds of at least $2,500,000 by December 31, 2016, the Company will be required to either issue
additional shares of the Company’s common stock to IMT, or otherwise raise additional funds to cover the shortfall. In either
event there will be significant additional dilution to the company, which cannot be quantified at this time. Cash Proceeds is
determined through the cash or cash equivalent, received by IMT upon sale of shares of common stock issued to IMT upon IMT’s
conversion of any Series D Shares delivered by the Company to IMT under the Asset Purchase Modification Agreement, net of any
transaction costs or expenses, evidence which shall be provided to the Company at the time of sale of such Series D Shares. Every
time a new Tranche is issued, IMT shall be obligated to provide evidence of its currents Cash Proceeds and the remaining amount
of the $2,500,000 (plus interest) remaining due. The first Tranche was due within ten days of the execution of the Asset Purchase
Modification Agreement, and subsequent Tranches are due upon notice from IMT that IMT had disposed of the Series D Shares of the
prior Tranche. The Company paid IMT $500,000 plus accrued interest on April 15, 2016. As of December 2, 2016, 5,750,000 shares
of Series D Convertible Preferred Stock have been issued, of which 3,750,000 have been converted into 3,125,010 shares of common
stock. Through the sale of such shares, IMT has reduced the principal by approximately $1,071,000, leaving a balance of approximately
$1,429,000.
The Company cannot predict with certainty
the price of the Company’s shares of common stock at the time of issuance of any future Tranche, or how many shares of common
stock will need to be issued for IMT to defease remaining principal owed. If at the time IMT sells stock that has been received
upon conversion of the Series D Shares the price per share of common stock is lower than $12.00, the Company will be required
to issue more shares of common stock than is currently anticipated which will in turn have an additional dilutive impact on the
Company’s existing shareholders, which dilutive impact cannot currently be quantified.
In connection with the Asset Purchase Modification
Agreement, the Company agreed to register the shares of common stock underlying each Tranche of Series D Shares, as soon as is
reasonably practicable after each such Tranche is issued, with the U.S. Securities and Exchange Commission on a Registration Statement
on Form S-1 or Form S-3, if available, within five (5) business days of the issuance of each Tranche. We will not register the
Series D Shares.
Series D Convertible Preferred Stock
Stated Value
The stated value of the Preferred Stock
is $1.00 per share.
Ranking
The Preferred Stock shall rank junior to
the Series B Convertible Preferred Stock, $0.00001 par value per share, of the Company (the “Series B Preferred Stock”)
in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution or winding up of the
Company. The Preferred Stock will rank senior to all of the Company’s common stock and other classes of capital stock with
respect to dividend rights and/or rights upon distributions, liquidation, dissolution or winding up of the Company, other than
to the Series B Preferred Stock and any class of parity stock that the holders of a majority of the outstanding shares of Preferred
Stock consent to the creation of.
Liquidation Preference of Preferred
Stock
Upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, before the payment of any amount to the holder of shares of junior stock, but pari passu
with any parity stock, the holders of Preferred Stock are entitled to receive the amount equal to the greater of (i) the stated
value of the Preferred Stock or (ii) the amount the holder of Preferred Stock would receive if such holder converted the Preferred
Stock into common stock immediately prior to the date of the liquidation event, including accrued and unpaid dividends.
Conversion Rights of Preferred
A holder of Preferred Stock shall have
the right to convert the Preferred Stock, in whole or in part, upon written notice to the Company at a conversion price equal to
$0.10 per share, which is adjusted for any share dividend, share split, share combination, reclassification or similar transaction
that proportionately decreases or increases the common stock.
Voting Rights
Except with respect to certain material
changes in the terms of the Preferred Stock and certain other matters, and except as may be required by Delaware law, holders of
Preferred Stock shall have no voting rights. The approval of a majority of the holders of the Preferred Stock is required to amend
the Certificate of Designations.
SELLING STOCKHOLDER
The shares of Common Stock being offered
by the selling stockholder are those issuable to the selling stockholder upon conversion of the Series D Shares. For additional
information regarding the issuance of the Series D Shares, see “Issuance of Series D Shares” above. We are registering
the shares of Common Stock in order to permit the selling stockholder to offer its shares of Common Stock for resale from time
to time.
The table below lists the selling stockholder
and other information regarding the “beneficial ownership” of the shares of Common Stock by the selling stockholder.
In accordance with Rule 13d-3 of the Exchange Act, “beneficial ownership” includes any shares of Common Stock as to
which the selling stockholder has sole or shared voting power or investment power and any shares of Common Stock the selling stockholder
has the right to acquire within sixty (60) days (including shares of Common Stock issuable pursuant to convertible notes currently
convertible or exercisable, or convertible or exercisable within sixty (60) days), and upon conversion of the Series D Shares,
currently convertible or exercisable, or convertible or exercisable within sixty (60) days).
The second column indicates the number
of shares of Common Stock beneficially owned by the selling stockholder, based on its ownership of the Series D Shares, as of
December 2, 2016. The second column also assumes conversion of all the Series D Shares held by the selling stockholder on December
2, 2016 without regard to any limitations on conversion described in this prospectus or in such Series D Shares.
The third column lists the shares of Common
Stock being offered by this prospectus by the selling stockholder. Such aggregate amount of Common Stock does not take into account
any applicable limitations on conversion of the Series D Shares.
This prospectus covers the resale of (i)
all of the shares of Common Stock issued and issuable upon conversion of the Series D Shares, (ii) any additional shares of Common
Stock issued and issuable in connection with the Series D Shares (in each case without giving effect to any limitations on conversion
set forth in the Series D Shares) and (iii) any securities issued or then issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing. Because the conversion price of the Series D Shares may be adjusted,
the number of shares of Common Stock that will actually be issued upon conversion of the Series D Shares may be more or less than
the number of shares of Common Stock being offered by this prospectus. The selling stockholder can offer all, some or none of its
shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering.
Therefore, the fourth and fifth columns assume that the selling stockholder will sell all shares of Common Stock covered by this
prospectus. See “Plan of Distribution.”
The selling stockholder identified below
has confirmed to us that it is not a broker-dealer or an affiliate of a broker-dealer within the meaning of United States federal
securities laws.
Name of Selling Stockholder
|
|
Number
of
Shares of
Common
Stock
Owned
Prior to
Offering
|
|
|
Maximum
Number
of Shares of
Common
Stock to
be Sold
Pursuant to
this
Prospectus
|
|
|
Number
of
Shares
of
Common
Stock
Owned
After
Offering
|
|
|
Percentage
Beneficially
Owned After
Offering(1)
|
|
Integrated Microwave Technologies, Inc. (2)
|
|
|
1,875,006
|
|
|
|
1,666,672
|
|
|
|
208,334
|
|
|
|
*
|
|
TOTAL
|
|
|
1,875,006
|
(3)
|
|
|
1,666,672
|
(3)
|
|
|
208,334
|
|
|
|
*
|
|
* Less than 1%.
(1)
|
Based
on 22,748,876 shares of common stock issued and outstanding as of December 2, 2016. Shares of common stock subject to options
or warrants currently exercisable or exercisable within 60 days are deemed outstanding for purposes of computing the percentage
of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of
any other person.
|
|
|
(2)
|
This stockholder has represented to us that Alex Soltani is the natural person with voting and investment control over these shares of Common Stock.
|
|
|
(3)
|
Includes 1,666,672 shares of common stock underlying 2,000,000 shares of Series D Preferred Stock.
|
Material Relationships with Selling Stockholders
Except for the transactions described above in “Issuance
of Series D Shares,” we have not had any material relationship with the selling stockholder in the last three (3) years.
PLAN OF DISTRIBUTION
The selling stockholder of the securities
and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered
hereby on any trading market, stock exchange or other trading facility on which the securities are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when
selling securities:
|
●
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
●
|
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
●
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
●
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
●
|
privately negotiated transactions;
|
|
●
|
settlement of short sales;
|
|
●
|
in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security;
|
|
●
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
●
|
a combination of any such methods of sale; or
|
|
●
|
any other method permitted pursuant to applicable law.
|
The selling stockholder may also sell securities
under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholder
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
In connection with the sale of the securities
covered hereby, the selling stockholder may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholder
may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities
to broker-dealers that in turn may sell these securities. The selling stockholder may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholder and any broker-dealers
or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the securities.
We are required to pay certain fees and
expenses incurred by us incident to the registration of the securities. We have agreed to indemnify the selling stockholder against
certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because the selling stockholder may be
deemed to be an “underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery
requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which
qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The
selling stockholder has advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale
of the resale securities by the selling stockholder.
We agreed to keep this prospectus effective
until the earlier of (i) the date on which the securities may be resold by the selling stockholder without registration and without
regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with
the current public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii)
all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations
under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market
making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the
Common Stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholder
and have informed the selling stockholder of the need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale (including by compliance with Rule 172 under the Securities Act).
LEGAL MATTERS
Certain legal matters with respect to the
securities will be passed upon for us by Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York, NY.
EXPERTS
Our financial statements as of and for
the year ended December 31, 2015 incorporated by reference in this prospectus have been audited by Marcum, LLP, independent registered
public accountants, to the extent and for the period set forth in their report, which included an explanatory paragraph as to the
Company’s ability to continue as a going concern, and are incorporated by reference in reliance on such report given upon
the authority of said firm as experts in auditing and accounting.
The financial statements of Integrated
Microwave Technologies, LLC (“IMT”) as of and for the year ended December 31, 2015 incorporated by reference have
been audited by Marcum, LLP, independent certified public accountants, to the extent and for the periods set forth in their report,
which included an explanatory paragraphs as to IMT’s ability to continue as a going concern, incorporated elsewhere herein,
and are incorporated in reliance on such report given upon the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of
xG Technology, Inc. as of December 31, 2014 and for the year then ended have been incorporated by reference herein and in
the registration statement in reliance upon the report of Friedman LLP, independent registered public accounting firm, incorporated
by reference herein and in the registration statement, and upon the authority of said firm as experts in auditing and accounting.
The audit report contains an explanatory paragraph that states that the Company has incurred recurring losses from operations that
raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include
any adjustments that might result from the outcome of that uncertainty.
The financial statements of Vislink
PLC as of December 31, 2015 and December 31, 2014 and for each of the two years in the period ended 31 December 2015 included
in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the Commission a registration
statement on Form S-3 (including exhibits) under the Securities Act, with respect to the securities to be sold in this offering.
This prospectus does not contain all the information set forth in the registration statement. For further information with respect
to our Company and the securities offered in this prospectus, reference is made to the registration statement, including the exhibits
filed thereto. With respect to each such document filed with the Commission as an exhibit to the registration statement, reference
is made to the exhibit for a more complete description of the matter involved.
We file annual, quarterly and current reports,
proxy statements and other information with the SEC. We have also filed with the SEC under the Securities Act a registration statement
on Form S-1 with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration
statement, does not contain all the information set forth in the registration statement or the exhibits and schedules which are
part of the registration statement, portions of which are omitted as permitted by the rules and regulations of the SEC. Statements
made in this prospectus regarding the contents of any contract or other document are summaries of the material terms of the contract
or document. With respect to each contract or document filed as an exhibit to the registration statement, reference is made to
the corresponding exhibit. For further information pertaining to us and the common stock offered by this prospectus, reference
is made to the registration statement, including the exhibits and schedules thereto, copies of which may be inspected without charge
at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours
of 10 a.m. to 3 p.m. Copies of all or any portion of the registration statement may be obtained from the SEC at prescribed rates.
Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC. The web site can be accessed at
http://www.sec.gov.
The internet address of xG is
www.xgtechnology.com
. Information contained on our website is not a part of, and is not incorporated into, this prospectus, and the inclusion of our
website address in this prospectus is an inactive textual reference only
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to “incorporate
by reference” into this prospectus certain information. This means that we can disclose important information to you by referring
you to those documents that contain the information. The information we incorporate by reference is considered a part of this prospectus,
and later information we file with the SEC will automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), on or after the date of this prospectus (other than information
“furnished” under Items 2.02 or 7.01 (or corresponding information furnished under Item 9.01 or included as an
exhibit) of any Current Report on Form 8-K or otherwise “furnished” to the SEC, unless otherwise stated) until this
offering is completed, as well as documents filed under such sections after the date of the initial registration statement and
prior to effectiveness of the registration statement:
|
·
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on April 14, 2016.
|
|
·
|
Quarterly Reports
on Form 10-Q for the fiscal quarter ended March 31, 2016, filed with the SEC on May 23, 2016, for the fiscal quarter ended
June 30, 2016, filed with the SEC on August 17, 2016, and for the fiscal quarter ended September 30, 2016, filed with the SEC
on November 14, 2016.
|
|
·
|
Current Reports
on Form 8-K filed with the SEC on January 21, 2016, February 3, 2016 (as amended on April 13, 2016, and on April 22, 2016),
February 10, 2016, February 25, 2016, March 1, 2016, March 15, 2016, March 30, 2016, April 15, 2016, April 18, 2016, April
27, 2016, May 2, 2016, May 13, 2016, May 16, 2016, May 24, 2016, June 9, 2016, June 20, 2016, July 15, 2016, July 21, 2016,
August 23, 2016, September 29, 2016, October 6, 2016, October 21, 2016 and November 23, 2016.
|
|
·
|
Definitive Proxy Statement filed with the SEC on April 29, 2016, as amended by Amendment No. 1 thereto, filed with the SEC on May 27, 2016.
|
|
·
|
Definitive Proxy Statement filed with the SEC on August 19, 2016, as amended by Amendment No. 1 thereto, filed with the SEC on October 19, 2016.
|
|
·
|
The description of the Common Stock contained in the registration statement on Form 8-A, filed with the SEC on June 26, 2013, as amended by Amendment No. 1 thereto, filed with the SEC on July 18, 2013.
|
In accordance with Rule 402 of Regulation
S-T, the XBRL related information in Exhibit 101 to our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q will
not be deemed to be incorporated by reference into any registration statement or other document filed under the Securities Act,
except as will be expressly set forth by specific reference in such filing.
You may obtain any of the documents incorporated
by reference through the SEC or the SEC’s website as described above or on our corporate website at
www.xgtechnology.com
. You
may request copies of the documents incorporated by reference in this prospectus, at no cost, by writing or telephoning us at:
xG Technology, Inc.
240 S. Pineapple Avenue, Suite 701
Sarasota, FL 34236
(941) 953-9035
Attention: Corporate Secretary
FINANCIAL STATEMENTS
Index to Financial Statements
Vislink plc
(the “Company” or the “Group”)
Results for the nine months ended 30 September 2016 and 30 September 2015
CONSOLIDATED GROUP INCOME STATEMENT
For the nine months ended 30 September 2016 and 30 September 2015
|
|
Notes
|
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
4
|
|
|
|
31,819
|
|
|
|
36,650
|
|
Cost of sales
|
|
|
|
|
|
|
(19,018
|
)
|
|
|
(20,482
|
)
|
Gross profit
|
|
|
|
|
|
|
12,801
|
|
|
|
16,168
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
(7,098
|
)
|
|
|
(6,681
|
)
|
Research and development costs
|
|
|
|
|
|
|
(4,842
|
)
|
|
|
(4,007
|
)
|
Administrative costs
|
|
|
|
|
|
|
(5,092
|
)
|
|
|
(4,272
|
)
|
Other expenses
|
|
|
|
|
|
|
(36,847
|
)
|
|
|
(3,864
|
)
|
Operating loss
|
|
|
4
|
|
|
|
(41,078
|
)
|
|
|
(2,656
|
)
|
Finance costs – net
|
|
|
|
|
|
|
(243
|
)
|
|
|
(162
|
)
|
Loss before taxation
|
|
|
|
|
|
|
(41,321
|
)
|
|
|
(2,818
|
)
|
Taxation
|
|
|
6
|
|
|
|
(42
|
)
|
|
|
34
|
|
Loss for
the period attributable to equity shareholders
|
|
|
|
|
|
|
(41,363
|
)
|
|
|
(2,784
|
)
|
Basic loss per share
|
|
|
7
|
|
|
|
(33.9
|
)p
|
|
|
(2.3
|
)p
|
Diluted loss per share
|
|
|
7
|
|
|
|
(33.9
|
)p
|
|
|
(2.3
|
)p
|
Vislink plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended 30 September 2016 and 30 September 2015
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Loss for the period
|
|
|
(41,363
|
)
|
|
|
(2,784
|
)
|
Items that may subsequently be reclassified to profit
or loss:
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of foreign currency net investments
|
|
|
2,293
|
|
|
|
260
|
|
Total comprehensive
expense for the period
|
|
|
(39,070
|
)
|
|
|
(2,524
|
)
|
Vislink plc
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’
EQUITY
For the nine months ended 30 September 2016 and 30 September 2015
|
|
Share
Capital
£000
|
|
|
Share
premium
account
£000
|
|
|
Capital
redemption
reserve
£000
|
|
|
Merger
reserve
£000
|
|
|
Translation
reserve
£000
|
|
|
Retained
earnings
£000
|
|
|
Total
£000
|
|
Balance at 1 January 2016
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
4,843
|
|
|
|
6,678
|
|
|
|
54,452
|
|
Share based payments: value of employee services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
399
|
|
|
|
399
|
|
Dividends payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,839
|
)
|
|
|
(1,839
|
)
|
Transactions with owners
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,440
|
)
|
|
|
(1,440
|
)
|
Retained loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(41,363
|
)
|
|
|
(41,363
|
)
|
Exchange difference on translation
of foreign currency net investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,293
|
|
|
|
—
|
|
|
|
2,293
|
|
Total comprehensive income/(expense)
for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,293
|
|
|
|
(41,363
|
)
|
|
|
(39,070
|
)
|
Balance at 30 September 2016
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
7,136
|
|
|
|
(36,125
|
)
|
|
|
13,942
|
|
Balance at 1 January 2015
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
4,437
|
|
|
|
9,459
|
|
|
|
56,827
|
|
Adjustment in respect of Employee Share Ownership
Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Share based payments: value of employee services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
249
|
|
|
|
249
|
|
Dividends payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,830
|
)
|
|
|
(1,830
|
)
|
Transactions with owners
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,586
|
)
|
|
|
(1,586
|
)
|
Retained loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,784
|
)
|
|
|
(2,784
|
)
|
Exchange differences on translation
of foreign currency net investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
|
|
260
|
|
Total comprehensive income/(expense)
for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
(2,784
|
)
|
|
|
(2,524
|
)
|
Balance at 30 September 2015
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
4,697
|
|
|
|
5,089
|
|
|
|
52,717
|
|
Vislink plc
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 September 2016 and 30 September 2015
|
|
Notes
|
|
|
30 September
2016
(Unaudited)
£000
|
|
|
31 December
2015
(Audited)
£000
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
8
|
|
|
|
12,298
|
|
|
|
42,291
|
|
Property, plant and equipment
|
|
|
8
|
|
|
|
1,986
|
|
|
|
2,201
|
|
Deferred tax assets
|
|
|
|
|
|
|
43
|
|
|
|
4,461
|
|
|
|
|
|
|
|
|
14,327
|
|
|
|
48,953
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
8,685
|
|
|
|
12,696
|
|
Trade and other receivables
|
|
|
|
|
|
|
17,087
|
|
|
|
18,751
|
|
Cash and cash equivalents
|
|
|
9
|
|
|
|
489
|
|
|
|
3,251
|
|
|
|
|
|
|
|
|
26,261
|
|
|
|
34,698
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities-borrowings
|
|
|
9
|
|
|
|
15,000
|
|
|
|
9,000
|
|
Trade and other payables
|
|
|
|
|
|
|
9,718
|
|
|
|
13,554
|
|
Current tax liabilities
|
|
|
|
|
|
|
241
|
|
|
|
239
|
|
Provisions for other liabilities
and charges
|
|
|
10
|
|
|
|
537
|
|
|
|
272
|
|
|
|
|
|
|
|
|
25,496
|
|
|
|
23,065
|
|
Net current
assets
|
|
|
|
|
|
|
765
|
|
|
|
11,633
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
1,092
|
|
|
|
5,714
|
|
Provisions for other liabilities
and charges
|
|
|
10
|
|
|
|
58
|
|
|
|
420
|
|
|
|
|
|
|
|
|
1,150
|
|
|
|
6,134
|
|
Net assets
|
|
|
|
|
|
|
13,942
|
|
|
|
54,452
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
3,066
|
|
|
|
3,066
|
|
Share premium account
|
|
|
|
|
|
|
6,800
|
|
|
|
6,800
|
|
Capital redemption reserve
|
|
|
|
|
|
|
617
|
|
|
|
617
|
|
Merger reserve
|
|
|
|
|
|
|
32,448
|
|
|
|
32,448
|
|
Translation reserve
|
|
|
|
|
|
|
7,136
|
|
|
|
4,843
|
|
Retained earnings
|
|
|
|
|
|
|
(36,125
|
)
|
|
|
6,678
|
|
Total shareholders’
equity
|
|
|
|
|
|
|
13,942
|
|
|
|
54,452
|
|
Vislink plc
CONSOLIDATED GROUP CASH FLOW STATEMENT
For the nine months ended 30 September 2016 and 30 September 2015
|
|
Notes
|
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in)/generated from operations
|
|
|
11
|
|
|
|
(3,578
|
)
|
|
|
(2,178
|
)
|
Interest paid
|
|
|
|
|
|
|
(246
|
)
|
|
|
(164
|
)
|
Taxation paid
|
|
|
|
|
|
|
(173
|
)
|
|
|
(771
|
)
|
Net cash outflow
from operating activities
|
|
|
|
|
|
|
(3,997
|
)
|
|
|
(3,113
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
—
|
|
|
|
337
|
|
Proceeds from sale of intangibles
|
|
|
|
|
|
|
—
|
|
|
|
61
|
|
Purchase of property, plant and equipment
|
|
|
8
|
|
|
|
(254
|
)
|
|
|
(408
|
)
|
Expenditure on capitalised development
costs
|
|
|
8
|
|
|
|
(2,813
|
)
|
|
|
(2,676
|
)
|
Net cash used
in investing activities
|
|
|
|
|
|
|
(3,064
|
)
|
|
|
(2,684
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from new bank loans
|
|
|
9
|
|
|
|
6,000
|
|
|
|
1,000
|
|
Dividend paid to shareholders
|
|
|
|
|
|
|
(1,839
|
)
|
|
|
(1,830
|
)
|
Purchase of shares
|
|
|
|
|
|
|
—
|
|
|
|
(5
|
)
|
Net cash generated
from/(used in) financing activities
|
|
|
|
|
|
|
4,161
|
|
|
|
(835
|
)
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(2,900
|
)
|
|
|
(6,632
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
3,251
|
|
|
|
8,380
|
|
Effect of foreign exchange rate
changes
|
|
|
9
|
|
|
|
138
|
|
|
|
28
|
|
Cash and
cash equivalents at end of period
|
|
|
9
|
|
|
|
489
|
|
|
|
1,776
|
|
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
1. GENERAL INFORMATION
Vislink plc (“the
Company”) and its subsidiaries (together “the Group”) is a global software and technology business specialising
in solutions for the live collection, delivery and playout automation of high quality video ‘from scene to screen’.
For the broadcast
markets, Vislink provides wireless communication solutions for the collection of live news, sport and entertainment as well as
software solutions for channel playout automation, channel-in-a-box and video content management. Vislink also provides secure
video communications for surveillance and public safety applications such as law enforcement and homeland security.
Vislink employs
over 250 people worldwide with offices in the UK, USA, UAE and Singapore and manufacturing operations in the UK and the USA. Vislink
has net assets of over £13.0 million and continues to invest in innovation.
The Company is
listed on the AIM market of the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered
office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. The registered number of the Company is 4082188.
This condensed
consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors on 6 April 2016 and delivered
to the Registrar of Companies. The report of the auditors on those accounts was unqualified, contained an emphasis of matter paragraph
and did not contain any statement under section 498 of the Companies Act 2006. These financial statements have been prepared in
accordance with US GAAS.
Going Concern
In the half year
results for the six months ended 30 June 2016, the Group reported a reduction in spend from broadcasters resulting in a fall in
profitability and the implementation of a business improvement plan for Vislink Communication Systems. Trading for Vislink Communication
Systems remains challenging, with the downturn in performance continuing into Q3. The Group continues to be in conversation with
its bankers, who having waived the 30 June 2016 covenant test, have recently deferred the 30 September 2016 covenant test until
30 November 2016.
As at 30 September
2016 net debt was £14.5m (cash £0.5m and bank debt £(15.0)m). The Group is fully utilising its RCF facility
and forecasts that it will be in breach of its deferred banking covenants at 30 November 2016, meaning that it is reliant on the
ongoing support of its bankers.
In order to assess
the appropriateness of preparing the consolidated interim financial information on the going concern basis, management have prepared
detailed projections of expected future cash flows out to 31 January 2016 and a higher level review to December 2017, and these
have been reviewed by the Board.
Whilst challenging,
Management are implementing an improvement plan directed at enabling the business to remain within its borrowing facilities through
a combination of actively managing cash, cutting unnecessary expenditure and looking at other sources of finance or disposal opportunities
within the Group. As part of this process, a binding agreement was entered into on 20 October 2016 for the sale of Vislink Communications
Systems to xG Technology Inc for $16m.
In reaching their
decision that the consolidated interim results should be prepared on the going concern basis, the Board has considered the forecast
covenant breach. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment
of the loan, and the Group has insufficient cash to repay the secured loan in full without securing additional funding. However,
the Group is in constructive discussions with its bankers.
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
1. GENERAL INFORMATION - (continued)
The condition
identified above, regarding the ongoing support of the Group’s bankers, indicates the existence of a material uncertainty
that may cast significant doubt about the Group’s ability to continue as a going concern. The consolidated interim financial
information does not include the adjustments that would result if the Group was unable to continue as a going concern.
Principal risks and uncertainties
The principal
risks and uncertainties affecting the business activities of the Group remain those detailed on page 37 of the 2015 Annual Report,
a copy of which is available on the Group website at
www.vislinkplc.com
, together with the banking uncertainties as
referred to above. The Board considers that these are a current reflection of the main risks and uncertainties facing the business
for the remaining six months of the financial year. The Group notes that this is not an exhaustive list. The Group’s risk
management process remains unchanged from 31 December 2015 and is described in detail in the 2015 Annual Report. The principal
risks considered by the Board relate to global economic conditions and those associated with the Group’s markets, reputation,
overseas operations, customer defaults, senior management and foreign exchange, and the banking uncertainties. The principal exchange
rates used in the preparation of this condensed consolidated half year financial information are provided in note 12.
2. BASIS OF PREPARATION
This condensed
consolidated financial information for the nine months ended 30 September 2016 and nine months ended 30 September 2015 has been
prepared in accordance with IAS 34, ‘Half year financial reporting’. The condensed consolidated nine months financial
information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have
been prepared in accordance with IFRSs as issued by the IASB.
The Directors
believe that the basis of preparation applied is appropriate for the intended use of the condensed consolidated financial information,
which is to provide historical financial information to xG Technology Inc to assist xG Technology Inc in satisfying its reporting
responsibilities under Regulation S-X, Rule 3-05, Financial statements of businesses acquired or to be acquired.
This financial
information is not the statutory financial information of the Company prepared in accordance with section 394 of the Companies
Act 2006. Accordingly, this financial information does not present information on Vislink PLC as a separate legal entity.
The preparation
of the financial information requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although
these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may
differ from these estimates.
3. ACCOUNTING POLICIES
The accounting
policies applied are consistent with those of the annual financial statements for the year ended 31 December 2015, as described
in those annual financial statements.
Non-recurring
items are included under other expenses in the financial statements and is disclosed and described separately in note 5 where
it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of
income or expense that have been shown separately due to the significance of their nature or amount.
Taxes on income
in the nine month periods are accrued using the tax rate that would be applicable to expected total annual earnings on a country
by country basis.
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
4. SEGMENTAL ANALYSIS
The two markets
in each of the divisions are Broadcast and Surveillance and public safety. As the divisions manage and control the markets directly,
costs are shared across markets in certain divisions which means that any allocation of costs to markets would be arbitrary. The
focus of management is to ensure that the appropriate material margins are being achieved in each market as a sub analysis of
the divisional performance.
The segment information
provided to the Executive Management Board for the reportable continuing segments for the periods ended 30 September 2016 and
30 September 2015 is as follows:
|
|
Vislink
Communication Systems
|
|
|
Pebble
Beach Systems
|
|
|
TOTAL
|
|
|
|
9
months to
30 September
2016
£000
|
|
|
9
months to
30 September
2015
£000
|
|
|
9
months to
30 September
2016
£000
|
|
|
9
months to
30 September
2015
£000
|
|
|
9
months to
30 September
2016
£000
|
|
|
9
months to
30 September
2015
£000
|
|
Revenue
|
|
|
23,542
|
|
|
|
29,510
|
|
|
|
8,277
|
|
|
|
7,140
|
|
|
|
31,819
|
|
|
|
36,650
|
|
Operating
(loss)/profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
operating (loss)/profit
|
|
|
(3,875
|
)
|
|
|
1,302
|
|
|
|
1,880
|
|
|
|
1,784
|
|
|
|
(1,995
|
)
|
|
|
3,086
|
|
Central costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,236
|
)
|
|
|
(1,878
|
)
|
Group
adjusted operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,231
|
)
|
|
|
1,208
|
|
Amortisation and impairment
of goodwill and acquired intangibles
|
|
|
(24,035
|
)
|
|
|
(742
|
)
|
|
|
(1,064
|
)
|
|
|
(1,061
|
)
|
|
|
(25,099
|
)
|
|
|
(1,803
|
)
|
Non-recurring items
|
|
|
(11,603
|
)
|
|
|
(2,045
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,603
|
)
|
|
|
(2,045
|
)
|
Central
non-recurring items
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(145
|
)
|
|
|
(16
|
)
|
Group
total operating (loss)/profit
|
|
|
(39,513
|
)
|
|
|
(1,485
|
)
|
|
|
816
|
|
|
|
723
|
|
|
|
(41,078
|
)
|
|
|
(2,656
|
)
|
Finance (costs)/income – net
|
|
|
(5
|
)
|
|
|
(152
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(152
|
)
|
Central
finance (costs)/income – net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(240
|
)
|
|
|
(10
|
)
|
(Loss)/profit
before tax
|
|
|
(39,518
|
)
|
|
|
(1,637
|
)
|
|
|
818
|
|
|
|
723
|
|
|
|
(41,321
|
)
|
|
|
(2,818
|
)
|
GEOGRAPHIC REVENUE ANALYSIS BY DESTINATION
|
|
Nine months to
30 September
2016
(Unaudited)
£’000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£’000
|
|
UK & Europe
|
|
|
11,858
|
|
|
|
13,254
|
|
Americas
|
|
|
12,488
|
|
|
|
15,341
|
|
Middle East and Africa
|
|
|
4,585
|
|
|
|
4,702
|
|
Asia/Pacific
|
|
|
2,888
|
|
|
|
3,353
|
|
|
|
|
31,819
|
|
|
|
36,650
|
|
The amounts reported
to the Executive Chairman with respect to total net assets are measured in a manner consistent with that of the financial statements.
The assets are allocated based on the operations of the segment and the physical location of the asset.
NET ASSETS
|
|
Nine months to
30 September
2016
(Unaudited)
£’000
|
|
|
Year ended
31
December
2015
(Audited)
£’000
|
|
Vislink Communication Systems
|
|
|
19,615
|
|
|
|
52,509
|
|
Pebble Beach Systems
|
|
|
9,227
|
|
|
|
8,810
|
|
Segment net assets
|
|
|
28,842
|
|
|
|
61,319
|
|
Central net liabilities
|
|
|
(14,900
|
)
|
|
|
(6,867
|
)
|
Total Group net assets
|
|
|
13,942
|
|
|
|
54,452
|
|
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
5. NON-RECURRING ITEMS
The following
items of unusual nature, size or incidence have been charged to operating profit during the period and are described as non-recurring
and included within other expenses in the income statement.
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Rationalisation and redundancy costs
|
|
|
90
|
|
|
|
2,045
|
|
Inventory write down
|
|
|
5,561
|
|
|
|
—
|
|
Capitalised development costs write down
|
|
|
6,092
|
|
|
|
—
|
|
Onerous property commitments
|
|
|
(141
|
)
|
|
|
—
|
|
Acquisition related costs
|
|
|
146
|
|
|
|
16
|
|
Total non-recurring
items
|
|
|
11,748
|
|
|
|
2,061
|
|
It was announced
on 6 July 2016 that the Board had initiated a business improvement plan triggered by market conditions and a detailed review was
carried out of inventory and capitalised development costs to identify increasingly inappropriate legacy technology and products.
As a consequence a significant inventory write-down of £5.5 million has been recorded, along with a £0.8 million impairment
of capitalised development costs, totalling £6.3 million.
These adjustments
will ensure that the VCS product portfolio is focussed on key, leading-edge technologies. This, combined with the continuing development
of new IP products, will ensure the business is well positioned to capitalise on the ever-evolving technology shift.
In addition,
as a result of H1 performance and expected outturn for the year, management considered that there had been an impairment trigger
requiring an impairment review of intangible assets. This led to a write down of goodwill and acquired intangibles of £23.3
million at the half year, as a result of a downgrading of the forecasts for the business.
6. TAX ON PROFIT ON ORDINARY
ACTIVITIES
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Current tax:
|
|
|
|
|
|
|
|
|
UK corporation tax
|
|
|
—
|
|
|
|
—
|
|
Foreign tax
|
|
|
59
|
|
|
|
—
|
|
Adjustments in respect of prior
years
|
|
|
215
|
|
|
|
8
|
|
Total current
tax
|
|
|
274
|
|
|
|
8
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
UK corporation tax
|
|
|
290
|
|
|
|
(42
|
)
|
Impact of change in tax rate
|
|
|
—
|
|
|
|
—
|
|
Foreign tax
|
|
|
(522
|
)
|
|
|
—
|
|
Adjustments in respect of prior
years
|
|
|
—
|
|
|
|
—
|
|
Total deferred
tax
|
|
|
(232
|
)
|
|
|
(42
|
)
|
Total taxation
charge
|
|
|
42
|
|
|
|
(34
|
)
|
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
6. TAX ON PROFIT ON ORDINARY
ACTIVITIES - (continued)
The tax charge
for the nine months ended 30 September 2016 is based on the full year estimated effective tax rate of 0 per cent for the UK which
is significantly lower than the standard rate principally due to the utilisation of tax losses and enhanced Research and Development
claims. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to
the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all
tax losses and other temporary differences to the extent that they are regarded as recoverable against future profits.
7. EARNINGS PER ORDINARY SHARE
Basic earnings
per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled. Earnings
per share is calculated by reference to a weighted average of 121,977,000 ordinary shares in issue during the period (30 September
2015: 121,870,000 and 31 December 2015: 121,910,000).
For diluted earnings
per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market
price of the company’s ordinary shares during the period.
Adjusted earnings
The directors
believe that the adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide
additional useful information on underlying trends to shareholders. These measures are used by management for internal performance
analysis and incentive compensation arrangements. The term “adjusted” is not a defined term used under IFRS and may
not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are
made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related
tax effects.
The reconciliation
between reported and adjusted earnings and basic earnings per share for the continuing business is shown below:
|
|
Nine months to 30 September
2016
|
|
|
Nine months to 30 September
2015
|
|
|
|
£000
|
|
|
Pence per share
|
|
|
£000
|
|
|
Pence per share
|
|
Reported loss per share
|
|
|
(41,363
|
)
|
|
|
(33.9
|
)p
|
|
|
(2,784
|
)
|
|
|
(2.3
|
)p
|
Amortisation of acquired intangibles after tax
|
|
|
24,616
|
|
|
|
19.7
|
p
|
|
|
1,624
|
|
|
|
1.3
|
p
|
Non-recurring costs after tax
|
|
|
9,398
|
|
|
|
8.3
|
p
|
|
|
1,649
|
|
|
|
1.4
|
p
|
Adjusted (loss)/earnings per
share
|
|
|
(7,349
|
)
|
|
|
(5.9
|
)p
|
|
|
489
|
|
|
|
0.4
|
p
|
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
8. PROPERTY, PLANT AND EQUIPMENT
AND INTANGIBLE ASSETS
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
Opening net book value as at 1 January
|
|
|
2,201
|
|
|
|
2,665
|
|
Additions
|
|
|
254
|
|
|
|
408
|
|
Disposals
|
|
|
—
|
|
|
|
(337
|
)
|
Depreciation
|
|
|
(525
|
)
|
|
|
(556
|
)
|
Exchange adjustment
|
|
|
56
|
|
|
|
20
|
|
Closing net book value
|
|
|
1,986
|
|
|
|
2,200
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
Capitalised development costs
|
|
|
|
|
|
|
|
|
Opening net book value as at 1 January
|
|
|
10,091
|
|
|
|
9,441
|
|
Additions
|
|
|
2,813
|
|
|
|
2,676
|
|
Amortisation
|
|
|
(2,304
|
)
|
|
|
(2,177
|
)
|
Impairment
|
|
|
(6,092
|
)
|
|
|
—
|
|
Exchange adjustment
|
|
|
369
|
|
|
|
170
|
|
Capitalised development costs
closing net book value
|
|
|
4,877
|
|
|
|
10,110
|
|
Goodwill and acquired intangible
assets
|
|
|
|
|
|
|
|
|
Opening net book value as at 1 January
|
|
|
32,200
|
|
|
|
34,242
|
|
Disposals
|
|
|
(99
|
)
|
|
|
(61
|
)
|
Amortisation and impairment
|
|
|
(25,100
|
)
|
|
|
(1,808
|
)
|
Exchange adjustment
|
|
|
420
|
|
|
|
185
|
|
Goodwill and acquired intangible
assets closing net book value
|
|
|
7,421
|
|
|
|
32,558
|
|
Total closing
net book value of intangible assets
|
|
|
12,298
|
|
|
|
42,668
|
|
Historical goodwill
acquired in business combinations was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefit
from those business combinations, being the markets that the Group serves, namely Broadcast, Surveillance and Public Safety, Amplifier
Technology Limited and Pebble Beach Systems Limited.
In accordance
with the requirements of IAS 36 “Impairment of assets”, goodwill is required to be tested for impairment on an annual
basis or when there is a triggering event, with reference to the value of the cash-generating units in question. The downturn
in trading performance is considered to be a trigger and an impairment review has been performed. The goodwill relating to the
Surveillance and Public Safety market was fully written down in 2010. The Group acquired Amplifier Technology in 2013 which is
a separate CGU and Pebble Beach Systems in 2014 which is also a separate CGU, therefore impairment reviews have been undertaken
in respect of the Broadcast market and Amplifier Technology. No impairment trigger is considered to exist for Pebble Beach Systems.
The carrying value of goodwill at 30 September 2016 is £3.2 million (2015: £24.8 million) consisting of £nil
for the Broadcast market (2015: £20.5 million), £nil for Amplifier Technology (2015: £1.1 million) and £3.2
million for Pebble Beach Systems (2015: £3.2 million).
The carrying
value of all CGUs (including goodwill) have been assessed with reference to value in use over a projected period of four and a
half years, along with a terminal value. This reflects projected cash flows based on management projections.
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
8. PROPERTY, PLANT AND EQUIPMENT
AND INTANGIBLE ASSETS - (continued)
The key assumptions
on which the value in use calculations are based relate to business performance over the next four and a half years, long term
growth rates beyond 2016 and the discount rate applied. It has been assumed there will be no long term growth of either Amplifier
Technology or Broadcast and growth of 3% for Pebble Beach Systems. In accordance with accounting standards, it has also been assumed
that there will be no savings resulting from future restructuring which is yet to occur.
A pre-tax discount
rate of 8.9 per cent has been used. In respect of the Broadcast market and Amplifier Technology the value in use was found to
be lower than the carrying value resulting in the impairment of goodwill of £20.6m for Broadcast and £1.1m for Amplifier
Technology.
9. CASH, BORROWINGS AND LOANS
The movements
in cash and cash equivalents (net of overdrafts), borrowings and loans in the period were as follows:
|
|
Net cash
and cash
equivalents
£000
|
|
|
Other
borrowings
£000
|
|
|
Total
net cash
£000
|
|
Nine months ended 30 September 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2016
|
|
|
3,251
|
|
|
|
(9,000
|
)
|
|
|
(5,749
|
)
|
Cash flow for the period before financing
|
|
|
(8,900
|
)
|
|
|
—
|
|
|
|
(8,900
|
)
|
Movement in borrowings in the period
|
|
|
6,000
|
|
|
|
(6,000
|
)
|
|
|
—
|
|
Exchange rate adjustments
|
|
|
138
|
|
|
|
—
|
|
|
|
138
|
|
At 30 September 2016
|
|
|
489
|
|
|
|
(15,000
|
)
|
|
|
(14,511
|
)
|
Nine months ended 30 September 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015
|
|
|
8,380
|
|
|
|
(8,000
|
)
|
|
|
380
|
|
Cash flow for the period before financing
|
|
|
(7,632
|
)
|
|
|
—
|
|
|
|
(7,632
|
)
|
Movement in borrowings in the period
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
—
|
|
Exchange rate adjustments
|
|
|
28
|
|
|
|
—
|
|
|
|
28
|
|
At 30 September 2015
|
|
|
1,776
|
|
|
|
(9,000
|
)
|
|
|
(7,224
|
)
|
The Group held
cash of £0.5 million at the period-end and taken together with the outstanding debt of £15.0 million, there was a
net debt position of £14.5 million.
In the period
the Group has drawn down an additional £6.0 million of funds from the existing Revolving Credit Facility (RCF), the facility
is therefore fully utilised.
10. PROVISIONS FOR OTHER LIABILITIES
AND CHARGES
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Year ended
31
December
2015
(Audited)
£000
|
|
Warranty provision
|
|
|
202
|
|
|
|
188
|
|
Property provision
|
|
|
393
|
|
|
|
504
|
|
|
|
|
595
|
|
|
|
692
|
|
Amounts due within one year
|
|
|
537
|
|
|
|
272
|
|
Amounts due after one year
|
|
|
58
|
|
|
|
420
|
|
|
|
|
595
|
|
|
|
692
|
|
Vislink plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015
10. PROVISIONS FOR OTHER LIABILITIES
AND CHARGES - (continued)
Warranty provisions
are made in respect of the expected future warranty costs in certain businesses based on historic actual costs. Warranty periods
on products are generally between one and two years.
The property
provision consists of a provision for vacated leasehold properties acquired as part of the Gigawave acquisition and a vacated
property provision for the Vislink International Hemel Hempstead site, created as a result of the restructuring that was conducted
in 2015.
The current period
property provision movement relates to the release of some of the vacant property provision for the Vislink International Hemel
Hempstead site.
The property
provision represents the estimated future liabilities associated with the properties.
11. NOTES TO THE CASH FLOW STATEMENT
Net cash flow
from operating activities comprises:
|
|
Nine months to
30 September
2016
(Unaudited)
£000
|
|
|
Nine months to
30 September
2015
(Unaudited)
£000
|
|
Loss before tax
|
|
|
(41,321
|
)
|
|
|
(2,818
|
)
|
Depreciation
|
|
|
525
|
|
|
|
556
|
|
Amortisation and impairment of development costs
|
|
|
8,396
|
|
|
|
2,177
|
|
Amortisation and impairment of goodwill and acquired
intangibles
|
|
|
25,100
|
|
|
|
1,808
|
|
Share based payment expenses
|
|
|
399
|
|
|
|
249
|
|
Finance income from continuing operations
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Finance costs from continuing operations
|
|
|
246
|
|
|
|
164
|
|
Decrease/(Increase) in inventories
|
|
|
3,797
|
|
|
|
(2,825
|
)
|
Decrease/(increase) in trade and other receivables
|
|
|
2,583
|
|
|
|
3,900
|
|
Decrease in payables
|
|
|
(3,188
|
)
|
|
|
(5,271
|
)
|
(Decrease)/increase in provisions
|
|
|
(112
|
)
|
|
|
(116
|
)
|
Net cash
(outflow)/inflow from operating activities
|
|
|
(3,578
|
)
|
|
|
(2,178
|
)
|
12. FOREIGN EXCHANGE RATES
The principal
exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below.
|
|
Nine months to
30 September
2016
(Unaudited)
|
|
|
Nine months to
30 September
2015
(Unaudited)
|
|
|
Year ended
31
December
2015
(Audited)
|
|
Average rate for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar
|
|
|
1.3915
|
|
|
|
1.5324
|
|
|
|
1.5286
|
|
Period end rate
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar
|
|
|
1.2991
|
|
|
|
1.5147
|
|
|
|
1.4819
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE
MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE
MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
Report of Independent Auditors
To the Directors
We have audited the accompanying
consolidated financial statements of Vislink plc and its subsidiaries, which comprise the consolidated balance sheetsas of 31
December 2015 and 31 December 2014, and the related consolidated statements of income and comprehensive income, of shareholders’
equity and of cash flows for the periods then ended.
Management’s Responsibility
for the Consolidated Financial Statements
Management is responsible for the
preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting
Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”); this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express
an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly,
we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of Vislink plc and its
subsidiaries as of 31 December 2015 and 31 December 2014, and the results of their operations and their cash flows for the years
then ended in accordance with IFRS as issued by IASB.
Emphasis of Matter
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has negative working capital and cash outflows from operating activities that raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified
with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Bristol, UK
1 December 2016
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
|
|
Note
|
|
|
2015
£000
|
|
|
2014
£000
|
|
Revenue
|
|
|
5
|
|
|
|
57,811
|
|
|
|
61,931
|
|
Cost of sales
|
|
|
|
|
|
|
(31,800
|
)
|
|
|
(33,519
|
)
|
Gross profit
|
|
|
|
|
|
|
26,011
|
|
|
|
28,412
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
(9,423
|
)
|
|
|
(8,817
|
)
|
Research and development expenses
|
|
|
|
|
|
|
(5,757
|
)
|
|
|
(5,558
|
)
|
Administrative expenses
|
|
|
|
|
|
|
(6,110
|
)
|
|
|
(6,833
|
)
|
Other expenses
|
|
|
6
|
|
|
|
(5,475
|
)
|
|
|
(1,692
|
)
|
Operating
(loss)/profit
|
|
|
6
|
|
|
|
(754
|
)
|
|
|
5,512
|
|
Finance costs
|
|
|
8
|
|
|
|
(248
|
)
|
|
|
(169
|
)
|
Finance income
|
|
|
8
|
|
|
|
8
|
|
|
|
24
|
|
(Loss)/profit before tax
|
|
|
|
|
|
|
(994
|
)
|
|
|
5,367
|
|
Tax
|
|
|
9
|
|
|
|
91
|
|
|
|
(1,623
|
)
|
(Loss)/profit
for the year being profit attributable to owners of the parent
|
|
|
|
|
|
|
(903
|
)
|
|
|
3,744
|
|
Basic (loss)/earnings per share
|
|
|
11
|
|
|
|
(0.7
|
)p
|
|
|
3.2
|
p
|
Diluted (loss)/earnings per
share
|
|
|
11
|
|
|
|
(0.7
|
)p
|
|
|
3.1
|
p
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
|
|
2015
£000
|
|
|
2014
£000
|
|
(Loss)/profit for the financial year
|
|
|
(903
|
)
|
|
|
3,744
|
|
Other comprehensive income – items
that may be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of overseas operations
|
|
|
406
|
|
|
|
483
|
|
Total comprehensive
(expense)/income for the year attributable to owners of the parent
|
|
|
(497
|
)
|
|
|
4,227
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
|
|
Note
|
|
|
2015
£000
|
|
|
2014
£000
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
12
|
|
|
|
42,291
|
|
|
|
43,683
|
|
Property, plant and equipment
|
|
|
13
|
|
|
|
2,201
|
|
|
|
2,665
|
|
Deferred tax assets
|
|
|
22
|
|
|
|
4,461
|
|
|
|
3,712
|
|
Total non-current assets
|
|
|
|
|
|
|
48,953
|
|
|
|
50,060
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
14
|
|
|
|
12,696
|
|
|
|
12,884
|
|
Trade and other receivables
|
|
|
15
|
|
|
|
18,751
|
|
|
|
15,956
|
|
Cash and cash equivalents
|
|
|
16
|
|
|
|
3,251
|
|
|
|
8,380
|
|
Total current assets
|
|
|
|
|
|
|
34,698
|
|
|
|
37,220
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities – borrowings
|
|
|
19
|
|
|
|
9,000
|
|
|
|
5,600
|
|
Trade and other payables
|
|
|
17
|
|
|
|
13,554
|
|
|
|
15,810
|
|
Current tax liabilities
|
|
|
18
|
|
|
|
239
|
|
|
|
747
|
|
Provisions for other liabilities
and charges
|
|
|
21
|
|
|
|
272
|
|
|
|
280
|
|
Total current liabilities
|
|
|
|
|
|
|
23,065
|
|
|
|
22,437
|
|
Net current
assets
|
|
|
|
|
|
|
11,633
|
|
|
|
14,783
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities – borrowings
|
|
|
19
|
|
|
|
—
|
|
|
|
2,400
|
|
Deferred tax liabilities
|
|
|
22
|
|
|
|
5,714
|
|
|
|
5,338
|
|
Provisions for other liabilities
and charges
|
|
|
21
|
|
|
|
420
|
|
|
|
278
|
|
Total non-current liabilities
|
|
|
|
|
|
|
6,134
|
|
|
|
8,016
|
|
Net assets
|
|
|
|
|
|
|
54,452
|
|
|
|
56,827
|
|
Equity attributable to owners of
the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
23
|
|
|
|
3,066
|
|
|
|
3,066
|
|
Share premium
|
|
|
|
|
|
|
6,800
|
|
|
|
6,800
|
|
Capital redemption reserve
|
|
|
|
|
|
|
617
|
|
|
|
617
|
|
Merger reserve
|
|
|
|
|
|
|
32,448
|
|
|
|
32,448
|
|
Translation reserve
|
|
|
|
|
|
|
4,843
|
|
|
|
4,437
|
|
Retained earnings
|
|
|
|
|
|
|
6,678
|
|
|
|
9,459
|
|
Total equity
|
|
|
|
|
|
|
54,452
|
|
|
|
56,827
|
|
These financial statements were
approved by the Board of Directors on December 1, 2016 and were signed on its behalf by:
John Hawkins
Director
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’
EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
|
|
Called up
share
capital
£000
|
|
|
Share
premium
£000
|
|
|
Capital
redemption
reserve
£000
|
|
|
Merger
reserve
£000
|
|
|
Translation
reserve
£000
|
|
|
Retained
earnings
£000
|
|
|
Total
equity
£000
|
|
At 1 January 2014
|
|
|
2,848
|
|
|
|
4,900
|
|
|
|
617
|
|
|
|
30,565
|
|
|
|
3,954
|
|
|
|
6,718
|
|
|
|
49,602
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the financial year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,744
|
|
|
|
3,744
|
|
Exchange differences on translation
of overseas operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
483
|
|
|
|
—
|
|
|
|
483
|
|
Total comprehensive income for
the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
483
|
|
|
|
3,744
|
|
|
|
4,227
|
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based payments: Value of employee services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
500
|
|
Issue of share capital
|
|
|
218
|
|
|
|
1,900
|
|
|
|
—
|
|
|
|
1,883
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,001
|
|
Adjustment in respect of Employee Share Ownership
Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Dividends paid (note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,473
|
)
|
|
|
(1,473
|
)
|
Total transactions with owners
|
|
|
218
|
|
|
|
1,900
|
|
|
|
—
|
|
|
|
1,883
|
|
|
|
—
|
|
|
|
(1,003
|
)
|
|
|
2,998
|
|
Balance at 1 January 2015
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
4,437
|
|
|
|
9,459
|
|
|
|
56,827
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the financial year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(903
|
)
|
|
|
(903
|
)
|
Exchange differences on translation
of overseas operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
406
|
|
|
|
—
|
|
|
|
406
|
|
Total comprehensive income/(expense)
for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
406
|
|
|
|
(903
|
)
|
|
|
(497
|
)
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based payments: Value of employee services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(43
|
)
|
|
|
(43
|
)
|
Adjustment in respect of Employee Share Ownership
Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Dividends paid (note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,830
|
)
|
|
|
(1,830
|
)
|
Total transactions with owners
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,878
|
)
|
|
|
(1,878
|
)
|
Balance at 31 December 2015
|
|
|
3,066
|
|
|
|
6,800
|
|
|
|
617
|
|
|
|
32,448
|
|
|
|
4,843
|
|
|
|
6,678
|
|
|
|
54,452
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
|
|
Note
|
|
|
2015
£000
|
|
|
2014
£000
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operations
|
|
|
24
|
|
|
|
605
|
|
|
|
7,999
|
|
Interest paid
|
|
|
|
|
|
|
(248
|
)
|
|
|
(169
|
)
|
Taxation paid
|
|
|
|
|
|
|
(918
|
)
|
|
|
(102
|
)
|
Net cash (outflow)/inflow
from operating activities
|
|
|
|
|
|
|
(561
|
)
|
|
|
7,728
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
|
|
|
|
8
|
|
|
|
24
|
|
Acquisition of subsidiary (net of cash acquired)
|
|
|
|
|
|
|
—
|
|
|
|
(7,003
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
338
|
|
|
|
1
|
|
Proceeds from sale of intangibles
|
|
|
|
|
|
|
61
|
|
|
|
—
|
|
Purchase of property, plant and equipment
|
|
|
13
|
|
|
|
(605
|
)
|
|
|
(919
|
)
|
Expenditure on capitalised development
costs
|
|
|
12
|
|
|
|
(3,582
|
)
|
|
|
(3,647
|
)
|
Net cash used
in investing activities
|
|
|
|
|
|
|
(3,780
|
)
|
|
|
(11,544
|
)
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
New bank loans
|
|
|
|
|
|
|
1,000
|
|
|
|
8,000
|
|
Dividend paid
|
|
|
10
|
|
|
|
(1,830
|
)
|
|
|
(1,473
|
)
|
(Purchase)/issue of shares
|
|
|
|
|
|
|
(5
|
)
|
|
|
2,000
|
|
Net cash (used
in)/generated from financing activities
|
|
|
|
|
|
|
(835
|
)
|
|
|
8,527
|
|
Net (decrease)/increase in cash
and cash equivalents
|
|
|
|
|
|
|
(5,176
|
)
|
|
|
4,711
|
|
Effect of foreign exchange rate changes
|
|
|
|
|
|
|
47
|
|
|
|
(36
|
)
|
Cash and cash equivalents at
1 January
|
|
|
|
|
|
|
8,380
|
|
|
|
3,705
|
|
Cash and
cash equivalents at 31 December
|
|
|
16
|
|
|
|
3,251
|
|
|
|
8,380
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1. GENERAL INFORMATION
Vislink plc (“the
Company”) and its subsidiaries (together “the Group”) is a leading global software and technology business specialising
in solutions for the live collection, delivery and playout automation of high quality live video ‘from scene to screen’.
For the broadcast markets, the Group provides wireless communication solutions for the collection of live news, sport and entertainment
as well as software solutions for channel playout automation, Channel in a Box and video content management. The Group also provides
secure video communications for surveillance and public safety applications such as law enforcement and homeland security. The
Group employs over 250 people worldwide with offices in the UK, USA, UAE, and Singapore and manufacturing operations in the UK
and the USA. The Group has net assets of £54.4 million and continuously invests in innovation.
The Company is
listed on the AIM market of the London Stock Exchange (AIM:VLK). For further information, visit
www.vislinkplc.com.
The Company is
incorporated and domiciled in the UK. The address of its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire,
RG17 0EY.
The registered
number of the Company is 04082188.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal
accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
BASIS OF ACCOUNTING
The Group financial
statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee (IFRS
IC).
The preparation
of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management
to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumption and estimates are significant to the Group financial statements, are disclosed
in note 4.
During the current
reporting year there were no new standards or amendments which had a material impact on the net assets of the Group. The impact
of standards or amendments issued but not yet effective is yet to be ascertained.
The Directors
believe that the basis of preparation applied is appropriate for the intended use of these financial statements, which is to provide
historical financial information to xG Technology Inc to assist xG Technology Inc in satisfying its reporting responsibilities
under Regulation S-X, Rule 3-05, Financial statements of businesses acquired or to be acquired.
These financial
statements are not the statutory financial statements of the Company prepared in accordance with section 394 of the Companies
Act 2006. Accordingly, these financial statements do not present information on Vislink PLC as a separate legal entity. The Group
financial statements have been prepared on a going concern basis under the historical cost basis of accounting, except where fair
value measurement is required under IFRS as described below.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
BASIS OF CONSOLIDATION
The consolidated
financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries)
made up to 31 December 2015. Control is achieved when the Company:
|
•
|
has
the power over the investee;
|
|
•
|
is
exposed, or has rights, to vary from its involvement with the investee; and
|
|
•
|
has
the ability to use its power to affect its returns
|
The Company reassesses
whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three
elements of control listed above.
Subsidiaries
are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that
control ceases.
Inter-company
transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting
from the inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by the Group.
BUSINESS COMBINATIONS
The Group applies
the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of assets transferred, the liabilities assumed and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at their fair values at the acquisition date.
Any contingent
consideration to be transferred by the Group is recognised at the fair value at the acquisition date. Subsequent changes to the
fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39
either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is
not re-measured, and its subsequent settlement is accounted for within equity.
Costs directly
attributable to an acquisition are charged directly to the income statement as incurred.
Goodwill is initially
measured as the excess of the aggregate of the consideration transferred and the fair value of the non-controlling interest over
the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets
of the subsidiary acquired, the difference is recognised in the income statement.
SEGMENTAL REPORTING
The Group’s
internal organisational and management structure and its system of internal financial reporting to the Board of directors are
based on the product offerings of each of its businesses. These comprise of two divisions, Vislink Communication Systems and Pebble
Beach Systems. Each division has its own managing director and finance director who work with the Group Finance Director, under
the chairmanship of the Executive Chairman to oversee the running of the Group. The chief operating decision-maker has been identified
as the Board.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
The Board reviews
the Group’s internal financial reporting in order to assess performance and allocate resources. Management have therefore
determined that the operating segments for the Group will be based on these reports.
The Vislink Communication
Systems business is responsible for the sales and marketing of all Group hardware products and services. It is also the product
centre for the Advent satcom communication products, Link and Gigawave wireless camera systems and the associated Microwave and
Amplifier products.
The Pebble Beach
Systems business is responsible for the sales and marketing of all Group software products and services.
Group management
are focused on developing global revenue growth from the two main markets that the Group serves, Broadcast and Surveillance and
Public Safety. Segmental reporting is therefore also provided by reference to revenue by market by geographic region.
FOREIGN CURRENCY TRANSLATION
(a) Functional and presentation
currency
Items included
in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (“the functional currency”). The Group financial statements are presented in pounds sterling
(GBP), which is the Company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency
transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
(c) Group companies
Trading results
and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional
currency different from the presentation currency are translated into the presentation currency as follows:
|
•
|
assets
and liabilities for each statement of financial position presented are translated at the closing rate of exchange prevailing
at the reporting date;
|
|
•
|
income
and expenditure for each income statement are translated at the average rates of exchange prevailing during the year; and
|
|
•
|
all
resulting exchange differences arising from restatement of the opening statements of financial position and trading results
of overseas subsidiaries are recognised as a separate component of shareholders’ equity
|
Goodwill and
fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
INTANGIBLE ASSETS
(a) Goodwill
Goodwill represents
the excess of the fair value of the purchase consideration for the interest in subsidiary undertakings over the fair value to
the Group of the net assets acquired, including acquired intangible assets and any contingent liabilities.
Goodwill is tested
annually or more frequently if events or circumstances indicate potential impairment. Impairment losses are recognised for the
amount by which an asset’s carrying amount exceeds its recoverable amount; that recoverable amount is the higher of the
asset’s fair value less costs to sell and its value in use. Impairments of goodwill are not reversed. Gains and losses on
the disposal of an entity will be net of the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated
to cash-generating units for the purposes of impairment testing. The allocation is made to cash-generating units that are expected
to benefit from the business combination in which the goodwill arose.
(b) Acquired intangibles
Intangible assets
acquired as part of business combinations are capitalised at fair value at the date of acquisition. Following the initial recognition,
the carrying amount of an intangible asset is its cost less accumulated amortisation and any accumulated impairment losses. Amortisation
is charged on the basis of the estimated useful life on a straight-line basis and the expense is taken to the income statement
(note 12).
The Group has
recognised customer relationships, intellectual property and brands as separately identifiable acquired intangible assets. The
useful economic life attributed to each intangible asset is determined at the time of acquisition and ranges from five to ten
years.
Impairment reviews
are undertaken when the directors consider that there has been a potential indication of impairment.
(c) Research and development
costs
Research expenditure
is written off as incurred.
Where development
expenditure meets the criteria for capitalisation as set out in IAS 38 “Intangible Assets” the costs are capitalised.
The key eligibility criteria for capitalisation relate to:
|
•
|
the
identification of development costs. In general the Group’s research and development activities are closely interrelated
and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs
are separately identifiable; and
|
|
•
|
the
generation of future economic benefit. Intangible assets are not recognised unless the resultant product is expected to generate
future economic benefit in excess of the amount capitalised
|
Development costs
are amortised over the estimated useful life of the products with which they are associated. Amortisation commences when a new
product is in commercial production. The amortisation period ranges from one to five years. If a product becomes unviable the
deferred development costs are written off.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
PROPERTY, PLANT AND EQUIPMENT
Property, plant
and equipment are stated at cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Depreciation
is calculated in order to write off the cost of property, plant and equipment, other than land, over their estimated useful lives
by equal annual instalments using the following rates:
Freehold
land and buildings
|
|
2 per
cent for buildings
No depreciation on land
|
|
|
|
Leasehold improvements
|
|
The remaining term
of the lease
|
|
|
|
Fixtures and fittings
|
|
10 per cent
|
|
|
|
Plant, tools, test
and computer equipment
|
|
10 per cent – 33
per cent
|
LEASES
Operating leases
are leases where the risks and rewards of ownership are retained by the lessor. Rentals payable under operating leases are charged
to the income statement on a straight-line basis over the period of the lease.
INVENTORIES
Inventories are
stated at the lower of cost and net realisable value. Cost represents direct costs incurred and, where applicable, production
or conversion costs and other costs to bring the inventory to its existing condition and location. Inventory is accounted for
on a standard cost basis. Net realisable value comprises the actual or estimated selling price less all further costs to completion,
and less all costs to be incurred in marketing, selling and distribution. Provisions for inventories are recognised when the book
value exceeds its net realisable value. The Group makes provision for slow-moving, obsolete and defective inventory as appropriate.
TRADE RECEIVABLES
Trade receivables
are initially recognised at fair value, being the original invoice amount, and subsequently measured at amortised cost less provision
for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivable. Trade receivables that are less than three months past
due are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that
the customer will default. Older debts are considered to be impaired unless there is sufficient evidence to the contrary that
they will be settled. The amount of the provision is the difference between the assets’ carrying value and the present value
of the estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the
amount of the loss is recognised in the income statement.
When a trade
receivable is uncollectable it is written off against the allowance account. Subsequent recoveries of amounts previously written
off are credited to the income statement.
CASH AND CASH EQUIVALENTS
Cash and short
term deposits in the statement of financial position comprise cash at bank and in hand and short term deposits with an original
maturity of less than three months.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
For the purposes
of the consolidated cash flow statement, cash and cash equivalents consist of cash and short term deposits as defined above, together
with bank overdrafts where applicable.
SHARE CAPITAL
Ordinary shares
are classified as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium account
and are also classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are
deducted from the share premium account.
Where shares
are issued in part or full consideration for the acquisition of more than 90 per cent of the issued share capital of another company,
the excess of value attributed to the shares over the nominal value of shares issued is allocated to the merger reserve. The merger
reserve is also classified as equity.
TRADE PAYABLES
Trade payables
are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the
business if longer). If not, they are presented as non-current liabilities.
Trade payables
are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
CURRENT AND DEFERRED TAXATION
The current tax
charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where
the Company’s subsidiaries operate and generate taxable income. Management evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation and establish provisions where appropriate
on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in respect of
all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business
combinations.
Deferred tax
assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent
that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will
be suitable taxable profits against which the future reversal of the underlying temporary differences can be deducted. The carrying
value of the amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised.
Deferred tax
assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on the tax rates (and tax laws) that have been enacted at the reporting date.
Deferred tax
assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either
the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
EMPLOYEE BENEFITS
(a) Pension obligations
The Group employees
are members of defined contribution money purchase schemes where the obligations of Group companies are charged to the income
statement as they are incurred. The Group has no further obligations once the contributions have been paid.
(b) Share based compensation
The Group operates
a number of equity-settled, share based compensation plans, under which the Group receives services from employees as consideration
for equity instruments (options) in the Company. The fair value of the employee services received in exchange for the grant of
the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options
granted:
|
•
|
including
any market performance conditions (for example, the Group’s share price);
|
|
•
|
excluding
the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets
and remaining an employee of the entity over a specified time period); and
|
|
•
|
including
the impact of any non-vesting conditions (for example, the requirement for employees to save)
|
Non-market vesting
conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised
over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end
of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.
When the options
are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited
to share capital (nominal value) and share premium when the options are exercised.
(c) Employee Share Ownership
Plan
The Group’s
Employee Share Ownership Plan (ESOP) is a separately administered trust. The Company guarantees liabilities of the ESOP, and the
assets of the ESOP mainly comprise shares in the Company. The assets, liabilities, income and costs of the ESOP have been included
in the Group financial statements.
PROVISIONS
Provisions are
made in respect of residual onerous long leasehold properties where expected future rental costs are in excess of expected income
from subletting.
Provision is
made for product warranty claims to the extent that the Group has a current obligation under warranties given. Warranty accruals
are based on historic warranty claims experience. Provisions are discounted to their present value where the impact is significant.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
REVENUE RECOGNITION
(a) Sale of goods
Revenue represents
amounts receivable from external customers for goods sold by Group companies in the ordinary course of business and excluding
value added tax. Sales are recognised in accordance with IAS 18 “Revenue”, when the significant risks and rewards
of ownership of the goods are transferred to the customer, the sales price agreed and the receipt of payment can be assured.
(b) Construction contracts
From time to
time the Group enters into construction contracts that will take a number of months to complete. Customer contracts that are expected
to span more than one period end are recognised in revenue in accordance with IAS 11.
Where the outcome
of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract
activity at the reporting date. This is measured by the proportion of contract costs incurred for work performed to date relative
to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in
contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
Where the outcome
of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is
probable such costs will be recoverable.
Contract costs
are recognised as expenses in the period in which they are incurred.
When it is probable
that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
(c) Sales of services
Revenue from
service contracts that are not accounted for as construction contracts under IAS 11 is recognised in line with the delivery of
service to the customer. Related costs are deferred on the statement of financial position and then recorded as a cost of sale
when the revenue is recognised.
INTEREST INCOME
Interest income
is recognised on a time apportionment basis.
DIVIDEND DISTRIBUTION
Dividend distribution
to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved by the Company’s shareholders.
NON-RECURRING ITEMS
These are material
items excluded from management’s assessment of profit because by their nature they could distort the Group’s underlying
quality of earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is
managed and measured on a day-to-day basis.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that have
an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
3. FINANCIAL RISK MANAGEMENT
FINANCIAL RISK FACTORS
The Group’s
activities expose it to a variety of financial risks: market risk (foreign exchange risk and cash flow interest rate risk), credit
risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of the financial
markets and seeks to minimise the potential adverse effects on the Group’s financial performance.
Risk management
policy is carried out through a central treasury function within the executive management team at the Group’s head office.
The treasury function identifies, evaluates and manages financial risks in close co-operation with the Group’s operating
units. The Board provides written principles for overall risk management whilst the central treasury function provides specific
policy guidance for the operating units in terms of managing market risk, credit risk and cash and liquidity management.
(A) MARKET RISK
(i) Foreign exchange risk
The Group operates
internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily between the US dollar
and GBP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments
in foreign operations.
At a transactional
level the UK business has a broadly neutral exposure to foreign currency transactions, in that their revenues in euros and US
dollars match their purchases. Foreign currency bank accounts are maintained to minimise exchange risk by trading currencies into
sterling only when forecast surpluses or deficits are expected to arise. Approximately 30 per cent of the US business’ cost
of goods sold comes from its fellow subsidiaries in the UK and is priced in US dollars. The flow of cash from the USA to the UK
businesses is managed by central treasury in order to minimise the risk to the Group.
The exchange
risk to the Group in terms of its reported results lies in the translation of the results of the US business from US dollars to
GBP. The Group’s accounting policy is to translate the profits and losses of overseas operations using the average exchange
rate for the financial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues
to be the Group’s policy not to hedge the foreign currency exposures on the translation of overseas profits or losses and
net assets or liabilities to sterling as they are considered to be accounting rather than cash exposures.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
3. FINANCIAL RISK MANAGEMENT - (continued)
The principal
exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below:
Rate compared to £ sterling
|
|
Average rate
2015
|
|
|
Average rate
2014
|
|
|
Year end rate
2015
|
|
|
Year end rate
2014
|
|
US dollar
|
|
|
1.529
|
|
|
|
1.648
|
|
|
|
1.482
|
|
|
|
1.561
|
|
Where overseas
acquisitions are made, it is the Group’s policy to arrange any borrowings required in local currency.
It is the Group’s
policy not to trade in financial instruments. The Group does not use interest rate swaps. The Group does not speculate in foreign
currencies and no operating company is permitted to take unmatched positions in any foreign currency. The Group will use borrowings
in currencies other than GBP where appropriate to specific transactions, such as overseas acquisitions. This policy has been in
force throughout the financial year and remains so.
If the results
for the year to 31 December 2014 had been translated at the 2015 average rate then the translation impact would be to increase
prior year revenue by £1.6 million and decrease the profit before tax by £0.1 million.
(ii) Cash flow interest rate
risk
Cash flow interest
rate risk comprises the interest rate price risk that results from borrowing at both fixed and variable rates of interest.
(B) CREDIT RISK
Credit risk is
managed on a Group basis, except for credit risk relating to accounts receivable balances.
Credit risk arises
with cash balances and accounts receivables. The Group’s cash deposits are held at banks that have been carefully selected,
taking into consideration their individual external credit ratings (note 16).
Each local subsidiary
is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms
and conditions are offered. It is the Group’s policy to obtain deposits from customers where possible, particularly overseas
customers. In addition, the Group will seek confirmed letters of credit for the balances due. The nature of the customer base
(for example, national TV stations, government procurement agencies) makes the use of credit insurance inappropriate. Credit risk
is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there
is no independent rating, the finance function assesses the credit quality of the customer, taking into account its financial
position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance
with limits set by the Board. The utilisation of credit limits is regularly monitored.
(C) LIQUIDITY RISK
A material portion
of the Group’s net assets are represented by its cash balances. Any material loss of cash through ineffective investment
of this resource would undermine our ability to generate growth in shareholder value. Similarly, an inability to access these
funds would undermine the Group’s ability to meet its financial obligations. We have assessed the likelihood of loss to
be low but with a high potential impact.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
3. FINANCIAL RISK MANAGEMENT - (continued)
Therefore, in
mitigation the Group’s liquidity risk management policy is to maintain sufficient cash and available funding through an
adequate amount of committed credit facilities from its bankers, Santander. Due to the dynamic nature of the underlying businesses,
central treasury aims to maintain flexibility in funding by keeping committed credit lines available, as disclosed in note 19.
The table below
analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period
at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows.
|
|
Less than
one
year
£000
|
|
|
Between
one and
two years
£000
|
|
|
Between
two and
five years
£000
|
|
|
Total
£000
|
|
At 31 December 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans (secured)
|
|
|
9,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,000
|
|
Trade and other payables
|
|
|
13,251
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,251
|
|
At 31 December 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans (secured)
|
|
|
5,600
|
|
|
|
600
|
|
|
|
1,800
|
|
|
|
8,000
|
|
Trade and other payables
|
|
|
14,983
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,983
|
|
CAPITAL RISK MANAGEMENT
The Group’s
objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
Consistent with
other businesses, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by
total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown
in the statement of financial position) less cash and cash equivalents.
Total capital
is the sum of equity plus net debt (or less net cash) being £60.2 million at 31 December 2015 (2014: £56.4 million).
It is the stated
strategy of the Group to grow both organically and through acquisition. Acquisitions would be funded through an appropriate combination
of equity and borrowings. Future gearing would not be expected to exceed 50 per cent.
FAIR VALUE ESTIMATION
The carrying
value of trade receivables (less impairment provision) and payables are assumed to approximate to their fair value.
4. CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS
In the process
of applying the Group’s accounting policies, management has made accounting judgements in the determination of the carrying
value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates, actual
outcomes will differ from those assumptions and estimates. The following judgements have the most significant effect on the amounts
recognised in the financial statements.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
4. CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS - (continued)
ACCOUNTING FOR LONG TERM CONTRACTS
Amounts recognised
in the income statement on long term contracts are a function of both the state of progress on contracts and the margins that
are expected to be recognised for the completed contract. Accordingly, recognition of work in progress and margins on contracts
that have not yet been completed requires management to make a careful estimate of the final costs, any expected increases as
well as delays, extra costs and penalties that could reduce the expected margin.
The amounts recognised
in the financial statements represent management’s best estimate of these key considerations at the reporting date.
ACQUIRED INTANGIBLES
Intangible assets
(intellectual property, brands and customer relationships) have been acquired as part of the net assets of certain subsidiaries.
These intangible assets were capitalised at their fair value at the date of acquisition. Determining the value of acquired intangibles
required the calculation of estimated future cash flows expected to arise from the intangible assets at a suitable discount rate
in order to calculate their present value. In addition, an estimate of the useful life of the intangible asset has to be made,
over which period the cash flows were expected to be generated. The carrying amount of acquired intangibles at the reporting date
was £7.2 million (note 12) (2014: £9.6 million).
IMPAIRMENT OF GOODWILL
Determining whether
goodwill is impaired requires the estimation of the value in use of the cash-generating units to which goodwill has been allocated.
The value in use calculation requires the entity to estimate future cash flows expected to arise from the cash-generating unit
at a suitable discount rate in order to calculate the present value. Details of the impairment review and the sensitivities considered
thereon are provided in note 12.
DEFERRED TAX ASSETS
The carrying
value of deferred tax assets is dependent on sufficient taxable profits being generated in certain territories in future periods.
The carrying amount of net deferred tax liabilities at the reporting date was £1.3 million (note 22) (2014: deferred tax
liabilities £1.6 million). In addition, there were £8.0 million of deferred tax assets not recognised (2014: £4.8
million).
PROVISIONS FOR OTHER LIABILITIES
AND CHARGES
Included within
the statement of financial position are warranty provisions amounting to £0.2 million (2014: £0.3 million) and onerous
property lease provisions of £0.5 million (2014: £0.3 million) (note 21). Management believe that the warranty provisions
are adequate to cover the future risk of product warranty claims based on historic claims history applied to the current revenue
levels.
The movement
in the onerous property lease provision in the year relates to the creation of vacant property at the Vislink International Hemel
Hempstead site arising from the restructure. This was offset by the release of a provision on the Gigawave acquired site which
had its sublet agreement renewed in 2015. Property provisions have been made in respect of the vacated lease premises and represent
the future liabilities associated with the property to the end of the lease, net of anticipated income from subletting. In the
current economic environment we cannot be certain that this provision will be sufficient to cover the total future liabilities
associated with the property and the requirement for provision will be reassessed annually. The total liability for future rent
and rates on the vacated lease properties, excluding any potential benefit from subletting are £1.2 million over an aggregate
period of six years for the Gigawave property and £1.0 million over an aggregate period of four years for the partially
vacant Hemel Hempstead property.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
4. CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS - (continued)
IMPAIRMENT OF TRADE RECEIVABLES
The carrying
amount of trade receivables at the year end was £16.7 million (2014: £11.8 million), against which there was an impairment
provision of £0.6 million (2014: £1.0 million) (note 15). Trade receivables that are less than three months past due
are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that the
customer will default. Older debts are considered to be impaired unless there is sufficient evidence to the contrary that they
will be settled. Management believe that the provision is adequate to cover the risk of bad debts.
INVENTORY PROVISIONS
The carrying
amount of inventory at the year end was £12.7 million (2014: £12.9 million) after a provision for excess and obsolete
inventory of £5.5 million (2014: £4.8 million) (note 14). During the year £0.5 million of the provision was
utilised following the scrapping and sale of obsolete inventory. Inventory write-downs of £nil were written back to the
income statement on the sale of products against which provisions had previously been made. Such products have an estimated net
realisable value that was below their cost hence the requirement for the provision.
SHARE BASED PAYMENTS
A number of accounting
estimates and judgements are incorporated within the calculation of the charge to the income statement in respect of share based
payments. These are described in more detail in note 23.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
5. SEGMENTAL REPORTING
The two markets
in each of the divisions are Broadcast and Surveillance and Public Safety. As the divisions manage and control the markets directly,
costs are shared across markets in certain divisions which means that any allocation of costs to markets would be arbitrary. The
focus of management is to ensure that the appropriate material margins are being achieved in each market as a sub analysis of
the divisional performance (note 2).
The segment information
provided to the Board for the reportable continuing segments for the year ended 31 December 2015 is as follows:
Segmental reporting by division
|
|
Vislink
Communication
Systems
£000
|
|
|
Pebble
Beach
Systems
£000
|
|
|
Central
£000
|
|
|
Total
£000
|
|
Year ended 31 December 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast
|
|
|
39,265
|
|
|
|
10,949
|
|
|
|
—
|
|
|
|
50,214
|
|
Surveillance and Public Safety
|
|
|
7,597
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,597
|
|
Total revenue
|
|
|
46,862
|
|
|
|
10,949
|
|
|
|
—
|
|
|
|
57,811
|
|
Adjusted operating profit/(loss)
|
|
|
2,820
|
|
|
|
3,255
|
|
|
|
(1,354
|
)
|
|
|
4,721
|
|
Amortisation and impairment of acquired intangibles
|
|
|
(985
|
)
|
|
|
(1,419
|
)
|
|
|
—
|
|
|
|
(2,404
|
)
|
Non-recurring items
|
|
|
(2,872
|
)
|
|
|
—
|
|
|
|
(199
|
)
|
|
|
(3,071
|
)
|
Finance costs
|
|
|
(489
|
)
|
|
|
—
|
|
|
|
241
|
|
|
|
(248
|
)
|
Finance income
|
|
|
2
|
|
|
|
78
|
|
|
|
(72
|
)
|
|
|
8
|
|
(Loss)/profit before taxation
|
|
|
(1,524
|
)
|
|
|
1,914
|
|
|
|
(1,384
|
)
|
|
|
(994
|
)
|
Taxation
|
|
|
289
|
|
|
|
(476
|
)
|
|
|
278
|
|
|
|
91
|
|
(Loss)/profit
for the year being (loss)/profit attributable to owners of the parent
|
|
|
(1,235
|
)
|
|
|
1,438
|
|
|
|
(1,106
|
)
|
|
|
(903
|
)
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
38,307
|
|
|
|
9,318
|
|
|
|
1,328
|
|
|
|
48,953
|
|
Current assets
|
|
|
29,064
|
|
|
|
5,050
|
|
|
|
584
|
|
|
|
34,698
|
|
Total assets
|
|
|
67,371
|
|
|
|
14,368
|
|
|
|
1,912
|
|
|
|
83,651
|
|
Total liabilities
|
|
|
14,862
|
|
|
|
5,558
|
|
|
|
8,779
|
|
|
|
29,199
|
|
Total net
assets/(liabilities)
|
|
|
52,509
|
|
|
|
8,810
|
|
|
|
(6,867
|
)
|
|
|
54,452
|
|
Other segment items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
|
377
|
|
|
|
121
|
|
|
|
107
|
|
|
|
605
|
|
Capitalised development expenditure
|
|
|
3,217
|
|
|
|
365
|
|
|
|
—
|
|
|
|
3,582
|
|
Depreciation
|
|
|
640
|
|
|
|
99
|
|
|
|
22
|
|
|
|
761
|
|
Amortisation of intangibles
|
|
|
4,092
|
|
|
|
1,536
|
|
|
|
—
|
|
|
|
5,628
|
|
Central costs
represent corporate expenses.
Segment assets
include property, plant and equipment, goodwill, other intangibles, inventories, trade receivables and operating cash. Segment
assets exclude inter-segment investments. Segment liabilities comprise operating liabilities, taxation and segmental provisions
for liabilities and charges. Segmental liabilities also include amounts owed to other segments and Central.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
5. SEGMENTAL REPORTING - (continued)
Segmental capital
expenditure comprises additions to property, plant and equipment. It excludes segmental additions resulting from acquisitions
through business combinations.
Segmental reporting by division
|
|
Vislink
Communication
Systems
£000
|
|
|
Pebble
Beach
Systems
£000
|
|
|
Central
£000
|
|
|
Total
£000
|
|
Year ended 31 December 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement – continuing
business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast
|
|
|
37,754
|
|
|
|
8,292
|
|
|
|
—
|
|
|
|
46,046
|
|
Surveillance and Public Safety
|
|
|
15,885
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,885
|
|
Total revenue
|
|
|
53,639
|
|
|
|
8,292
|
|
|
|
—
|
|
|
|
61,931
|
|
Adjusted operating profit/(loss)
|
|
|
5,938
|
|
|
|
3,298
|
|
|
|
(2,032
|
)
|
|
|
7,204
|
|
Amortisation and impairment of acquired intangibles
|
|
|
(1,510
|
)
|
|
|
(1,120
|
)
|
|
|
—
|
|
|
|
(2,630
|
)
|
Non-recurring items
|
|
|
(889
|
)
|
|
|
—
|
|
|
|
1,827
|
|
|
|
938
|
|
Finance costs
|
|
|
(798
|
)
|
|
|
—
|
|
|
|
629
|
|
|
|
(169
|
)
|
Finance income
|
|
|
3
|
|
|
|
19
|
|
|
|
2
|
|
|
|
24
|
|
Profit before taxation
|
|
|
2,744
|
|
|
|
2,197
|
|
|
|
426
|
|
|
|
5,367
|
|
Taxation
|
|
|
(1,214
|
)
|
|
|
(917
|
)
|
|
|
508
|
|
|
|
(1,623
|
)
|
Profit for
the year being profit attributable to owners of the parent
|
|
|
1,530
|
|
|
|
1,280
|
|
|
|
934
|
|
|
|
3,744
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets (net of deferred tax liabilities)
|
|
|
36,058
|
|
|
|
10,331
|
|
|
|
(1,666
|
)
|
|
|
44,723
|
|
Current assets
|
|
|
27,699
|
|
|
|
7,445
|
|
|
|
2,076
|
|
|
|
37,220
|
|
Total assets
|
|
|
63,757
|
|
|
|
17,776
|
|
|
|
410
|
|
|
|
81,943
|
|
Total liabilities
|
|
|
13,628
|
|
|
|
4,050
|
|
|
|
7,438
|
|
|
|
25,116
|
|
Total net
assets/(liabilities)
|
|
|
50,129
|
|
|
|
13,726
|
|
|
|
(7,028
|
)
|
|
|
56,827
|
|
Other segment items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
|
713
|
|
|
|
206
|
|
|
|
—
|
|
|
|
919
|
|
Capitalised development expenditure
|
|
|
3,499
|
|
|
|
148
|
|
|
|
—
|
|
|
|
3,647
|
|
Depreciation
|
|
|
731
|
|
|
|
70
|
|
|
|
85
|
|
|
|
886
|
|
Amortisation of intangibles
|
|
|
4,203
|
|
|
|
19
|
|
|
|
—
|
|
|
|
4,222
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
5. SEGMENTAL REPORTING - (continued)
GEOGRAPHIC EXTERNAL REVENUE ANALYSIS
The revenue analysis
in the table below is based on the geographical location of the customer for each business unit.
|
|
2015
|
|
|
2014
|
|
|
|
Broadcast
£000
|
|
|
Surveillance &
Public
Safety
£000
|
|
|
Total
£000
|
|
|
Broadcast
£000
|
|
|
Surveillance &
Public
Safety
£000
|
|
|
Total
£000
|
|
By market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
5,140
|
|
|
|
2,377
|
|
|
|
7,517
|
|
|
|
6,214
|
|
|
|
10,098
|
|
|
|
16,312
|
|
Rest of Europe
|
|
|
9,964
|
|
|
|
2,129
|
|
|
|
12,093
|
|
|
|
9,321
|
|
|
|
1,835
|
|
|
|
11,156
|
|
North America
|
|
|
15,579
|
|
|
|
2,892
|
|
|
|
18,471
|
|
|
|
15,027
|
|
|
|
3,555
|
|
|
|
18,582
|
|
Latin America
|
|
|
5,967
|
|
|
|
47
|
|
|
|
6,014
|
|
|
|
2,893
|
|
|
|
43
|
|
|
|
2,936
|
|
Middle East and Africa
|
|
|
7,370
|
|
|
|
28
|
|
|
|
7,398
|
|
|
|
5,432
|
|
|
|
68
|
|
|
|
5,500
|
|
Asia/Pacific
|
|
|
6,194
|
|
|
|
124
|
|
|
|
6,318
|
|
|
|
7,159
|
|
|
|
286
|
|
|
|
7,445
|
|
|
|
|
50,214
|
|
|
|
7,597
|
|
|
|
57,811
|
|
|
|
46,046
|
|
|
|
15,885
|
|
|
|
61,931
|
|
Non-current assets,
other than financial instruments and deferred tax, located in the UK are £31.9 million (2014: £33.6 million) and rest
of world £12.6 million (2014: £12.7 million).
6. OPERATING (LOSS)/PROFIT
The following
items have been included in arriving at the operating (loss)/profit for the continuing business:
|
|
2015
£000
|
|
|
2014
£000
|
|
Depreciation of property, plant and equipment
(note 13)
|
|
|
761
|
|
|
|
886
|
|
Amortisation and impairment of acquired intangibles
(note 12)
|
|
|
2,404
|
|
|
|
2,130
|
|
Impairment of intangible assets
|
|
|
—
|
|
|
|
500
|
|
Operating lease rentals
|
|
|
247
|
|
|
|
205
|
|
Repairs and maintenance expenditure on property, plant
and equipment
|
|
|
110
|
|
|
|
112
|
|
Exchange gains credited to profit and loss
|
|
|
(561
|
)
|
|
|
(534
|
)
|
Research and development expenditure expensed in the
year which includes:
|
|
|
5,757
|
|
|
|
5,558
|
|
– Capitalisation of research and
development expenditure (note 12)
|
|
|
(3,582
|
)
|
|
|
(3,647
|
)
|
– Amortisation
of capitalised development costs (note 12)
|
|
|
3,224
|
|
|
|
2,092
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
6. OPERATING (LOSS)/PROFIT - (continued)
OTHER EXPENSES
Other expenses
comprise:
|
|
2015
£000
|
|
|
2014
£000
|
|
Amortisation and impairment of acquired
intangibles
|
|
|
2,404
|
|
|
|
2,630
|
|
Non-recurring items
|
|
|
3,071
|
|
|
|
(938
|
)
|
|
|
|
5,475
|
|
|
|
1,692
|
|
NON-RECURRING ITEMS
The following
items are excluded from management’s assessment of profit because by their nature they could distort the Group’s underlying
quality of earnings. They are excluded to reflect performance in a consistent manner and are in line with how the business is
managed and measured on a day-to-day basis:
|
|
2015
£000
|
|
|
2014
£000
|
|
Rationalisation and redundancy costs
|
|
|
2,531
|
|
|
|
722
|
|
Onerous property commitments
|
|
|
341
|
|
|
|
—
|
|
Reduction in disputed creditor balance
|
|
|
—
|
|
|
|
(169
|
)
|
Contractual disputes
|
|
|
—
|
|
|
|
167
|
|
Write back of deferred consideration un-earned
|
|
|
—
|
|
|
|
(2,000
|
)
|
Acquisition related costs
|
|
|
199
|
|
|
|
270
|
|
Costs associated with the transfer
to the Alternative Investment Market (AIM)
|
|
|
—
|
|
|
|
72
|
|
|
|
|
3,071
|
|
|
|
(938
|
)
|
The Group has
incurred rationalisation and redundancy costs of £2,531,000 in the year (2014: £722,000) in relation to the restructuring
within Vislink Communication Systems.
In 2015 the Group
incurred £341,000 of costs in relation to onerous property commitments as part of the restructuring of Vislink Communication
Systems.
The Group incurred
£199,000 of acquisition related costs during 2015 (2014: £224,000 acquisition costs in relation to the acquisition
of Pebble Beach Systems Limited and also incurred £46,000 of costs associated with an aborted acquisition).
An on-going creditor
dispute was resolved during 2014, resulting in a £169,000 reduction in the payable amount. The agreed revised settlement
figure was paid in 2015.
In 2014 there
was a £2,000,000 release of deferred consideration owing to the vendors of Amplifier Technology Limited as a result of the
failure to meet target revenues.
In 2014 an ongoing
contractual dispute was resolved and a final settlement figure of £167,000 was agreed and paid. During 2014 the Group incurred
costs of £72,000 in relation to the move to AIM.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
7. DIRECTORS AND EMPLOYEES
Staff costs during
the year for the continuing business were as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
Wages and salaries
|
|
|
14,837
|
|
|
|
15,362
|
|
Social security costs
|
|
|
1,906
|
|
|
|
1,992
|
|
Other pension costs – defined contribution
plans (note 26)
|
|
|
562
|
|
|
|
545
|
|
Share based payments (note 23)
|
|
|
403
|
|
|
|
500
|
|
|
|
|
17,708
|
|
|
|
18,399
|
|
The monthly average
number of employees employed by the Group during the year was as follows:
|
|
2015
Number
|
|
|
2014
Number
|
|
Average monthly number of employees
|
|
|
|
|
|
|
|
|
Broadcast sales and marketing
|
|
|
60
|
|
|
|
53
|
|
Surveillance and Public Safety sales and marketing
|
|
|
2
|
|
|
|
5
|
|
Services
|
|
|
2
|
|
|
|
4
|
|
Technology
|
|
|
88
|
|
|
|
85
|
|
Logistics
|
|
|
66
|
|
|
|
91
|
|
Projects and support
|
|
|
23
|
|
|
|
20
|
|
General and Admin
|
|
|
39
|
|
|
|
43
|
|
|
|
|
280
|
|
|
|
301
|
|
The average number
of employees has been calculated on a pro rata basis from the date of disposal or acquisition of subsidiaries and businesses.
The average number of employees includes directors with service contracts. The total number of employees at 31 December 2015 was
268 (2014: 296).
Key management
compensation for the continuing business:
|
|
2015
Number
|
|
|
2014
Number
|
|
Short term employee benefits – including
salaries, social security costs and non-monetary benefits
|
|
|
2,236
|
|
|
|
2,568
|
|
Post-employment benefits – defined
contribution pension plans
|
|
|
204
|
|
|
|
159
|
|
Share-based payments (note 23)
|
|
|
399
|
|
|
|
500
|
|
|
|
|
2,839
|
|
|
|
3,227
|
|
The analysis
of key management compensation above includes Executive Directors. Key management is defined as the senior management teams in
each of the business units of the Group.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
8. FINANCE COSTS — NET
|
|
2015
£000
|
|
|
2014
£000
|
|
Finance costs
|
|
|
248
|
|
|
|
169
|
|
Finance income
|
|
|
(8
|
)
|
|
|
(24
|
)
|
Finance costs – net
|
|
|
240
|
|
|
|
145
|
|
Finance costs represent interest
payable on bank borrowings.
Finance income is derived from cash
held on deposit.
9. INCOME TAX (CREDIT)/EXPENSE
A) ANALYSIS OF THE TAX (CREDIT)/CHARGE
IN YEAR
|
|
2015
£000
|
|
|
2014
£000
|
|
Current tax
|
|
|
|
|
|
|
|
|
UK corporation tax
|
|
|
160
|
|
|
|
585
|
|
Foreign tax – current year
|
|
|
182
|
|
|
|
74
|
|
Adjustments in respect of prior
years
|
|
|
(34
|
)
|
|
|
—
|
|
Total current tax
|
|
|
308
|
|
|
|
659
|
|
Deferred tax
|
|
|
|
|
|
|
|
|
UK corporation tax
|
|
|
188
|
|
|
|
112
|
|
Impact of change in tax rate
|
|
|
(117
|
)
|
|
|
—
|
|
Foreign tax
|
|
|
(613
|
)
|
|
|
837
|
|
Adjustments in respect of prior
years
|
|
|
143
|
|
|
|
15
|
|
Total deferred tax
|
|
|
(399
|
)
|
|
|
964
|
|
Total taxation
|
|
|
(91
|
)
|
|
|
1,623
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
9. INCOME TAX (CREDIT)/EXPENSE - (continued)
B) FACTORS AFFECTING TAX (CREDIT)/CHARGE
FOR YEAR
The (credit)/charge
for the year can be reconciled to the (loss)/profit in the income statement as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
(Loss)/profit before tax on continuing
operations
|
|
|
(994
|
)
|
|
|
5,367
|
|
Tax at the UK corporation tax rate of 20.25% (2014:
21.5%)
|
|
|
(201
|
)
|
|
|
1,154
|
|
Adjustments in respect of prior years
|
|
|
109
|
|
|
|
15
|
|
Permanent differences
|
|
|
523
|
|
|
|
347
|
|
Enhanced R&D tax relief
|
|
|
(485
|
)
|
|
|
(390
|
)
|
Deferred consideration not taxable
|
|
|
—
|
|
|
|
(430
|
)
|
Underwater share options
|
|
|
108
|
|
|
|
—
|
|
Current year losses not recognised
|
|
|
428
|
|
|
|
1,117
|
|
Brought forward losses used in the year
|
|
|
(12
|
)
|
|
|
—
|
|
Additional losses now recognised
|
|
|
(200
|
)
|
|
|
(36
|
)
|
Effect of changes in UK tax rate
|
|
|
(117
|
)
|
|
|
(40
|
)
|
Effects of different tax rates
of subsidiaries operating in other jurisdictions
|
|
|
(244
|
)
|
|
|
(114
|
)
|
Total taxation
|
|
|
(91
|
)
|
|
|
1,623
|
|
The standard
rate of corporation tax in the UK changed from 21 per cent to 20 per cent with effect from 1 April 2015. Accordingly, the Company’s
profits for this accounting year are taxed at an effective rate of 20.25 per cent.
10. DIVIDENDS AND RETURNS TO
SHAREHOLDERS
|
|
2015
£000
|
|
|
2014
£000
|
|
Final dividend paid of 1.50 pence
per share (2014: 1.25 pence per share)
|
|
|
1,830
|
|
|
|
1,473
|
|
The directors
are proposing a final dividend in respect of the financial year ending 31 December 2015 of 1.50 pence per share which will absorb
an estimated £1.8 million of shareholders’ funds. It will be paid on 18 July 2016 to shareholders who are on the register
of members on 24 June 2016.
11. EARNINGS PER SHARE
Basic earnings
per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year.
For diluted earnings
per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market
price of the Company’s ordinary shares during the year.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
11. EARNINGS PER SHARE - (continued)
Reconciliation
of the earnings and weighted average number of shares used in the calculations are set out below.
|
|
2015
|
|
|
2014
|
|
|
|
Earnings
£000
|
|
|
Weighted
average
number of
shares
000s
|
|
|
Earnings
per share
pence
|
|
|
Earnings
£000
|
|
|
Weighted
average
number of
shares
000s
|
|
|
Earnings
per share
pence
|
|
Basic (loss)/earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit attributable
to ordinary shareholders
|
|
|
(903
|
)
|
|
|
121,910
|
|
|
|
(0.7
|
)
|
|
|
3,744
|
|
|
|
117,797
|
|
|
|
3.2
|
|
Basic (loss)/earnings per share
|
|
|
(903
|
)
|
|
|
121,910
|
|
|
|
(0.7
|
)
|
|
|
3,744
|
|
|
|
117,797
|
|
|
|
3.2
|
|
Diluted (loss)/earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit attributable to
ordinary shareholders
|
|
|
(903
|
)
|
|
|
124,694
|
|
|
|
(0.7
|
)
|
|
|
3,744
|
|
|
|
120,250
|
|
|
|
3.1
|
|
Diluted (loss)/earnings per share
|
|
|
(903
|
)
|
|
|
124,694
|
|
|
|
(0.7
|
)
|
|
|
3,744
|
|
|
|
120,250
|
|
|
|
3.1
|
|
ADJUSTED EARNINGS
The directors
believe that adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide
additional useful information on underlying trends to shareholders. These measures are used by management for internal performance
analysis and incentive compensation arrangements. The term “adjusted” is not a defined term under IFRS and may not
therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made
in respect of the amortisation of acquired intangibles and non-recurring items and their related tax effects.
The reconciliation
between reported and underlying earnings and basic earnings per share is shown below:
|
|
£
000
|
|
|
2015
Pence
|
|
|
£000
|
|
|
2014
Pence
|
|
Reported (loss)/earnings per share
|
|
|
(903
|
)
|
|
|
(0.7
|
)
|
|
|
3,744
|
|
|
|
3.2
|
|
Amortisation of acquired intangibles after tax
|
|
|
2,188
|
|
|
|
1.7
|
|
|
|
2,209
|
|
|
|
1.9
|
|
Non-recurring items after tax
|
|
|
2,449
|
|
|
|
2.0
|
|
|
|
(1,093
|
)
|
|
|
(1.0
|
)
|
Adjusted earnings per share
|
|
|
3,734
|
|
|
|
3.0
|
|
|
|
4,860
|
|
|
|
4.1
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
12. INTANGIBLE ASSETS
|
|
Goodwill
£000
|
|
|
Acquired
customer
relationships
£000
|
|
|
Acquired
intellectual
property
£000
|
|
|
Acquired
brands
£000
|
|
|
Capitalised
development
costs
£000
|
|
|
Total
£000
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
37,027
|
|
|
|
12,504
|
|
|
|
5,089
|
|
|
|
1,687
|
|
|
|
17,970
|
|
|
|
74,277
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,647
|
|
|
|
3,647
|
|
Additions from acquisition of business
|
|
|
3,218
|
|
|
|
4,494
|
|
|
|
3,350
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,062
|
|
Exchange adjustment
|
|
|
588
|
|
|
|
402
|
|
|
|
—
|
|
|
|
39
|
|
|
|
653
|
|
|
|
1,682
|
|
At 1 January 2015
|
|
|
40,833
|
|
|
|
17,400
|
|
|
|
8,439
|
|
|
|
1,726
|
|
|
|
22,270
|
|
|
|
90,668
|
|
Additions
|
|
|
99
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,582
|
|
|
|
3,681
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
Exchange adjustment
|
|
|
560
|
|
|
|
93
|
|
|
|
—
|
|
|
|
38
|
|
|
|
676
|
|
|
|
1,367
|
|
At 31 December 2015
|
|
|
41,492
|
|
|
|
17,493
|
|
|
|
8,378
|
|
|
|
1,764
|
|
|
|
26,528
|
|
|
|
95,655
|
|
Accumulated amortisation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
15,443
|
|
|
|
10,908
|
|
|
|
3,872
|
|
|
|
620
|
|
|
|
10,401
|
|
|
|
41,244
|
|
Charge for the year – continuing
business
|
|
|
—
|
|
|
|
976
|
|
|
|
985
|
|
|
|
169
|
|
|
|
2,092
|
|
|
|
4,222
|
|
Impairment charge
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Exchange adjustment
|
|
|
258
|
|
|
|
402
|
|
|
|
—
|
|
|
|
23
|
|
|
|
336
|
|
|
|
1,019
|
|
At 1 January 2015
|
|
|
16,201
|
|
|
|
12,286
|
|
|
|
4,857
|
|
|
|
812
|
|
|
|
12,829
|
|
|
|
46,985
|
|
Charge for the year – continuing
business
|
|
|
—
|
|
|
|
1,134
|
|
|
|
1,096
|
|
|
|
174
|
|
|
|
3,224
|
|
|
|
5,628
|
|
Exchange adjustment
|
|
|
244
|
|
|
|
95
|
|
|
|
—
|
|
|
|
28
|
|
|
|
384
|
|
|
|
751
|
|
At 31 December 2015
|
|
|
16,445
|
|
|
|
13,515
|
|
|
|
5,953
|
|
|
|
1,014
|
|
|
|
16,437
|
|
|
|
53,364
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2015
|
|
|
25,047
|
|
|
|
3,978
|
|
|
|
2,425
|
|
|
|
750
|
|
|
|
10,091
|
|
|
|
42,291
|
|
At 31 December 2014
|
|
|
24,632
|
|
|
|
5,114
|
|
|
|
3,582
|
|
|
|
914
|
|
|
|
9,441
|
|
|
|
43,683
|
|
At 1 January 2014
|
|
|
21,584
|
|
|
|
1,596
|
|
|
|
1,217
|
|
|
|
1,067
|
|
|
|
7,569
|
|
|
|
33,033
|
|
The estimated
useful life for the intellectual property and customer relationships acquired with the business of Pebble Beach Systems has been
determined to be five years and six years respectively based on the expected future cash flows that they would generate in arriving
at their fair value. The fair value of the intellectual property acquired on the acquisition of Pebble Beach Systems was £3.4
million and the fair value of the customer relationships acquired was £4.5 million.
The remaining
net book value of IP, brands and customer relationships were acquired with the businesses of Gigawave, Amplifier Technology and
PMR and are associated with the Broadcast and Surveillance and Public Safety markets. The estimated useful lives had been determined
to be between five and ten years based on the expected future cash flows that they would generate in arriving at their fair value.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
12. INTANGIBLE ASSETS - (continued)
The amortisation
of development costs is included in research and development expenses in the Consolidated Income Statement. Within development
costs there are £11.8 million (2014: £9.8 million) of fully written down assets that are still in use.
The amortisation
of customer relationships, brands and intellectual property are all charged to other expenses in the Consolidated Income Statement
and are referred to as the amortisation of acquired intangibles.
IMPAIRMENT TEST FOR CASH GENERATING
UNITS CONTAINING GOODWILL
Historical goodwill
acquired in business combinations was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefit
from those business combinations, being the markets that the Group serves, namely Broadcast, Surveillance and Public Safety, Amplifier
Technology Limited and Pebble Beach Systems Limited.
In accordance
with the requirements of IAS 36 “Impairment of assets”, goodwill is required to be tested for impairment on an annual
basis, with reference to the value of the cash-generating units in question. The goodwill relating to the Surveillance and Public
Safety market was fully written down in 2010. The Group acquired Amplifier Technology in 2013 which is a separate CGU and Pebble
Beach Systems in 2014 which is also a separate CGU, therefore impairment reviews have been undertaken in respect of the Broadcast
market, Amplifier Technology and Pebble Beach Systems. The carrying value of goodwill at 31 December 2015 is £25.0 million
(2014: £24.6 million) consisting of £20.6 million for the Broadcast market (2014: £20.3 million), £1.1
million for Amplifier Technology (2014: £1.1 million) and £3.3 million for Pebble Beach Systems (2014: £3.2
million).
The carrying
value of all CGUs (including goodwill) have been assessed with reference to value in use over a projected period of four years
with a terminal value. This reflects projected cash flows based on actual operating results and approved budget, strategic plans
and management projections.
The key assumptions
on which the value in use calculations are based relate to business performance over the next four years, long term growth rates
beyond 2015 and the discount rate applied.
The cash flow
projections have been discounted to present value using the Group’s pre-tax weighted average cost of capital, which has
been calculated on a consistent basis using the capital asset pricing model to determine cost of equity and debt. This has resulted
in a pre-tax discount rate of 14.6 per cent (2014: 13.0 per cent), which has been used for the purpose of the impairment test.
In respect of the Broadcast market, Amplifier Technology and Pebble Beach Systems the value in use was found to be higher than
the carrying value, hence no impairment is necessary.
Our impairment
test for Amplifier Technology CGU indicated headroom of £0.4m. A reduction of 16.1 per cent in overall cash flows, or an
increase in the discount rate by 2.3 per cent would cause the carrying value to equal the recoverable amount.
Our impairment
test for the Broadcast CGU indicated headroom of £17.0 million. A reduction of 36.4 per cent in overall cash flows, or an
increase in the discount rate by 5.1 per cent would cause the carrying value to equal the recoverable amount.
For Pebble Beach
Systems Limited, any reasonable movement in the assumptions used in the impairment tests would not result in any impairment.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
13. PROPERTY, PLANT AND EQUIPMENT
|
|
Freehold
land
and
buildings
£000
|
|
|
Leasehold
improvements,
fixtures and
fittings
£000
|
|
|
Plant, tools,
test and
computer
equipment
£000
|
|
|
Total
£000
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
907
|
|
|
|
1,441
|
|
|
|
8,501
|
|
|
|
10,849
|
|
Additions
|
|
|
73
|
|
|
|
287
|
|
|
|
559
|
|
|
|
919
|
|
Additions from acquisition of business
|
|
|
32
|
|
|
|
144
|
|
|
|
281
|
|
|
|
457
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(102
|
)
|
|
|
(102
|
)
|
Exchange adjustment
|
|
|
27
|
|
|
|
48
|
|
|
|
1,693
|
|
|
|
1,768
|
|
At 1 January 2015
|
|
|
1,039
|
|
|
|
1,920
|
|
|
|
10,932
|
|
|
|
13,891
|
|
Additions
|
|
|
7
|
|
|
|
24
|
|
|
|
574
|
|
|
|
605
|
|
Disposals
|
|
|
(508
|
)
|
|
|
—
|
|
|
|
(366
|
)
|
|
|
(874
|
)
|
Exchange adjustment
|
|
|
11
|
|
|
|
48
|
|
|
|
550
|
|
|
|
609
|
|
At 31 December 2015
|
|
|
549
|
|
|
|
1,992
|
|
|
|
11,690
|
|
|
|
14,231
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
245
|
|
|
|
1,135
|
|
|
|
7,039
|
|
|
|
8,419
|
|
Charge for the year – continuing business
|
|
|
37
|
|
|
|
115
|
|
|
|
734
|
|
|
|
886
|
|
Additions from acquisition of business
|
|
|
14
|
|
|
|
102
|
|
|
|
179
|
|
|
|
295
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(101
|
)
|
|
|
(101
|
)
|
Exchange adjustment
|
|
|
9
|
|
|
|
33
|
|
|
|
1,685
|
|
|
|
1,727
|
|
At 1 January 2015
|
|
|
305
|
|
|
|
1,385
|
|
|
|
9,536
|
|
|
|
11,226
|
|
Charge for the year – continuing business
|
|
|
22
|
|
|
|
124
|
|
|
|
615
|
|
|
|
761
|
|
Disposals
|
|
|
(169
|
)
|
|
|
—
|
|
|
|
(366
|
)
|
|
|
(535
|
)
|
Exchange adjustment
|
|
|
2
|
|
|
|
35
|
|
|
|
541
|
|
|
|
578
|
|
At 31 December 2015
|
|
|
160
|
|
|
|
1,544
|
|
|
|
10,326
|
|
|
|
12,030
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2015
|
|
|
389
|
|
|
|
448
|
|
|
|
1,364
|
|
|
|
2,201
|
|
At 31 December 2014
|
|
|
734
|
|
|
|
535
|
|
|
|
1,396
|
|
|
|
2,665
|
|
At 1 January 2014
|
|
|
662
|
|
|
|
306
|
|
|
|
1,462
|
|
|
|
2,430
|
|
14. INVENTORIES
|
|
2015
£000
|
|
|
2014
£000
|
|
Raw materials and consumables
|
|
|
7,678
|
|
|
|
4,410
|
|
Work in progress
|
|
|
414
|
|
|
|
880
|
|
Finished goods and goods for
resale
|
|
|
4,604
|
|
|
|
7,594
|
|
|
|
|
12,696
|
|
|
|
12,884
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
14. INVENTORIES - (continued)
During the year
the Group consumed £25.8 million (2014: £31.9 million) of inventories and credited £nil (2014: £nil) to
the income statement in respect of inventory write downs. Inventory write downs are written back on the sale of products against
which provisions have previously been made. Such products have a net realisable value that is below their cost hence the requirement
for the provision.
15. TRADE AND OTHER RECEIVABLES
|
|
2015
£000
|
|
|
2014
£000
|
|
Current:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
16,749
|
|
|
|
11,802
|
|
Less: provision for impairment
|
|
|
(643
|
)
|
|
|
(962
|
)
|
Trade receivables – net
|
|
|
16,106
|
|
|
|
10,840
|
|
Amounts recoverable on contracts
|
|
|
—
|
|
|
|
3,867
|
|
Other receivables
|
|
|
43
|
|
|
|
169
|
|
Prepayments and accrued income
|
|
|
2,602
|
|
|
|
1,080
|
|
|
|
|
18,751
|
|
|
|
15,956
|
|
In determining
the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the
date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base
being large and unrelated to each other.
Trade receivables
that are less than three months past due are not considered impaired unless there are specific financial or commercial reasons
that lead management to conclude that the customer will default. At 31 December 2015 trade receivables of £4.2 million (2014:
£6.1 million) were past due but not impaired. The credit quality of the Group’s customers is good, being a combination
of large broadcast stations (public and private), government agencies and departments. Controls within Group companies are in
place to ensure that appropriate credit limits are in place. The overdue amounts relate to customers with no history of default.
The ageing of these receivables is as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
Up to three months
|
|
|
2,197
|
|
|
|
4,559
|
|
Three to six months
|
|
|
803
|
|
|
|
866
|
|
Over six months
|
|
|
1,228
|
|
|
|
635
|
|
|
|
|
4,228
|
|
|
|
6,060
|
|
At 31 December
2015 trade receivables of £0.6 million (2014: £1.0 million) were impaired and provided for in whole or in part. The
provision of £0.6 million (2014: £1.0 million) is set against specific customer debts. In general, customer debts
that are considered impaired are as a result of contractual disputes rather than as a result of customer cash flow difficulties,
although some specific customers in the US, for which the debts have been provided in full, have filed for relief from their creditors
under Chapter 11 in the United States. The ageing of these receivables is as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
Over six months
|
|
|
643
|
|
|
|
1,026
|
|
|
|
|
643
|
|
|
|
1,026
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
15. TRADE AND OTHER RECEIVABLES - (continued)
The gross amounts
of the Group’s trade receivables are denominated in the following currencies:
|
|
2015
£000
|
|
|
2014
£000
|
|
Pounds sterling
|
|
|
7,857
|
|
|
|
5,760
|
|
US dollars
|
|
|
8,299
|
|
|
|
6,004
|
|
Euros
|
|
|
593
|
|
|
|
38
|
|
|
|
|
16,749
|
|
|
|
11,802
|
|
Movements on
the Group provision for impairment of trade receivables are as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
At 1 January
|
|
|
962
|
|
|
|
752
|
|
Provision for receivable impairment
|
|
|
16
|
|
|
|
411
|
|
Receivables written off during the year as uncollectable
|
|
|
(349
|
)
|
|
|
(134
|
)
|
Receivables previously provided that were recovered
in full or part
|
|
|
—
|
|
|
|
(184
|
)
|
Transfer on acquisition of business
|
|
|
—
|
|
|
|
115
|
|
Exchange adjustment
|
|
|
14
|
|
|
|
2
|
|
At 31 December
|
|
|
643
|
|
|
|
962
|
|
Amounts charged
to the allowance account are generally written off, when there is no expectation of recovering additional cash.
The other classes
within trade and other receivables do not contain impaired assets.
The maximum exposure
to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any
collateral as security.
16. CASH AND CASH EQUIVALENTS
|
|
2015
£000
|
|
|
2014
£000
|
|
Cash and bank balances
|
|
|
3,251
|
|
|
|
8,380
|
|
Cash and
cash equivalents at 31 December
|
|
|
3,251
|
|
|
|
8,380
|
|
The credit quality
of the cash and cash equivalents that are not impaired can be assessed by reference to the external credit ratings of the banks
where the deposits are held.
Credit rating (S&P)
|
|
2015
£000
|
|
|
2014
£000
|
|
A-1+
|
|
|
1,183
|
|
|
|
1,107
|
|
A-1
|
|
|
1,943
|
|
|
|
6,113
|
|
A-2
|
|
|
120
|
|
|
|
1,129
|
|
A-3
|
|
|
—
|
|
|
|
31
|
|
B
|
|
|
5
|
|
|
|
—
|
|
Total
|
|
|
3,251
|
|
|
|
8,380
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
16. CASH AND CASH EQUIVALENTS - (continued)
Reconciliation
of (decrease)/increase in cash and cash equivalents to movement in net cash:
|
|
2015
|
|
|
2014
|
|
|
|
Cash and
cash
equivalents
£000
|
|
|
Other
borrowings
£000
|
|
|
Total net
cash
£000
|
|
|
Cash and
cash
equivalents
£000
|
|
|
Other
borrowings
£000
|
|
|
Total net
cash
£000
|
|
At 1 January
|
|
|
8,380
|
|
|
|
(8,000
|
)
|
|
|
380
|
|
|
|
3,705
|
|
|
|
—
|
|
|
|
3,705
|
|
Cash flow for the year before financing and acquisition
of subsidiary
|
|
|
(4,346
|
)
|
|
|
—
|
|
|
|
(4,346
|
)
|
|
|
3,187
|
|
|
|
—
|
|
|
|
3,187
|
|
Proceeds on issue of shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
2,000
|
|
Purchase of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,092
|
)
|
|
|
—
|
|
|
|
(13,092
|
)
|
Cash acquired from subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,089
|
|
|
|
—
|
|
|
|
6,089
|
|
Movement in borrowings in the year
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
—
|
|
|
|
8,000
|
|
|
|
(8,000
|
)
|
|
|
—
|
|
Dividend paid
|
|
|
(1,830
|
)
|
|
|
—
|
|
|
|
(1,830
|
)
|
|
|
(1,473
|
)
|
|
|
—
|
|
|
|
(1,473
|
)
|
Exchange rate adjustments
|
|
|
47
|
|
|
|
—
|
|
|
|
47
|
|
|
|
(36
|
)
|
|
|
—
|
|
|
|
(36
|
)
|
Cash and
cash equivalents at
31 December
|
|
|
3,251
|
|
|
|
(9,000
|
)
|
|
|
(5,749
|
)
|
|
|
8,380
|
|
|
|
(8,000
|
)
|
|
|
380
|
|
17. TRADE AND OTHER PAYABLES
|
|
2015
£000
|
|
|
2014
£000
|
|
Payments received on account
|
|
|
1,778
|
|
|
|
1,033
|
|
Trade payables
|
|
|
7,984
|
|
|
|
8,589
|
|
Accruals and deferred income
|
|
|
3,489
|
|
|
|
5,361
|
|
Other taxes and social security
costs
|
|
|
303
|
|
|
|
827
|
|
|
|
|
13,554
|
|
|
|
15,810
|
|
18. CURRENT TAX LIABILITIES
|
|
2015
£000
|
|
|
2014
£000
|
|
UK corporation tax
|
|
|
45
|
|
|
|
691
|
|
Foreign corporation tax
|
|
|
194
|
|
|
|
56
|
|
Current tax liabilities
|
|
|
239
|
|
|
|
747
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
19. FINANCIAL LIABILITIES — BORROWINGS
|
|
2015
£000
|
|
|
2014
£000
|
|
Non-current:
|
|
|
|
|
|
|
Bank loans (secured)
|
|
|
—
|
|
|
|
2,400
|
|
Current:
|
|
|
|
|
|
|
|
|
Bank loans (secured)
|
|
|
9,000
|
|
|
|
5,600
|
|
BANK BORROWING FACILITIES
On 30 June 2015
the Group restructured its existing debt facilities and replaced the original £7.0 million Revolving Credit Facility (RCF)
and £3.0 million term loan with a £10.0 million RCF. On 26 November 2015 the Group extended its RCF to £15.0
million to provide greater flexibility. As at 31 December 2015 £9.0 million of the facility had been utilised. The RCF is
committed until November 2018.
The Group overdraft
facility expires within one year and is therefore subject to review during 2016 in the normal course of business. At 31 December
2015 the Group had a gross bank overdraft facility of £2.0 million, and a net limit of £1.0 million. Interest on the
overdraft facility is charged at 2.75 per cent over base rate.
All bank facilities
are secured by fixed and floating charges over the Group’s assets and by cross-guarantees between the Company and certain
UK and US subsidiaries.
Prudent liquidity
risk management implies maintaining sufficient cash and available funding through an adequate amount of committed credit facilities.
Due to the dynamic nature of the underlying businesses, Group treasury aims to maintain flexibility in funding by keeping committed
credit lines available.
The Group does
not use interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. The effective interest rates
at the balance sheet dates were as follows:
|
|
2015
|
|
|
2014
|
|
Bank overdraft
|
|
|
3.25
|
%
|
|
|
3.25
|
%
|
Bank borrowings
|
|
|
2.40
|
%
|
|
|
2.40
|
%
|
The Group held
net debt at 31 December 2015 of £5.7 million (2014: net cash of £0.4 million) and the Group was not utilising the
available net overdraft facility.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
20. FINANCIAL INSTRUMENTS
Numerical financial
instrument disclosures are set out below. Additional disclosures are set out in the accounting policies (note 2).
FINANCIAL INSTRUMENTS BY CATEGORY
|
|
2015
Loans and
receivables
£000
|
|
|
2014
Loans and
receivables
£000
|
|
Assets as per statement of financial position at
31 December
|
|
|
|
|
|
|
|
|
Trade and other receivables excluding
prepayments and accrued income
|
|
|
16,149
|
|
|
|
14,876
|
|
Cash and cash equivalents
|
|
|
3,251
|
|
|
|
8,380
|
|
Total
|
|
|
19,400
|
|
|
|
23,256
|
|
There are no
financial assets that are pledged as collateral for liabilities or contingent liabilities.
|
|
2015
Other
financial
liabilities at
amortised
cost
£000
|
|
|
2014
Other
financial
liabilities at
amortised
cost
£000
|
|
Liabilities as per statement of financial position
at 31 December
|
|
|
|
|
|
|
|
|
Trade and other payables excluding payments
received on account and social security liabilities
|
|
|
11,473
|
|
|
|
13,950
|
|
Borrowings
|
|
|
9,000
|
|
|
|
8,000
|
|
Total
|
|
|
20,473
|
|
|
|
21,950
|
|
21. PROVISIONS FOR OTHER LIABILITIES
AND CHARGES
|
|
Warranty
provisions
£000
|
|
|
Property
provisions
£000
|
|
|
Total
£000
|
|
At 1 January 2015
|
|
|
270
|
|
|
|
288
|
|
|
|
558
|
|
Additional provision in the year
|
|
|
—
|
|
|
|
216
|
|
|
|
216
|
|
Utilisation of provision
|
|
|
(87
|
)
|
|
|
—
|
|
|
|
(87
|
)
|
Foreign exchange
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
At 31 December 2015
|
|
|
188
|
|
|
|
504
|
|
|
|
692
|
|
Provisions have
been analysed between current and non current as follows:
|
|
2015
£000
|
|
|
2014
£000
|
|
Current
|
|
|
272
|
|
|
|
280
|
|
Non-current
|
|
|
420
|
|
|
|
278
|
|
At 31 December
|
|
|
692
|
|
|
|
558
|
|
Warranty provisions
are made in respect of the expected future warranty costs in certain businesses based on historical actual costs. Warranty periods
on products are generally between one and two years. Other than a warranty provision of £0.1 million (2014: £0.1 million)
all provisions are denominated in sterling. The warranty provision is reassessed annually based on the warranty claim experience
of the previous 12 months relative to the aggregate outstanding warranty period at the year end.
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
21. PROVISIONS FOR OTHER LIABILITIES
AND CHARGES - (continued)
The onerous property
provision movement in the year relates to the creation of a vacant property provision at the Vislink International Hemel Hempstead
site, arising following the restructure. This was offset by a release of a provision on the Gigawave acquired site which had its
sublet agreement renewed in 2015. This movement is not discounted.
22. DEFERRED TAXATION
Deferred tax
is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which
the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other
temporary differences to the extent that they are regarded as more likely than not to be recoverable against future profits.
No deferred tax
is recognised on unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the Group, no tax
is expected to be payable on them in the foreseeable future.
From 1 April
2015 the corporation tax rate was 20 per cent, from 1 April 2017 will be 19 per cent and from 1 April 2020 was expected to be
18 per cent, the 2017 and 2020 rates were substantively enacted on 26 October 2015. The corporation tax rate is now expected to
fall to 17% from 1 April 2020 but this has not yet been substantively enacted, hence deferred tax assets and liabilities are calculated
at 18%, in so far as they relate to the UK.
|
|
Accelerated
tax
depreciation
£000
|
|
|
Intangible
assets
£000
|
|
|
Losses
£000
|
|
|
Other
£000
|
|
|
Total
£000
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015
|
|
|
2,283
|
|
|
|
3,055
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,338
|
|
Charge to profit or loss
|
|
|
131
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
181
|
|
Exchange adjustment
|
|
|
111
|
|
|
|
84
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195
|
|
At 31 December 2015
|
|
|
2,525
|
|
|
|
3,189
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,714
|
|
|
|
Accelerated
tax
depreciation
£000
|
|
|
Intangible
assets
£000
|
|
|
Losses
£000
|
|
|
Other
£000
|
|
|
Total
£000
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
2,371
|
|
|
|
1,341
|
|
|
|
3,712
|
|
(Credit)/charge to profit or loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
743
|
|
|
|
580
|
|
Exchange adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
79
|
|
|
|
90
|
|
|
|
169
|
|
At 31 December 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
2,287
|
|
|
|
2,174
|
|
|
|
4,461
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
22. DEFERRED TAXATION - (continued)
|
|
Accelerated
tax
depreciation
£000
|
|
|
Intangible
assets
£000
|
|
|
Losses
£000
|
|
|
Other
£000
|
|
|
Total
£000
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
1,632
|
|
|
|
1,521
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,153
|
|
Acquired during the year
|
|
|
16
|
|
|
|
1,591
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,607
|
|
Charge/(credit) to profit or loss
|
|
|
538
|
|
|
|
(136
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
402
|
|
Reclassification to deferred tax assets
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
Exchange adjustment
|
|
|
124
|
|
|
|
79
|
|
|
|
—
|
|
|
|
—
|
|
|
|
203
|
|
At 31 December 2014
|
|
|
2,283
|
|
|
|
3,055
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,338
|
|
|
|
Accelerated
tax
depreciation
£000
|
|
|
Intangible
assets
£000
|
|
|
Losses
£000
|
|
|
Other
£000
|
|
|
Total
£000
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
|
|
27
|
|
|
|
—
|
|
|
|
2,740
|
|
|
|
1,383
|
|
|
|
4,150
|
|
Charge to profit or loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(451
|
)
|
|
|
(111
|
)
|
|
|
(562
|
)
|
Reclassification from deferred tax liabilities
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
Exchange adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
|
|
69
|
|
|
|
151
|
|
At 31 December 2014
|
|
|
—
|
|
|
|
—
|
|
|
|
2,371
|
|
|
|
1,341
|
|
|
|
3,712
|
|
The movement
on net deferred tax (liability)/asset in the year was:
|
|
2015
£000
|
|
|
2014
£000
|
|
Net deferred tax (liability)/asset at
1 January
|
|
|
(1,626
|
)
|
|
|
997
|
|
Credited/(charged) in the year – continuing
business
|
|
|
399
|
|
|
|
(964
|
)
|
Acquisition of a business
|
|
|
—
|
|
|
|
(1,607
|
)
|
Exchange adjustment
|
|
|
(26
|
)
|
|
|
(52
|
)
|
Net deferred tax liability
at 31 December
|
|
|
(1,253
|
)
|
|
|
(1,626
|
)
|
Certain deferred
tax assets have not been recognised where they are not probable of recovery:
|
|
2015
£000
|
|
|
2014
£000
|
|
Losses
|
|
|
8,021
|
|
|
|
4,172
|
|
Unutilised ACT
|
|
|
—
|
|
|
|
584
|
|
|
|
|
8,021
|
|
|
|
4,756
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
23. ORDINARY SHARES
|
|
Number
’000s
|
|
|
2015
£000
|
|
|
Number
’000s
|
|
|
2014
£000
|
|
Ordinary shares of 2.5 pence each at 31 December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorised
|
|
|
200,000
|
|
|
|
5,000
|
|
|
|
200,000
|
|
|
|
5,000
|
|
Allotted and fully paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January
|
|
|
122,603
|
|
|
|
3,066
|
|
|
|
113,902
|
|
|
|
2,848
|
|
Share issues
|
|
|
—
|
|
|
|
—
|
|
|
|
8,701
|
|
|
|
218
|
|
At 31 December
|
|
|
122,603
|
|
|
|
3,066
|
|
|
|
122,603
|
|
|
|
3,066
|
|
POTENTIAL ISSUE OF SHARES
The Group has
the following share based payment schemes:
A) EXECUTIVE SHARE OPTION SCHEMES
Executive share
options are granted at a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual
life of an option is ten years. Awards are at the discretion of the Remuneration Committee. Options will become exercisable on
the third anniversary of the date of grant. Exercise of an option is subject to continued employment. There are no performance
criteria attached to the options granted in 2006, 2007 and 2012.
2,896,000 executive
options were granted during 2015 (2014: nil). These options all have performance criteria attached.
Certain senior
executives hold options to subscribe for shares in the Company at prices ranging from 29.0 pence to 86.3 pence under the share
option schemes approved by shareholders.
The number of
shares subject to options and the exercise prices are:
Date of grant
|
|
Exercise
price
|
|
|
Exercise period
|
|
|
2015
Number
’000s
|
|
|
2014
Number
’000s
|
|
13 April 2006
|
|
|
53.5
|
p
|
|
|
13/04/09 – 12/04/16
|
|
|
|
54
|
|
|
|
120
|
|
27 April 2007
|
|
|
86.3
|
p
|
|
|
27/04/10 – 26/04/17
|
|
|
|
50
|
|
|
|
50
|
|
29 March 2012
|
|
|
29.0
|
p
|
|
|
29/03/15 – 28/03/22
|
|
|
|
100
|
|
|
|
450
|
|
14 May 2015
|
|
|
54.0
|
p
|
|
|
01/04/18 – 13/05/25
|
|
|
|
2,090
|
|
|
|
—
|
|
25 June 2015
|
|
|
59.5
|
p
|
|
|
25/06/18 – 24/06/25
|
|
|
|
726
|
|
|
|
—
|
|
30 September 2015
|
|
|
40.9
|
p
|
|
|
30/09/18 – 29/09/25
|
|
|
|
80
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
3,100
|
|
|
|
620
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
23. ORDINARY SHARES - (continued)
A reconciliation
of executive option movements over the year is shown below:
|
|
Number
’000s
|
|
|
2015
Weighted
average
exercise
price
|
|
|
Number
’000s
|
|
|
2014
Weighted
average
exercise
price
|
|
Outstanding at beginning of year
|
|
|
620
|
|
|
|
38.4
|
p
|
|
|
1,124
|
|
|
|
31.8
|
p
|
Forfeited during the year
|
|
|
(66
|
)
|
|
|
53.5
|
p
|
|
|
(124
|
)
|
|
|
30.1
|
p
|
Lapsed during the year
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
34.5
|
p
|
Exercised during the year
|
|
|
(350
|
)
|
|
|
29.0
|
p
|
|
|
(346
|
)
|
|
|
20.4
|
p
|
Issued during the year
|
|
|
2,896
|
|
|
|
55.0
|
p
|
|
|
—
|
|
|
|
—
|
|
Outstanding at the end of the
year
|
|
|
3,100
|
|
|
|
54.7
|
p
|
|
|
620
|
|
|
|
38.4
|
p
|
Exercisable at the end of the
year
|
|
|
204
|
|
|
|
49.5
|
p
|
|
|
170
|
|
|
|
63.1
|
p
|
350,000 options
were exercised in 2015 (2014: 345,580), some of these options were cash settled and the cash cost has been debited to reserves.
The options outstanding at 31 December 2015 had a weighted average exercise price of 54.7 pence (2014: 38.4 pence) and a weighted
average remaining contractual life of 9.0 years (2014: 5.7 years).
Expected volatility
was determined by calculating the historical volatility of the Group’s share price over the previous three years. The risk-free
rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.
B) LONG TERM INCENTIVE PLAN (LTIP)
Options have
been granted as nil cost options under this scheme. The options granted under this scheme are generally exercisable at the end
of the performance period and for seven years thereafter. Awards under this scheme are reserved for employees at senior management
level and above. If an employee leaves the employment of the Group, a proportion of his award may be deemed to have vested, subject
to satisfying any performance conditions and at the discretion of the Remuneration Committee.
Awards under
the LTIP scheme are subject to performance criteria, the scales relating to which will be determined annually by the Remuneration
Committee. Details of the performance criteria are disclosed in the Remuneration Report.
No new LTIP options
were granted during the year.
The number of
shares subject to LTIP options and the exercise prices are:
Date of grant
|
|
Share price
at award
date
|
|
|
Vesting date
|
|
2015
Number
’000s
|
|
|
2014
Number
’000s
|
|
28 March 2012
|
|
|
29.5
|
p
|
|
28 March 2015
|
|
|
2,200
|
|
|
|
2,200
|
|
15 December 2012
|
|
|
26.0
|
p
|
|
15 December 2015
|
|
|
404
|
|
|
|
404
|
|
12 November 2013
|
|
|
48.5
|
p
|
|
12 November 2016
|
|
|
3,481
|
|
|
|
3,550
|
|
03 June 2014
|
|
|
45.1
|
p
|
|
03 June 2017
|
|
|
600
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
6,685
|
|
|
|
6,754
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
23. ORDINARY SHARES - (continued)
A reconciliation
of LTIP option movements over the year is shown below:
|
|
Number
’000s
|
|
|
2015
Weighted
average
exercise
price
|
|
|
Number
’000s
|
|
|
2014
Weighted
average
exercise
price
|
|
Outstanding at beginning of year
|
|
|
6,754
|
|
|
|
40.6
|
p
|
|
|
6,804
|
|
|
|
39.8
|
p
|
Lapsed during the year
|
|
|
—
|
|
|
|
—
|
|
|
|
(650
|
)
|
|
|
39.7
|
p
|
Forfeited during the year
|
|
|
(69
|
)
|
|
|
48.5
|
p
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
600
|
|
|
|
45.1
|
p
|
Outstanding at the end of the
year
|
|
|
6,685
|
|
|
|
40.6
|
p
|
|
|
6,754
|
|
|
|
40.6
|
p
|
There were 2,604,000
LTIP options that were exercisable at the end of the year (2014: nil).
The weighted
average contractual life remaining on the LTIP options outstanding at 31 December 2015 is 7.5 years (2014: 8.5 years).
C) SHARE OPTIONS — VALUE
OF EMPLOYEE SERVICES
The Group recognised
total expenses of £403,330 (2014: £500,448) related to equity-settled share based payment transactions in the income
statement in the year.
24. CASH FLOW GENERATED FROM
OPERATING ACTIVITIES
Reconciliation
of (loss)/profit before taxation to net cash flows from operating activities.
|
|
2015
£000
|
|
|
2014
£000
|
|
(Loss)/profit before tax
|
|
|
(994
|
)
|
|
|
5,367
|
|
Depreciation of property, plant and equipment
|
|
|
761
|
|
|
|
886
|
|
Acquisition related costs
|
|
|
—
|
|
|
|
224
|
|
Write back of deferred consideration unearned
|
|
|
—
|
|
|
|
(2,000
|
)
|
Amortisation of development costs
|
|
|
3,224
|
|
|
|
2,092
|
|
Amortisation and impairment of acquired intangibles
|
|
|
2,404
|
|
|
|
2,630
|
|
Share based payment expense
|
|
|
(43
|
)
|
|
|
500
|
|
Finance income
|
|
|
(8
|
)
|
|
|
(24
|
)
|
Finance costs
|
|
|
248
|
|
|
|
169
|
|
Decrease/(increase) in inventories
|
|
|
557
|
|
|
|
(1,268
|
)
|
Increase in trade and other receivables
|
|
|
(2,411
|
)
|
|
|
(2,233
|
)
|
(Decrease)/increase in trade and other payables
|
|
|
(3,261
|
)
|
|
|
1,807
|
|
Increase/(decrease) in provisions
|
|
|
128
|
|
|
|
(151
|
)
|
Net cash generated from operating
activities
|
|
|
605
|
|
|
|
7,999
|
|
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
25. CONTINGENT LIABILITIES AND
COMMITMENTS
The aggregate
future minimum lease payments due under non-cancelable operating leases are as follows:
|
|
2015
Land and
buildings
£000
|
|
|
2015
Other
£000
|
|
|
2014
Land and
buildings
£000
|
|
|
2014
Other
£000
|
|
Not later than one year
|
|
|
888
|
|
|
|
16
|
|
|
|
939
|
|
|
|
15
|
|
Later than one year and not later than five years
|
|
|
3,229
|
|
|
|
28
|
|
|
|
4,204
|
|
|
|
41
|
|
Later than five years
|
|
|
197
|
|
|
|
—
|
|
|
|
619
|
|
|
|
—
|
|
|
|
|
4,314
|
|
|
|
44
|
|
|
|
5,762
|
|
|
|
56
|
|
The Group leases
a number of office and factory premises under operating leases of periods between five and ten years. None of these leases contain
contingent rentals. Other leases comprise leases for office equipment. During the year £0.2 million (2014: £0.2 million)
of operating lease payments were recognised in the consolidated income statement.
26. PENSIONS
DEFINED CONTRIBUTION PLANS
The Group currently
operates a Group Personal Pension Plan and funds are invested with Standard Life plc. UK employees are entitled to join the plan
to which the Company contributes varying amounts subject to status. In addition the Group operates a stakeholder pension scheme
in the UK. In the US, the Group contributes to a 401K plan on behalf of employees up to US$2,500 (£1,545) per employee.
The total Group pension charge for the year was £0.6 million (2014: £0.5 million).
The Group has
no unfunded pension liabilities.
27. RELATED PARTY TRANSACTIONS
Transactions
between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note.
Key management
includes directors (executive and non-executive), members of the senior management, the Company Secretary and the head of Internal
Audit. The compensation paid or payable to key management for employee services is disclosed in note 7.
Pebble Beach
Systems Limited, a wholly owned subsidiary of Vislink Group Holdings Limited, leases a property (Unit 12 Horizon Business Village)
owned by Denton Trust of which Ian Cockett, Peter Hajittofi and Julian Hepworth, directors of Pebble Beach Systems Limited are
trustees along with Paul Hatcher, an employee of Pebble Beach Systems Limited. The rent was £95,000 per annum for the year
to December 2015 but was increased to £105,000 per annum with effect from 1 January 2016. Pebble Beach Systems Limited also
lease (for £65,000 per annum) a second property (Unit 15 Horizon Business Village) also owned by Denton Trust of which Ian
Cockett, Peter Hajittofi and Julian Hepworth, directors of Pebble Beach Systems Limited, are trustees along with Paul Hatcher,
an employee of Pebble Beach Systems Limited.
Included within
accruals is an accrual for £18,000 for consultancy work carried out by Maximum Clarity, a company in which John Varney,
a non-executive director of the company has a controlling interest (2014: £nil).
VISLINK PLC
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
27. RELATED PARTY TRANSACTIONS - (continued)
The subsidiaries
of the Group which are unlisted unless otherwise indicated, are shown below.
The following
subsidiaries are included in the Group’s consolidated results.
|
|
Proportion
of
ordinary
shares
held by
the Group
|
|
|
Principal activity
|
|
Country of
incorporation
and operation
|
|
Registered office
|
Vislink Group Holdings
Limited*
|
|
|
83.3
|
%
|
|
Management holding company
|
|
UK
|
|
Hungerford England
|
Vislink International Limited (incorporating
the business of Advent Communications, Link Research and Gigawave)
|
|
|
100
|
%
|
|
Design and manufacture of wireless camera systems satellite uplink and downlink equipment
|
|
UK
|
|
Hungerford England
|
Vislink, Inc. (Incorporating the
businesses of Microwave Radio Communications, Pacific Microwave Research and Western Technical Services)
|
|
|
100
|
%
|
|
Design and manufacture of microwave radio transmission equipment
|
|
USA
|
|
Delaware USA
|
Amplifier Technology Limited
|
|
|
100
|
%
|
|
Design and manufacture of amplifiers
|
|
UK
|
|
Hungerford England
|
Pebble Beach Systems Limited
|
|
|
100
|
%
|
|
Software service video capture and playout provider for the broadcast industry
|
|
UK
|
|
Weybridge England
|
Pebble Broadcast Systems, Inc.
|
|
|
100
|
%
|
|
Software service video capture and playout provider for the broadcast industry
|
|
USA
|
|
Colorado USA
|
Vislink Holdings Limited
|
|
|
100
|
%
|
|
Management holding company
|
|
UK
|
|
Hungerford England
|
Continental Microwave Limited
|
|
|
100
|
%
|
|
Broadcast transmission systems integration and project management
|
|
UK
|
|
Hungerford England
|
Vislink Holdings, Inc.
|
|
|
100
|
%
|
|
Management holding company
|
|
USA
|
|
Delaware USA
|
Vislink Technology Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Link Research Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Vislink Communications Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Advent Communications Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Multipoint Communications Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Vislink Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Gigawave Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
UK
|
|
Hungerford England
|
Vislink (Singapore) Pte Limited
|
|
|
100
|
%
|
|
Dormant Company**
|
|
SGP
|
|
Singapore
|
|
*
|
Owned
directly by the Company
|
1,666,672 Shares of
Common Stock
xG Technology, Inc.
PROSPECTUS
The date of this prospectus is ,
2016
PART II— INFORMATION NOT REQUIRED
IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission registration fee
|
|
$
|
73.41
|
|
Accounting fees and expenses
|
|
|
7,500
|
|
Legal fees and expense
|
|
|
5,000
|
|
Miscellaneous Expenses
|
|
|
5,000
|
|
Total
|
|
$
|
17,573
|
|
All amounts are estimates other than the
SEC’s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne
by the selling stockholder. The selling stockholder, however, will pay any other expenses incurred in selling the Common Stock,
including any brokerage commissions or costs of sale.
Item 15. Indemnification of Directors and Officers.
The Delaware General Corporation Law and
certain provisions of our certificate of incorporation and bylaws under certain circumstances provide for indemnification of our
officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances
in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference
to our certificate of incorporation, bylaws and to the statutory provisions.
In general, any officer, director, employee
or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to
which such person is a party, if that person’s actions were in good faith, were believed to be in our best interest, and
with respect to any criminal action or proceeding, such person had no reasonable cause to believe their actions were unlawful.
Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by
independent decision of the board of directors, by legal counsel, or by a vote of the stockholders, that the applicable standard
of conduct was met by the person to be indemnified.
The circumstances under which indemnification
is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect
to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement
of the action. In such actions, unless the court determines otherwise, the person to be indemnified must have acted in good faith
and in a manner believed to have been in our best interest, and have not been adjudged liable to the corporation.
Indemnification may also be granted pursuant
to the terms of agreements which we are currently party to with each of our directors and executive officers, agreements which
we may enter into in the future or pursuant to a vote of stockholders or directors. Delaware law and our certificate of incorporation
also grant the power to us to purchase and maintain insurance which protects our officers and directors against any liabilities
incurred in connection with their service in such a position, and such a policy may be obtained by us.
A stockholder’s investment may be
adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by
these indemnification provisions. There is no pending litigation or proceeding involving any of our directors, officers or employees
regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing
provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Item 16. Exhibits.
The list of exhibits in the Exhibit Index
to this registration statement is incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii)
and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained
in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the registration statement;
(2) That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means
of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(4) That, for the purpose of determining
liability under the Securities Act of 1933 to any purchaser:
(i)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as
of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the
information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract
of sale of securities in the offering described in prospectus. As provided in Rule 430B, for liability purposes of the issuer and
any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which the prospectus relates, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with
a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;
and
(5) That, for the purpose of determining
liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to
Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred
to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of an undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes
that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Sarasota, State of Florida, on December 8, 2016.
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xG TECHNOLOGY, INC.
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By:
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/s/ George Schmitt
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Chief Executive Officer and Chairman of the Board
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(Principal Executive Officer)
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Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the capacities and on the dates indicated
Signature
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Title
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Date
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/s/ George Schmitt
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Chief Executive Officer and
Director and Chairman of the Board
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December 8, 2016
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George Schmitt
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(Principal Executive Officer)
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/s/ Roger G. Branton
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Chief Financial Officer
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December 8, 2016
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Roger G. Branton
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(Principal Financial and Accounting
Officer)
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/s/ John Coleman
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Director
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December 8, 2016
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John Coleman
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/s/ Richard L. Mooers
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Director
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December 8, 2016
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Richard L. Mooers
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/s/ Gary Cuccio
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Director
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December 8, 2016
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Gary Cuccio
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/s/ Raymond M. Sidney
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Director
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December 8, 2016
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Raymond M. Sidney
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/s/ Kenneth Hoffman
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Director
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December 8, 2016
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Kenneth Hoffman
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/s/ James T. Conway
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Director
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December 8, 2016
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James T. Conway
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EXHIBIT INDEX
Exhibit
Number
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Description of Exhibit
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3.1
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Certificate of Designations of Series D Convertible Preferred Stock
(3)
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5.1**
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Opinion of Robinson
Brog Leinwand Greene Genovese & Gluck P.C.
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10.1
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Asset Purchase Agreement dated January 29, 2016
(1)
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10.2
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Initial Payment Note dated January 29, 2016
(1)
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10.3
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Deferred Payment Note dated January 29, 2016
(1)
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10.4
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Asset Purchase Modification Agreement dated April 15, 2016
(2)
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23.1*
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Consent of Marcum LLP
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23.2*
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Consent of Friedman LLP
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23.3*
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Consent of Marcum LLP
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23.4*
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Consent of Pricewaterhouse Coopers LLP
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23.5**
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Consent of Robinson
Brog Leinwand Greene Genovese & Gluck P.C. (included in Exhibit 5.1)
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24.1**
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Power of Attorney
(included on signature pages to the registration statement)
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* Filed herewith
** Previously filed
(1)
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Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 3, 2016.
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(2)
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Filed as an Exhibit on Current Report on Form 8-K/A with the SEC on April 18, 2016.
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(3)
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Filed as an Exhibit on Current Report on Form 8-K with the SEC on April 27, 2016.
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