UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

or

 

  [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from__________ to__________

 

Commission File Number: 001-35988

 

Vislink Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   20-5856795
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

101Bilby Rd, Suite 15, Bldg. 2

Hackettstown, NJ 07840

(Address of principal executive offices) (Zip Code)

 

(Registrant’s telephone number, including area code): (941) 953-9035

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Name of each exchange on which registered:
Common Stock, par value $0.00001   The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
  Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

As of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $3.6 million based on the closing price of $1.60 for the registrant’s common stock as quoted on the Nasdaq Capital Market on that date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

 

The registrant had 78,500,687 shares of its common stock outstanding as of March 27, 2020.

 

 

 

     
 

 

VISLINK TECHNOLOGIES, INC.

FORM 10-K

ANNUAL REPORT

For the Fiscal Year Ended December 31, 2019

 

TABLE OF CONTENTS

 

    Page
PART I    
Item 1. Business 4
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Mine Safety Disclosures 15
PART II    
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
Item 6. Selected Financial Data 17
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 28
Item 9A. Controls and Procedures 28
Item 9B. Other Information 29
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 30
Item 13. Certain Relationships and Related Transactions, and Director Independence 30
Item 14. Principal Accounting Fees and Services 30
PART IV    
Item 15. Exhibits, Financial Statement Schedules 31
SIGNATURES 35
FINANCIAL STATEMENTS F-1

 

2

 

 

FORWARD-LOOKING INFORMATION

 

This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) (the “Report”) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar words and phrases are intended to identify forward-looking statements. However, this is not an all-inclusive list of words or phrases that identify forward-looking statements in this Report. Also, all statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and circumstances currently known by us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed elsewhere in this Report.

 

We file reports with the Securities and Exchange Commission (“SEC”), and those reports are available free of charge on our website (www.vislinktechnologies.com) under “About/Investor Information/SEC Filings.” The reports available include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, which are available as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Report. We urge you to carefully review and consider all the disclosures made in this Report.

 

3

 

 

PART I

 

Item 1. Business

 

Overview

 

The overarching strategy of Vislink Technologies, Inc. (the “Company”) is to design, develop and deliver advanced wireless communications solutions that provide customers in its target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. Prior to April 2019, the Company’s business lines included the brands and sub-brands of Integrated Microwave Technologies LLC (“IMT”) and Vislink Communication Systems (“Vislink” or “VCS”). There was considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities. During the process of merging the respective product and support offerings across the brands, which began in 2017, the legacy brand names were maintained in markets where strong traditional identification of them existed.

 

Effective February 11, 2019, xG Technology, Inc. changed the name of its corporate entity to Vislink Technologies, Inc. On April 2, 2019, the Company announced the official global repositioning of its brands to the worldwide market. As part of this rebranding initiative, the Company united its individual product brands under the single Vislink brand entity. The rebranding also included an updated visual identity with respect to logos, tag lines, and other graphical elements, and a completely redesigned website. The Company also redefined its product offerings around three key vertical markets: Live Production, Military/Government (“Mil/Gov”) and Satellite solutions (“Satellite”).

 

Technology Overview

 

Vislink manufactures and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. 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. Vislink has extensive experience in ultra-compact COFDM wireless technology, which has allowed the Company to develop integrated solutions that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations. Over the years, Vislink has also been involved in the development of a number of broadcast microwave innovations, including digital transmission techniques for use over conventional analog links, compact wireless camera systems, lightweight carbon fiber portable satellite systems, software-defined portable MPEG-2/MPEG-4 (H.264) systems and one of the first wireless 4K UHD (Ultra High Definition) camera systems.

 

Live Production Market

 

In the Live Production market, Vislink provides communication links for the wireless capture, delivery, and management of secure, high-quality video from live sports, entertainment, and broadcast news events.

 

Key segments within the live sports and entertainment sector are sports production, sports venue entertainment systems, movie director video assist, e-sports and the non-professional user segment. Customers within this market are major domestic and international professional sports teams, associations and organizations, movie production companies, live video production service providers, system integrators and a growing segment of drone and unoccupied ground vehicle providers. For this sector, Vislink provides a range of premium, mid-market and embedded wireless camera systems that include receivers, transmitters, amplifiers, and other components and accessories.

 

Customers within the broadcast news sector include blue-chip, tier-1 major network TV stations, both domestic and international over-the-air broadcasters, multi-channel broadcasters, network owners and station groups and cable and satellite news providers. For this sector, Vislink designs, develop, and markets solutions to support electronic newsgathering activities from news helicopters and ground-based news vehicles, camera operations, central receive sites, remote onsite and studio newscasts and live television events. These solutions include premium digital broadcast microwave video systems, wireless camera systems, portable microwave systems, and fixed point-to-point systems.

 

Mil/Gov Market

 

The Mil/Gov market consists of key segments that include state, local and federal law enforcement agencies, branches of domestic armed forces, an international defense and government agencies and system integrators who serve these markets. Customers within this market include state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice, the Department of Homeland Security and the U.S. Army. The critical solutions Vislink provides to this market are secure video communications and mission-critical wireless video solutions for applications, including occupied and unoccupied aerial and ground systems, mobile and handheld receive systems and transmitters for concealed video surveillance.

 

4

 

 

Satellite Market

 

In the Satellite market, Vislink is a leading global provider of satellite communication services, with solutions designed for use in both fixed installations and small, rapidly deployable configurations. Vislink has been supplying satellite communications solutions for over 30 years, and currently has several thousand terminals in use worldwide. Clients for these solutions include organizations in broadcast & media, law enforcement, and defense sectors. The solutions Vislink provides to these sectors are designed to provide immediate, reliable, and secure video communications under challenging environments and conditions, particularly in situations where prepositioned infrastructure is unreliable or unavailable. The product range developed for this market features man-portable SATCOM units, flyaway terminals, vehicle-mounted systems and related modules that enhance performance and optimize bandwidth.

 

Cost Reduction Initiatives

 

The Company completed a cost reduction plan announced in April 2019 that resulted in approximately $9.8 million in annual savings. Savings were realized through immediate cost reductions by eliminating certain personnel costs, associated benefits and reduction in other expenses. Specifically, the Company eliminated 83 full-time and contracted positions from the business, with salary and benefits savings totaling $8.9 million. The Company also removed $900,000 in annual non-labor costs from the business.

 

The Company also completed an additional $1.3 million in savings, in 2019, related to facilities consolidation. This included consolidating the two sites in Colchester, U.K. into one, which the expected savings are approximately $0.5 million through June 2020. The Company also successfully completed a sublease related to its Billerica facility with expected savings of $0.6 million through May 31, 2021. As part of its cost cutting measures, the Company also vacated an office and warehouse in Sunrise, Florida when the lease expired on May 13, 2019 for savings of approximately $0.2 million.

 

5

 

 

Our Strategy

 

With our cost reduction initiatives completed in 2019, the plan going forward is to grow the business in the Live Production, Mil/Gov and Satellite sectors. These industries allow us to offer a broad array of end-to-end, high-reliability, high-data-rate, long-range wireless video transmission solutions. Our solutions are being used for applications in growing market segments, including in-game sports video mobile feeds, real-time capture and display of footage from drones and other aerial platforms, and rapid-response electronic newsgathering operations.

 

The key sector strategies are to expand the various markets for existing miniature wireless video products, which include the educational sector, videographers, and video service providers; introduce complete end-to-end IP technology into traditional broadcast and media markets; provide complete end-to-end solutions for the video surveillance market, and provide turnkey satellite communications solutions to address the need for communications in challenging environments.

 

The successful integration of the IMT and Vislink product lines, and subsequent rebranding of them as a single entity, has allowed the Company to leverage the traditional strengths of each brand. We are now able to offer an expanded suite of products and services in the worldwide markets in which we operate. Integrating the IMT and Vislink product lines has enabled the Company to take advantage of the limited overlap that previously existed in product offerings, sales channels and market coverage between the two brands. For example, there was a substantial Vislink client base in international markets where IMT products had a limited presence. Also, the IMT product portfolio, which was very strong among U.S. federal law enforcement and high-end sports broadcasting customers, has been augmented with additional solutions based on enhanced product configurations. Finally, Vislink has traditionally focused on licensed spectrum solutions where IMT has pioneered the use of non-licensed spectrum for many applications. Combining Vislink Technologies’ shared spectrum and interference mitigation intellectual property with the expanded product lineup may provide an opening into new customer bases that currently do not have access to licensed spectrum.

 

6

 

 

Market Overview and Outlook

 

Our services and product offerings broadly address three markets: Live Production, Mil/Gov, and Satellite.

 

The sports and entertainment sector of the Live Production market is generally focused on the application of more agile wireless video systems. Drivers in this market include small, lightweight, easy to use equipment, low-latency video systems, reliability of the wireless links, and the ability to use licensed and unlicensed bands. Current trends within the market are to further reduce the size and improve the agility of the wireless video systems as users are demanding higher link reliabilities at longer ranges. There is also an increased desire to provide audiences with new points of view and camera angles to enhance the viewing experience. The Company is addressing this need through its solutions that incorporate 4K, HDR and other emerging video technologies. Among the new subsections of the sports and entertainment market, the Company has identified the burgeoning e-sports live streaming applications markets as ones where our solutions have applicability.

 

The broadcast news sector of the Live Production market looks to improve operational efficiencies in the gathering, production, and transmission of wireless content. Recent trends in the market include a movement towards IP connectivity over point-to-point links for infrastructure, high definition upgrades of remote newsgathering vehicles, and continued pressure to reduce expenses by improving operational efficiencies. Vislink focuses on the specific ways these customers create and gather content wirelessly. As the wireless communications industry begins transitioning to fifth generation (5G) networks, the increases in speed they will usher in are expected to augment the availability of on-demand live streaming, where Vislink equipment is already in use.

 

The Mil/Gov market consists of key segments, including state and local law enforcement agencies, federal agencies and military system integrators. The market looks to improve the reliability and quality of video content without adding complexity. The video systems must be operated without technical intervention. State and local agencies benefit from the Department of Homeland Security grant programs to improve overall security. Recent trends within these segments include improved interoperability within agencies and demand for fully integrated systems including robust microwave combined with ubiquitous IP networks. As wireless video systems are becoming more reliable and easier to deploy, the adoption rate of wireless systems is increasing. Customers within this market include state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Homeland Security.

 

The Satellite market is being impacted by the drive to experience more and better visual communication systems. This may result in increased demand for payload capacity and higher bandwidth transmissions. There are also major innovations going on in what has been termed New Space—Low Earth Orbit (LEO) constellations that promise connectivity for locations that have always been a challenge for any form of reliable communication. It includes dependable, high bandwidth infrastructure for developing nations, polar regions and marine services. Live TV broadcasting over satellite and other types of connectivity continue to be driven by cost per bit economics. Uplink operators are keen to reduce their OPEX costs by investing in greater transmission efficiency via compression and modulation approaches. There is also an interest in products offering high-rate IP connectivity, as well as the desire for fully integrated solutions that enable remote live content capture, production, broadcast and distribution.

 

7

 

 

Our Products and Solutions: Overview

 

We offer a full spectrum of wireless video products that are built around providing complete solutions. We have traditionally focused on the development of core product technologies that have the potential for application in final assembled products that cross-market segments. Such technology focus areas include RF and microwave component development spanning the frequency range from DC to 18GHz, waveform modulation, H.264 video encoding and decoding, 4K UHD (Ultra High Definition) camera systems and digital signal processing. Through these products, we are positioned with significant technology IP and an established reputation for rapidly and economically delivering complex, bespoke engineering products and solutions to customers that are expertly managed to tight deadlines. Production of these products can quickly be scaled to respond to changes in market demand.

 

Live Production Products and Solutions

 

Vislink Live Production Solutions include high-definition communication links that reliably capture, transmit, and manage live event footage. We offer a line of high-margin wireless camera transmitter and receiver products that may be interconnected over IP networks, expanding and simplifying their overall use and reducing the deployment cost significantly. Among our transmitter products, HCAM is a 4K Ultra HD-capable on-camera wireless system designed for coverage of major events. MicroLite 3 is a compact wireless HD transmitter designed for midmarket applications and smaller event coverage. It enables broadcast news operators to eliminate the use of coaxial cables in their remote news operations. This significantly reduces labor costs in the operation and increases the speed and agility of the cameramen to focus on capturing engaging content. IMTDragonFly is an ultra-compact HD solution designed for body worn applications including live-action sports. Our key receiver products include the ViewBack, CRx2, CRx6 and CIRAS-X6. ViewBack is a lightweight, low power, low latency, dual-channel diversity receiver-decoder that enables quicker production, more efficient editing, and more effective collaboration between camera operators and studio teams. We also offer ultra-compact onboard solutions that integrate our MDR (Multi-Channel Diversity Receive System) technology with ruggedized support components designed to capture video from high-speed motorsports.

 

 

HCAM

 

 

MicroLite 3

 

8

 

 

 

IMTDragonFly

 

 

CRx2 Receiver

 

 

 

CRx6 Receiver

 

 

CIRAS-X6 Receiver

 

9

 

 

Mil/Gov Products and Solutions

 

In the Mil/Gov sector, Vislink has focused on supplying miniature transmitters and handheld receivers for tactical surveillance and benefits from limited competition in this area. The IMTDragonFly transmitter is designed to capture real-time, high-quality video from UAV/UGV/Body Cams/Concealments and other covert surveillance applications for display on fixed or mobile receive applications. The MiniMobile Commander and Mobile Commander are handheld receiver/monitors designed for tactical situations.

 

The Airborne Video Downlink System (AVDS) is a comprehensive aerial-based video transmission solution that delivers real-time surveillance to enhance law enforcement, emergency, and critical infrastructure operations. It includes an integrated suite of downlink transmitters, receivers and antennas that capture real-time, reliable high-definition video from drones, helicopters and other aircraft for display at command centers, mobile units and on video management systems. AVDS allows an unlimited number of observers to view the video over any network connection, including wired Ethernet, Wi-Fi, IP satellite and IP cellular.

 

 

HDX-1100 Transmitter

 

 

MiniMobile Commander
Receiver Monitor

 

10

 

 

Satellite Products and Solutions

 

The Vislink Satellite product line features terminals that range from 65cm man-portable systems to 2.4m flyaway and driveaway systems, with all being available in multiple satellite band configurations. Key products are the AirPro 75Ka, a small, low-cost, single-button deployment IP satellite data terminal that offers expanded Ka band connectivity, and MSAT, a highly portable tri-band satellite antenna system designed for rapid deployment in challenging environments. Other Vislink Satellite products include the DVE5100 encoder and IRD6200 decoder electronics units that complement our satellite terminals. They support 4k UHD transmissions and deliver significant bandwidth efficiencies to satellite communications.

 

 

AirPro 75Ka

 

 

MSAT

 

11

 

 

Competition and Competitive Positioning

 

Vislink’s primary competitors are Domo Tactical Communications (formerly a division of Cobham), Silvus Technologies, Persistent Systems, Troll Systems, and several smaller market-specific businesses.

 

The union of the legacy IMT and Vislink brands, we believe, created one of the market share leaders in the professional broadcast and media video transmission sector. We believe that our products solve a growing market need for stable, high-definition, wireless video communications. We have been able to successfully leverage our history of broadcast industry leadership, reputation for advanced technology, and the ability to provide end-to-end solutions to maintain and increase our customer base and to continue delivering highly competitive offerings. Our product offerings address applications in growing market segments, including in-game sports video mobile feeds, real-time capture and display of footage from drones and other aerial platforms, and rapid-response electronic newsgathering operations.

 

With the global rebranding of our solutions under the single Vislink entity completed, we believe these advantages have been further strengthened. We believe we now offer an expanded range of product offerings, additional services, and enhanced capabilities. We believe this expansion of product offerings will position us for continued growth in Live Production markets, and we expect near term growth in the Mil/Gov and Satellite markets. As we continue to refine our production processes, we expect to be able to realize improving margins, better control over product quality and competitive agility.

 

Sales and Marketing

 

Our sales team currently is comprised of sales managers responsible for defined regional areas, inside sales personnel, and business development representatives focused on targeted sectors and or regions. They are supported by solution engineers trained in technical sales with a given market focus. This sales team is focused on supporting our current customers, as well as nurturing relationships with prospective customers in key domestic and international markets. We employ a combination of sales channels, including direct-to-end customer sales, network group sales, reseller/integrators and Original Equipment Manufacturer (“OEM”) sales channels to use the most efficient means of reaching customers depending on the market segment. Sales efforts are supported by marketing and public relations activities, digital and print marketing initiatives, the creation of support materials, and trade show and other event appearances.

 

As of December 31, 2019, our business development, sales, and marketing team consisted of 42 (a) full-time employees and (b) contractors.

 

Customers

 

Vislink has developed a significant following based on the reputation of our product offerings for performance, reliability, and use of advanced technology. We have developed a diverse and stable customer base for repeat product purchases from blue-chip, tier-1 clients in Live Production markets, as well as among high-profile agencies and organizations in Mil/Gov and Satellite markets.

 

Manufacturing and Suppliers

 

We utilize a combination of external contract manufacturers and internal resources to manufacture, test, assure the quality of, and ship our products. This provides us the opportunity to develop optimal supply chains that are tailored to our needs on a per-product and per-solution basis. Going forward, we anticipate that we will focus on our core strengths, which are innovation and technology design and the development and creation and exploitation of our intellectual property.

 

We may continue to rely upon, particularly in the short term, on third party components and technology to build our products, as we procure components, subassemblies and products necessary for the manufacture of our products based upon our design, development and production needs. While components and supplies are generally available from a variety of sources, we currently depend on a single or limited number of suppliers for several components for our products. We rely on purchase orders rather than long-term contracts with our suppliers. We do not currently stockpile enough components to mitigate any potential supply disruption if we are required to re-engineer our products to use alternative components.

 

12

 

 

Intellectual Property

 

We have developed a broad portfolio of intellectual property that covers wired and wireless communications systems. As of December 31, 2019, in the U.S., we have 47 patents granted, no patent applications pending, no provisional applications pending and one disclosure. Internationally, we have 17 patents granted, no patent applications pending, and no Patent Cooperation Treaty (PCT) applications.

 

Areas of our development activities that have culminated in filings and/or awarded patents include:

 

  Spatial Processing (MIMO);
  Self-Organizing Networks;
  RF Modulation;
  Compression (protocols, payload, signaling, etc.);
  Modulators/Demodulators;
  Antennas/Shielding;
  Wired and Wireless Networks;
  Media Access Control Protocols;
  Interference Mitigation;
  Cognition enabling over the air protocols (MAC layer);
  Wireless data compression;
  Dynamic Spectrum Access (DSA);
  Quality of Service; and
  Digital Broadcasting over Microwave Links.

 

We protect our intellectual property rights by relying on federal, state, and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also actively engage in monitoring activities with respect to infringing uses of our intellectual property by third parties.

 

In addition to these contractual arrangements, we also rely on a combination of the trade secret, copyright, trademark, trade dress, domain name and patents to protect our products and other intellectual property. We own a substantial portion of the copyright interests in the software code used in connection with our products,1 as well as the brand or title name trademark under which our products are marketed. We pursue the registration of our domain names, trademarks, and service marks in the United States and in locations outside the United States. Our registered trademarks in the United States include “xG,” “IMT,” “Vislink,” and the names of our products, among others.

 

Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which our products are sold or distributed. Also, the efforts we have taken to protect our proprietary rights may not be enough or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results.

 

Companies in the mobile wireless communications technology and other industries may own large numbers of patents, copyrights, and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We may face allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. As our business grows, we might face more claims of infringement.

 

13

 

 

Company Information

 

Effective February 11, 2019, xG Technology, Inc. changed its name to Vislink Technologies, Inc. Our executive offices are located at 101 Bilby Rd., Suite 15, Bldg. 2, Hackettstown, NJ 07840, and our telephone number is (908) 852-3700. Our website address is www.vislink.com. Information contained in our website does not form part of the report and is intended for informational purposes only.

 

As of January 1, 2019, we are no longer an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012.

 

Employees

 

As of December 31, 2019, we employed a total of 150 full-time employees, contractors or consultants, which included 35 in development, 2 officers, 15 in general and administrative, 4 in business development, 56 in operations, and 38 in sales and marketing. We also engage several temporary employees and consultants. None of our employees are represented by a labor union or are party to collective bargaining agreements. We believe that we have good relations with our employees.

 

14

 

 

Item 1A. Risk Factors

 

As a smaller reporting company, the Company is not required to include the disclosure required under this Item 1A.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Our headquarters are in Hackettstown, New Jersey which has 14,416 square feet pursuant to a lease that expires on April 29, 2020, the Company is currently in negotiations to extend this lease. The Company amended the lease agreement at its Billerica, Massachusetts facilities effective January 2020, decreasing occupied space to 8,204 square feet from 39,327 square feet, extending the lease expiration date to December 31, 2026 from May 31, 2021; 12,435 square feet in Hemel, United Kingdom pursuant to a lease that expires October 31, 2020; and 14,000 square feet in Colchester, United Kingdom pursuant to a lease that expires on March 24, 2025.

 

We believe our current facilities are enough for our current needs and will be adequate, or that suitable additional or substitute space will be available on commercially reasonable terms, for the foreseeable future

 

Item 3. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. From time to time, we may become involved legal proceedings, lawsuits, claims and regulations in the ordinary course of our business.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

15

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our shares of common stock are currently listed on the Nasdaq Capital Market under the symbol “VISL”.

 

Holders

 

As of March 27, 2020, there were 78,500,687 shares of common stock outstanding and approximately 149 holders of record of our shares. Because shares of our common stock are held by depositories, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record. The Company’s transfer agent and registrar is Continental Stock Transfer & Trust Company, 17 Battery Place, 8th Floor, New York, New York 10004.

 

Dividend Policy

 

We have never declared or paid any cash dividend on our common stock. We intend to retain any future earnings and do not expect to pay any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Reference is made to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized for Issuance under Equity Compensation Plans” for the information required by this item.

 

Recent Sales of Unregistered Securities

 

During the fiscal year ended December 31, 2019 and to date in the current fiscal year, we sold the following unregistered securities:

 

Issuances   # Of Shares   Date
         
         
Grant of time-based options to Carleton M. Miller, made outside of the Company’s existing equity compensation plans, in connection with his appointment as Chief Executive Officer of the Company   2,155,481
(upon exercise of options)
  January 22, 2020
         
         
Grant of performance-based options to Carleton M. Miller, made outside of the Company’s existing equity compensation plans, in connection with his appointment as Chief Executive Officer of the Company   1,500,000
(upon exercise of options)
  January 22, 2020

 

No underwriters were involved in the foregoing sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated under the Securities Act. The recipients of securities in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stock certificates and option agreements issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

 

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Item 6. Selected Financial Data

 

As a smaller reporting company, the Company is not required to include the disclosure required under this Item 6.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2019 and 2018 should be read in conjunction with the accompanying consolidated financial statements and the related notes included in Item 8 in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

Overview

 

The overarching strategy of Vislink Technologies, Inc. (“Vislink Technologies”, the “Company”, “we”, “our”, “us”) is to design, develop and deliver advanced wireless communications solutions that provide customers in our target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. Vislink Technologies’ business lines include the main brands Integrated Microwave Technologies (“IMT”) and Vislink (“Vislink”). The Vislink Technologies name serves as the corporate umbrella for its current brands, as well as any new ones that might be added to its portfolio in the future. There is considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities.

 

Effective February 11, 2019, xG Technology, Inc. changed the name of its corporate entity to Vislink Technologies, Inc. On April 2, 2019, the Company announced the official global repositioning of its brands to the worldwide market. As part of this rebranding initiative, the Company united its individual product brands under the single Vislink brand entity. The rebranding also included an updated visual identity with respect to logos, tag lines, and other graphical elements, and a completely redesigned website. The Company also redefined its product offerings around three key vertical markets: Live Production, Military/Government (“Mil/Gov”) and Satellite solutions (“Satellite”).

 

IMT

 

The IMT business develops, manufactures and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. 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 extensive experience in ultra-compact COFDM wireless technology, which has allowed IMT to develop integrated solutions over the past 20 years that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations.

 

IMT provides product and service solutions marketed under the well-established brand names Nucomm, RF Central and IMT. Its video transmission products primarily address three major market areas: broadcasting, sports and entertainment, and surveillance (for military and government).

 

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. In this market, IMT’s Nucomm line is recognized as a premium brand of digital broadcast microwave video systems.

 

The sports and entertainment market consist of key segments, including sports production, sports venue entertainment systems, movie director video assist, and the non-professional user segment. Generally, this market is focused on more agile wireless video systems. Drivers in this market include small, lightweight, easy to use equipment, low-latency video systems, reliability of the wireless links, and the ability to use licensed and unlicensed bands. Current trends within the market are to further reduce the size and improve agility of the wireless video systems as users are demanding higher link reliabilities at longer ranges. There is also an increased desire to provide audiences with new points of view and camera angles to enhance the viewing experience. Customers within this market are 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 new subsections of the sports and entertainment market, the Company has identified the burgeoning e-sports market as one where our solutions have applicability.

 

The government/surveillance market consists of key segments that include state and local law enforcement agencies, federal agencies and military system integrators. Customers within the government/surveillance market include recognizable state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Homeland Security. The key solutions IMT provides to this market are mission-critical wireless video solutions for applications, including manned and unmanned aerial and ground systems, mobile and handheld receive systems and transmitters for concealed video surveillance. IMT’s products in this market are sold under the brand name IMT.

 

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Vislink

 

Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video from the field to the point of usage. Vislink designs and manufactures products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier items.

 

Vislink serves two core markets: (i) broadcast and media and (ii) law enforcement, and surveillance. In the broadcast and media market, Vislink provides broadcast communication links for the collection of live news and 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 law enforcement, and surveillance market, Vislink provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. Its law enforcement, and surveillance customers include metropolitan, regional and national law enforcement agencies, as well as domestic and international defense agencies and organizations.

 

The novel coronavirus outbreak could impact our business.

 

The recent outbreak of the coronavirus (“COVID-19”) is creating uncertainty worldwide and domestically, in the markets, our operations, our supply chain, and the general public, given that none of the duration, scope or impact of the outbreak can be predicted. Our highest priority is the safety and well-being of our employees and other members in the Vislink community. We have been working diligently to take precautions to ensure a clean and safe environment. We are also working closely with our suppliers and customers to ensure that we are taking every feasible step to minimize disruption and to continue to deliver the products our customers’ need.

 

As of the date of this filing, COVID-19 has not had a significant impact on our business. Although we currently expect that any future disruptive impact of COVID-19 on our business to be temporary, this situation continues to evolve rapidly and therefore we cannot predict the extent of which COVID-19’s impact the Company. We expect and are seeing that COVID-19 (and reactions to it) are having and will have negative global financial consequences and heightened uncertainty, which may directly or indirectly negatively impact the operation of our supply chain, our liquidity and capital resources, and our workforce availability, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

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Results of Operations

 

The following table sets forth the items contained in the consolidated statements of operations of the financial statements included herewith for the fiscal years ended December 31, 2019, and 2018 (in thousands).

 

    For the Years Ended  
    December 31,  
    2019     2018  
Revenue   $ 28,942     $ 38,294  
Cost of revenue and operating expenses                
Cost of components and personnel     15,741       19,192  
Inventory valuation adjustments     4,705       473  
General and administrative expenses     20,099       21,817  
Research and development     3,232       7,873  
Impairment charge           413  
Amortization and depreciation     2,365       2,953  
Total cost of revenue and operating expenses     46,142       52,721  
Loss from operations     (17,200 )     (14,427 )
Other (expenses) income                
Changes in fair value of derivative liabilities     1,064       3,186  
Loss on debt and payable extinguishment           (1,060 )
Loss on debt conversions     (33 )      
Other income (expense)           146  
Interest expense     (1,878 )     (2,718 )
Total other (expenses) income     (847 )     (446  
Net loss   $ (18,047 )   $ (14,873 )

 

Revenue

 

Revenues for the year ended December 31, 2019, and 2018 were $28.9 million and $38.3 million, respectively, representing a decrease of $9.4 million or 25%. This decrease has been attributable to the downturn of significant sales made in the fiscal year end 2018 not repeated, but were offset, by some degree, with new sales orders towards the end of fiscal year 2019. The Company experienced a decline in revenue of approximately $12.9 million for Europe, North America, South American, and the rest of the world market for the year ended December 31, 2019. Offsetting the reduction was $3.5 million in new orders for the year ended December 31, 2019. The Company expects the trend of new customer contracts to continue during the fiscal year 2020, with the expectation to fulfill approximately $11.2 million accumulated in backorders.

 

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Cost of Revenue and Operating Expenses

 

Cost of Components and Personnel

 

The cost of components and personnel for the years ended December 31, 2019, and 2018 were $15.7 million and $19.2 million, respectively, representing a decrease of $3.5 million or 18%. The reduction is primarily due to a decline in revenue resulting in a drop in the cost of components. The decrease is also attributable due to the proportional change in inventory levels as a result of the Company’s disbanding of the xMax and Federal divisions in 2018, accompanied by the reduction in personnel.

 

Inventory Valuation Adjustments

 

Inventory valuation adjustments consist primarily of items written off due to obsolescence or reduction to their net realizable value. For the years ended December 31, 2019, and 2018 inventory valuation adjustments amounted to $4.7 million and $0.5 million, representing an increase of $4.2 million or 840%. The increase is primarily due to the disposal of items identified as obsolete.

 

General and Administrative Expenses

 

General and administrative expenses are costs incurred in operating the business daily and include salary and benefit expenses including stock-based compensation and payroll taxes, as well as the costs of trade shows, marketing programs, promotional materials, professional services, facilities, general liability insurance, travel and expenses associated with being a public company.

 

General and administrative expenses for the years ended December 31, 2019, and 2018 were $20.1 million and $21.8 million, respectively, representing a decrease of $1.7 million or 8%. The reduction is primarily attributable to $1.6 million of salaries and benefits, and $0.9 million in consulting. The decline has been offset mainly by an increase of $0.8 million in with minor increases of other various corporate expenditures.

 

Research and Development

 

Research and development expenses consist primarily of salary and benefit expenses including stock-based compensation and payroll taxes, as well as costs for prototypes, facilities and travel.

 

Research and development expenses for the years ended December 31, 2019, and 2018 were $3.2 million and $7.9 million, respectively, representing a decrease of $4.7 million or 59%. The reduction is primarily attributable to the Company’s strategic cost savings plan initiated in the fiscal year-end 2018, eliminating the Xg Division resulting in a decline of $2.0 in stock-based compensation and $1.8 million in salaries and benefits.

 

Impairment

 

Impairments related to the long-lived assets or amortized intangible assets that were recorded during the years ended December 31, 2019 and 2018 were $-0- and $0.4 million, respectively, representing a decrease of $0.4 million or 100%. The Company did not recognize impairment charges during fiscal year 2019, but recorded $0.4 million in charges relating to the impairment of the remaining balance of xMax software development costs in association with the discontinuance of the xMax division during fiscal year 2018.

 

Amortization and Depreciation

 

Amortization and depreciation expense for the years ended December 31, 2019, and 2018 were $2.4 million and $3.0 million, respectively, representing a decrease of $0.6 million or 20%. The reduction is primarily due to Company assets being impaired or fully depreciated in prior years.

 

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Other (Expense) Income

 

Significant Other (Expense) Income items for the years ended December 31, 2019, and 2018, respectively, were:

 

Changes in Fair Value of Derivative Liabilities

 

The measurement of the change in fair value of derivative liabilities for the years ended December 31, 2019, and 2018, were $1.1 million and $3.2 million, respectively, representing a decrease of $2.1 million or 66%. This fluctuation is mainly to the decline in our stock price and volatility rates of longer-term warrants.

 

Loss on debt and payable extinguishment

 

The Loss on debt and payable extinguishment for the years ended December 31, 2019, and 2018, were $-0- million and $1.1 million, respectively, representing a decrease of $1.1 million or 100%. This decline is primarily attributable to no activity in the fiscal year 2019 compared to the recognition of a loss in the fiscal year 2018.

 

Interest expense

 

Interest expense for years ended December 31, 2019, and 2018, were $1.9 million and $2.7 million, respectively, representing a decrease of $0.8 million or 30%. The decline is primarily attributable to the immediate expensing of warrant costs to interest expense in the fiscal year 2018 and the payoff of our debt in fiscal year 2019.

 

Net Loss

 

Net loss for the years ended December 31, 2019, and 2018 were $18.0 million and $14.9 million, respectively, representing an increase of $3.1 million or 21%. The significant items attributable to the rise of $3.1 million are primarily due to the reduction of revenue of $9.4 offset by the deduction in costs and expenses described above.

 

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Liquidity and Capital Resources

 

In July 2019, the Company closed on an equity financing for issuance of common stock and warrants for net proceeds of approximately $10.8 million. We used the net proceeds to satisfy outstanding principal and interest of $5.8 million and $1.8 million, respectively, and provide working capital for daily operating expenditures. In November 2019, the Company closed on an additional equity financing for issuance of common stock and warrants for net proceeds of $3.6 million. The Company appropriated the net proceeds from equity financing to assist in alleviating the burden of accumulated backorders and provide working capital for daily operating expenditures. In February 2020, the Company closed on an equity financing for issuance of common stock and warrants for net proceeds of $5.4 million. The Company has earmarked the net proceeds from equity financing to for working capital and general corporate purposes. On December 31, 2019, our working capital, defined as current assets less current liabilities, was $3.6 million, which included $1.7 million in cash. We believe that as of December 31, 2019, and as of the date of the filing of this Report, we have sufficient working capital to fund our operations at least for the next 12 months from the date these financial statements are available.

 

Our operations primarily have been funded through cash generated by debt and equity financing. Cash consists of cash on hand and demand deposits. Our cash balances were as follows (in thousands):

 

    December 31,  
    2019     2018  
Cash     1,737       2,005  

 

Cash Flows

 

The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented (in thousands).

 

    Year Ended
December 31, 2019
    Year Ended
December 31, 2018
 
Net cash used in operating activities   $ (8,355 )   $ (6,379 )
Net cash (used) provided by in investment activities     (425 )     181  
Net cash provided by financing activities     8,519       5,435  
Effect of exchange rate changes on cash     (7 )     (31 )
Net decrease in cash   $ (268 )   $ (794 )

 

Operating Activities

 

Net cash used in operating activities of approximately $8.4 million during the year ended December 31, 2019, was primarily attributable to our net loss of $18.0 million, a change in the fair value of derivative liabilities of $1.1 million, a decrease of accounts receivable and operating lease liabilities of $0.9 million each, a decrease of accounts payable of $0.6 million, partially offset by stock-based compensation of $2.1 million, depreciation and amortization of $2.4 million, inventory valuation adjustments of $4.7 million, an increase in deferred revenue and customer deposits of $1.2 million, and an increase in inventory of $0.8 million.

 

Net cash used in operating activities of approximately $6.4 million during the year ended December 31, 2018, was primarily attributable to our net loss of $14.9 million, a decrease of accounts payable of $3.4 million, a change in the fair value of derivative liabilities of $3.2 million, a decrease of accrued expenses and interest expense of $1.2 million, partially offset by stock-based compensation of $3.7 million, depreciation and amortization of $3.0 million, amortization of debt discount of $2.3 million, payments made in stock (payroll and consultants) of $1.8 million, loss on debt and payables extinguishment of $1.1 million, an increase in accounts receivable of $1.8 million, an increase in deferred revenue and customer deposits of $1.0 million, and an increase in inventory of $0.8 million.

 

Investing Activities

 

Net cash used in investing activities of $0.4 million during the year ended December 31, 2019, was primarily due to the purchase of equipment.

 

Net cash provided by investing activities of $0.2 million during the year ended December 31, 2018, was primarily due to the proceeds from the sale of equipment.

 

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Financing Activities

 

Net cash provided by financing activities of $8.5 million during the year ended December 31, 2019, was primarily due to the net proceeds received from an equity financing of $14.4 million, principally offset by principal payments made on convertible promissory notes of $6.0 million.

 

Net cash provided by financing activities of $5.4 million during the year ended December 31, 2018, was primarily due to the net proceeds received from the incurrence of promissory notes of $5.6 million, principally offset by payments made on convertible promissory notes and capital leases of $0.1 million each.

 

Liquidity

 

Under ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern under the requirement of ASC 205-40.

 

As reflected in the consolidated financial statements, the Company had $1.7 million in cash on the balance sheet at December 31, 2019. The Company had working capital and an accumulated deficit of $3.6 million and $252.6 million, respectively. Additionally, the Company had a loss from operations of approximately $17.2 million and cash used in operating activities of $8.4 million for the year ended December 31, 2019. As of February 14, 2020, the Company’s cash balance was approximately $6.8 million after the equity raise.

 

The Company achieved the following capital events:

 

  On July 11, 2019, the Company closed an equity financing for 1,550,000 shares of common stock, warrants to purchase 6,000,000 shares of common stock and, 4,450,000 pre-funded warrants to purchase common stock in place of common stock. The Company received gross proceeds of approximately $11,996,000 from the offering, before deducting underwriting-related fees and other offering expenses payable by the Company. The Company used the net proceeds to satisfy outstanding principal and accrued interest due on convertible promissory notes of approximately $7,600,000 million and the balance for working capital.
     
  On November 27, 2019, the Company closed an equity financing for 3,201,200 shares of common stock, warrants to purchase 11,893,100 shares of common stock and, warrants to purchase 11,320,725 shares of Common Stock. The Company received gross proceeds of approximately $3,988,000 from the offering, before deducting underwriting-related fees and other offering expenses payable by the Company. The Company used the net proceeds from equity financing for working capital purposes.
     
  On February 14, 2020, the Company closed on an equity financing for 12,445,000 shares of common stock, 12,445,000 warrants to purchase 9,333,750 shares of Common Stock, and 14,827,200 pre-funded warrants, with each Pre-Funded Warrant exercisable for one share of Common Stock, together with 14,827,200 Warrants to purchase 11,120,400 shares of Common Stock. The Company received gross proceeds of approximately $5,998,000, less offering costs of $560,000 for net proceeds of $5,438,000. The Company has earmarked the use of the net proceeds from equity financing for working capital and general corporate purposes.

 

As a result of the capital events, repaying substantially all of our outstanding debt, and ongoing cost management, the Company believes there are enough funds to mitigate the going concern uncertainty for at least twelve months from the date that the accompanying financial statements included elsewhere in this Form 10-K were issued.

 

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Nasdaq Compliance

 

On September 26, 2019, the Company received a written notification from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) as Company’s closing bid price was below $1.00 per share for the previous 30 consecutive business days.

 

Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), the Company was granted a 180-day compliance period, or until March 24, 2020, to regain compliance with the minimum bid price requirements. During the compliance period, the Company’s shares of common stock will continue to be listed and traded on the Nasdaq Capital Market.

 

On March 25, 2020, the Company received a written notification from Nasdaq that the Company was afforded a second 180-calendar day grace period to regain compliance with the minimum bid price requirements. If the Company does not regain compliance by September 21, 2020, Nasdaq will provide notice that the Company’s shares of common stock will be subject to delisting.

 

On March 4, 2020, the Company received a letter from the Listing Qualifications Department (the “Staff”) of Nasdaq notifying the Company that the Staff has determined that the Company did not comply with Listing Rule 5635(d) because the February 2020 Offering did not meet the Nasdaq definition of a public offering under Listing Rule IM-5635-3. The Staff’s determination was based on (i) the extent of the offering’s distribution, (ii) the existence of a prior relationship between the Company and the investors, and (iii) the significant discount to the minimum price, as defined in Nasdaq rules.

 

On March 18, 2020, the Company submitted a plan to regain compliance with Rule 5635, which is currently under review by Nasdaq.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, and 2018, we had no off-balance sheet arrangements.

 

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Critical Accounting Policies, Estimates and Judgments

 

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”), which require us to make estimates and assumptions. Certain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of our consolidated financial statements. The development and selection of these critical accounting policies have been determined by our management. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors. Due to the significant judgment involved in selecting certain of the assumptions used in these policies, it is possible that different parties could choose different assumptions and reach different conclusions. We consider our policies relating to the following matters to be critical accounting policies.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property, plant, and equipment, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for deferred tax assets, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. Actual results could differ from these estimates.

 

Principles of Consolidation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America or (“GAAP”) as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the US Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, IMT and Vislink. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation.

 

Segment Reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s decision-making group is the senior executive management team. The Company and the decision-making group view the Company’s operations and manage its business as one operating segment with different product offerings. All long-lived assets of the Company reside in the U.S. and U.K.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgements regarding its customer’s ability to make required payments, prevailing economic conditions, past experience and other factors. As the financial condition of these factors change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for credit losses and losses have been within its expectations.

 

Property and Equipment

 

Property and equipment are presented at cost at the date of acquisition less depreciation. Depreciation is computed using the straight-line method over estimated useful asset lives, which range from 1 to 10 years. The costs of the day-to-day servicing of property and equipment, and repairs and maintenance are recognized in expenses as incurred.

 

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Intangible Assets

 

Patents and licenses:

 

Patents and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. At December 31, 2019 and 2018, the Company had net capitalized costs of patents and licenses of $1.9 million and $2.5 million, respectively. The costs of provisional patents and pending applications is not amortized until the patent is filed and is reviewed each reporting period to determine if it is likely that the patent will be successfully filed. For the years ended December 31, 2019 and 2018, the amortization of patents and licenses amounted to $.7 million each, respectively.

 

Other intangible assets:

 

The Company’s remaining intangible assets include the trade names, technology, and customer lists acquired in its acquisition of IMT and Vislink. On December 31, 2019 and 2018, the Company had net capitalized costs of other intangible assets of $1.0 million and $2.1 million, respective. The Company includes these costs in intangible assets on the balance sheet and are amortized over their useful lives of 3 to 15 years.

 

The normal amortization of intangible assets amounted to $1.8 million and $2.0 million, for the years ended December 31, 2019 and 2018, respectively. There was an impairment of $-0- million and $0.2 million of software development costs for the years ended December 31, 2019 and 2018, respectively. The weighted average remaining life of the amortization of the Company’s intangible assets is approximately 3.7 years.

 

Revenue Recognition

 

The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised goods or services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services. The Company determines revenue recognition through the five (5) steps identified in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

 

Stock-Based Compensation

 

The Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes Option Pricing Model. The fair value of common stock issued for services is determined based on the Company’s stock price on the date of issuance.

 

The Company accounts for stock compensation arrangements with persons classified as non-employees for accounting purposes in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

 

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Impairment of Long-Lived Assets

 

Management reviews long-lived assets and other intangible assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets used in operations, including lease assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable when the estimated undiscounted cash flows expected to result from the use of an asset and its eventual disposition is less than the carrying amount. If an impairment exists, the resulting write-down would be the difference between the fair market value of the long-lived asset and the related net book value. For the years ended December 31, 2019 and 2018, the Company recorded total impairment charges of $-0- and $0.4 million, respectively.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement in common stock or (ii) give the Company a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement). The Company classifies the following contracts as either an asset or a liability: contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement) or (iii) contain reset provisions. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

 

Commitments and Contingencies

 

Except as otherwise disclosed in this Report, we have no material commitments or contingent liabilities.

 

Recently Issued Accounting Pronouncements

 

For a description of recently announced accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Recently Issued Accounting Pronouncements” in Note 3 to our Consolidated Financial Statements included below in Item 8.

 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

We are not required to provide the information required by this Item 7A. as we are a smaller reporting company.

 

Item 8. Financial Statements and Supplementary Data

 

The Company’s audited financial statements and notes thereto appear in this Report beginning on page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedure

 

(a) Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in SEC Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on such evaluation, our management, including our principal executive officer, has concluded that our disclosure controls and procedures were not effective as of December 31, 2019, because of the material weakness in our internal control over financial reporting as described below.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining internal controls over financial reporting. Internal Control Over Financial Reporting is a process designed by, and under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

  1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
     
  2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of its management and Board; and
     
  3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.

 

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management, including our principal executive officer and our principal financial officer, has not completed an effective assessment of the Company’s internal control over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that as of December 31, 2019, our internal control over financial reporting was not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting:

 

  1. We did not perform an effective risk assessment or monitor internal controls over financial reporting.
     
  2. With the acquisitions of IMT and Vislink, there are risks related to the timing and accuracy of the integration of information from various accounting and ERP systems. The Company has experienced delays in receiving information in a timely manner from its subsidiaries.
     
  3. Due to the demands of integrating the accounting and finance functions, along with turnover in the accounting department, the impact of new accounting standards was not completed on a timely basis.

 

28

 

 

To remediate the material weaknesses described above and to prevent similar deficiencies in the future, we are currently evaluating additional controls and procedures, which may include:

 

  Strengthened the management team upon bifurcating the CEO and CFO role with the appointment of seasoned individuals for those positions.
     
  Improvements made on the integration of information issues in 2020 as progress is made towards one accounting and ERP system.
     
  Provide more U.S. GAAP knowledge and SEC reporting requirement training for the accounting department.

 

This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only the management’s report in this Report.

 

c) Changes in Internal Controls over Financial Reporting

 

The management is committed to improving the internal controls over financial reporting and will undertake the consistent improvements or enhancements on an ongoing basis. There has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

29

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Item 11. Executive Compensation

 

The information required by this Item 11 is incorporated into this Report by reference to our proxy statement that has been issued in connection with our 2020 Annual Meeting of Stockholders under the headings “Executive Compensation” and “Director Compensation for Fiscal Year 2019,” which proxy statement was filed with the SEC on March 23, 2020.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The information required by this Item 12 is incorporated into this Report by reference to our proxy statement that has been issued in connection with our 2020 Annual Meeting of Stockholders under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” which proxy statement was filed with the SEC on March 23, 2020.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information required by this Item 13 is incorporated into this Report by reference to our proxy statement that has been issued in connection with our 2020 Annual Meeting of Stockholders under the heading “Certain Relationships and Related Transactions,” and “Corporate Governance,” which proxy statement was filed with the SEC on March 23, 2020.

 

Item 14. Principal Accounting Fees and Services

 

The information required by this Item 14 is incorporated into this Report by reference from our proxy statement that has been issued in connection with our 2020 Annual Meeting of Stockholders under the heading “Ratification of Appointment of Independent Registered Public Accountants,” which proxy statement was filed with the SEC on March 23, 2020.

 

30

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) The following documents are filed as part of this Report:

 

  (1) Financial Statements:

 

The audited consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, the footnotes thereto, and the report of Marcum LLP, independent registered public accountants, are filed herewith.

 

  (2) Financial Schedules:

 

None.

 

Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto.

 

  (3) Exhibits:

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

 

(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

 

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
  may apply standards of materiality that differ from those of a reasonable investor; and
  were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

31

 

 

Exhibit
Number
  Description of Exhibit
3.1(i)   Amended & Restated Certificate of Incorporation (1)
3.1(i)(a)   Amendment to Certificate of Incorporation filed June 11, 2014 (2)
3.1 (i)(b)   Amendment to Certificate of Incorporation filed July 10, 2015 (25)
3.1(i)(c)   Amended and Restated Certificate of Designation of Series B Convertible Preferred Stock (16)
3.1(i)(d)   Certificate of Designation of Series C Convertible Preferred Stock (12)
3.1(i)(e)   Certificate of Designation of Series D Convertible Preferred Stock (17)
3.1(i)(f)   Certificate of Elimination for Series C Convertible Preferred Stock (16)
3.1(i)(g)   Certificate of Elimination for Series B Convertible Preferred Stock (23)
3.1(i)(h)   Amendment to Certificate of Incorporation filed June 10, 2016 (20)
3.1(i)(i)   Certificate of Designation of Series E Convertible Preferred Stock (24)
3.1(i)(j)   Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on February 11, 2019(39)
3.1(ii)   Amended & Restated Bylaws (3)
4.1   Form of Common Stock Certificate of the Registrant (4)
4.2   Form of Warrant Agreement by and between the Registrant and Continental Stock Transfer & Trust Company and Form of Warrant Certificate for the offering closed July 24, 2013 and August 19, 2013 (5)
4.3   Form of Underwriters’ Warrant for the offering closed July 24, 2013 (1)
4.4   Form of Underwriters’ Warrant for the offering closed November 18, 2013 (6)
4.5   Form of Warrant issued in December 30, 2014 Offering (10)
4.6   Form of Warrant issued in February 11, 2015 Offering (11)
4.7   Form of Warrant issued in February 24, 2015 Offering (12)
4.8   Form of 8% Convertible Note (13)
4.9   Form of Series A Warrant for the August 2015 Offering (14)
4.10   Form of Pre-funded Series B Warrant for the August 2015 Offering (14)
4.11   Form of Series C Warrant for the August 2015 Offering (14)
4.12   Form of Series D Warrant for the August 2015 Offering (14)
4.13   Form of 5% Convertible Note (15)
4.14   Form of Amendment, dated April 29, 2016, to Series A Warrant to Purchase Common Stock of xG Technology, Inc., dated August 19, 2015(18)
4.15   Form of Amendment, dated April 29, 2016, to Warrant to Purchase Common Stock of xG Technology, Inc., dated February 29, 2016 (18)
4.16   Form of Warrant (19)
4.17   Form of Vislink Promissory Note (27)
4.18   Form of Underwriters’ Warrant for February 2017 Offering (28)
4.19   Form of Warrant for August 2017 Offering (31)
4.20   Form of 6% Senior Secured Convertible Debenture(36)
4.21   Form of Common Stock Purchase Warrant(36)
4.22   Form of Amended and Restated 6% Senior Secured Debenture(37)
4.23   Form of Second Amended and Restated 6% Senior Secured Debenture(38)
4.24   Form of 10% Senior Secured Convertible Debenture(38)
4.25   Warrant Agreement, including Form of Common Warrant and Form of Pre-Funded Warrant from July 2019 Offering(40)
4.26   Form of Warrant Agreement, including Form of Common Warrant and Form of Pre-Funded Warrant from November 2019 Offering(41)
4.27   Form of Warrant Agreement, including Form of Common Warrant and Form of Pre-Funded Warrant from February 2020 Offering(42)
4.28*   Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
10.1   2013 Long Term Incentive Plan (7)
10.2   Forms of Agreement Under 2013 Long Term Incentive Plan (7)
10.3   2004 Option Plan (7)
10.4   2005 Option Plan (7)
10.5   2006 Option Plan (7)
10.6   2007 Option Plan (7)
10.7   2009 Option Plan (7)
10.8   Forms of Award Documents under 2004, 2005, 2006, 2007, and 2009 Option Plans (7)
10.9   Sunrise Office Lease (7)
10.10   Care21 Agreement (7)
10.11   Purchase Agreement, dated as of September 22, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.12   Purchase Agreement, dated as of September 19, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.13   Registration Rights Agreement, dated as of September 19, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.14   Purchase Agreement, dated as of November 25, 2014, by and between the Company, LPC, Affiliate Purchasers, and the Other Investors (9)
10.15   Purchase Agreement, dated as of December 30, 2014, by and between the Company and 31 Group, LLC. (10)
10.16   Purchase Agreement, dated as of February 11, 2015, by and between the Company and 31 Group, LLC. (11)
10.17   Purchase Agreement, dated as of February 24, 2014, by and between the Company and 31 Group, LLC. (12)
10.18   Form of Purchase Agreement dated as of June 11, 2015 (13)
10.19   Amendment to Purchase Agreement dated as of June 11, 2015 (25)
10.20   Asset Purchase Agreement, dated as of January 29, 2016, by and between the Company and Integrated Microwave Technologies, LLC (15)
10.21   Form of Securities Purchase Agreement (15)

 

32

 

 

10.22   $1,500,000 Initial Payment Note from the Company to IMT (15)
10.23   Form of Subscription Agreement, dated May 12, 2016, between the Company and the Purchasers thereto (19)
10.24   2015 Employee Stock Purchase Plan (21)
10.25   2015 Incentive Compensation Plan (21)
10.26   2016 Employee Stock Purchase Plan (22)
10.27   2016 Incentive Compensation Plan (22)
10.28   Deed of Variation to Business Purchase Agreement by and between the Company, Vislink PLC, Vislink International Limited and Vislink Inc., dated January 13, 2017 (26)
10.29   Settlement Agreement between the Company and the Holders thereto, dated January 13, 2017 (26)
10.30   Security Agreement, dated February 2, 2017, between the Company and the Vislink Sellers (27)
10.31   Service Agreement between James Walton and Vislink International Limited, dated October 19, 2015 (29)
10.32   Purchase Agreement, dated May 19, 2017, between the Company and Lincoln Park Capital Fund, LLC (30)
10.33   Registration Rights Agreement, dated May 19, 2017, between the Company and Lincoln Park Capital Fund, LLC (30)
10.34   Securities Purchase Agreement, dated August 15, 2017, between the Company and the Purchasers thereto (31)
10.35   Amendment to 2016 Employee Stock Purchase Plan(33)
10.36   Amendment to 2016 Incentive Compensation Plan(34)
10.37   2017 Incentive Compensation Plan(35)
10.38   Form of Securities Purchase Agreement, dated May 29, 2018, by and among the Company and the purchaser signatories thereto(36)
10.39   Form of Security Agreement, dated Mya 29, 2018, by and among the Company and each of the secured parties thereto(36)
10.40   Form of Subsidiary Guarantee, dated May 29, 2018, by and among the Company, the purchasers under the Securities Purchase Agreement, and each of the Company’s subsidiaries(36)
10.41   Form of Registration Rights Agreement, dated May 29, 2018, by and among the Company and the purchasers under the Securities Purchase Agreement(36)
10.43   Form of Voting Agreement, each dated May 29, 2018, between the Company and each purchaser under the Securities Purchase Agreement (36)
10.44   Form of Securities Purchase Agreement, dated December 3, 2018, by and among the Company and the purchaser signatories thereto(38)
10.45   Form of Security Agreement, dated December 3, 2018, by and among the Company and each of the secured parties thereto(38)
10.46   Form of Subsidiary Guarantee, dated December 3, 2018 executed by each of the Company’s subsidiaries(38)
10.47   Form of Registration Rights Agreement, dated December 3, 2018, by and among the Company and the purchasers under the Securities Purchase Agreement, dated December 3, 2018(38)
10.48   Form of Voting Agreement, each dated December 3, 2018, executed by each purchaser under the Securities Purchase Agreement , dated December 3, 2018(38)
10.49   Employment Agreement by and between the Company and Carleton Miller, dated as of January 22, 2020(43)
10.50   Notice of Grant of Stock Option for Time-Vested Options and Stock Option Agreement by and between the Company and Carleton Miller, dated as of January 22, 2020(43)
10.51   Notice of Grant of Stock Option for Performance-Vested Options and Stock Option Agreement by and between the Company and Carleton Miller, dated as of January 22, 2020(43)
10.52   Form of Separation Agreement to be executed by the Company and John Payne upon the conclusion of John Payne’s employment(44)
10.53   Employment Agreement by and between the Company and Michael Bond, dated as of February 27, 2020(45)
10.54   Form of Separation Agreement to be executed by the Company and Roger G. Branton upon the conclusion of Roger G. Branton’s employment(45)
10.55*   Form of Indemnification Agreement by and between the Company and its officers and directors
14.1   Code of Ethics(32)
21.1   Subsidiaries of the Registrant(46)
23.1*   Consent of Marcum LLP
31.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Schema
101.CAL   XBRL Taxonomy Calculation Linkbase
101.DEF   XBRL Taxonomy Definition Linkbase
101.LAB   XBRL Taxonomy Label Linkbase
101.PRE   XBRL Taxonomy Presentation Linkbase

 

33

 

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

*

  Filed herewith
(1)   Filed as an Exhibit on Form S-1 with the SEC on October 23, 2013.
(2)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 13, 2014.
(3)   Filed as an Exhibit on Quarterly Report on Form 10-Q with the SEC on August 30, 2013.
(4)   Filed as an Exhibit on Form S-1/A with the SEC on May 21, 2013.
(5)   Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 19, 2013.
(6)   Filed as an Exhibit on Form S-1/A with the SEC on November 6, 2013.
(7)   Filed as an Exhibit on Form S-1 with the SEC on March 7, 2013.
(8)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on September 24, 2014.
(9)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on November 26, 2014.
(10)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 31, 2014.
(11)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 13, 2015.
(12)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 26, 2015.
(13)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 12, 2015.
(14)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on August 20, 2015.
(15)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 3, 2016.
(16)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 10, 2016.
(17)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on April 27, 2016
(18)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 2, 2016
(19)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 13, 2016.
(20)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 20, 2016.
(21)   Filed as an Exhibit on Annual Report on Form 10-K with the SEC on April 14, 2016.
(22)   Filed as an Exhibit on Form S-1 with the SEC on June 27, 2016
(23)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 7, 2016.
(24)   Filed as an Exhibit on Current Report on From 8-K with the SEC on December 27, 2016.
(25)   Filed as an Exhibit on Current Report on From 8-K with the SEC on July 20, 2015.
(26)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on January 19, 2017.
(27)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 6, 2017.
(28)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 10, 2017.
(29)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 23, 2017.
(30)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 23, 2017.
(31)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on August 16, 2017.
(32)   Filed as an Exhibit on Annual Report on Form 10-K with the SEC on March 6, 2014.
(33)   Filed as Appendix D on Definitive Schedule 14A with the SEC on May 22, 2017
(34)   Filed as Appendix E on Definitive Schedule 14A with the SEC on May 22, 2017
(35)   Filed as Appendix F on Definitive Schedule 14A with the SEC on May 22, 2017
(36)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 29, 2018.
(37)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on October 11, 2018.
(38)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 4, 2018.
(39)   Filed an Exhibit on Current Report on Form 8-K with the SEC on February 26, 2019.
(40)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on July 16, 2019.
(41)   Filed as an Exhibit on Form S-1/A with the SEC on November 22, 2019.
(42)   Filed as an Exhibit on Form S-1/A with the SEC on February 3, 2020.
(43)   Filed as an Exhibit on Current Report on Form 8-K/A with the SEC on January 24, 2020.
(44)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 27, 2020.
(45)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 28, 2020.
(46)   Filed as an Exhibit on Form S-1/A with the SEC on October 30, 2019.

 

34

 

 

SIGNATURES

 

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  VISLINK TECHNOLOGIES, INC.
     
Date: March 31, 2020 By: /s/ Carleton Miller
    Carleton Miller
   

Chief Executive Officer
(Duly Authorized Officer and Principal Executive

Officer)

     
Date: March 31, 2020 By: /s/ Roger Branton
    Roger G. Branton
   

Chief Financial Officer

(Duly Authorized Officer and Principal Financial

Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Carleton Miller   Chief Executive Officer   March 31, 2020
Carleton Miller   (Principal Executive Officer)    
         
/s/ Roger G. Branton   Chief Financial Officer   March 31, 2020
Roger G. Branton   (Principal Financial and Accounting Officer)    
         
/s/ Susan Swenson   Chairman of the Board of Directors   March 31, 2020
Susan Swenson        
         
/s/ Richard L. Mooers   Director   March 31, 2020
Richard L. Mooers        
         
/s/ George F. Schmitt   Director   March 31, 2020
George F. Schmitt        
         
/s/ Jude T. Panetta   Director   March 31, 2020
Jude T. Panetta        
         
/s/ James T. Conway   Director   March 31, 2020
James T. Conway        
         
/s/ Ralph Faison   Director   March 31, 2020
Ralph Faison        
         
/s/ Brian K. Krolicki   Director   March 31, 2020
Brian K. Krolicki        

 

35

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

December 31, 2019 and 2018

 

    Page
Consolidated Financial Statements    
Report of Independent Registered Public Accounting Firm   F-2
Consolidated Balance Sheets   F-3
Consolidated Statements of Operations and Comprehensive Loss   F-4
Consolidated Statements of Changes in Stockholders’ Equity   F-5
Consolidated Statements of Cash Flows   F-6
Notes to Consolidated Financial Statements   F-8

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Vislink Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Vislink Technologies, Inc. and Subsidiaries (the “Company”) as of December 31 2019 and 2018, the related consolidated statements of operations, comprehensive loss, change in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

 

Adoption of New Accounting Standards

 

As discussed in Note 11 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum llp  
   
Marcum LLP  
   
We have served as the Company’s auditor since 2015.  
   
New York, NY  
March 31, 2020  

 

F-2

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

 

    December 31,  
    2019     2018  
ASSETS            
Current assets                
Cash   $ 1,737     $ 2,005  
Accounts receivable, net     6,714       6,191  
Inventories, net     7,674       13,050  
Prepaid expenses and other current assets     660       780  
Total current assets     16,785       22,026  
Right of use assets, operating leases     1,925        
Property and equipment, net     1,972       2,096  
Intangible assets, net     2,922       4,691  
Total assets   $ 23,604     $ 28,813  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable   $ 6,784     $ 7,072  
Accrued expenses     1,912       2,112  
Notes payable     339        
Convertible promissory notes, net of discount of $-0- and $16, respectively           400  
Operating lease obligations, current     821        
Due to related parties     505       361  
Customer deposits and deferred revenue     2,821       1,574  
Derivative liabilities     30       1,118  
Total current liabilities     13,212       12,637  
Operating lease obligations, net of current portion     1,163        
Convertible promissory notes, net of discount of $-0- and $47, respectively           5,886  
Total liabilities     14,375       18,523  
Commitments and contingencies (See Note 15)                
Stockholders’ equity                
Preferred stock – $0.00001 par value per share: 10,000,000 shares authorized at December 31, 2019 and 2018; -0- shares issued and outstanding as of December 31, 2019 and 2018            
Common stock, – $0.00001 par value per share, 100,000,000 shares authorized, 21,567,287 and 1,877,698 shares issued and 21,551,333 and 1,877,697 outstanding at December 31, 2019 and 2018, respectively            
Additional paid in capital     261,871       244,562  
Accumulated other comprehensive income     207       275  
Treasury stock, at cost – 15,954 and 1 shares as of December 31, 2019 and 2018, respectively     (277 )     (22 )
Accumulated deficit     (252,572 )     (234,525 )
Total stockholders’ equity     9,229       10,290  
Total liabilities and stockholders’ equity   $ 23,604     $ 28,813  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

 

    For the Years Ended  
    December 31,  
    2019     2018  
Revenue, net   $ 28,942     $ 38,294  
Cost of Revenue and operating expenses                
Cost of components and personnel     15,741       19,192  
Inventory valuation adjustments     4,705       473  
General and administrative expenses     20,099       21,817  
Research and development     3,232       7,873  
Impairment charge           413  
Amortization and depreciation     2,365       2,953  
Total cost of revenue and operating expenses     46,142       52,721  
Loss from operations     (17,200 )     (14,427 )
Other (expenses) income                
Changes in fair value of derivative liabilities     1,064       3,186  
Loss on debt and payable extinguishment           (1,060 )
Loss on debt conversions     (33 )      
Other income           146  
Interest expense     (1,878 )     (2,718 )
Total other (expenses) income     (847 )     (446 )
Net loss   $ (18,047 )   $ (14,873 )
                 
Basic and diluted loss per share   $ (2.01 )   $ (9.02 )
                 
Weighted average number of shares outstanding:                
Basic and Diluted     8,962       1,649  
                 
Comprehensive loss:                
Net loss   $ (18,047 )   $ (14,873 )
Unrealized loss on currency translation adjustment     (68 )     (79 )
Comprehensive loss   $ (18,115 )   $ (14,952 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

 

                                   Accumulated                    
    Series D                 Additional     Other                    
    Preferred Stock      Common Stock     Paid In     Comprehensive     Treasury     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Income     Stock     Deficit     Total  
Balance, January 1, 2018         $       1,489,739     $     $ 235,819     $ 354     $ (22 )   $ (219,652 )   $ 16,499  
Net loss                                               (14,873 )     (14,873 )
Unrealized loss on currency translation adjustment                                   (79 )                     (79 )
Issuance of common stock in connection with:                                                                        
Payments made in stock (payroll and consultants)                 208,313             1,793                         1,793  
Compensation awards previously accrued                 1,223             19                         19  
Conversion of amounts due to related parties                 42,959             240                         240  
Satisfaction of interest due on convertible promissory notes                 27,680             180                         180  
Satisfaction of convertible promissory notes                 77,518             2,339                         2,339  
Procurement fee for debt instrument                 30,266             160                         160  
Stock-based compensation                             3,728                         3,728  
Beneficial conversion feature                              284                          284  
Balance, December 31, 2018                 1,877,698             244,562       275       (22 )     (234,525 )     10,290  
                                                                         
Net loss                                               (18,047 )     (18,047 )
Unrealized loss on currency translation adjustment                                   (68 )                   (68 )
Issuance of common stock in connection with:                                                                        
Underwriting equity raises, net of offering costs                 4,751,200             14,184                         14,184  
Exercise of common stock warrants                 8,237,701             178                         178  
Exercise of cashless common stock warrants                 6,181,525                                      
Payments made in stock (payroll and consultants)                 158,130             224                         224  
Compensation awards previously accrued                 19,632             71                         71  
Conversion of amounts due to related parties                 12,469             31                         31  
Conversion of principal and accrued interest on convertible promissory notes                 328,932             528                         528  
Reclassification of derivative liabilities in connection with the exercise of common stock warrants                             24                         24  
Purchase of treasury stock                                         (255 )           (255 )
Stock-based compensation                             2,069                         2,069  
Balance, December 31, 2019         $       21,567,287     $     $ 261,871     $ 207     $ (277 )   $ (252,572 )   $ 9,229  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

    Years Ended December 31,  
    2019     2018  
Cash flows used in operating activities                
Net loss   $ (18,047 )   $ (14,873 )
Adjustments to reconcile net loss to net cash used in operating activities                
Loss on debt and payables extinguishment           1,060  
Gain on sale of property and equipment           (146 )
Stock-based compensation (option awards)     2,069       3,728  
Payment made in stock (payroll and consultants)     224       1,793  
Stock issuance commitments     320       519  
Provision for bad debt     425       142  
Inventory valuation adjustments     4,705       473  
Amortization of right of use assets, operating leases     883        
Depreciation and amortization     2,365       2,953  
Impairment charge           413  
Change in fair value of derivative liabilities     (1,064 )     (3,186 )
Loss on debt settlement     33        
Non-cash interest costs     63       2,301  
                 
Changes in assets and liabilities                
Accounts receivable     (867 )     1,811  
Inventories     841       775  
Prepaid expenses and other current assets     142       (186 )
Accounts payable     (623 )     (3,365 )
Accrued expenses and interest expense     (332 )     (1,178 )
Operating lease liabilities     (880 )      
Due to related parties     175       (397 )
Deferred revenue and customer deposits     1,213       984  
Net cash used in operating activities     (8,355 )     (6,379 )
                 
Cash flows (used in) provided by investing activities                
Proceeds from sale of property and equipment           250  
Acquisition of property and equipment     (401 )     (69 )
Payment for purchase of treasury stock     (24 )      
Net cash (used in) provided by investing activities     (425 )     181  
                 
Cash flows provided by financing activities                
Proceeds received from equity financings     15,983        
Costs incurred in connection with equity financing     (1,799 )      
Proceeds from the exercise of common stock warrants     178        
Proceeds from working capital financing note     150        
Principal payments in connection with working capital financing note     (42 )      
Principal repayments made on capital lease obligations           (48 )
Proceeds from convertible promissory notes           6,000  
Payment of issuance costs on convertible promissory notes           (433 )
Principal repayments on convertible promissory notes     (5,951 )     (84 )
Net cash provided by financing activities     8,519       5,435  
Effect of exchange rate changes on cash     (7 )     (31 )
Net decrease in cash     (268 )     (794 )
Cash, beginning of year     2,005       2,799  
Cash, end of year   $ 1,737     $ 2,005  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)

(IN THOUSANDS)

 

    Year Ended December 31,  
    2019     2018  
Cash paid for interest   $ 1,827     $ 36  
Cash paid for taxes   $     $  
Supplemental cash flow disclosures of non-cash investing and financing activities:                
Common stock issued in connection with:                
Compensation awards for services previously accrued   $ 71     $ 19  
Conversion of amounts due to related parties     31       240  
Conversion of principal and interest due on convertible promissory notes     529       2,339  
Settlement of interest only on convertible notes           180  
Compensatory fee for debt modification           160  
Effect of the December 3, 2018 modification of the May 2018 debt instruments           4,131  
Beneficial conversion feature           284  
Reclassification of derivative liabilities to stockholders’ equity upon
the exercise of warrant
    24        
Financing encumbered in treasury stock purchased     231        
Non-cash disclosures of ROU assets and operating lease obligations (Note 11):                
Operating lease assets recognized   $ 2,991     $  
less: non-cash changes to operating lease assets                
amortization     (883 )      
lease termination     (183 )      
    $ 1,925     $  
                 
Operating lease liabilities recognized   $ 3,047     $  
less: non-cash changes to operating lease liabilities                
amortization     (880 )      
lease termination     (183 )      
    $ 1,984     $  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — NATURE OF OPERATIONS

 

Description of Business

 

The overarching strategy of Vislink Technologies, Inc. (“Vislink Technologies,” the “Company,” “we,” “our” or “us”) is to design, develop and deliver advanced wireless communications solutions that provide customers within target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. Vislink Technologies’ business lines include the leading brands Integrated Microwave Technologies LLC (“IMT”) and Vislink Communications Systems (“Vislink” or “VCS”). There is considerable brand interaction, due to complementary market focus, compatible product, and technology development roadmaps, and solution integration opportunities

 

IMT:

 

IMT develops, manufactures, and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. 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 extensive experience in ultra-compact COFDM wireless technology, and this has allowed IMT to develop integrated solutions that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations.

 

Vislink:

 

Vislink Communications Systems (“Vislink” or “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 and media and law enforcement, and surveillance. In the broadcast and media market, VCS provides broadcast communication links for the collection of live news and sports and entertainment events. VCS’ customers in the broadcast and media market include national broadcasters, multi-channel broadcasters, network owners and station groups, sports and live broadcasters and hosted service providers. In the law enforcement, and surveillance market, VCS provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. VCS’ customers in the law enforcement, and surveillance market include metropolitan, regional and national law enforcement agencies as well as domestic and international defense agencies and organizations.

 

F-8

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — LIQUIDITY AND FINANCIAL CONDITION

 

Under ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern under the requirement of ASC 205-40.

 

As reflected in the consolidated financial statements, the Company had $1.7 million in cash on the balance sheet at December 31, 2019. The Company had working capital and an accumulated deficit of $3.6 million and $252.6 million, respectively. Additionally, the Company had a loss from operations of approximately $17.2 million and cash used in operating activities of $8.4 million for the year ended December 31, 2019. As of February 14, 2020, the Company’s cash balance was approximately $6.8 million after the February 2020 equity raise.

 

The Company has historically funded its operations from debt and equity raises, attaining the following recent capital events:

 

  On July 11, 2019, the Company closed an equity financing for 1,550,000 shares of common stock, warrants to purchase 6,000,000 shares of common stock and, 4,450,000 pre-funded warrants to purchase common stock in place of common stock. The Company received gross proceeds of approximately $11,996,000 from the offering, before deducting underwriting-related fees and other offering expenses payable by the Company. The Company used the net proceeds to satisfy outstanding principal and accrued interest due on convertible promissory notes of approximately $7,600,000 million and the balance for working capital.
     
  On November 27, 2019, the Company closed an equity financing for 3,201,200 shares of common stock, warrants to purchase 11,893,100 shares of common stock and, warrants to purchase 11,320,725 shares of Common Stock. The Company received gross proceeds of approximately $3,988,000 from the offering, before deducting underwriting-related fees and other offering expenses payable by the Company. The Company used the net proceeds from equity financing for working capital purposes.
     
  On February 14, 2020, the Company closed on an equity financing for 12,445,000 shares of common stock, 12,445,000 warrants to purchase 9,333,750 shares of Common Stock, and 14,827,200 pre-funded warrants, with each Pre-Funded Warrant exercisable for one share of Common Stock, together with 14,827,200 Warrants to purchase 11,120,400 shares of Common Stock. The Company received gross proceeds of approximately $5,998,000, less offering costs of $560,000 for net proceeds of $5,438,000. The Company has earmarked the use of the net proceeds from equity financing for working capital and general corporate purposes.

 

As a result of the proceeds raised in the recent capital events, repaying substantially all of the Company’s debt and ongoing cost management, the Company believes there are enough funds to mitigate the going concern uncertainty for at least twelve months from the date of these financial statements are made available.

 

F-9

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America or (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the US Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, IMT and Vislink. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation.

 

Segment Reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s decision-making group is the senior executive management team. The Company and the decision-making group view the Company’s operations and manage its business as one operating segment with different product offerings. All long-lived assets of the Company reside in the U.S. and U.K.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property, plant, and equipment, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for deferred tax assets, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company did not have any cash equivalents on hand as of December 31, 2019 and 2018.

 

Concentrations of Credit Risk

 

The Company does not have any off-balance-sheet concentrations of credit risk. Credit risk is the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company. The Company’s credit risk is primarily attributable to its cash and accounts receivables. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts held within the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Additionally, the Company maintains cash balance accounts at financial institutions located in the United Kingdom insured by the Financial Services Compensation Scheme up to £85,000, subject to currency translation rates to the United States dollar. On December 31, 2019, the Company had approximately $1.2 million above insured limits, respectively. The Company has not experienced any losses in its bank accounts during the years ended December 31, 2019, and 2018. For customers, management assesses the credit quality of the customer, considering its financial position and historical experience.

 

For the years ended December 31, 2019, and 2018, the Company did not experience sales to one customer over 10% of the Company’s total consolidated sales. On December 31, 2019, the Company recorded approximately $2,613,000 (39%) and $-0- of accounts receivable to a single customer over 10% of the Company’s total consolidated accounts receivable.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgements regarding its customer’s ability to make required payments, prevailing economic conditions, past experience and other factors. As the financial condition of these factors change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for credit losses and losses have been within its expectations.

 

F-10

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Inventories

 

Inventories, consisting principally of raw materials, work-in-process and finished goods, and is recorded at the lower of cost, on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company evaluates inventory balances and either writes-down inventory that is obsolete or based on a net realizable value analysis or records a reserve for slow moving or excess inventory.

 

Property and Equipment

 

Property and equipment are presented at cost at the date of acquisition less depreciation. Depreciation is computed using the straight-line method over estimated useful asset lives, which range from 1 to 10 years. The costs of the day-to-day servicing of property and equipment, and repairs and maintenance are recognized in expenses as incurred.

 

Intangible Assets

 

Software:

 

The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use or sale to others when both the preliminary project stage is completed, and it is probable that the software will be used as intended with a product. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the product. Capitalized software costs are included in intangible assets on the Company’s balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which approximates 5 years. Capitalized Software was fully amortized as of December 31, 2018. Software amortization totaled $268,000 for the year ended December 31, 2018.

 

Patents and licenses:

 

Patents and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. Amortization totaled $669,000 and $664,000 for the years ended December 31, 2019 and 2018, respectively.

 

Other intangible assets:

 

The Company’s remaining intangible assets include the trade names, technology and customer lists acquired in its acquisition of IMT and Vislink. The value of these acquired assets was determined by a third-party appraisal completed for these business combinations. Absent an indication of fair value from a potential buyer or similar specific transactions, the Company believes that the use of the methods employed provided a reasonable estimate in the reporting of the fair value assigned.

 

The Company includes these costs in intangible assets on the balance sheet and are amortized over their useful lives of 3 to 15 years. Amortization totaled $1,800,000 and $2,000,000 for the years ended December 31, 2019 and 2018, respectively.

 

F-11

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Warranty Reserve

 

Although the Company tests its product in accordance with its quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service costs differ from the Company’s estimates, which are based on limited historical data, where applicable, revisions to the estimated warranty liability would be required. The claims made during the year ended December 31, 2019 and 2018 were ordinary and customary. Warranty reserve is included in accrued expenses on the accompanying consolidated balance sheets and cost of components in the accompanying consolidated statement of operations.

 

    Warranty Reserve  
December 31, 2017   $ 507,000  
Warranty reserve expense     23,000  
Warranty claims settled and true-up of accrual     (205,000 )
December 31, 2018   $ 325,000  
Warranty reserve expense     231,000  
Warranty claims settled and true-up of accrual     (221,000 )
December 31, 2019   $ 335,000  

 

Shipping and Handling Costs

 

Shipping and handling charges are invoiced to the customer and the Company nets these charges against the respective costs within general and administrative expenses. For the years ended December 31, 2019 and 2018, the amount of shipping and handling costs incurred were $614,000 and $774,000, respectively.

 

Convertible Instruments

 

The Company records debt net of debt discount for beneficial conversion features and warrants, on either a relative fair value or fair value basis depending on the respective accounting treatment of each instrument. Beneficial conversion features are recorded pursuant to the Beneficial Conversion (“BCF”) and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discounts with corresponding entries to derivative liability and additional paid-in-capital. Costs paid to third parties (e.g., legal fees, printing costs, placement agent fees) that are directly related to issuing the debt and that otherwise wouldn’t be incurred, are treated as a direct deduction of the debt liability. Debt discount and issuance costs are generally amortized and recognized as additional interest expense in the statement of operations over the life of the debt instrument using the effective interest method.

 

The Company evaluates and bifurcates conversion features from the instruments containing such features and accounts for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the underlying instrument, (b) the hybrid instrument that contains both the embedded derivative instrument and the underlying instrument is not re-measured at fair value under otherwise applicable U.S. GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

The Company classifies common stock purchase warrants and other free-standing financial instruments as equity if the contracts (i) require physical settlement or net-share settlement in common stock or (ii) give the Company a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement). The Company classifies the following contracts as either an asset or a liability: contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement) or (iii) contain reset provisions. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

 

F-12

 

 

VISLINK TECHNOLOGIES, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Treasury Stock

 

Shares of common stock repurchased are recorded at cost as treasury stock. When shares are reissued, the cost method is used. In accordance with U.S. GAAP, the excess of the acquisition cost over the reissuance price of the treasury stock, if any, is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit.

 

Revenue Recognition

 

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”) on January 1, 2019 using the modified retrospective method. The Company’s operating results for reporting periods beginning after January 1, 2019 are presented under ASC Topic 606, while prior period amounts continue to be reported in accordance with our historic accounting under Topic 605. The timing and measurement of our revenues under ASC Topic 606 is similar to that recognized under previous guidance, accordingly, the adoption of ASC Topic 606 did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof at adoption or in the current period. There were no changes in our opening retained earnings balance as a result of the adoption of ASC Topic 606.

 

ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance.

 

The Company generates all its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised goods or services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services.

 

The Company determines revenue recognition through the following steps:

 

1. Identification of the contract, or contracts, with a customer;

2. Identification of the performance obligations in the contract;

3. Determination of the transaction price;

4. Allocation of the transaction price to the performance obligations in the contract; and

5. Recognition of revenue, when, or as, we satisfy a performance obligation.

 

At contract inception, the Company assesses the goods and services promised in our contracts with customers and identifies a performance obligation for each. To determine the performance obligations, the Company considers all the products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration we expect to receive in exchange for transferring goods and services. Excluded from income are the value-added sales taxes, and other charges we collect concurrent with revenue-producing activities.

 

Remaining Performance Obligations

 

Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less.

 

Research and Development Expenses

 

Research and development costs are charged to expense as incurred in performing research, design and development activities. These expenses consist primarily of salary and benefit expenses, including stock-based compensation and payroll taxes for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, facilities and travel.

 

F-13

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Stock-Based Compensation

 

The Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with ASC 718 “Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes Option Pricing Model. The fair value of common stock issued for services is determined based on the Company’s stock price on the date of issuance.

 

Under ASU 2018-07, the scope of Topic 718 was expanded to include share-based payment transactions for acquiring goods and services from nonemployees. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. Rather, they are now measured at the grant date. Nonemployee share-based payment awards with performance conditions are measured at the lowest aggregate fair value under today’s guidance, which often results in zero value. The new ASU aligns the accounting for nonemployee share-based payment awards with performance conditions with accounting for employee share-based payment awards under Topic 718 by requiring entities to consider the probability of satisfying performance conditions. Current guidance requires entities to use the contractual term for the measurement of the nonemployee share-based payment awards. The new ASU allows entities to make an award-by-award election to use either the expected term (consistent with employee share-based payment awards) or the contractual term for nonemployee awards

 

Leases

 

The Company adopted ASC 842 on January 1, 2019, using the modified retrospective transition approach that applies the new standard to all leases existing at the date of the initial application. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases. ASC 842 requires that lessees recognize Right-Of-Use (” ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. Lease contracts are measured and presented in the statement of operations and statement of cash flows under ASC 842 either as a finance lease or operating lease.

 

At lease inception, the Company determined if an arrangement is a lease and if it includes options to extend or terminate the contract if it is reasonably sure that the options will be exercised. We recognize lease expense for lease payments on a straight-line basis over the lease term. The Company includes operating leases as ROU assets as “Right of use assets, operating leases” and are included in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in “Operating lease obligations, current” and “Operating lease liabilities, net of current portion,” in the consolidated balance sheets. We recognize Operating lease ROU assets and liabilities on the commencement date based on the present value of lease payments over the lease term.

 

The ROU asset and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments using (1) the rate implicit in the lease or (2) the lessee’s IBR, defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a comparable economic environment. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rates based on an analysis of prior collateralized borrowings over similar terms of the lease payments at the commencement date as of January 1, 2019, to estimate the IBR applicable upon transition to ASC 842. There were no capital leases, which are now titled “finance leases” under ASC 842, in the Company’s lease portfolio as of December 31, 2019.

 

As a result of the adoption of ASU 2016-02, on January 1, 2019, the Company recognized a lease liability of approximately $3.0 million, with corresponding assets of $2.9 million, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, less derecognized deferred rent of approximately $0.06 million. There are no changes to the Company’s previously reported results before January 1, 2019. Lease expense has not changed materially as a result of the adoption of ASU 2016-02.

 

The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof. Refer to Note 11 for more information.

 

Impairment of Long-Lived Assets

 

Management reviews long-lived assets and other intangible assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets used in operations, including right-of-use operating lease assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable when the estimated undiscounted cash flows expected to result from the use of an asset and its eventual disposition is less than the carrying amount. If an impairment exists, the resulting write-down would be the difference between the fair market value of the long-lived asset and the related net book value. For the years ended December 31, 2019 and 2018, the Company recorded total impairment charges of $-0- and $0.4 million, respectively.

 

F-14

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Income Taxes

 

Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for which management cannot conclude that it is more likely than not that such deferred tax assets will be realized. The Company will be filing income tax returns in the U.S. federal jurisdiction and will be filing in various state and foreign jurisdictions. The Company recognizes the impact of an uncertain tax position in its financial statements if, in management’s judgment, the position is more-likely-than-not sustainable upon audit based upon the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for uncertain tax positions is necessary. The Company’s policy is to classify assessments, if any, for tax-related interest expense and penalties as general and administrative expenses.

 

Advertising Costs

 

Advertising costs are charged to operations as incurred. Advertising costs amounted to approximately $237,000 and $82,000, for the years ended December 31, 2019 and 2018, respectively. Advertising costs are included in general and administrative expenses in the accompanying consolidated statement of operations.

 

Sales Tax and Value Added Taxes

 

The Company accounts for sales taxes and value added taxes imposed on its goods and services on a net basis.

 

Loss Per Share

 

The Company reports loss per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic (loss) earnings per common share is calculated by dividing net (loss) earnings allocable to common stockholders by the weighted-average common shares outstanding during the period, inclusive of penny warrants outstanding of 9,147,200 for the year end December 31, 2019, without consideration of common stock equivalents. Diluted (loss) earnings per share is calculated by adjusting the weighted-average shares outstanding for the dilutive effect of common stock equivalents, including stock options and warrants, outstanding for the period as determined using the treasury stock method. For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders is the same for periods with a net loss.

 

The following table illustrates the anti-dilutive potential common stock equivalents excluded from the calculation of loss per share (in thousands):

 

    For the Years Ended  
    December 31,  
    2019     2018  
Anti-dilutive potential common stock equivalents excluded from the calculation of loss per share:            
Stock options     503       586  
Convertible debt           1,363  
Warrants     13,160       1,187  
      13,663       3,136  

 

F-15

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Fair Value of Financial Instruments

 

U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

 

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments the fair value was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

 

U.S. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

 

  Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
     
  Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
     
  Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

The following table presents the Company’s assets and liabilities that are measured at fair value on a non-recurring basis at December 31, 2019, consistent with the fair value hierarchy provisions. The asset impairment is a non-recurring level 3 measurement.

 

    Quoted Prices
in Active Markets for
Identical
Assets/Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
    Total  
Liabilities:                                
Derivative liability   $     $     $ 30,000     $ 30,000  
Total   $     $     $ 30,000     $ 30,000  

 

The following table presents the Company’s liabilities that are measured at fair value on a recurring and non-recurring basis at December 31, 2018, consistent with the fair value hierarchy provisions:

 

    Quoted Prices
in Active Markets for
Identical
Assets/Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
    Total  
Assets (non-recurring):                                
Asset impairment   $     $     $ 245,000     $ 245,000  
Capitalized software development costs                 168,000       168,000  
                  413,000       413,000  
                                 
Liabilities:                                
Derivative liability   $     $     $ 1,118,000     $ 1,118,000  
Total   $     $     $ 1,118,000     $ 1,118,000  

 

See Note 13 for additional disclosure regarding the Company’s warrants liabilities accounted for at fair value.

 

F-16

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Foreign Currency and Other Comprehensive (Loss) Gain

 

The functional currency of our foreign subsidiary is typically the applicable local currency which is British Pounds. The translation from the respective foreign currency to United States Dollars (U.S. Dollar) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using an average exchange rate during the period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.

 

Transaction gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the transaction date and on the reporting date. The foreign currency exchange gains and losses are included as a component of general and administrative expenses, in the accompanying Consolidated Statements of Operations.

 

The following table presents losses recognized from foreign exchange transactions; and changes in accumulated other comprehensive income representing the gain or loss on the translation of our foreign subsidiary’s financial statements as follows:

 

    For the Years Ended  
    December 31,  
    2019     2018  
Net foreign exchange transactions:                
(Gains) losses   $ (97,000 )   $ 483,000  
                 
Accumulated comprehensive income:                
Unrealized loss on currency translation adjustment   $ 68,000     $ 79,000  

 

The exchange rate adopted for the foreign exchange transactions are the rates of exchange as quoted on an OANDA, a Canadian-based foreign exchange company providing currency conversion, online retail foreign exchange trading, online foreign currency transfers, and forex information, internet website. Translation of amounts from British Pounds into United States dollars was made at the following exchange rates for the respective periods:

 

  As of December 31, 2019 – British Pounds $1.318462 to US$ 1.00
  Average rate for the year ended December 31, 2019 – British Pounds $1.76717 to US $1.00
  As of December 31, 2018 – British Pounds $1.2734340 to US$ 1.00
  Average rate for the year ended December 31, 2018 – British Pounds $1.3347667 to US $1.00

 

Subsequent Events

 

Management has evaluated subsequent events or transactions occurring through the date the consolidated financial statements were issued and determined that no events or transactions are required to be disclosed herein, except as disclosed.

 

F-17

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

 

Recent Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies certain aspects of income tax accounting guidance in ASC 740, reducing the complexity of its application. Certain exceptions to ASC 740 presented within the ASU include: intra-period tax allocation, deferred tax liabilities related to outside basis differences, year-to-date loss in interim periods, among others. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020 including interim periods therein with early adoption permitted. The Company is currently assessing the impact of the ASU on its financial statements.

 

Other recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

NOTE 4 — ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

    December 31, 2019     December 31, 2018  
Accounts receivable   $ 7,425,000     $ 6,740,000  
Allowance for doubtful accounts     (711,000 )     (549,000 )
Net accounts receivable   $ 6,714,000     $ 6,191,000  

 

During the years ended December 31, 2019 and 2018, the Company incurred bad debt expense of $425,000 and $142,000, respectively.

 

F-18

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 — INVENTORIES

 

Inventories included in the accompanying consolidated balance sheet are stated at the lower of cost or market as summarized below:

 

    December 31, 2019     December 31, 2018  
Raw materials   $ 8,323,000     $ 6,173,000  
Work-in-process     815,000       3,711,000  
Finished goods     3,857,000       4,052,000  
Sub-total inventories     12,995,000       13,936,000  
Less reserve for slow moving and excess inventory     (5,321,000 )     (886,000 )
Total inventories, net   $ 7,674,000     $ 13,050,000  

 

Inventory valuation adjustments consist primarily of items that are written off due to obsolescence or reserved for slow moving or excess inventory. The Company recorded inventory valuation adjustments of $4,705,000 and $473,000 as of December 31, 2019 and 2018, respectively.

 

NOTE 6 — PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

    Useful Life   December 31,  
    (Years)   2019     2018  
Cost:                    
Furniture and fixtures   1 – 10   $ 282,000     $ 291,000  
(A) Leasehold improvements   1 - 14     821,000       228,000  
Computers, software and equipment   1 - 11     3,585,000       6,495,000  
Vehicles   1 - 7           22,000  
          4,688,000       7,036,000  
Accumulated depreciation         (2,716,000 )     (4,940,000 )
Property and equipment, net       $ 1,972,000     $ 2,096,000  

 

Depreciation of property and equipment amounted to $596,000 and $918,000 for the years ended December 31, 2019 and 2018, respectively.

 

With the Company dissolving the xG division, an impairment charge in the amount of $-0- and $245,000 was recorded during the years ended December 31, 2019 and 2018, respectively. Additionally, the Company reported a gain on sale of property and equipment in the amount of $-0- and $146,000 for the years ended December 31, 2019 and 2018, respectively. The gain was recorded as other income in the Consolidated Statements of Operations and Comprehensive Loss.

 

(A) The shorter of the economic life or remaining lease term.

 

F-19

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 — INTANGIBLE ASSETS

 

Intangible assets consist of the following finite assets:

 

    Software Development Costs     Patents and Licenses     Trade Names and Technology     Customer Relationships  
          Accumulated           Accumulated           Accumulated           Accumulated        
    Costs     Amortization     Costs     Amortization     Costs     Amortization     Costs     Amortization     Net  
                                                       
Balance as of December 31, 2017   $ 18,647,000     $ (18,211,000 )   $ 12,378,000     $ (9,171,000 )   $ 1,450,000     $ (243,000 )   $ 2,880,000     $ (836,000 )   $ 6,894,000  
Additions                                                      
Eliminations     (18,647,000 )     18,647,000                                            
Impairments           (168,000 )                                         (168,000 )
Amortization           (268,000 )           (664,000 )           (224,000 )           (879,000 )     (2,035,000 )
Balance as of December 31, 2018                 12,378,000       (9,835,000 )     1,450,000       (467,000 )   $ 2,880,000     $ (1,715,000 )   $ 4,691,000 )
Additions                                                      
Eliminations                                                      
Impairments                                                      
Amortization                       (669,000 )           (223,000 )           (877,000 )     (1,769,000 )
Balance as of December 31, 2019   $           $ 12,378,000     $ (10,504,000 )   $ 1,450,000     $ (690,000 )   $ 2,880,000     $ (2,592,000 )   $ 2,922,000  

 

Software:

 

The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use or sale to others when both the preliminary project stage is completed, and it is probable that the software will be used as intended with a product. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the product. Capitalized software costs are included in intangible assets on the Company’s balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which approximates 5 years. Capitalized Software was fully amortized as of December 31, 2018. Software amortization totaled $268,000 for the year ended December 31, 2018.

 

Patents and Licenses:

 

Patents and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. At December 31, 2019 and 2018, the Company had net capitalized costs of patents and licenses of $1.9 million and $2.5 million, respectively. The costs of provisional patents and pending applications is not amortized until the patent is filed and is reviewed each reporting period to determine if it is likely that the patent will be successfully filed. For the years ended December 31, 2019 and 2018, the amortization of patents and licenses amounted to $.7 million each, respectively.

 

Other Intangible Assets:

 

The Company’s remaining intangible assets include the trade names, technology, and customer lists acquired in its acquisition of IMT and Vislink. On December 31, 2019 and 2018, the Company had net capitalized costs of other intangible assets of $1.0 million and $2.1 million, respective. The Company includes these costs in intangible assets on the balance sheet and are amortized over their useful lives of 3 to 15 years.

 

The normal amortization of intangible assets amounted to $1.8 million and $2.0 million, for the years ended December 31, 2019 and 2018, respectively. There was an impairment of $-0- million and $0.2 million of software development costs for the years ended December 31, 2019 and 2018, respectively. The weighted average remaining life of the amortization of the Company’s intangible assets is approximately 3.7 years.

 

The following table represents the estimated amortization expense for total intangible assets for the succeeding five years:

 

2020   $ 1,053,000  
2021     879,000  
2022     546,000  
2023     119,000  
2024     119,000  
Thereafter     206,000  
    $ 2,922,000  

 

F-20

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 — ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

    December 31, 2019     December 31, 2018  
Compensation   $ 818,000     $ 834,000  
Commissions     94,000       90,000  
Warranty     335,000       325,000  
Rent     4,000       71,000  
Payables     531,000       576,000  
Interest           112,000  
Deferred Equity     130,000       104,000  
    $ 1,912,000     $ 2,112,000  

 

NOTE 9 — NOTES PAYABLE

 

    Principal Balance  
    December 31,  
    2019     2018  
             
Effective as of September 27, 2019, the Board of Directors of the Company consented to assume the remaining balance of a note held by the related party MB Technology Holdings, LLC (“MBTH”). MBTH originally borrowed funds for the benefit of the Company with the proceeds forwarded to the Company reflecting due to a related party, which ultimately was converted into 15,953 shares returned to treasury. The note matures on September 18, 2020, with an annual interest rate of 8.022%. One payment of $18,519 of accrued interest plus $230,860 of principal, totaling $249,379, is due on September 18, 2020.   $ 231,000     $  
                 
On October 2, 2019, the Company’s subsidiary, Integrated Microwave Technology (“IMT”), incurred a working capital loan of $150,000, with an annual interest rate of 1.9%, maturing on April 24, 2020. There is no payment schedule required by the lender and IMT has made $42,439 in principal and $14,429 in interest payments.     108,000        
    $ 339,000     $  

 

F-21

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 — CONVERTIBLE PROMISSORY NOTES

 

The Company had convertible promissory notes ranging from 6% to 10% per annum; maturity dates ranging from May 29, 2019 to September 29, 2019 with a range of conversion features. The table below summarizes the convertible promissory notes as of December 31, 2019 and 2018.

 

The Company has listed a summary of the modified and non-modified debt as follows:

 

    Debt        
    Modified     Non-Modified     Total  
For the year ending December 31, 2019                        
Principal:                        
Beginning balance, January 1, 2019   $ 5,933,289     $ 415,625     $ 6,348,914  
Principal conversions to shares of common stock     (122,808 )     (275,000 )     (397,808 )
Principal payments made in cash     (5,810,481 )     (140,625 )     (5,951,106 )
Ending balance, December 31, 2019                  
Debt discount:                        
Beginning balance, January 1, 2019     47,307       15,683       62,990  
Debt discount amortization     (47,307 )     (15,683 )     (62,990 )
Ending balance, December 31, 2019                  
Modified and un-modified debt, net   $     $     $  
                         
For the year ending December 31, 2018                        
Principal:                        
Beginning balance, January 1, 2018   $     $     $  
Cash proceeds     2,000,000       4,000,000       6,000,000  
Effect of modification     4,130,610             4,130,610  
Extinguishment of debt           (3,400,000 )     (3,400,000 )
Principal conversions to shares of common stock     (197,321 )     (100,000 )     (297,321 )
Principal payments made in cash           (84,375 )     (84,375 )
Ending balance, December 31, 2018     5,933,289       415,625       6,348,914  
Debt discount:                        
Beginning balance, January 1, 2018                  
Debt discount incurred           2,461,698       2,461,698  
Effect of modification     70,000       250,457       320,457  
Debt discount amortization     (22,693 )     (2,277,962 )     (2,300,655 )
Extinguishment of debt           (418,510 )     (418,510 )
Ending balance, December 31, 2018     47,307       15,683       62,990  
Modified and un-modified debt, net   $ 5,885,982     $ 399,942     $ 6,285,924  

 

Items recorded to interest expense for the years ending December 31, 2019 and 2018: 2018 are:

 

    December 31,  
    2019     2018  
Contractual interest expense   $ 1,733,988     $ 131,185  
Debt discount amortization     62,990       488,791  
Warrant costs           1,788,171  
Total recorded to interest expense, net   $ 1,796,978     $ 2,408,147  

 

During the year ended December 31, 2019, the Company issued 328,932 shares of common stock valued at $528,465 in partial settlement of $494,483 of principal and interest resulting in a loss in settlement of debt in the amount of $32,982. As of December 31, 2019, the convertible promissory notes have been fully satisfied.

 

F-22

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 — CONVERTIBLE PROMISSORY NOTES (continued)

 

May 2018 Financing

 

On May 29, 2018, the Company completed a private placement of $4 million in principal of 6% Senior Secured Convertible Debentures (the “Debentures”) and warrants to purchase 3,000,000 shares of the Company’s common stock, par value $0.00001 per share, by executing certain agreements with accredited institutional investors. The Company received $3,636,760 net of debt issuance costs consisting of legal and placement fees totaling $363,240. The Debentures have a maturity date of May 29, 2019, with a conversion rate of $1.00 per share. If held beyond maturity, the conversion rate shall equal the lesser of (i) the then conversion price and (ii) 85% of the VWAP for the trading day immediately prior to the applicable conversion date. The Company shall pay interest to the holders on the aggregate and unconverted and outstanding principal amount on January 1, April 1, July 1 and October 1, with the remaining principal balance due at maturity.

 

The warrants have a maturity date of May 29, 2023 with an exercise price of $1.00 per share. The warrants meet the definition of a derivative as noted in ASC 815-10-15-83 and ASC 815-10-15-88. We allocated the proceeds from the issuance of this note and the warrants based on the fair value for each item. Consequently, we recorded debt discount valued at $1,788,171 on the warrants and these associated costs are required to be accounted for as liabilities and were immediately expensed as interest. The warrants were valued using the binomial model style simulation. The assumptions used in the binomial model style simulation at the date the funds were received are as follows: (1) dividend yield of 0%; (2) expected volatility of 163.50%; (3) risk-free interest rate of 0.27%; and (4) expected life of 5.00 years. We also determined that the convertible promissory notes contained beneficial conversion rights (“BCF”) and calculated the relative fair value and assigned $193,877 to the BCF.

 

Debt Modification of the May 2018 Financing executed on October 9, 2018

 

On October 9, 2018, the Company agreed to modify the May 2018 Financing (“old debt”) with two of the original four note holders (the “majority holders”) issuing amended and restated agreements. These modifications principally provide for:

 

  1. The ability to make monthly redemption payments in common stock of the Company.
  2. The issuance of 302,655 shares of common stock as compensatory shares;
  3. A good-faith effort to modify the monthly redemption provisions before the next monthly redemption date;
  4. An amendment of the conversion price to $0.45; and
  5. In the event that any of the majority holders convert its amended debenture, the Company shall be given dollar for dollar credit for any and all conversions effected in any month against any monthly redemption amount (as defined in the amended debentures) and provided, further, that in the event that a majority holder’s conversions in any particular month exceed such majority holder’s individual monthly redemption amount (as defined in the amended debentures), such overage shall carry over into the succeeding month to be credited against the monthly redemption amount (as defined in the debentures).

 

For the modification of the conversion option to $0.45 from $1.00, the Company applied ASC 470-50-40-10(a) and calculated the difference between the fair value of the embedded conversion option immediately before and after the modification. It has been concluded this is not a debt extinguishment. The Company determined that an increase in the conversion option fair value of $90,050 was recorded as additional debt discount with an offset to equity. The amount calculated will be amortized as interest expense over the remaining term of the debt instrument using the interest method.

 

The Company considered ASC 470-50-40-17(b) to determine the proper accounting to apply for the 302,655 compensatory shares for the majority holders. Since the modification is not to be accounted for in the same manner as a debt extinguishment, a fair market value of $160,407 was assigned to the compensatory shares and recorded as additional debt discount was amortized as interest expense over the remaining term of the debt instrument using the interest method.

 

On December 3, 2018, the Company entered into a second modification agreement which led to an extinguishment of debt of the majority holders of the May 2018 Financing and created new debt obligations with revised terms and amounts. See below – Debt Modification of the May 2018 Financing executed on December 3, 2018.

 

F-23

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 — CONVERTIBLE PROMISSORY NOTES (continued)

 

May 2018 Financing (continued)

 

Debt Modification of the May 2018 Financing executed on December 3, 2018

 

On December 3, 2018, the Company agreed to a second modification with the Majority Holders of the May 2018 financing issuing amended and restated agreements. These modifications principally provide for:

 

  1. A five percent (5%) original issue discount was retroactively applied to the principal amount.
  2. The maturity date was extended to September 30, 2019
  3. The equity conditions were modified
  4. A floor price for all conversions and redemptions was added. The floor price with respect to the Trading Market that the Company’s Common Stock is listed or quoted, shall be a price equal to twenty cents ($0.20) (subject to adjustment for forward and reverse stock splits, recapitalizations and the like).
  5. The definitions of Mandatory Redemption Amount, Monthly Redemption Date, Monthly Redemption Date, and Optional Redemption Amount (each as defined in the Second Amended Debentures) were each modified.
  6. Interest was retroactively modified to ten percent (10%), with 12 months interest guaranteed.
  7. An alternate Conversion Price (as defined in the Second Amended Debentures) due to an Event of Default (as defined in the Second Amended Debentures) was added.
  8. The Monthly Redemption (as defined in the Second Amended Debentures) section was modified.
  9. Certain negative covenants were added.
  10. The Event of Default (as defined in the Second Amended Debentures) sections were modified.

 

The Company considered ASC 470-50-40-6 to 40-23 for the proper accounting guidance to apply for the December 31, 2018 modification of the May 2018 Financing. After the modification, it was concluded that the present value of cash flows under the terms of the new debt instruments differ by at least 10% from the present value of the remaining cash flows under the terms of the original debt instruments (commonly referred to as the “10% cash flow test”). The Company concludes that these modified terms are considered substantially different from the original terms thus requiring extinguishment accounting. In accordance with ASC 470-50-40-17(a), the Company determined the new debt instrument’s value exceeded the extinguishment of the old debt instrument plus fees paid associated with the modification and recognized a loss on debt extinguishment in the amount of $1,059,870.

 

The modifications resulted in new debt instruments and the principal is summarized as follows:

 

Principal remaining on old debt modified   $ 3,400,000  
Accrued interest on old debt modified     100,300  
Additional proceeds     2,000,000  
Original issue discount     105,265  
Redemption premiums     525,045  
Total new principal   $ 6,130,610  

 

The Company paid issuances costs associated with the debt modifications in the amount of $70,000 and was recorded as additional debt discount. The amount calculated was amortized as interest expense over the remaining term of the debt instrument using the interest method. In October 2018, the Company issued 222,224 shares valued at $100,000 as conversion of principal and interest. On December 4, 2018, the Company issued 552,912 shares at a fair market value of $238,758 as a conversion of principal and interest. As of December 31, 2018, the remaining period over which any discount will be amortized is nine months.

 

F-24

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11— LEASES

 

Operating lease ROU assets are included in “Right of use assets, operating leases” and are included in the consolidated balance sheets. With respect to lease liabilities, operating lease liabilities are included in “Operating lease obligations, current” and “Operating lease liabilities, net of current portion,” in the consolidated balance sheets.

 

The Company’s leasing arrangements include agreements for office space, deployment sites, and storage warehouses, both domestically and internationally. The operating leases contain various terms and provisions, with a remaining duration of 5 months to 3.8 years. Certain individual leases contain rent escalation clauses and lease concessions that require additional rental payments in the later years of the term. We recognize rent expense for these types of contracts on a straight-line basis over the minimum lease term. Additionally, the Company sublets a portion of its space under operating leases with various lease terms at The Fairways, Hemel, and Billerica locations, with a remaining duration of two months to one year.

 

As of December 31, 2019, ROU assets and lease liabilities were approximately $1.93 million, net and $1.98 million ($0.82 million of which is current), respectively. The weighted-average remaining term for lease contracts was 3.5 years on December 31, 2019, with maturity dates ranging from April 2020 to March 2025. The weighted-average discount rate was 9.3% at December 31, 2019.

 

For the years ended December 31, 2019, and 2018, the Company incurred approximately $1,159,000 and $1,466,000 of operating lease expense, offset by sublet income of approximately $257,000 and $146,000, respectively. Adjustments for straight-line operating lease expense for the respective periods was not material, and as such, the majority of costs recognized is reflected in cash used in operating activities for the respective periods. This expense consisted primarily of payments for base rent on office and warehouse leases. Amounts related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. Besides, we have the right, but no obligation, to renew individual leases for various renewal terms.

 

The table below lists location and lease expiration dates 2020 through 2025:

 

Location   Lease-End
Date
  Approximate
Future
Payments
 
Colchester, U.K. – Waterside House   May 2025   $ 1,073,000  
Anaheim, CA   Jul 2021     46,000  
Billerica, MA   Dec 2026     587,000  
Hemel, UK   Oct 2020     142,000  
Singapore   Aug 2020     20,000  
Hackettstown, NJ   Apr 2020     31,000  
Sarasota, FL   Sep 2022     85,000  
             
Sublets:            
Colchester, UK – The Fairways   Mar 2020   $ 13,000  
Hemel, UK   Oct 2020     73,000  
Billerica MA   May 2021     252,000  

 

F-25

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 — LEASES (continued)

 

Under previous lease guidance, future minimum lease payments under operating leases with noncancelable lease terms in excess of one year from continuing operations as of December 31, 2019, were as follows:

 

Year Ending December 31,   Amount  
2020   $ 956,000  
2021     491,000  
2022     281,000  
2023     255,000  
2024     255,000  
Thereafter     64,000  
    $ 2,302,000  
         
Sublets:        
2020   $ 264,000  
2021     74,000  
    $ 338,000  

 

The following table illustrates specific operating lease data as of December 31, 2019:

 

Lease cost:        
Operating lease cost   $ 1,106,000  
Short-term lease cost     53,000  
Variable lease cost      
Sublease income     (257,000 )
Total lease cost   $ 902,000  
         
Cash paid for amounts in lease liabilities:        
Operating cash flows from operating leases   $ 1,136,000  
         
Right-of-use assets and operating lease liabilities recognized upon adoption   $ 2,991,000  
         
Weighted-average remaining lease term—operating leases     3.5 years  
         
Weighted-average discount rate—operating leases     9.3 %

 

F-26

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 — RELATED PARTY TRANSACTIONS

 

On January 1, 2019, a new related party agreement (the “MBMG Agreement”) became effective between the Company and MB Merchant Group, LLC (“MBMG”). The MBMG Agreement supersedes the previous agreement with MB Technology Holdings, LLC (“MBTH”). MBMG, the founding entity of MBTH, agrees to provide services in connection with, and Vislink Technologies agrees to compensate MBMG for both consulting services via a retainer and, on a success basis, for future mergers and acquisitions beginning January 1, 2019.

 

The following directors of MBMG have significant influence with the Company:

 

  Roger Branton, the Company’s Chief Financial Officer and director,
     
  Richard Mooers, the Company’s director.

 

The following table represents a summary of related party transactions for the years ended December 31, 2019 and 2018:

 

    For the years ended  
    December 31,  
             
    2019     2018  
             
Consulting fees incurred, recurring   $ 600,000     $ 300,000  
                 
Consulting fees incurred, non-recurring   $ 358,000     $ 48,000  
                 
Common stock issued in satisfaction of amounts due:                
Quantity of shares issued     12,469       429,585  
                 
Value of shares issued   $ 31,000     $ 240,000  
                 
Amounts repaid to MBMG in cash   $ 783,000     $ 769,000  

 

The Company recorded fees incurred in general and administrative expenses on the accompanying Consolidated Statements of Operations and included such fees in due to related parties on the Consolidated Balance Sheet. The balances outstanding to MBMG at December 31, 2019 and 2018 were $505,000 and $361,000, respectively.

 

F-27

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 13 — DERIVATIVE LIABILITIES

 

Each of the warrants issued in connection with the August 2015 underwritten offering, the February 2016 Series B Preferred Stock Offering, the May 2016 financing, the July 2016 financing, the August 2017 underwritten offering, and the May 2018 Financing have been accounted for as derivative liabilities as each of the warrants contain a net cash settlement provision whereby, upon certain fundamental events, the holders could put the warrants back to the Company for cash.

 

The following are the critical assumptions used in connection with the valuation of the warrants exercisable into common stock as of December 31, 2019 and 2018:

 

    Years Ended
    December 31,
    2019   2018
Number of shares underlying the warrants     462,428       492,815  
Fair market value of stock   $ 0.25     $ 3.10  
Exercise price   $ 1.00 to $ 24,000     $ 4.50 to $ 137.90  
Volatility     126% to 160 %     118% to 149 %
Risk-free interest rate     1.51% to 1.60 %     2.46% to 2.51 %
Expected dividend yield            
Warrant life (years)     1.4 to 3.41       0.1 to 4.41  

 

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.

 

Level 3 Valuation Techniques:

 

Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company deems financial instruments that do not have fixed settlement provisions to be derivative instruments. Under U.S. GAAP, the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders. Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities. Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated statements of operations in each subsequent period.

 

The Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs. In calculating the fair value, the Company uses a binomial model style simulation, as the value of certain features of the warrant derivative liabilities would not be captured by the standard Black-Scholes model.

 

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    Years Ended  
    December 31,  
    2019     2018  
Beginning balance   $ 1,118,000     $ 2,399,000  
Recognition of warrant liabilities on issuance dates           1,905,000  
Re-classification to equity upon warrants exercised     (24,000 )      
Change in fair value of derivative liabilities     (1,064,000 )     (3,186,000 )
Ending balance   $ 30,000     $ 1,118,000  

 

F-28

 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 — STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

In March 2013, by approval of the majority of the stockholders, the Company was authorized to issue 10,000,000 shares of “Blank Check” preferred stock, par value $0.00001 per share. On December 31, 2014, 3,000,000 shares were designated as authorized Series A Convertible Preferred Stock (“Series A Preferred Stock”). On February 11, 2015, 3,000,000 shares were designated as authorized Series B Convertible Preferred Stock (“Series B Preferred Stock”).