PART
I
Item
1. Business
Overview
Vislink,
incorporated in 2006, is a global technology business specializing
in collecting, delivering, and managing high-quality, live video and associated data from the scene of the action to the viewing
screen. Vislink provides solutions for the collection of live news, sports, and entertainment events for the broadcast markets.
Vislink also furnishes the surveillance and defense markets with real-time video intelligence solutions using various tailored
transmission products. The Vislink team also provides professional and technical services utilizing a staff of technology experts
with decades of applied knowledge and real-world experience in terrestrial microwave, satellite, fiber optic, surveillance, and
wireless communications systems delivering a broad spectrum of customer solutions.
LIVE
BROADCAST:
Vislink
delivers an extensive portfolio of solutions for live news, sports, and entertainment industries. These solutions encompass the
video collection, transmission, management, and distribution of content, via microwave, satellite, cellular, I.P., and MESH networks.
With over 50 years in operation, Vislink has the expertise and technology portfolio to deliver fully integrated, seamless, end-to-end
solutions.
Industry-wide
contributors acknowledge Vislink’s live broadcast solutions. The transmission of a vast majority of all outside wireless
broadcast video content uses our equipment, with over 200,000 systems installed worldwide. We work closely with the majority of
the world’s broadcasters. Vislink wireless cameras and ultra-compact encoders help bring many of the world’s most
prestigious sporting and entertainment events to life. Recent examples include globally watched international sporting contests,
award shows, racing events, and annual music and cultural events.
MILITARY
AND GOVERNMENT:
Building
on our knowledge of live video delivery, Vislink has developed high-quality solutions to meet the operational and industry challenges
of surveillance and defense markets. Vislink solutions are specifically designed with interagency cooperation in mind, utilizing
a standard international protocol, I.P., platform, and a web interface for video delivery. Vislink provides comprehensive video,
audio, and data communications solutions to the law enforcement and public safety community, including Airborne, Unmanned Systems,
Maritime, and Tactical Mobile Command Posts. These solutions may include airborne downlinks, terrestrial point-to-point, tactical
mobile command, maritime, UAV, and personal portable products that meet the demands of field operations, command centers, and
central receiving sites. Short-range and long-range solutions are available in areas that include established infrastructure and
exceptionally remote regions, making valuable video intelligence available regardless of location. Vislink public safety and surveillance
solutions are deployed worldwide, including throughout the U.S., Europe, and the Middle East, at the local, regional, and federal
levels of operation, a criminal investigation, crisis management, mobile command posts, and field operations.
SATELLITE
COMMUNICATIONS:
Over
30 years of technical expertise supports Vislink’s satellite solutions. These solutions aim to ensure robust, secure communications
while delivering low transmission costs for any organization that needs high-quality, reliable satellite transmission. We offer
turnkey solutions that begin with state-of-the-art coding, compression, engine modulation and end with our robust, lightweight
antenna systems. Vislink Satellite solutions focus heavily on being the smallest, lightest, and most efficient in their categories,
making transportation and ease of use a key driver in the customer experience. Vislink offers an extensive range of satellite
designs that allow customers to optimize bit rate, size, weight, and total cost. Our satellite systems are used extensively globally,
with over 2,000 systems deployed by governments, militaries, and broadcasters alike.
Cost
Reduction Initiatives
The
Company began taking liquidity preservation actions in late March 2020 and early April 2020, including:
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Implementation of proactive spending reductions to improve liquidity, including a partial workforce reduction, the furlough of
employees, reduced discretionary spending, resulting in a projected annual savings of approximately $5.0 million.
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Effective May 1, 2020, the Company entered into new lease arrangements at two recent locations in Hackettstown, NJ, on a 90-day
cycle for each site, effectively lowering rental fees by approximately 81%.
In
November 2020, the Company implemented further reductions to its workforce and other operating expenditures. Management believes
these efforts will improve the Company’s current financial position and enhance its ability to meet future working capital
requirements. Additional other cost-cutting measures are as follows:
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elimination of inventory related to discontinued product lines, and
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the reduced usage and or the closure of individual facilities.
Our
Strategy
Our
participation in the Live Production, Mil/Gov, and Satellite
sectors allow us to offer a broad array of end-to-end, high-reliability, high-data-rate, long-range wireless video transmission
solutions.
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, use our solutions.
We
have incorporated the following key sector strategies to expand various markets for miniature wireless video products, including
the educational sector, videographers, and video service providers. Additionally, introducing comprehensive end-to-end I.P. technology
into traditional broadcast and media markets provides complete end-to-end solutions for the video surveillance market and 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 as a single entity has allowed the Company
to leverage its traditional strengths. We can now offer an expanded suite of products and services in the worldwide markets we
operate. Integrating the IMT and Vislink product lines has enabled the Company to take advantage of the limited overlap in previous
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. 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
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.
Market
Overview and Outlook
Our
services and product offerings broadly address three markets: Live Production, Mil/Gov, and Satellite.
The
general focus on applying more agile wireless video systems is through the Live Production market’s sports and entertainment
sector. 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 reduce the size further
and improve the wireless video systems’ agility as users are demanding higher link reliabilities at longer ranges. There
is also an increased desire to provide audiences with new views and camera angles to enhance the viewing experience. The Company
addresses this need through its solutions incorporating 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
Live Production market’s broadcast news sector looks to improve operational efficiencies in gathering, producing, and transmitting
wireless content. Recent trends in the market include a movement towards I.P. 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 speed increases they will usher in, expecting 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 video content’s reliability and quality without adding complexity, omitting technical
intervention while operating the video systems. 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 I.P. networks. As the wireless video
systems are becoming more reliable and straightforward to deploy, the wireless systems’ option rate 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
drive to experience more and better visual communication systems impacts the Satellite market. Live T.V. broadcasting over
satellite, and other connectivity types 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 I.P. connectivity and the desire for fully integrated solutions that enable remote live content
capture, production, broadcast, and distribution.
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 developing core product technologies that have the potential for application in final assembled products that cross-market
segments. Such technology focus areas include R.F., Live Streaming and microwave component development spanning the frequency
range from D.C. to 18GHz, waveform modulation, advanced video encoding (HEVC) and decoding, 4K UHD (Ultra High Definition) camera
systems, and digital signal processing. Through these products, we are positioned with significant technology I.P. 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 I.P. networks,
expanding and simplifying their widespread use and significantly reducing deployment cost. HCAM is a 4K Ultra HD-capable on-camera
wireless system designed to cover significant events among our transmitter products. MicroLite 3 is a compact wireless H.D. 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 operations and increases the cameramen’s
speed and agility to capture engaging content. IMTDragonFly is an ultra-compact H.D. solution designed for body-worn applications,
including live-action sports. Our Flagship receiver product is the newly released (Q1 2021) Quantum. The Quantum is ultra-low
latency, waveform agnostic central receiver that is the Vislink premier receiver in all market verticals, including MilGov. Features
include HEVC quad signal decode, seamless geographical coverage, and an I.P. stream engine with cloud integration possibilities,
OTT, and social media platforms. Other essential receiver products include the ViewBack, 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.
Quantum
MicroLite
3
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. We design the IMTDragonFly transmitter 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 HHT3 and Mobile Commander are handheld receivers/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 video management systems. AVDS allows an unlimited number of observers to view the
video over any network connection, including wired Ethernet, Wi-Fi, I.P. satellite, and I.P. cellular.
HHT3
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. The essential product is 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.
MSAT
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 regular, high-definition, wireless
video communications. We have successfully leveraged 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 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.
Our
advantage grew by completing the global rebranding of our solutions under the single Vislink entity. 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 hope to improve margins and better control product quality and
competitive agility.
Sales
and Marketing
Our
sales team comprises sales managers responsible for defined regional areas, inside sales personnel, and business development representatives
focused on targeted sectors and or regions, supported by solution engineers trained in technical sales with a given market focus.
The sales team focuses on helping our current customers and 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. Marketing and public relations activities, digital and print marketing initiatives,
the creation of support materials, trade shows, and other event appearances support our sales efforts.
As
of December 31, 2020, our business development, sales, and marketing team consisted of 26 (a) full-time employees and (b)
contractors.
Customers
Vislink
has developed a significant following based on our product offerings’ reputation for performance, reliability, and advanced
technology use. 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, providing us the opportunity to develop optimal supply chains tailored to our needs on a per-product and per-solution
basis. As we advance, we anticipate that we will focus on our core strengths: 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, third-party components and technology to build our products, as we
procure components, subassemblies, and products necessary to manufacture our products based upon our design, development, and
production needs. While parts and supplies are generally available from various 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 parts to mitigate any potential supply disruption if required to re-engineer our
products to use alternative components.
Intellectual
Property
We
have developed a broad portfolio of intellectual property that covers wired and wireless communications systems. As of December
31, 2020, we have 36 patents granted in the U.S., no patent applications pending, no provisional applications pending, and one
disclosure. Internationally, we have 12 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:
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Self-Organizing
Networks;
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R.F.
Modulation;
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Compression
(protocols, payload, signaling, etc.);
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Modulators/Demodulators;
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Antennas/Shielding;
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Wired
and Wireless Networks;
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Media
Access Control Protocols;
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Interference
Mitigation;
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Cognition
enabling over the air protocols (MAC layer);
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Wireless
data compression;
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Dynamic
Spectrum Access (DSA);
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Quality
of Service; and
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Digital
Broadcasting over Microwave Links.
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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
concerning 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, as well as the brand or title name trademark under our marketed
products. We pursue our domain names, trademarks, and service marks in the United States and 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, adequate intellectual property protection
may not be available in the United States or other countries where our products are sold or distributed. Also, the efforts we
have taken to protect our proprietary rights may not be enough or adequate. 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 mobile wireless communications technology and other industries may own large numbers of patents, copyrights, and trademarks.
They 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 third-party claims, 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.
Company
Information
Effective
February 11, 2019, xG Technology, Inc. changed its name to Vislink Technologies, Inc. Our executive offices’ location is
101 Bilby Rd., Suite 15, Bldg. 2, Hackettstown, NJ 07840, and (908) 852-3700 is the telephone number. Our website address is www.vislink.com.
Our website’s information does not form part of the report and is for informational purposes only.
Human
Capital
Overall
As
of December 31, 2020, we employed 109 full-time employees, contractors, or consultants, including 18 in development, two officers,
15 in general and administrative, 3 in business development, 45 in operations, and 26 in sales and marketing. Our business results
depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining
key talent. As a global industrial technology company, many of our employees are engineers or trained trade or technical workers
focusing on advanced manufacturing, and many of them possess advanced college degrees. No labor union represented our employees
at any of our worldwide facilities as of December 31, 2020.
The
Company emphasizes several measures and objectives in managing its human capital assets, including, among others, employee safety
and wellness, talent acquisition and retention, employee engagement, development and training, diversity and inclusion, and compensation.
These targeted ideals vary by country/region, and may include annual bonuses, stock-based compensation awards, a 401(k) plan with
employee matching opportunities, healthcare, and insurance benefits, health savings and flexible spending accounts, paid time
off, family leave, family care resources, employee assistance programs, and tuition assistance. We also provide our employees
with access to various innovative, flexible, and convenient health and wellness programs. We designed these programs to support
employees’ physical and mental health by providing tools and resources to improve or maintain their health status and encourage
engagement in healthy behaviors.
We
consider our employee relations to be rewarding.
Covid-19
In
response to the COVID-19 pandemic, we implemented significant changes that we determined were in our employees’ best interest
and comply with government orders in all the states and countries. We have implemented several health-related measures to keep
our employees safe and maintain operations during the pandemic. The Company has established procedures adopting the following
policies:
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wear
face-masks at all times while on company property,
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implemented
temperature taking protocols,
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increased
hygiene, cleaning, and sanitizing procedures at all locations,
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implemented
social-distancing,
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implemented
restrictions on visitors to our facilities,
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and
limiting in-person meetings and other gatherings.
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The
safety of our employees is a paramount value for us. Further, the health and wellness of our employees are critical to our success.
We provide our employees with access to various innovative, flexible, and convenient health and wellness programs. We designed
these programs to support employees’ physical and mental health by providing tools and resources to improve or maintain
their health status and encourage engagement in healthy behaviors.
Item
1A. Risk Factors
In
addition to the other information in this Form 10-K, readers should carefully consider the following essential factors. These
factors, among others, in some cases, have affected, and in the future could affect, our financial condition and results of operations
and could cause our future results to differ materially from those expressed or implied in any forward-looking statements that
appear in this Form 10-K or that we have made or will make elsewhere.
Risk
Factor Summary
The
following summarizes certain essential factors that may make an investment in our Company speculative or risky. You should carefully
consider the full risk factor disclosure outlined in this Annual Report, in addition to the other information herein, including
the section of this Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our financial statements and related notes.
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Our
financial statements included a disclosure regarding our liquidity and financial condition due to our recurring operating
losses and cash used from operations.
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If
we cannot comply with Nasdaq’s applicable continued listing requirements or standards, Nasdaq could delist our Common
Stock.
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We
face risks related to COVID-19, which could significantly disrupt our operations and have a material adverse impact on us
and our business.
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At
several of our annual stockholder meetings, including our 2019 Annual Meeting of Stockholders, we failed to obtain ratification
by our stockholders of specific proposals submitted for approval of our stockholders at prior annual meetings, which could
be deemed to be defective corporate acts.
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We
may require additional capital in the future to develop and market new products. If we do not obtain any such additional financing,
our business prospects, financial condition, and operating results will be adversely affected if required.
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Our
industry is highly competitive, and we may not be able to compete effectively.
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Defects
or errors in our products and services or products made by our suppliers could harm our brand and relations with our customers
and expose us to liability. If we experience product recalls, we may incur significant expenses and experience decreased demand
for our products.
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We
acknowledge material weaknesses in the controls and procedures of our financial reporting. We may identify additional material
weaknesses in the future that may cause us to fail to meet our reporting obligations, including timeliness, or result in material
misstatements of our financial statements.
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We
rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace.
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We
purchase some components, subassemblies, and products from a limited number of suppliers. The loss of any of these suppliers
may substantially disrupt our ability to obtain orders and fulfill sales as we design and qualify new components.
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Our
intellectual property protections may be insufficient to safeguard our technology appropriately.
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We
may be subject to claims of intellectual property infringement or invalidity. Expenses incurred concerning monitoring, protecting,
and defending our intellectual property rights could adversely affect our business.
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Enforcement
of our intellectual property rights abroad, particularly in China, is limited, and it is often difficult to protect and enforce
such rights.
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The
intellectual property rights of others may prevent us from developing new products or entering new markets.
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We
may be subject to infringement claims in the future.
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If
our technology did not work and planned or are unsuccessful in developing and selling new products or penetrating new markets,
our business and operating results would suffer.
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Demand
for our defense-related products and products for emergency response services depends on government spending.
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Regulation
of the telecommunications industry could harm our operating results and impending prospects.
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New
regulations or standards or changes in existing laws or standards in the United States or internationally related to our products
may result in unanticipated costs or liabilities, which could have a material adverse effect on our business, results of operations,
and future sales, and could place additional burdens on the operations of our business.
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Our
industry is subject to rapid technological change, and we must make substantial investments in new products, services, and
technologies to compete successfully.
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Risks
Related to the COVID-19 Pandemic
The
COVID-19 pandemic has unfavorably affected the Company’s business, financial condition, and operating results and could
affect the Company’s liquidity. We cannot predict, with any certainty, how future events may affect our operations in the
near and long-term in the COVID-19 pandemic environment.
The
COVID-19 pandemic and the continued measures engaged globally to reduce its spread have negatively impacted the global economy,
disrupted consumer/customer demand and global supply chains, and created significant volatility and financial markets disruption.
These measures and the continued volatility of the worldwide economy adversely affected our results of operations for 2020.
The
extent to which COVID-19 will impact our business remains uncertain and will depend on various changing factors on a day-to-day
basis. We may not be able to predict such items accurately as:
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the
duration and scope of the pandemic,
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the
disruption of the national and global economy,
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the
span of the economic downturn,
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the
laws, programs, and actions governments will enact or take,
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the
possibility to which our clients’ businesses contract or fail,
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the
applicability to which new regulations intended to help small and medium-sized businesses,
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the
extent to which our operations are impacted by facility closures, remote work and/or infections,
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and
how quickly and to what time normal economic and operating conditions can resume.
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Any
of these factors could exacerbate the risks and uncertainties related to the COVID-19 pandemic.
The
Company fully implemented a strategic initiative plan during the first quarter of 2020. We executed spending reductions to improve
liquidity, a partial workforce reduction, the furlough of employees, and discretionary spending reduction. The Company continued
its focus in November 2020, further reducing the workforce, eliminating inventory related to discontinued product lines, reducing
individual facilities usage, and reducing operations expenditures.
Risks
Related to the Company and Our Business
Our
financial statements have included disclosures regarding our liquidity and financial condition due to our recurring operating
losses and cash used from operations.
The
Company incurred a loss from operations of approximately $17.9 million and cash used in operating activities of $14.4 million
for the year ended December 31, 2020. The Company had $7.7 million in working capital, $270.1 million in accumulated deficits,
and $5.2 million of cash on hand as of December 31, 2020. Additionally, as of April 14, 2021, our cash on hand is approximately
$59.3 million.
We
prepare our consolidated financial statements assuming we can continue as a going concern, which contemplates continuity of operations
by realizing assets and settling liabilities in the ordinary course of business. Notwithstanding the receipt of the proceeds from
previous capital raises, reduction of debt, and our cost-reduction initiatives, we may lack adequate financial resources to generate
cash from operations because, among other reasons, our ability to recognize revenue and ultimately cash receipts is contingent
upon, but not limited to, acceptable performance of the delivered equipment and services.
If
we cannot comply with Nasdaq’s applicable continued listing requirements or standards, Nasdaq could delist our Common Stock.
We
currently list our Common Stock on Nasdaq. To maintain such a listing, we must satisfy minimum financial and other continued listing
requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’
equity, minimum share price, and specific corporate governance requirements.
As
previously disclosed in our Current Report on Form 8-K, filed with SEC on March 5, 2020, we received a letter from the Staff on
March 4, 2020, notifying us that the Staff has determined that we did not comply with Listing Rule 5635(d) because our 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 investors
in such offering and us, and (iii) the significant discount to the minimum price, as defined in Nasdaq rules. On March 18, 2020,
we submitted a plan to regain compliance with Nasdaq Listing Rule 5635. On April 30, 2020, we received another letter from the
Staff notifying us that the Staff has determined not to delist our Common Stock for such non-compliance and that the Staff has
closed this matter by issuing us a letter of reprimand under Nasdaq Listing Rule 5810(c)(4).
There
can be no assurances that we will be able to regain compliance with Nasdaq’s listing standards, or if we do later regain
compliance with Nasdaq’s listing standards, we will be able to continue to comply with the applicable listing standards.
Also, there can be no assurance that, if and when we regain compliance with such listing standards, we may, again, in the future,
fall out of compliance with such standards, and there can be no assurance that any proposed offering that we conduct will comply
with Nasdaq’s listing standards. If we cannot maintain compliance with these Nasdaq requirements, our Common Stock will
be delisted from Nasdaq.
We
face risks related to COVID-19, which could significantly disrupt our operations and have a material adverse impact on us and
our business.
The
extent to which COVID-19 continues to impact the Company’s operations, results of operations, liquidity, and financial condition
will depend on future developments. With the current Presidential administration working towards “herd immunity,”
a target date is unpredictable with any confidence. The timing and efficacy of the vaccination programs in the jurisdictions in
which the Company operates, and the actions implemented to contain the impact of COVID-19 by Federal and local governments, limit
determining the foreseeable resulting economic effects with any level of predictability.
At
several of our annual stockholder meetings, including our 2019 Annual Meeting of Stockholders, we failed to obtain ratification
by our stockholders of specific proposals submitted for approval of our stockholders at prior annual meetings, which could be
deemed to be defective corporate acts.
At
our 2015 Annual Meeting of Stockholders, our Board submitted to our stockholders for their approval (i) a proposal to approve
our 2015 Employee Stock Purchase Plan and (ii) a proposal to approve our 2015 Incentive Compensation Plan. At our 2016 Annual
Meeting of Stockholders, our Board submitted to our stockholders for their approval (i) a proposal to approve our 2016 Employee
Stock Purchase Plan and (ii) a proposal to approve our 2016 Incentive Compensation Plan. At our 2017 Annual Meeting of Stockholders,
our Board submitted to our stockholders, for their approval, (i) a proposal to approve an amendment to our 2016 Employee Stock
Purchase Plan to increase the number of shares of Common Stock available for sale under such plan; (ii) a proposal to approve
an amendment to our 2016 Incentive Compensation Plan to increase the number of shares of Common Stock available for sale under
such plan; and (iii) a proposal to approve our 2017 Incentive Compensation Plan.
At
each of these annual meetings, our inspector of elections determined that the applicable proposal received the requisite stockholder
approval under our amended and restated bylaws (“Bylaws”) and certified that the proposal passed, which was subsequently
disclosed in an applicable Current Report on Form 8-K. Questions have been raised about whether the votes on such proposals were
tabulated following our Bylaws’ provisions and whether the requisite number of votes were obtained to approve each of these
proposals.
According
to the provisions of Section 204 of the General Corporation Law of the State of Delaware (“DGCL”) and to continue
to remain in compliance with Nasdaq’s Listing Rules, we submitted all of these proposals, again, to our stockholders at
our 2019 Annual Meeting of Stockholders for ratification to resolve any defects in the corporate acts relating to the approval
of these proposals by our stockholders at the prior meetings. We were unable to obtain ratification by our stockholders for any
of these proposals submitted to them at the 2019 Annual Meeting of Stockholders. Although we intend to resubmit these proposals
to our stockholders for ratification, there can be no assurance that any of these proposals will be ratified. Suppose we cannot
secure such ratifications secured or are not deemed adequate, among other consequences. In that case, this could result in a determination
that none of the shares issued by us under these plans were duly authorized and validly issued, which could create accounting
issues, affect our liquidity and capital structure, and expose us to claims from recipients of any stock awards granted according
to such plans, any of which could have a material adverse effect on our business and results of operations.
We
may require additional capital in the future to develop and market new products. If we do not obtain any such additional financing,
our business prospects, financial condition, and results of operations will be adversely affected if required.
We
may require additional capital in the future to develop new products. We may not be able to secure adequate additional financing
when needed on acceptable terms or at all. To execute our business strategy, we may issue additional equity securities in public
or private offerings, potentially at discounts to the current or future market price of our Common Stock. If we cannot secure
sufficient additional funding, we may be forced to forego strategic opportunities or delay, scale back and eliminate future product
development.
Our
industry is highly competitive, and we may not be able to compete effectively.
The
communications industry is highly competitive, rapidly evolving, and subject to constant technological change. We expect that
new competitors are likely to join existing competitors. Many of our competitors may be larger and have more excellent financial,
technical, operational, marketing, and other resources and experience than we do. If a competitor expends significant resources,
we may not be able to compete successfully. Also, the pace of technological change makes it impossible for us to predict whether
we will face new competitors using different technologies to provide products. If our competitors were to offer better and more
cost-effective products than our products, we might not be able to capture any significant market share.
Defects
or errors in our products and services or products made by our suppliers could harm our brand and relations with our customers
and expose us to liability. If we experience product recalls, we may incur significant expenses and experience decreased demand
for our products.
Our
products are inherently complex and may contain defects and errors that are only detectable when the products are in use. Because
our products are used for personal and business purposes, such faults or errors could have a severe impact on our end customers,
damaging our reputation, harming our customer relationships, and exposing us to liability. Defects or impurities in our components,
materials or software, equipment failures, or other difficulties could adversely affect our ability and that of our customers,
ship products on a timely basis, and customer or licensee demand for our products. Any such shipment delays or declines in demand
could reduce our revenues and harm our ability to achieve or sustain desired levels of profitability. Our customers may also experience
component or software failures or defects that could require significant product recalls, rework, and/or repairs that are not
covered by warranty reserves.
According
to the Paycheck Protection Program (the “PPP”), our loan could be audited by U.S. regulatory authorities. An adverse
finding thereunder could require us to return the full amount of the loan and potentially subject us to fines and penalties.
In
April 2020, we concluded in good faith that the economic uncertainty and negative impact on us and the economy as a whole due
to the COVID-19 pandemic made an application for a loan under the PPP, under the Coronavirus Aid, Relief, and Economic Security
Act (“CARES Act”), necessary for the support of our ongoing operations in the current economic environment.
On
April 5, 2020, we entered into a PPP loan with Texas Security Bank in an aggregate principal amount of approximately $1.2 million.
The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage
and controversy concerning public companies applying for and receiving loans. On April 23, 2020, the Small Business Administration,
or SBA, issued new guidance that questioned whether a public company with substantial market value and access to capital markets
would qualify to participate in the PPP. Subsequently, on April 28, 2020, the Secretary of the Treasury and SBA announced that
the government would review all PPP loans above $2 million in principal for which the borrower applies for forgiveness. On May
13, 2020, the SBA issued further guidance relating to the required necessity certification, which provides a limited safe harbor
for companies that received PPP loans having less than $2 million in principal to the effect that they will be deemed to have
made the required certification concerning the necessity of the loan request in good faith.
Nonetheless,
should we be audited or reviewed by the U.S. Department of the Treasury due to applying for forgiveness or otherwise, such audit
or review could result in the diversion of management’s time and attention and legal and reputational costs. If we were
to be audited and receive an adverse finding in such audit, we could be required to return the full amount of the PPP loan and
pay interest at a higher rate than 1.000% per annum, reducing our liquidity and potentially subject us to fines and penalties.
Official guidance and interpretations of the program’s requirements have been limited and have been changing over time.
Despite our good-faith belief that we properly satisfied all eligibility requirements for the PPP loan and the recently published,
limited safe-harbor, there has been increasing scrutiny of public companies that received loans. There can be no assurance that
we will not become subject to regulatory or another scrutiny by the SBA, the Department of the Treasury, or any other regulatory,
administrative, legislative, or governmental authority, including a request or requirement for repayment of some or all of the
loan, or otherwise incur adverse publicity and damage to our reputation.
Under
the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan, with such forgiveness
to be determined, subject to limitations, based on the use of the loan proceeds for payment of qualifying expenses and the Company
maintaining its payroll levels over certain required thresholds. Although we intend to apply for forgiveness of the PPP loan,
no assurance can be provided that we will obtain such forgiveness in whole or in part.
We
acknowledge material weaknesses in the controls and procedures of our financial reporting. We may identify additional material
weaknesses in the future that may cause us to fail to meet our reporting obligations, including timeliness, or result in material
misstatements of our financial statements. If we continue to fail to remediate our material weaknesses or fail to implement effective
controls and procedures for our financial reporting, our ability to accurately and timely report our financial results could be
adversely affected, which would likely adversely affect the value of our Common Stock.
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 under generally accepted accounting principles and includes those policies and procedures that:
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1.
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Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
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2.
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Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements following generally
accepted accounting principles and that receipts and expenditures of the Company are being made only by authorizations of
its management and Board; and
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3.
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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.
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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 chief 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, 2020, our internal control over financial reporting was not effective
in detecting U.S. GAAP’s inappropriate application.
Management
identified the following material weaknesses set forth below in our internal control over financial reporting:
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1.
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We
did not perform an effective risk assessment or monitor internal controls over financial reporting.
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2.
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With
the acquisitions of IMT and Vislink, there are risks related to the timing and accuracy of integrating information from various
accounting and ERP systems. The Company has experienced delays in receiving information promptly from its subsidiaries.
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3.
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The
COVID-19 pandemic delayed integrating the accounting and finance functions, enacted workforce reduction, and resulted in the
limitation of essential accounting personal.
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The
Company remains committed to addressing this issue despite the effects on the worldwide economy caused by the COVID-19 pandemic.
To mitigate the current circumstances, we rely heavily on direct management oversight of transactions, along with the use of highly
experienced external legal and accounting professionals, including our limited number of essential accounting personnel, who continue
to work from home. The Company expects to implement adequate segregation of duties within the internal control framework as the
Company grows.
Until
we can remediate this situation, there are no assurances that the material weaknesses in our disclosure controls and procedures
and internal control over financial reporting will not result in errors in our financial statements, which could lead to a restatement
of those financial statements. The Company expects improvements, as resources permit, on the integration of information issues
in the fiscal year 2020 and 2021 as we plan to move towards a more unified accounting and enterprise resource planning system.
The
Company is continuing to remediate further the material weakness identified above as its resources permit. Despite the existence
of these material weaknesses, the Company believes that the consolidated financial statements included in the period covered by
this Annual Report on Form 10-K fairly present, in all material respects, the Company’s financial condition, results of
operations, and cash flows for the periods presented in conformity with the U.S. generally accepted accounting principles.
This
report does not include an attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. According to the SEC’s rules, the management’s report was not subject to attestation by
the Company’s registered public accounting firm that permits the Company to provide only the management’s report in
this Report.
Our
charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market
price of our Common Stock.
Our
amended and restated certificate of incorporation, as amended (“Certificate of Incorporation”), and our Bylaws contain
provisions that could delay or prevent a change in our Company’s control. These provisions could also make it more difficult
for stockholders to elect directors and take other corporate actions. These provisions include:
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authorizing
the Board to issue, without stockholder approval, preferred stock with rights senior to those of our Common Stock;
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limiting
the persons who may call special meetings of stockholders; and
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requiring
advance notification of stockholder nominations and proposals.
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Also,
the provisions of Section 203 of the DGCL govern us. These provisions may prohibit large stockholders, particularly those owning
15% or more of our outstanding voting stock, from merging or combining with us for a specific time without our Board’s consent.
These and other provisions in our Certificate of Incorporation and our Bylaws and under Delaware law could discourage potential
takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our Common Stock and result
in the market price of our Common Stock being lower than it would be without these provisions.
Although
our products may not cause users technical issues, our business and reputation may be harmed if users perceive our solutions as
the cause of a slow or unreliable network connection or a high-profile network failure.
We
expect that our products will be in many different locations and user environments and can provide transmission of video, mobile
broadband connectivity, and interference mitigation, among other applications. Our products’ ability to operate effectively
can be negatively impacted by many different elements unrelated to our products. Although our products may not cause users technical
issues, users often may perceive the underlying cause of our technology’s poor performance. This perception, even if incorrect,
could harm our business and reputation. Similarly, a high-profile network failure may be caused by improper operation of the network
or failure of a network component that we did not supply. Still, other service providers may perceive that our products were implicated,
which, even if incorrect, could harm our business, operating results, and financial condition.
Our
ability to sell our products will be highly dependent on the quality of our support and service offerings, and our failure to
offer high-quality support and services would have a material adverse effect on our sales and results of operations.
Once
our products are deployed, our channel partners and end-customers will depend on our support organization to resolve any issues
relating to our products. A high level of support will be necessary for the successful marketing and sale of our products. In
many cases, our channel partners will likely provide support directly to our end-customers. We will not have complete control
over the quality of the support supplied by our channel partners. These channel partners may also support other third-party products,
potentially distracting resources from support for our products. If our channel partners and we do not effectively assist our
end-customers in deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide
adequate ongoing support, our ability to sell our products to existing end-customers could be adversely affected, and our reputation
with potential end-customers could be harmed. In some cases, we guarantee a certain performance level to our channel partners
and end-customers, which could prove resource-intensive and expensive for us to fulfill if unforeseen technical problems were
to arise.
We
may fail to recruit and retain qualified personnel.
We
expect to rapidly expand our operations and grow our sales, development, and administrative functions. This expansion is expected
to place a significant strain on our management and require hiring a considerable quantity of qualified personnel. Accordingly,
recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other
companies for qualified personnel in the areas of our activities. Suppose we fail to identify, attract, retain and motivate this
highly skilled personnel. In that case, we may be unable to continue our marketing and development activities, which could have
a material adverse effect on our business, financial condition, results of operations, and future prospects.
We
rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace.
We
are highly dependent on our executive officers because of their expertise and experience in the telecommunications industry. We
have agreements with our executive officers containing customary non-disclosure, non-compete, confidentiality, and assignment
of inventions provisions. We do not have “key person” life insurance policies for any of our officers. The loss of
the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development,
loss of customers and sales, and diversion of management resources, which could adversely affect our operating results.
We
purchase some components, subassemblies, and products from a limited number of suppliers. The loss of any of these suppliers may
substantially disrupt our ability to obtain orders and fulfill sales as we design and qualify new components.
We
sometimes rely on third-party components and technology to build and operate our products, and, until full integration with IMT
and VCS, we may rely on our contract manufacturers to obtain the components, subassemblies, and products necessary for the manufacture
of our products. Shortages in components that we use in our products are possible, and our ability to predict such components’
availability is limited. While components and supplies are generally available from various sources, our contract manufacturers
and we currently depend on a single or limited number of suppliers for several components for our products. If our suppliers of
these components or technology were to enter into exclusive relationships with other providers of wireless networking equipment
or were to discontinue providing such components and technology to us, and we were unable to replace them cost-effectively, or
at all, our ability to provide our products would be impaired. Our contract manufacturers and we generally rely on purchase orders
rather than long-term contracts with these suppliers. As a result, even if available, our contract manufacturers and we may not
secure sufficient components at reasonable prices or acceptable quality to build our products on time. Therefore, we may be unable
to meet customer demand for our products, which would have a material adverse effect on our business, operating results, and financial
condition.
We
do not have long-term contracts with our existing contract manufacturers. The loss of any of our current contract manufacturers
could have a material adverse effect on our business, operating results, and financial condition.
We
do not have long-term contracts with our existing contract manufacturers. If any of our current contract manufacturers are unable
or unwilling to manufacture our products in the future, the loss of such contract manufacturers could have a material adverse
effect on our business, operating results, and financial condition.
Our
intellectual property protections may be insufficient to safeguard our technology adequately.
Our
success and ability to compete effectively are, in large part, dependent upon proprietary technology that we have developed internally.
Given the rapid pace of innovation and technological change within the wireless and broadband industries, our personnel, consultants,
and contractors’ technical and creative skill and ability to develop, enhance, and market new products and upgrades to existing
products are critical to continued success. We rely primarily on patent laws to protect our proprietary rights. As of March 1,
2021, in the United States, we have 36 patents granted, no patent applications pending, and no provisional applications
pending. Internationally, we have 12 patents granted and no patent applications pending. There can be no assurance that patents
awaiting, or future patent applications will be issued or that we would have the resources to protect any such issued patent from
infringement if issued.
Further,
we cannot patent much of the technology that is important to our business. To date, we have relied on copyright, trademark, and
trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements, and
licensing arrangements with our employees, consultants, contractors, customers, and vendors, to establish and protect our rights
to this technology and, to the best extent possible, control the access to and distribution of our technology, software, documentation,
and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain
and use this technology without authorization. Policing unauthorized use of this technology is challenging. There can be no assurance
that the steps we take will prevent misappropriation of or prevent unauthorized third parties from obtaining or using the technology
we rely upon. Also, adequate protection may be unavailable or limited in some jurisdictions. Litigation may be necessary for the
future to enforce or protect our rights.
We
may be subject to claims of intellectual property infringement or invalidity. Expenses incurred for monitoring, protecting, and
defending our intellectual property rights could adversely affect our business.
Competitors
and others may infringe on our intellectual property rights or allege that we have infringed on theirs. Monitoring infringement
and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or
misappropriation of our proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property
or defending our use of intellectual property, reducing our ability to fund product initiatives. These expenses could hurt our
future cash flows and results of operations. If we are found to infringe on others’ rights, we could be required to discontinue
offering certain products or systems, pay damages, or purchase a license to use the intellectual property in question from its
owner. Litigation can also distract management from the day-to-day operations of the business.
Enforcement
of our intellectual property rights abroad, particularly in China, is limited, and it is often difficult to protect and enforce
such rights.
Patent
protection outside the United States is generally not as comprehensive as in the United States and may not protect our intellectual
property in some countries where our products are sold or may be sold in the future. Even if patents are granted outside the United
States, effective enforcement in those countries may not be available. Many companies have encountered substantial intellectual
property infringement in countries where we sell, or intend to sell, products or have our products manufactured.
In
particular, the legal regime relating to China’s intellectual property rights is limited, and it is often difficult to protect
and enforce such rights. The regulatory scheme for implementing China’s intellectual property laws may not be as developed
as other countries’ regulatory schemes. Any advancement of an intellectual property enforcement claim through China’s
regulatory system may require an extensive amount of time, allowing intellectual property infringers to continue mostly unimpeded,
to our commercial detriment in the Chinese and other export markets. Also, rules of evidence may be unclear, inconsistent, or
difficult to comply with, making it difficult to prove infringement of our intellectual property rights. As a result, enforcement
cases involving technology, such as copyright infringement of software code, or unauthorized manufacture or sale of products containing
patented inventions, may be difficult or not possible to sustain.
These
factors may make it increasingly complicated for us to enforce our intellectual property rights against parties misappropriating
or copying our technology or products without our authorization, allowing competing enterprises to harm our business in the Chinese
or other export markets by affecting the pricing for our products, reducing our sales and diluting our brand or product quality
reputation.
The
intellectual property rights of others may prevent us from developing new products or entering new markets.
The
telecommunications industry is characterized by the rapid development of new technologies, which requires us to continuously introduce
new products and expand into new markets that may be created. Therefore, our success depends on our ability to continually adapt
our products and systems to incorporate new technologies and expand into markets that new technologies may create. If technologies
are protected by others’ intellectual property rights, including our competitors, we may be prevented from introducing new
products or expanding into new markets created by these technologies. If others’ intellectual property rights prevent us
from taking advantage of innovative technologies, our financial condition, operating results, or prospects may be harmed.
We
may be subject to infringement claims in the future.
We
may be unaware of filed patent applications and issued patents that could include claims covering our products. Parties making
claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to
sell or supply our products or license our technology and could cause us to pay substantial royalties, licensing fees, or damages.
The defense of any lawsuit could divert management’s efforts and attention from ordinary business operations and result
in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may (i) require us to stop
selling products or using technology that contains the allegedly infringing intellectual property; (ii) need us to redesign those
products that have the allegedly infringing intellectual property; (iii) require us to pay substantial damages to the party whose
intellectual property rights we may be found to be infringing; (iv) result in the loss of existing customers or prohibit the acquisition
of new customers; (v) cause us to attempt to obtain a license to the relevant intellectual property from third parties, which
may not be available on reasonable terms or at all; (vi) materially and adversely affect our brand in the market place and cause
a substantial loss of goodwill; (vii) cause our stock price to decline significantly; (viii) materially and adversely affect our
liquidity, including our ability to pay debts and other obligations as they become due; or (ix) lead to our bankruptcy or liquidation.
We
rely on the availability of third-party licenses. If these licenses are available to us only on less favorable terms or not at
all in the future, our business and operating results would be harmed.
We
have incorporated third-party licensed technology into our products. It may be necessary to renew licenses relating to various
aspects of these products or seek additional licenses for existing or new products. There can be no assurance that the required
licenses will be available on acceptable terms or at all. The inability to obtain specific licenses or other rights, or to obtain
those licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays
in product releases until such time, if ever, as equivalent technology could be identified, licensed or developed and integrated
into our products and might have a material adverse effect on our business, operating results and financial condition. Moreover,
the inclusion in our products of intellectual property licensed from third parties on a nonexclusive basis could limit our ability
to protect our proprietary rights in our products.
Our
customers could also become the target of litigation relating to others’ patents and other intellectual property rights.
Any
litigation relating to others’ intellectual property rights could trigger technical support and indemnification obligations
in-licenses or customer agreements that we may enter. These obligations could result in substantial expenses, including the payment
by us of costs and damages relating to intellectual property infringement claims. In addition to the time and expense required
for us to provide support or indemnification to our customers, any such litigation could disrupt our customers’ businesses,
which could hurt our relationships with such customers and cause the sale of our products to decrease. No assurance can be given
that indemnification claims will not be made or that if made, such claims would not have a material adverse effect on our business,
operating results, or financial conditions.
We
expect to base our inventory purchasing decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate,
our operating results could be materially harmed.
As
our customer base increases, we expect to place orders with our contract manufacturers based on our customers’ demand forecasts.
Our forecasts will be based on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability
to provide products to our customers. When demand for our products increases significantly, we may not be able to meet demand
on a timely basis, and we may need to expend a significant amount of time working with our customers to allocate limited supply
and maintain positive customer relations, or we may incur additional costs to rush the manufacture and delivery of other products.
If we underestimate customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships.
Conversely, if we overestimate customer demand, we may purchase more inventory than we can sell at any given time or at all. Also,
we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including
obsolete inventory. As a result of our failure to correctly estimate the demand for our products, we could have excess or obsolete
inventory, resulting in a decline in our inventory value, which would increase our costs of revenues and reduce our liquidity.
Our failure to accurately manage inventory relative to demand would adversely affect our operating results.
If
our technology did not work and planned or are unsuccessful in developing and selling new products or penetrating new markets,
our business and operating results would suffer.
Our
success and ability to compete depend on technology that we have developed or may develop in the future. There is a risk that
the technology that we have developed or may develop may not work as intended or that the marketing of the technology may not
be as successful as anticipated. Further, the markets in which our customers and we compete or plan to compete are characterized
by regularly and rapidly changing technologies and technological obsolescence. Our ability to compete successfully depends on
our ability to design, develop, manufacture, assemble, test, market, and support new products and enhancements on a timely and
cost-effective basis to keep pace with market needs and satisfy customers’ demands. A fundamental shift in technologies
in any of our target markets could harm our competitive position within these markets. Our failure to anticipate these shifts,
develop new technologies, or react to changes in existing technologies could materially delay our development of new products,
resulting in product obsolescence, decreased revenue, and a loss of customer wins to our competitors. New technologies and products
generally require substantial investment and require long development and testing periods before they are commercially viable.
We intend to continue to make significant investments in developing new technologies and products, and it is possible that we
may not successfully be able to build or acquire new products or product enhancements that compete effectively within our target
markets or differentiate our products based on functionality, performance or cost and that our latest technologies and products
will not result in meaningful revenue. Any delays in developing and releasing new or enhanced products could cause us to lose
revenue opportunities and customers. Any technical flaws in product releases could diminish our products’ innovative impact
and harm customer adoption and our reputation. If we fail to introduce new products that meet our customers’ demands or
target markets or do not achieve market acceptance, or fail to penetrate new markets, our revenue will not increase over time,
and our operating results and competitive position would suffer.
Computer
malware, viruses, hacking, and phishing attacks could harm our business and operations results.
Computer
malware, viruses, computer hacking, and phishing attacks have become more prevalent in our industry and may occur in our future
systems. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack,
any failure to maintain performance, reliability, security, and availability of our products and technical infrastructure to the
satisfaction of our users may harm our reputation and our ability to attract and retain customers.
If
we do not effectively manage our business changes, these changes could significantly strain our management and operations.
Our
ability to grow successfully requires an effective planning and management process. Our business’s expansion and growth
could significantly strain our management systems, infrastructure, and other resources. To manage our growth successfully, we
must continue improving and expanding our systems and infrastructure quickly and efficiently. Our controls, systems, procedures,
and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to
changes and growth in our business, including acquisitions, this could have a material adverse effect on our business, financial
condition, results of operations, and future prospects.
Our
exposure to our customers’ credit risks may make it difficult to collect accounts receivable and could adversely affect
our operating results and financial condition.
We
may encounter difficulty collecting accounts receivable in our sales to customers and could be exposed to risks associated with
uncollectible accounts receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable.
While we will attempt to monitor these situations carefully and try to take appropriate measures to collect accounts receivable
balances, we have written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid
accounts receivable write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively
affect our operating results for the period in which they occur.
Demand
for our defense-related products and products for emergency response services depends on government spending.
The
U.S. military market is mainly dependent upon government budgets, particularly the defense budget. The funding of government programs
is subject to Congressional appropriation. Although multi-year contracts may be authorized in connection with significant procurements,
Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years.
Consequently, programs are often only partially funded, and additional funds are committed as Congress makes further appropriations.
No assurance can be given that an increase in defense spending will be allocated to programs that would benefit our business.
A decrease in levels of defense spending or the government’s termination of, or failure to fully fund, one or more of the
contracts for which our products may be utilized could have a material adverse effect on our financial position and results of
operations.
Our
products’ sale to local municipalities for emergency response services depends on government spending allocated to such
areas. There can be no assurance that government spending will be assigned to emergency response services at a level that would
benefit our business. A decrease in levels of government spending for emergency response services, or the government’s termination
of, or failure to fully fund, one or more of the contracts for which our products may be utilized concerning emergency response
services, could have a material adverse effect on our financial position and results of operations.
Our
failure to obtain and maintain required certifications could impair our ability to bid on defense contracts.
To
participate in specific government programs, we could be required to obtain and maintain quality certification and specific standards
for Department of Defense wireless security, such as certification by the Joint Interoperability and Test Command and meet production
standards to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification
that may be required, we will be ineligible to bid for contracts that may impair our financial operations and, consequently, our
ability to continue the business.
Regulation
of the telecommunications industry could harm our operating results and future prospects.
The
traditional telecommunications industry is highly regulated, and our business and financial condition could be adversely affected
by changes in regulations relating to the Internet telecommunications industry. Currently, there are few laws or regulations that
apply directly to access to or commerce on intellectual property networks, but future regulations could include sales taxes and
tariffs in previously unregulated areas and provider access charges. We could be adversely affected by regulation of intellectual
property networks and commerce in any country where we market equipment and services to service or content providers. Rules governing
the range of services and business models that service providers or content providers can offer could adversely affect those customers’
needs for products designed to enable a wide range of such services or business models. For instance, the U.S. Federal Communications
Commission (“FCC”) has issued regulations governing aspects of fixed broadband networks and wireless networks. These
regulations might impact service provider and content provider business models and providers’ needs for Internet telecommunications
equipment and services. Also, many jurisdictions are evaluating or implementing regulations relating to cybersecurity, privacy,
and data protection, which could affect the market and requirements for networking and security equipment.
Environmental
regulations relevant to electronic equipment manufacturing or operations may adversely impact our business and financial condition.
For instance, the European Union has adopted electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment,
Restriction of the Use of Certain Hazardous Substances and Registration, Evaluation, Authorization, and Restriction of Chemicals.
Furthermore, some governments have regulations prohibiting government entities from purchasing security products that do not meet
specified indigenous certification criteria even though those criteria may conflict with accepted international standards. Similar
regulations are in effect or under consideration in several jurisdictions where we do business.
The
adoption and implementation of such regulations could decrease demand for our products, increase the cost of building and selling
our products and impact our ability to ship products into affected areas, and recognize revenue on time. Any of these impacts
could have a material adverse effect on our business, financial condition, and results of operations.
Risks
Related to Our Industry
Our
industry is subject to rapid technological change, and we must make substantial investments in new products, services, and technologies
to compete successfully.
New
technological innovations generally require a substantial investment before they are commercially viable. We intend to continue
to make significant investments in developing new products and technologies, and it is possible that our development efforts will
not be successful and that our new technologies will not result in meaningful revenues. Our future success will depend on our
ability to continue developing and introducing new products, technologies, and enhancements on a timely basis. Our future success
will also depend on our ability to keep pace with technological developments, protect our intellectual property, satisfy customer
requirements, meet customer expectations, price our products and services competitively, and achieve market acceptance. The introduction
of products embodying new technologies and the emergence of new industry standards could render our existing products and technologies,
and products and technologies currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately
to technological developments or customer requirements or experience any significant delays in development, introduction, or shipment
of our products and technologies in commercial quantities, demand for our products and our customers’ and licensees’
products that use our technologies could decrease, and our competitive position could be damaged.
Our
stock price may be volatile, and you may not be able to resell shares of our Common Stock at or above the price you paid.
Our
Common Stock trading price could be highly volatile and could be subject to wide fluctuations in response to various factors,
including factors beyond our control. These factors include those discussed in the other “Risk Factors” section of
this Report on Form 10-K.
Also,
the stock markets in general and the markets for telecommunication stocks have experienced volatility. These broad market fluctuations
may adversely affect the trading price or liquidity of our Common Stock. In the past, when the market price of a stock has been
volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our
stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the case, and the attention of
our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse
determination in litigation could also subject us to significant liabilities.
New
regulations or standards or changes in existing laws or standards in the United States or internationally related to our products
may result in unanticipated costs or liabilities, which could have a material adverse effect on our business, results of operations,
and future sales, and could place additional burdens on the operations of our business.
Our
products may be subject to governmental regulations in a variety of jurisdictions. To achieve and maintain market acceptance,
our technology and products will have to comply with these regulations and a significant number of industry standards. In the
United States, our technology and products will have to comply with various FCC rules and others. We may also have to comply with
similar international regulations. For example, our wireless communication products operate through the transmission of radio
signals, and radio emissions are subject to regulation in the United States and other countries in which we intend to do business.
In the United States, various federal agencies, including the Center for Devices and Radiological Health of the Food and Drug
Administration, the FCC, the Occupational Safety and Health Administration, and various state agencies, have promulgated regulations
that concern the use of radio/electromagnetic emissions standards. Member countries of the European Union have enacted similar
standards concerning electrical safety and electromagnetic compatibility and emissions and chemical substances and use standards.
As
these regulations and standards evolve, and if new regulations or standards are implemented, we may be required to modify our
technology or products or develop and support new versions of our technology or products. Our compliance with these regulations
and standards may become more burdensome. The failure of technology or our products to comply, or delays in compliance, with the
various existing and evolving industry regulations and standards could prevent or delay the introduction of our technology or
products, which could harm our business. End-customer uncertainty regarding future policies may also affect demand for communications
products, including our products. Moreover, channel partners or end-customers may require us, or we may otherwise deem it necessary
or advisable, to alter our technology or products to address actual or anticipated changes in the regulatory environment. Our
inability to change our technology or products to address these requirements and any regulatory changes may have a material adverse
effect on our business, operating results, and financial condition.
Regulation
of Voice over Internet Protocol (“VoIP”) services is developing and therefore uncertain, and future legislative, regulatory
or judicial actions could adversely affect our business.
VoIP
services have developed in an environment mostly free from government regulation. However, the United States and other countries
have begun to assert regulatory authority over VoIP and evaluate how VoIP will be regulated in the future. Both the application
of existing rules to us and our prospective customers and the effects of future regulatory developments are uncertain. Future
legislative, judicial or other regulatory actions could hurt our business. Also, future regulatory developments could increase
our cost of doing business and limit its growth.
Compliance
with environmental, health, and safety laws and regulations, including new regulations requiring higher standards, may increase
our costs, limit our ability to utilize supply chains, and force design changes to our products.
Our
operations are subject to various environmental, health, and safety laws and regulations and equivalent local, state, and regulatory
agencies in each jurisdiction we currently operate or may operate in the future. Our products’ manufacturing uses substances
regulated under various federal, state, local laws and regulations governing the environment and worker health and safety. If
we, including any contract manufacturers that we may employ, do not comply with these laws, including any new regulations, such
non-compliance could reduce our products’ net realizable value, which would result in an immediate charge to our income
statements. Our non-compliance with such laws could also negatively impact our operations and financial position as a result of
fines, penalties that may be imposed on us, and increase the cost of mandated remediation or delays to any contract manufacturers
we may utilize; thus, we may suffer a loss of revenues, be unable to sell our products in specific markets and/or countries, be
subject to penalties and enforced fees and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations
and/or similar future laws and regulations, if applicable, could include costs associated with modifying our products, recycling
and other waste processing costs, legal and regulatory costs, and insurance costs. We cannot assure you that the costs to comply
with these new laws or with current and future environmental and worker health and safety laws will not have a material adverse
effect on our business, operating results, and financial condition.
Governmental
regulations affecting the import or export of products or affecting products containing encryption capabilities could negatively
affect our revenues.
The
United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import
or export some technologies, especially encryption technology. Also, governmental agencies have proposed additional regulation
of encryption technology from time to time, such as requiring certification, notifications, review of source code, or the escrow
and governmental recovery of private encryption keys. For example, Russia and China recently have implemented new requirements
relating to products containing encryption, and India has imposed special warranties and other obligations associated with technology
deemed critical. Governmental regulation of encryption or IP networking technology and regulation of imports or exports, or our
failure to obtain required import or export approval for our products, could harm our international and domestic sales prospects
and adversely affect our revenue expectation. Failure to comply with such regulations could result in penalties, costs, and restrictions
on import or export privileges or adversely affect sales to government agencies or government-funded projects.
If
wireless devices pose safety risks, we may be subject to new regulations, and demand for our products and our licensees and customers
may decrease.
Concerns
over the effects of radiofrequency emissions, even if unfounded, may have the effect of discouraging the use of wireless devices,
which may decrease demand for our products and those of our licensees and customers. In recent years, the FCC and foreign regulatory
agencies have updated the guidelines and methods they use for evaluating radiofrequency emissions from radio equipment, including
wireless phones and other wireless devices. Interest groups have also requested that the FCC investigate claims that wireless
communication technologies pose health concerns and cause interference with airbags, hearing aids, and medical devices. Concerns
have also been expressed over the possibility of safety risks due to a lack of attention associated with wireless devices while
driving. Any legislation that may be adopted in response to these expressions of concern could reduce demand for our products
and those of our licensees and customers in the United States and foreign countries.
General
Risk Factors
We
may fail to meet publicly announced financial guidance or other expectations about our business, which would cause our Common
Stock to decline in value.
From
time to time, we provide preliminary financial results or forward-looking financial guidance to our investors. Such statements
are based on our current views, expectations, and assumptions. They involve known, unknown risks and uncertainties that may cause
actual results, performance, achievements, or share prices to be materially different from any future results, performance, achievements,
or share prices expressed or implied by such statements. Such risks and uncertainties include, among others, changes to the assumptions
used to forecast or calculate such guidance or expectations or the occurrence of risks related to our performance and our business,
including those discussed in these risk factors, among others. Any failure to meet any financial guidance or expectations regarding
our future performance could harm our reputation and cause our stock price to decline.
The
requirements of being a U.S. public company may strain our resources and divert management’s attention.
As
a U.S. public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing
requirements of Nasdaq, and other applicable securities rules and regulations. Compliance with these rules and regulations will
increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase
demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports concerning
our business and operating results.
As
a result of the disclosure of information filing, our business and financial condition is more visible, which we believe may result
in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business
and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to fix them, could divert resources of our management and harm our business and operating
results.
If
our Common Stock is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our
Common Stock because they may be considered penny stocks and thus be subject to the penny stock rules.
The
SEC has adopted several rules to regulate “penny stock” that restrict transactions involving stock deemed penny stock.
Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules
may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with
a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq
if the exchange or system provides current price and volume information concerning transactions in such securities). Our shares
of Common Stock have in the past constituted, and may again in the future constitute, “penny stock” within the meaning
of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers
from effecting transactions in shares of our Common Stock, which could severely limit the market liquidity of such shares of Common
Stock and impede their sale in the secondary market.
A
U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally,
an individual with a net worth above $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse)
must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the
transaction before a sale unless the broker-dealer or the transaction is otherwise exempt. Also, the “penny stock”
regulations require the U.S. broker-dealer to deliver, before any transaction involving a “penny stock,” a disclosure
schedule prepared under SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction
is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information concerning the “penny stock” held in a customer’s account and information
for the limited market in “penny stocks.”
Stockholders
should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns
of fraud and abuse. Such practices include (i) control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false
and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced salespersons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers;
and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to the
desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to dictate the market’s behavior or broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent the described patterns from being established concerning
our securities.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market,
or if they change their recommendations regarding our Common Stock adversely, our share price and trading volume could decline.
The
trading market for our shares of Common Stock will be influenced by the research and reports that industry or securities analysts
may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation
regarding our Common Stock adversely or provide more favorable relative recommendations about our competitors, our share price
would likely decline. If any analyst who may cover us were to cease coverage of our Company or fail to publish reports on us regularly,
we could lose visibility in the financial markets, which could cause our Common Stock price or trading volume to decline.
Future
impairment charges could have a material adverse effect on our financial condition and results of operations.
We
are required to test our finite-lived intangible assets for impairment if events occur, or circumstances change that would indicate
the remaining net book value of the finite-lived intangible assets might not be recoverable. These events or circumstances could
include a significant change in the business climate, including a significant, sustained decline in an entity’s market value,
legal factors, operating performance indicators, competition, sale or disposition of a considerable portion of our business, potential
government actions and other factors. If our finite-lived intangible assets’ fair value is less than their book value in
the future, we could be required to record impairment charges. The amount of any future impairment could be significant and could
have a material adverse effect on our reported financial results for the period in which the charge is taken.
If
our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove incorrect,
our operating results could fall below the expectations of securities analysts and investors, resulting in a decline in our stock
price.
The
preparation of financial statements in conformity with the U.S. generally accepted accounting principles requires our management
to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and
expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions
change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below
the expectations of financial analysts and investors, resulting in a decline in our stock price. Management makes estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories,
the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation
of equity and derivative instruments, and debt discounts, and the valuation of the assets and liabilities acquired by us.
Future
sales and issuances of our Common Stock or rights to purchase our Common Stock, stock incentive plans and upon the exercise of
outstanding securities exercisable for shares of our Common Stock, could result in substantial additional dilution of our stockholders,
cause our stock price to fall and adversely affect our ability to raise capital.
We
will require additional capital to continue to execute our business plan and advance our research and development efforts. To
the extent that we raise additional capital through the issuance of additional equity securities and the exercise of outstanding
warrants, our stockholders may experience substantial dilution. We may sell shares of preferred stock or Common Stock in one or
more transactions at prices that may be at a discount to the then-current market value of our Common Stock and on such other terms
and conditions as we may determine from time to time. Any such transaction could result in substantial dilution of our existing
stockholders. If we sell shares of our Common Stock in more than one transaction, stockholders who purchase our Common Stock may
be materially diluted by subsequent sales. Such sales could also cause a drop in the market price of our Common Stock. The issuance
of shares of our Common Stock in connection with public or private financing, in connection with our compensation programs, and
upon exercise of outstanding warrants will have a dilutive impact on our other stockholders, and the issuance, or even potential
issuance, of such shares, could hurt the market price of our Common Stock.
The
exercise of stock options, warrants, and other securities could also cause our stockholders to experience substantial dilution.
In addition to warrants issued in 2018, 2019, and 2020, in February 2021, we issued warrants to purchase up to 9,090,910 shares
of our common stock. Moreover, holders of our stock options and warrants are likely to exercise them, if ever, at a time when
we otherwise could obtain a price for the sale of our securities that is higher than the exercise price per security of the options
or warrants. Such exercises, or the possibility of such exercises, may impede our efforts to obtain additional financing by selling
additional securities or making such financing more costly. It may also reduce the price of our Common Stock.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
Hackettstown,
New Jersey
The
location of our headquarters is in Hackettstown, New Jersey. On April 28, 2020, the Company negotiated two new leases for office
and storage space, which expired on April 29, 2020. We negotiated the previous multi-year lease agreement to a one-year term with
the new lease agreement’s effective date stated as May 1, 2020, expiring on April 30, 2021. The total annual rent under
these leases is approximately $239,000.
Billerica,
MA
On
January 20, 2020, the Company terminated its former lease agreement. On January 24, 2020, the Company negotiated a new lease agreement
with the landlord at our Billerica location, decreasing square footage required to 8,204 from 39,327 square feet or approximately
79%. The new lease agreement’s effective date is on March 24, 2020, expiring on December 31, 2026. The total annual rent
under this lease is approximately $95,000.
Singapore
On
July 3, 2020, the Company negotiated a new lease agreement with the landlord, maintaining 950 square feet. The new lease agreement’s
effective date is August 10, 2020, expiring on August 9, 2023. The total annual rent under this lease is approximately $30,500.
Hemel,
United Kingdom
Under
the original lease agreement dated April 28, 2017, a “break clause” signifying a “break date” of October
28, 2020, sighted the following: the Company may terminate this lease on the “break date” by giving the landlord such
notice within six months of the “break date.” At the lease’s commencement, it was not reasonably sure if the
Company will exercise its right by the break clause’s date. These measures upheld the determination of the lease’s
noncancellable period upon the adoption of ASC 842 on January 1, 2019. The remaining lease term of 22 months helped facilitate
calculating the remaining lease payments’ net present value assigned to the right-of-use asset and operating lease liability
upon the adoption date. Neither party exercised their unilateral termination rights by the “break date,” triggering
a lease extension. Both parties’ inaction creates new enforceable rights and obligations in the extended period ending on
the lease agreement term of October 27, 2023. The total annual rent under this lease is approximately $175,000.
Colchester,
UK
The
original lease agreement was assigned to the Company on February 2, 2017, for 16,000 square feet, with the initial lease commencing
on March 25, 2007, and expiring on March 24, 2025. The total annual rent under this lease is approximately $275,000.
Item
3. Legal Proceedings
We
are not currently a party to any material litigation, nor are we aware of any pending or threatened litigation against us that
we believe would materially affect our business, operating results, financial condition, or cash flows. Our industry’s characterization
faces frequent claims and litigation, including securities litigation, claims regarding patent and other intellectual property
rights, and other liability claims. As a result, we may be involved in various legal proceedings from time to time in the future.
Item
4. Mine Safety Disclosures
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — NATURE OF OPERATIONS
Vislink
is a global technology business specializing in collecting, delivering, and managing high quality, live video, and associated
data from the scene of the action to the viewing screen. For the broadcast markets, Vislink provides solutions for the collection
of live news, sports, and entertainment events. Vislink also furnishes the surveillance and defense markets with real-time video
intelligence solutions using various tailored transmission products. The Vislink team also provides professional and technical
services utilizing a staff of technology experts with decades of applied knowledge and real-world experience in a terrestrial
microwave, satellite, fiber optic, surveillance, and wireless communications systems delivering a broad spectrum of customer solutions.
LIVE
BROADCAST:
Vislink
delivers an extensive portfolio of solutions for live news, sports, and entertainment industries. These solutions encompass the
video collection, transmission, management, and distribution of content, via microwave, satellite, cellular, IP, and MESH networks.
With over 50 years in operation, Vislink has the expertise and technology portfolio to deliver fully integrated, seamless, end-to-end
solutions.
Industry-wide
contributors acknowledge Vislink’s live broadcast solutions. The transmission of a vast majority of all outside wireless
broadcast video content uses our equipment, with over 200,000 systems installed worldwide. We work closely with the majority of
the world’s broadcasters. Vislink wireless cameras and ultra-compact encoders help bring many of the world’s most
prestigious sporting and entertainment events to life. Recent examples include globally watched international sporting contests,
award shows, racing events, and annual music and cultural events.
MILITARY
AND GOVERNMENT:
Building
on our knowledge of live video delivery, Vislink has developed high-quality solutions to meet the operational and industry challenges
of surveillance and defense markets. Vislink solutions are specifically designed with interagency cooperation in mind, utilizing
a standard international protocol, IP, platform, and a web interface for video delivery. Vislink provides comprehensive video,
audio, and data communications solutions to the law enforcement and public safety community, including Airborne, Unmanned Systems,
Maritime and Tactical Mobile Command Posts. These solutions may include airborne downlinks, terrestrial point-to-point, tactical
mobile command, maritime, UAV, and personal portable products that meet the demands of field operations, command centers, and
central receiving sites. Short-range and long-range solutions are available in areas that include established infrastructure and
exceptionally remote regions, making valuable video intelligence available regardless of location. Vislink public safety and surveillance
solutions are deployed worldwide, including throughout the US, Europe, and the Middle East, at the local, regional, and federal
levels of operation, a criminal investigation, crisis management, mobile command posts, and field operations.
SATELLITE
COMMUNICATIONS:
Over
30 years of technical expertise supports Vislink’s satellite solutions. These solutions aim to ensure robust, secure communications
while delivering low transmission costs for any organization that needs high quality, reliable satellite transmission. We offer
turnkey solutions that begin with state-of-the-art coding, compression, engine modulation and end with our robust, lightweight
antenna systems. Vislink Satellite solutions focus heavily on being the smallest, lightest, and most efficient in their categories,
making transportation and ease of use a key driver in the customer experience. Vislink offers an extensive range of satellite
designs that allow customers to optimize bit rate, size, weight, and total cost. Our satellite systems are used extensively globally,
with over 2,000 systems deployed by governments, militaries, and broadcasters alike.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 — LIQUIDITY AND FINANCIAL CONDITION
The
Company incurred a loss from operations of approximately $17.9 million and cash used in operating activities of $14.4 million
for the year ended December 31, 2020. The Company had $7.7 million in working capital, $270.1 million in accumulated deficits,
and $5.2 million of cash on hand as of December 31, 2020. Additionally, as of April 14, 2021, our cash on hand is approximately
$59.3 million.
The
COVID-19 pandemic and interrelated economic uncertainties continue to create significant volatility. To mitigate any concern that
the Company may not have the ability to continue as a going concern, the Company activated liquidity preservation arrangements
intended to alleviate uncertainty about our potential to fund operations.
Strategic
Initiatives
The
Company activated liquidity preservation actions in late March and early April of the fiscal year 2020, including:
●
Implementation of proactive spending reductions to improve liquidity, including a partial workforce reduction, the furlough of
employees, reduced discretionary spending, resulting in a projected annual savings of approximately $5.0 million in fiscal 2020.
●
Effective May 1, 2020, the Company entered into new lease arrangements at two recent locations in Hackettstown, NJ, on a 90-day
cycle for each site, effectively lowering rental fees by approximately 81%.
Paycheck
Protection Program (“PPP”) and Liquidity
Further,
we benefited from the support afforded to us under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),
which provided temporary relief related to maintaining payroll and some overhead expenses through the period of emergency. The
stated goal is to keep workers paid and employed during the period of the crisis. The Company received approximately $1.2 million
on April 10, 2020, under the PPP sponsorship, in the form of a promissory note, as discussed further in Note 10.
Capital-raising
events
The
Company has been able to raise funds as follows successfully:
|
●
|
On
February 14, 2020, the Company closed on an equity financing and received gross proceeds of approximately $5,998,000, less
offering costs of $712,000 for net proceeds of $5,286,000. The Company issued 2,074,167 shares of common stock,
2,074,167 warrants to purchase 1,555,625 shares of Common Stock, 2,471,200 pre-funded warrants with each pre-funded warrant
exercisable for one share of Common Stock, together with 2,471,200 Warrants to purchase 1,853,400 shares of Common Stock.
|
|
|
|
|
●
|
On
May 5, 2020, the Company filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission
(“SEC”) and declared effective on May 13, 2020. During the year ended December 31, 2020, the Company’s access
to the shelf registration features effected the issuance of 6,508,860 shares of common stock, receiving gross proceeds of
approximately $12,548,000, less offering costs of $488,000 for net proceeds of $12,060,000.
|
|
|
|
|
●
|
As
described in Note 20 (Subsequent Events), the Company raised approximately $12,663,000, less offering costs of 392,000 for
net proceeds of $12,271,000 between January 1, 2021, and April 14, 2021 under the May 5, 2020 shelf registration. Furthermore,
on February 8, 2021, the Company closed on an equity financing and received gross proceeds of approximately $50,000,000, less
offering costs of $3,180,000 for net proceeds of $46,820,000. The Company issued 18,181,120 shares of common stock, supplemented
by 9,090,910 five-year warrants with an exercise price of $3.25 per share exercisable for one share each of common stock.
|
Together,
with the capital raises, the PPP loan, and the Company-wide protocols invoked as a result of the worldwide consequences encountered
from the COVID-19 health emergency and based on forward-looking estimates of our business operations and outcome, we believe we
will have sufficient funds to continue our operations for at least twelve months from the date of these financial statements.
The ability to recognize revenue and cash receipts is contingent upon, but not limited to, acceptable performance of the delivered
equipment and services. The extent to which COVID-19 continues to impact the Company’s operations, results of operations,
liquidity, and financial condition will depend on future developments. The timing and efficacy of the vaccination programs in
the jurisdictions in which the Company operates, and the actions implemented to contain the impact of COVID-19 by Federal and
local governments, limit determining the foreseeable resulting economic effects with any level of predictability.
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. We have eliminated all intercompany accounts and
transactions upon the consolidation of our subsidiaries.
Segment
Reporting
The
Company identifies operating segments 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 the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments,
and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements.
These estimates also affect the reported amounts of revenues and expenses during the reporting periods. Significant accounting
estimates reflected in the Company’s consolidated financial statements include the useful lives of property, plant, and
equipment, the useful lives of right-of-use assets, 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 estimates, and any such
differences may be material to our financial statements.
Risks
and Uncertainties
The
Company’s operations will be subject to significant risks and uncertainties, including financial, operational, regulatory,
and other risks associated, including the potential risk of business failure. The COVID-19 pandemic and related economic repercussions
have created significant uncertainty. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly
uncertain and difficult to predict, as the response to the pandemic and information continues to evolve. Policymakers worldwide
have responded with fiscal policy actions to support their industries and economies, but the magnitude and overall effectiveness
of these interventions remain uncertain. Although capital markets and economies worldwide improved during the second and third
quarters from the initial negative impacts of the COVID-19 pandemic, there remains uncertainty around the strength and timing
of global economic recoveries, which could cause a local or global economic recession. Such economic disruption could have a material
adverse effect on our business.
The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on several factors. The duration and
severity of the pandemic and identical concerns on the Company’s customers are a few factors. All of which is not all-inclusive
or predictable. The delay in payments of outstanding receivable amounts beyond standard payment terms, uncertain demands, implementation
of Company-wide initiatives or programs addressing financial and operational functions can unfavorably impact our customers, influencing
the Company’s future operations and liquidity. Any economic disruption could have a disadvantageous material effect on our
business and reduce our capital resources and access to capital, with possible ominous ramifications on our financial condition
and operating results. As of the date of issuance of these Consolidated Financial Statements, the extent to which the COVID-19
pandemic may materially impact the Company’s financial condition, liquidity, or operating results remains uncertain.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2020 and 2019.
Concentrations
The
Company does not have any off-balance-sheet concentrations of credit risk. Credit risk is the risk that the counterparty will
default on its contractual obligations, resulting in a company’s financial loss. 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. The Federal Deposit Insurance Corporation (“FDIC”) insures accounts
held within the United States up to $250,000.
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, 2020,
the Company had approximately $3.9 million above insured limits, respectively. The Company has not experienced any losses in its
bank accounts during the years ended December 31, 2020, and 2019.
For
customers, management assesses the customer’s credit quality, considering its financial position and historical experience.
For the years ended December 31, 2020, and 2019, there were no individual customer recorded sales over 10% of the Company’s
total consolidated sales. On December 31, 2020, and 2019, the Company recorded accounts receivable of approximately $1,244,000
(27%) and 2,613,000 (39%), respectively, 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 ordinary 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 judgments regarding its customer’s ability to make required payments, prevailing economic
conditions, previous experience, and other factors. As these factors’ financial situation changes, 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.
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, ranging from 1 to 14 years. The costs of the day-to-day servicing of property and equipment
and repairs and maintenance are recognized in expenses as incurred.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
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. Amortization totaled $671,000 and
$669,000 for the years ended December 31, 2020, and 2019, 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. A third-party appraiser determined the value of these acquired assets for these business combinations. Absent
an indication of fair value from a potential buyer or similar specific transactions; we have determined using the methods employed
provided a reasonable estimate in reporting the values assigned.
The
Company amortizes intangible asset costs over their useful lives of 3 to 15 years with its net book value reported on the balance
sheet. Amortization totaled $330,000 and $1,100,000 for the years ended December 31, 2020 and 2019, respectively
Warranty
Reserve
Although
the Company tests its product under its quality programs and processes, its warranty obligation is affected by product failure
rates and service delivery costs incurred in correcting a product failure. Required revisions to the estimated warranty liability
will occur should actual product failure rates or service costs differ from the Company’s estimates, based on limited historical
data, where applicable.
The
claims made during the year ended December 31, 2020, and 2019 were ordinary and customary. The 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, 2018
|
|
$
|
325,000
|
|
Warranty reserve
expense
|
|
|
231,000
|
|
Warranty
claims settled and true-up of accrual
|
|
|
(221,000
|
)
|
December 31, 2019
|
|
$
|
335,000
|
|
Warranty reserve
expense
|
|
|
8,000
|
|
Warranty
claims settled and true-up of accrual
|
|
|
(60,000
|
)
|
December 31,
2020
|
|
$
|
283,000
|
|
Shipping
and Handling Costs
The
Company invoices its shipping and handling charges to the customer, and we net these charges against the respective costs within
general and administrative expenses. For the years ended December 31, 2020, and 2019, the shipping and handling costs incurred
were $432,000 and $614,000, respectively.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies common stock purchase warrants and other freestanding 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
the classification of its freestanding derivatives at each reporting date to determine whether a change in classification between
assets and liabilities is required.
VISLINK
TECHNOLOGIES, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Treasury
Stock
Treasury
stock is recorded at cost upon the repurchasing of common shares. The cost method is used upon the re-issuance of shares. Under
U.S. GAAP, the excess of the acquisition cost over the re-issuance 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. The Company charges the accumulated
deficit for any excess.
Revenue
Recognition
We
account for the Company’s operating results under ASC Topic 606 adopted on January 1, 2019. It is a comprehensive revenue
recognition model that requires revenue to be recognized when the Company transfers control of the promised goods or services
to our customers at an amount that reflects the consideration that we expect to receive. The application of ASC Topic 606 requires
us to use more judgment and make more estimates than under previously issued 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
The
remaining performance obligations, or backlog, represent 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
As
the Company performs activities related to research, design, and development, we charge these costs to research and development
expenses in the Consolidated Statements of Operations and Comprehensive Loss. These expenses consist primarily of salary and benefit
expenses, including stock-based compensation and payroll taxes for employees and contractors’ costs engaged in research,
design, development activities, prototypes, facilities, and travel costs.
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 under 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 issuance date.
The
expansion of Topic 718 fell under ASU 2018-07 to include share-based payment transactions for acquiring goods and services from
nonemployees. The measurement date for equity-classified nonemployee share-based payment awards is no longer at the earlier date
at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance
is complete. Instead, the grant date is now considered the measurement date. Under today’s guidance, the measurement of
nonemployee share-based payment awards with performance conditions is at the lowest aggregate fair value, often resulting in a
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 duration (consistent
with employee share-based payment awards) or the contractual term for nonemployee awards
Leases
We
determine if an arrangement is a lease at inception. 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” in
the consolidated balance sheets. For 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 for all leases
with a term longer than 12 months. There is no separation of lease and non-lease components for all our contracts of real estate.
The
ROU assets 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 incremental borrowing rate (“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 determined
our incremental borrowing rates based on an analysis of prior collateralized borrowings over similar terms of the lease payments
at the commencement date to estimate the IBR under 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, 2020.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Impairment
and Abandonment
Impairment
of inventory
Under
the Company’s strategic initiative plan, management recognized certain items were not moving due to the diminishing consumer
demand and lack of profitability. As part of our product rationalization program, a decision to eliminate specific product lines
resulted in recognizing an impairment loss of approximately $3.8 million and $-0- for the years ending December 31, 2020, and
2019.
Impairment
of long-lived assets
Management
reviews long-lived assets, including property, plant, equipment, other intangible assets with definite lives, and right-of-use
operating lease assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount
may not be recoverable. We conduct the Company’s long-lived asset impairment analyses under ASC 360-10-15, “Impairment
or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset
group against the sum of the undiscounted future cash flows.
The
contemplation of measuring an impairment charge occurs if the undiscounted cash flows do not indicate the asset’s carrying
amount is recoverable by which the asset group’s carrying amount exceeds its fair value based on discounted cash flow analysis
appraisals. Under Topic 360, consideration is given to asset impairment, for intangible assets with definite lives continue to
be amortized over their estimated useful lives and are subject to impairment testing as part of their asset group if and when
events or changes in circumstances indicate. In the performance of the impairment tests, management utilizes a considerable amount
of judgment and assumptions.
As
part of the Company’s strategic initiative plan, including the consolidation and elimination of specific facilities, it
was determined specific property and equipment were no longer useful, concluding they held no future economic benefit. We abandoned
approximately $1.7 million of property and equipment. For the years ended December 31, 2020, and 2019, the Company recognized
a loss on property and equipment abandonment of approximately $0.7 million and $-0-respectively.
Right-of-use
operating lease abandonment
As
part of the Company’s consolidating effort, management decided to vacate specific locations and scaled-down square footage
usage on another. The economic environment of these locations precluded the action of sub-letting unused sites and determining
them abandoned. Under ASC 360, leased space abandonment is an impairment indicator, and the Company assessed the lease ROU assets
for impairment. The Company considered approximately $1.05 million of right-of-use operating assets impaired. For the years ending
December 31, 2020, and 2019, we recognized a loss on impairment of right-of-use assets of approximately $0.9 million and $-0-.
Income
Taxes
Under
ASC 740, as part of our consolidated financial statements, it is required to estimate our income tax provision (benefit) in each
jurisdiction in which we operate. The Company uses the asset and liability method of accounting for income taxes. The recognition
of deferred income tax assets and liabilities 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 fall under this method.
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 recognition of the effect on deferred tax assets
and liabilities of a change in tax rates in income is 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 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. It involves identifying potential uncertain tax positions, evaluating applicable tax laws, and assessing whether the 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 $114,000 and $237,000 for the years ended
December 31, 2020, and 2019, respectively. The Company includes advertising costs 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.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Loss
Per Share
The
Company reports loss per share under ASC Topic 260, “Earnings Per Share,” which establishes standards for computing
and presenting earnings per share. The calculation of the basic loss per share takes dividing the net loss allocable to common
stockholders by the weighted-average shares of common stock outstanding during the period, without consideration of common stock
equivalents. The diluted loss per share calculation is calculated by adjusting the weighted-average shares of common stock 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,
|
|
|
|
2020
|
|
|
2019
|
|
Anti-dilutive potential common stock
equivalents excluded from the calculation of loss per share:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
56
|
|
|
|
84
|
|
Convertible debt
|
|
|
—
|
|
|
|
—
|
|
Warrants
|
|
|
178
|
|
|
|
2,193
|
|
|
|
|
234
|
|
|
|
2,277
|
|
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 (“US Dollars”) 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. We included gains or losses resulting from such translation as a separate component of accumulated other comprehensive
(loss) 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 a long-term investment accumulated and credited
or charged to other comprehensive income.
Transaction
gains and losses are recognized in our operations’ results based on the difference between the foreign exchange rates on
the transaction date and the reporting date. The foreign currency exchange gains and losses are included as a component of general
and administrative expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations.
The
Company has recognized foreign exchanges gains and losses and changes in accumulated comprehensive income approximately as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Net foreign exchange transactions:
|
|
|
|
|
|
|
|
|
Losses
(gains)
|
|
$
|
27,000
|
|
|
$
|
(97,000
|
)
|
Accumulated comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized
losses on currency translation adjustment
|
|
$
|
60,000
|
|
|
$
|
68,000
|
|
The
exchange rate adopted for the foreign exchange transactions is the exchange rates, 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, an internet website. The execution of the translation of amounts in British Pound to United States dollars
is at the following currency exchange rates for the respective periods:
|
●
|
As
of December 31, 2020 – British Pounds $1.364900 to US$ 1.00
|
|
●
|
Average
rate for the year ended December 31, 2020 – British Pounds $1.28336 to the US $1.00
|
|
●
|
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 the US $1.00
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Fair
Value of Financial Instruments and Fair Value Measurements
The
authoritative guidance for fair value measurements under topic ASC 820 “Fair Value Measurements and Disclosures”,
establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
●
|
Level
1, defined as observable inputs such as quoted prices in active markets.
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
|
Our
financial instruments include cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable, accrued
expenses and short-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant
market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. The carrying amount of cash equivalents, accounts receivable, prepaid expenses
and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair
values because of the short-term nature of those instruments.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements
in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. Effective January 1, 2020, the Company adopted the provisions of ASU 2018-13.
The adoption did not have a material impact on the Company’s consolidated financial statements or related financial statement
disclosures.
The
following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis on December
31, 2020, 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
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (non-recurring):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
inventory
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,800,000
|
|
|
$
|
3,800,000
|
|
Abandonment of property
and equipment
|
|
|
|
|
|
|
|
|
|
|
1,700,000
|
|
|
|
1,700,000
|
|
Abandonment of right-of-use
operating leases
|
|
|
|
|
|
|
|
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,600,000
|
|
|
$
|
6,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
The
following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis on December
31, 2019, consistent with the fair value hierarchy provisions.
|
|
Quoted
Prices in Active Markets for Identical Assets/Liabilities
(Level
1)
|
|
|
Significant
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
See
Note 13 for additional disclosure regarding the Company’s warrants liabilities accounted for at fair value.
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.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Recent
Accounting Pronouncements
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.
Not
Yet Adopted as of December 31, 2020.
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which,
to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments,
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect
loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit. ASU 2016-13 is effective for fiscal
years beginning after December 15, 2022. The Company has not yet quantified the impact of ASU 2016-13 on its consolidated financial
statements. Its adoption is unlikely to have a material effect on the Company’s consolidated financial statements.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 — ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
Accounts receivable
|
|
$
|
6,061,000
|
|
|
$
|
7,425,000
|
|
Allowance for
doubtful accounts
|
|
|
(1,536,000
|
)
|
|
|
(711,000
|
)
|
Net accounts
receivable
|
|
$
|
4,525,000
|
|
|
$
|
6,714,000
|
|
During
the years ended December 31, 2020 and 2019, the Company incurred bad debt expense of $794,000 and $425,000, respectively.
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, 2020
|
|
|
December
31, 2019
|
|
Raw materials
|
|
$
|
8,053,000
|
|
|
$
|
8,323,000
|
|
Work-in-process
|
|
|
1,542,000
|
|
|
|
815,000
|
|
Finished goods
|
|
|
4,511,000
|
|
|
|
3,857,000
|
|
Sub-total inventories
|
|
|
14,106,000
|
|
|
|
12,995,000
|
|
Less
reserve for slow-moving and excess inventory
|
|
|
(8,120,000
|
)
|
|
|
(5,321,000
|
)
|
Total inventories,
net
|
|
$
|
5,986,000
|
|
|
$
|
7,674,000
|
|
Inventory
valuation adjustments consist primarily of written-off items due to obsolescence or reserved for slow-moving or excess inventory.
The Company recorded inventory valuation adjustments of $415,000 and $4,705,000 as of December 31, 2020, and 2019. Additionally,
under the Company’s product rationalization program, management eliminated specific product lines impairing $3,800,000 of
inventory.
NOTE
6 — PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
|
|
Useful
Life
|
|
December
31,
|
|
|
|
(Years)
|
|
2020
|
|
|
2019
|
|
Cost:
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
1 – 10
|
|
$
|
277,000
|
|
|
$
|
282,000
|
|
Leasehold improvements
(a)
|
|
1 - 14
|
|
|
272,000
|
|
|
|
821,000
|
|
Computers,
software, and equipment
|
|
1 - 11
|
|
|
2,684,000
|
|
|
|
3,585,000
|
|
|
|
|
|
|
3,233,000
|
|
|
|
4,688,000
|
|
Accumulated
depreciation
|
|
|
|
|
(2,095,000
|
)
|
|
|
(2,716,000
|
)
|
Property
and equipment, net
|
|
|
|
$
|
1,138,000
|
|
|
$
|
1,972,000
|
|
Depreciation
of property and equipment amounted to $410,000 and $596,000 for the years ended December 31, 2020, and 2019, respectively.
As
part of the Company’s strategic initiative plan, we concluded that the future economic benefit of specific property and
equipment for the Company’s operations no longer holds value and abandoned approximately $1,700,000 of property and equipment.
We recorded a loss on the abandonment of approximately $681,000 for the year ended December 31, 2020.
(a)
The shorter of the economic life or remaining lease term.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 — INTANGIBLE ASSETS
Intangible
assets consist of the following finite assets:
|
|
Patents
and Licenses
|
|
|
Trade
Names and Technology
|
|
|
Customer
Relationships
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Costs
|
|
|
Amortization
|
|
|
Costs
|
|
|
Amortization
|
|
|
Costs
|
|
|
Amortization
|
|
|
Net
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
|
|
|
—
|
|
|
|
(671,000
|
)
|
|
|
—
|
|
|
|
(224,000
|
)
|
|
|
—
|
|
|
|
(106,000
|
)
|
|
|
(1,001,000
|
)
|
Balance as of December 31, 2020
|
|
$
|
12,378,000
|
|
|
$
|
(11,175,000
|
)
|
|
$
|
1,450,000
|
|
|
$
|
(914,000
|
)
|
|
$
|
2,880,000
|
|
|
$
|
(2,698,000
|
)
|
|
$
|
1,921,000
|
|
Patents
and Licenses:
The
Company amortizes filed patents and licenses over their useful lives, ranging between 19.8 to 20 years. The amortization of the
costs incurred by processing provisional patents and pending applications begins after determining it is successfully reviewed
and filed.
Other
Intangible Assets:
The
Company amortizes these other intangible assets over their estimated useful lives of 3 to 15 years. The prior acquisition of the
Company’s subsidiaries, IMT and Vislink, created these intangible assets of trade names, technology, and customer lists.
The
Company has recognized net capitalized intangible costs as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Patents and Licenses
|
|
$
|
1,203,000
|
|
|
$
|
1,874,000
|
|
Trade Names and Technology
|
|
|
536,000
|
|
|
|
760,000
|
|
Customer Relationships
|
|
|
182,000
|
|
|
|
288,000
|
|
|
|
$
|
1,921,000
|
|
|
$
|
2,922,000
|
|
The
Company has recognized the amortization of intangible assets as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Patents and Licenses
|
|
$
|
671,000
|
|
|
$
|
669,000
|
|
Trade Names and
Technology
|
|
|
224,000
|
|
|
|
223,000
|
|
Customer Relationships
|
|
|
106,000
|
|
|
|
877,000
|
|
|
|
$
|
1,001,000
|
|
|
$
|
1,769,000
|
|
The
weighted average remaining life of the amortization of the Company’s intangible assets is approximately 3.2 years. The following
table represents the estimated amortization expense for total intangible assets for the succeeding five years:
Period ending December 31,
|
|
|
|
2021
|
|
$
|
913,000
|
|
2022
|
|
|
565,000
|
|
2023
|
|
|
119,000
|
|
2024
|
|
|
119,000
|
|
2025
|
|
|
119,000
|
|
Thereafter
|
|
|
86,000
|
|
|
|
$
|
1,921,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 — ACCRUED EXPENSES
Accrued
expenses consist of the following:
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
Compensation
|
|
$
|
512,000
|
|
|
$
|
818,000
|
|
Commissions
|
|
|
224,000
|
|
|
|
94,000
|
|
Warranty
|
|
|
284,000
|
|
|
|
335,000
|
|
Rent
|
|
|
—
|
|
|
|
4,000
|
|
Accrued expenses other
|
|
|
1,255,000
|
|
|
|
531,000
|
|
Deferred Equity
|
|
|
65,000
|
|
|
|
130,000
|
|
|
|
$
|
2,340,000
|
|
|
$
|
1,912,000
|
|
NOTE
9 — NOTES PAYABLE
The
table below represents the Company’s notes payable as of December 31, 2020, and 2019
|
|
Principal
|
|
|
|
12/31/20
|
|
|
12/31/19
|
|
Effective as of September
27, 2019, the Company’s Board of Directors consented to assume the remaining balance of a note held by a former related
party MB Technology Holdings, LLC (“MBTH”). MBTH originally borrowed funds for the Company’s benefit with
the proceeds forwarded to the Company reflecting due to a related party, ultimately converted into shares. The note matures
on September 18, 2020, with an annual interest rate of 8.022%, and it was satisfied in full on September 21, 2020. Interest
expense for the years ending December 31, 2020, and 2019 is approximately $18,500 and $-0-, respectively.
|
|
$
|
—
|
|
|
$
|
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. IMT has made principal payments of approximately $108,000, and the balance
paid in full. Interest expense for the years ending December 31, 2020, and 2019 is approximately $37,000 and $-0-, respectively.
|
|
|
—
|
|
|
|
108,000
|
|
On April 13,
2020, the Company entered into a D & O insurance policy agreement for a $250,000 premium, less a down payment of approximately
$38,000, financing the remaining balance of approximately $230,000. The loan’s terms are nine months at a 5.95% annual
interest rate at a monthly principal and interest payment of approximately $25,000. The Company has made principal payments
of approximately $188,000, and interest expense for the years ending December 31, 2020, and 2019, is approximately $4,700
and $-0-, respectively.
|
|
|
25,000
|
|
|
|
-0-
|
|
|
|
$
|
25,000
|
|
|
$
|
339,000
|
|
NOTE
10 – PAYROLL PROTECTION PROGRAM LOAN
On
April 5, 2020, we entered into a promissory note with Texas Security Bank, according to the Paycheck Protection Program (“PPP”)
under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The loan bears an interest rate of
1.0% per annum and matures on April 5, 2022. Monthly amortized principal and interest payments are deferred for nine months after
the date of disbursement, commencing on November 5, 2020. On April 10, 2020, we received approximately $1,168,000 in loan proceeds.
The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program
provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2) 100 percent of the principal
amount of the loan is guaranteed by the Small Business Administration, and (3) an amount up to the full principal amount may qualify
for loan forgiveness following the terms of CARES Act. The amount to be forgiven is indeterminate as of the issuance date of these
financial statements. As of December 31, 2020, the Company was fully compliant with all covenants concerning the PPP Loan.
Management
is treating the governmental grant under Topic ASC 470. The Company has recognized a liability for the full amount of the proceeds
received. Any amount forgiven falls under ASC 405-20 and would be treated as a gain on loan extinguishment on the statement of
operations. The PPP proceeds are cash inflows from financing activities on the statement of cash flows. Any amounts forgiven are
a non-cash financing activity.
The
table below represents the Company’s obligation under the terms of the PPP loan:
|
|
12/31/20
|
|
Total PPP loan
|
|
$
|
1,168,000
|
|
Less: current
portion
|
|
|
905,000
|
|
Non-current
portion
|
|
$
|
263,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 — LEASES
The
Company’s leasing arrangements include office space, deployment sites, and storage warehouses, both domestically and internationally.
The operating leases contain various terms and provisions, with one month to 4.2 years remaining. 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.
On
December 31, 2020, the Company recorded approximately $1.97 million of ROU assets net of $0.95 million of accumulated amortization
on the balance sheet. Additionally, the Company recorded relatively $2.02 million of operating lease liabilities, of which $0.48
million is current, and $1.54 million is non-current as reported on the balance sheet. The weighted-average remaining term for
lease contracts was 4.2 years on December 31, 2020, with maturity dates ranging from July 2021 to December 2026. The weighted-average
discount rate was 9.1% on December 31, 2020.
Adjustments
for straight-line rental expense for the respective periods was not material. The majority of costs recognized are 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
following represents lease activity for the year ending December 31, 2020:
Billerica,
MA
On
January 20, 2020, the Company terminated its former lease agreement and removed approximately $904,000 of Right- Of-Use Assets;
$553,000 of Operating Lease Liabilities;$371,000 of Accumulated Amortization on the Operating Lease from the Consolidated Balance
Sheet; and recognized a lease termination gain of approximately $21,000 in the Consolidated Statement of Operations and Comprehensive
Loss as of December 31, 2020, under ASC Topic 842.
On
January 24, 2020, the Company negotiated a new lease agreement with the landlord at our Billerica location, decreasing square
footage required to 8,204 from 39,327 square feet or approximately 79%. The new lease agreement’s effective date is on March
24, 2020, with a reduced monthly obligation expiring on December 31, 2026. The new lease resulted in approximately $15,300 (62%)
in savings per month. The Company recognized approximately $546,000 of Right of Use Assets and Operating lease obligations, respectively,
for the new lease under ASC Topic 842.
Hackettstown,
New Jersey
On
April 28, 2020, the Company negotiated two new leases for office and storage space, which expired on April 29, 2020. We negotiated
the previous multi-year lease agreement to a one-year term with the new lease agreement’s effective date stated as May 1,
2020, expiring on April 30, 2021.
Singapore
On
July 3, 2020, the Company negotiated a new lease agreement with the landlord, maintaining 950 square feet. The new lease agreement’s
effective date is August 10, 2020, with a reduced monthly obligation expiring on August 9, 2023. The new lease resulted in approximately
$400 (14%) in saving per month. The Company recognized approximately $82,000 of Right of Use Assets and Operating lease obligations,
respectively, for the new lease under ASC Topic 842.
Hemel,
U.K.
Under
the original lease agreement dated April 28, 2017, a “break clause” signifying a “break date” of October
28, 2020, sighted the following: the Company may terminate this lease on the “break date” by giving the landlord such
notice within six months of the “break date.” At the lease’s commencement, it was not reasonably sure if the
Company will exercise its right by the break clause’s date. These measures upheld the determination of the lease’s
noncancellable period upon the adoption of ASC 842 on January 1, 2019. The remaining lease term of 22 months helped facilitate
calculating the remaining lease payments’ net present value assigned to the right-of-use asset and operating lease liability
upon the adoption date.
Neither
party exercised their unilateral termination rights by the “break date,” triggering a lease extension. Both parties’
inaction creates new enforceable rights and obligations in the extended period ending on the lease agreement term of October 27,
2023. Under ASC 842, if neither party exercises its termination rights, a new lease term exists and is treated as a modification
under a separate contract. As a result, the Company recognized approximately $474,000 of Right of Use Assets and Operating lease
obligations, respectively, under ASC Topic 842.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 — LEASES (continued)
Abandonment
of right-of-use operating lease assets
Under
the Company’s strategic initiative plan, management evaluated specific locations’ financial feasibility in sync with
our workforce requirements. We decided to consolidate sites, vacate others, and reduce square footage usage. The following highlights
the outcome of our assessments:
|
●
|
The
Company vacated the former corporate headquarters in Sarasota, FL, during the fiscal year 2020. The corporate headquarters
location is in Hackettstown, New Jersey.
|
|
|
|
|
●
|
The
Company elected to evacuate our Hemel, UK establishment in the fourth quarter of the fiscal year 2020. Management tasked movement
of remaining personnel and inventory to our Waterside House, UK locale.
|
|
|
|
|
●
|
The
Company chose to close its location in Anaheim, CA, in the fourth quarter of the fiscal year 2020, halting operations completely,
parting with its workforce, and vacated the premises.
|
|
|
|
|
●
|
During
the fourth quarter of the fiscal year 2020, the Company downsized its square footage capacity to 2,000 square feet from 8,204
square feet at the Billerica, MA property. Additionally, management set in motion a partial workforce reduction as part of
its product line re-positioning.
|
The
Company followed the abandonment guidance in ASC 360-10-35-47 through 35-48 to a right-of-use (“ROU”) asset if a lessee
decides to abandon an underlying asset. Abandonment means ceasing to use the underlying asset and lacking either the intent or
the ability to sublease the underlying asset. Management notes that this is the case with the properties mentioned above. The
decision to abandon the ROU assets is akin to impairment. Accordingly, lease impairment charges related to the right-of-use operating
assets for the year ended December 31, 2020, totaled approximately $895,000.
The
following table illustrates approximate specific operating lease data for years ended December 31, 2020, and 2019:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
687,000
|
|
|
$
|
1,106,000
|
|
Short-term lease
cost
|
|
|
476,000
|
|
|
|
53,000
|
|
Variable lease cost
|
|
|
—
|
|
|
|
—
|
|
Sublease income
|
|
|
(97,000
|
)
|
|
|
(257,000
|
)
|
Total lease cost
|
|
$
|
1,066,000
|
|
|
$
|
902,000
|
|
Cash paid for amounts in lease liabilities:
|
|
|
|
|
|
|
|
|
Operating
cash flows from operating leases
|
|
$
|
774,000
|
|
|
$
|
1,136,000
|
|
Right-of-use
assets obtained in exchange for new operating lease liabilities
|
|
$
|
1,102,000
|
|
|
$
|
2,991,000
|
|
Weighted-average remaining lease term—operating
leases
|
|
|
4.2
years
|
|
|
|
3.5
years
|
|
Weighted-average discount rate—operating
leases
|
|
|
9.1
|
%
|
|
|
9.3
|
%
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 — LEASES (continued)
Maturities
of our operating lease liabilities were as follows as of December 31, 2020:
|
|
Amount
|
|
2022
|
|
$
|
635,000
|
|
2023
|
|
|
611,000
|
|
2024
|
|
|
529,000
|
|
2025
|
|
|
376,000
|
|
2026
|
|
|
174,000
|
|
Thereafter
|
|
|
109,000
|
|
Total undiscounted operating lease payments
|
|
|
2,434,000
|
|
Less:
amount representing an imputed interest
|
|
|
414,000
|
|
Total present value of operating lease
liabilities
|
|
|
2,020,000
|
|
Less:
Current operating lease liabilities
|
|
|
475,000
|
|
Non-current operating
lease liabilities
|
|
$
|
1,545,000
|
|
The
table below lists the location and lease expiration date from 2021 through 2026:
Location
|
|
Square
Footage
|
|
|
Lease-End
Date
|
|
Approximate
Future Payments
|
|
Colchester, U.K. –
Waterside House
|
|
|
16,000
|
|
|
Mar
|
|
2025
|
|
$
|
1,162,000
|
|
Singapore
|
|
|
950
|
|
|
Aug
|
|
2023
|
|
|
80,000
|
|
Anaheim, CA
|
|
|
1,944
|
|
|
Jul
|
|
2021
|
|
|
18,000
|
|
Sarasota, FL
|
|
|
1,205
|
|
|
Sep
|
|
2022
|
|
|
60,000
|
|
Billerica, MA
|
|
|
2,000
|
|
|
Dec
|
|
2026
|
|
|
605,000
|
|
Hemel, UK
|
|
|
12,870
|
|
|
Oct
|
|
2023
|
|
|
509,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 — RELATED PARTY TRANSACTIONS
The
Company executed an amended related party agreement with MB Merchant Group, LLC (“MBMG”), on February 25, 2020, agreeing
to provide only the following services to the Company:
|
●
|
to
conduct merger and acquisition searches, negotiating and structuring deal terms and other related services in connection with
suitable closing acquisitions for the Company,
|
|
|
|
|
●
|
to
seek and secure financing for the Company, except in those regions in which the Company had previously appointed a business
representative to explore such opportunities exclusively, subject in each case to prior approval by the Company’s Chief
Executive Officer on a case-by-case basis.
|
MBMG
will no longer provide strategic planning and financial structuring services or technical consulting services, review patent applications,
or provide consulting services concerning specific legal matters. Lastly, the Company negotiated the final settlement of a remaining
balance due to MBMG of nearly $561,000, remitting approximately $230,000, recognizing a gain on settlement of related party obligations
in the amount of $331,000.
The
following table represents a summary of related party transactions year ended December 31, 2020, and 2019:
|
|
For
the years ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Consulting
fees incurred, recurring
|
|
$
|
200,000
|
|
|
$
|
600,000
|
|
Consulting fees
incurred, non-recurring
|
|
$
|
120,000
|
|
|
$
|
358,000
|
|
Common stock issued in satisfaction
of amounts due:
|
|
|
|
|
|
|
|
|
Quantity of
shares issued
|
|
|
—
|
|
|
|
12,469
|
|
Value of shares
issued
|
|
$
|
—
|
|
|
$
|
31,000
|
|
Amounts repaid
to MBMG in cash
|
|
$
|
*825,000
|
|
|
$
|
783,000
|
|
*includes
a final settlement in the amount of $230,000
The
Company recorded fees incurred in general and administrative expenses on the accompanying Consolidated Statements of Operations
and included such payments due to related parties on the Consolidated Balance Sheet. The balances outstanding to MBMG on December
31, 2020, and 2019 were $-0- and $505,000, respectively.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 — DERIVATIVE LIABILITIES
Under
the guidance of ASC 815, Accounting for Derivative Instruments and Hedging Activities, the Company, identified common stock warrants
in various offerings containing a net cash settlement provision whereby, upon certain fundamental events, the holders could put
these warrants back to the Company for cash. We identified and classified the following transactions as derivative liabilities:
warrants issued in connection with the May 2016 financing, the July 2016 financing, the August 2017 underwritten offering, and
the May 2018 Financing.
The
Company records derivative liabilities on its consolidated balance sheet at their fair value on the issuance date. We revalue
the derivative liabilities on each subsequent balance sheet until exercised or expired, with any changes in the fair value between
reporting periods recorded as other income or expense. The Company uses option pricing models and assumptions based upon the instruments’
characteristics on the valuation date. We use assumptions for future financings, expected volatility, expected life, yield, and
risk-free interest rate to estimate these liabilities’ fair value.
The
following are the key assumptions used in connection with the valuation of the warrants exercisable into common stock for the
years ended on December 31, 2020, and 2019:
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Number of shares underlying
the warrants
|
|
|
75,855
|
|
|
|
77,071
|
|
The fair market value of stock
|
|
$
|
1.32
|
|
|
$
|
1.50
|
|
Exercise price
|
|
$
|
0.906
to $ 827.78
|
|
|
$
|
6
to $ 144,000
|
|
Volatility
|
|
|
70%
to 179
|
%
|
|
|
126%
to 160
|
%
|
Risk-free interest rate
|
|
|
0.09%
to 0.19
|
%
|
|
|
1.51%
to 1.60
|
%
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Warrant life (years)
|
|
|
0.4
to 2.4
|
|
|
|
1.4
to 3.41
|
|
Level
3 liabilities are valued using unobservable inputs to the valuation methodology that are significant in measuring the liabilities’
fair value. 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 company’s
accounting and finance department’s responsibility. The Chief Financial Officer approves them.
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 US 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 operations
statements 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. To calculate fair value, the Company uses a binomial model style simulation, as
the standard Black-Scholes model would not capture the value of certain features of the warrant derivative liabilities.
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:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
30,000
|
|
|
$
|
1,118,000
|
|
Re-classification to equity upon warrants
exercised
|
|
|
—
|
|
|
|
(24,000
|
)
|
Change in fair
value of derivative liabilities
|
|
|
(8,000
|
)
|
|
|
(1,064,000
|
)
|
Ending balance
|
|
$
|
22,000
|
|
|
$
|
30,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY
Preferred
Stock
In
March 2013, the issuance of 10.0 million shares of “Blank Check” preferred stock with a par value of $0.00001 per
share received approval by the majority of stockholders.
The
following shares were designated as authorized:
|
●
|
Three
million shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) on December 31, 2014.
|
|
●
|
Three
million shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) on February 11, 2015.
|
|
●
|
Three
million shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) on February 24, 2015.
|
On
February 5, 2016, the Company terminated the Series A Preferred Stock and Series C Preferred Stock and increased the number of
designated shares of Series B Preferred Stock to 5,000,000. The following shares were designated as authorized: Five million shares
of Series D Convertible Preferred Stock (“Series D Preferred Stock”) on April 25, 2016. On December 6, 2016, the Company
terminated the Series B, Preferred Stock. The following shares were designated as authorized: Five thousand shares of Series E
Convertible Preferred Stock (“Series E Preferred Stock”) on December 21, 2016.
Series
D Convertible Preferred Stock
Stated
Value
The
stated value of the Series D Preferred Stock is $1.00 per share.
Ranking
The
Series D Preferred Stock shall rank junior to the Series B Preferred Stock, $0.00001 par value per share, of the Company in respect
of the preferences as to dividends, distributions, and payments upon the liquidation, dissolution, or winding up of the Company.
The Series D Preferred Stock will rank senior to all of the Company’s common stock and other classes of capital stock concerning
dividend rights and/or rights upon distributions, liquidation, dissolution, or winding up of the Company, other than to the Series
B Preferred Stock and any class of parity stock that the holders of a majority of the outstanding shares of Series D Preferred
Stock consent to the creation.
Liquidation
Preference of Preferred Stock
Upon
the voluntary or involuntary liquidation, dissolution, or winding up of the Company, before the payment of any amount to the holder
of shares of junior stock, but pari-passu with any parity stock, the holders of Preferred Stock are entitled to receive the amount
equal to the greater of (i) the stated value of the Series D Preferred Stock or (ii) the amount the holder of Series D Preferred
Stock would receive if such holder converted the Series D Preferred Stock into common stock immediately before the date of the
liquidation event, including accrued and unpaid dividends.
Conversion
Rights of Preferred
A
holder of Series D Preferred Stock shall have the right to convert the Series D Preferred Stock, in whole or in part, upon written
notice to the Company at a conversion price equal to $1.20 per share, which is adjusted for any share dividend, share split, share
combination, reclassification or similar transaction that proportionately decreases or increases the common stock.
Voting
Rights
Except
concerning specific material changes in terms of the Series D Preferred Stock and certain other matters, except as may be required
by Delaware law, holders of Series D Preferred Stock shall have no voting rights. The approval of a majority of the Series D Preferred
Stockholders is necessary to amend the Certificate of Designations.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Preferred
Stock (continued)
Series
E Convertible Preferred Stock
The
board of directors of the Company has designated up to 5,000 shares of the 10,000,000 authorized shares of preferred stock as
Series E Preferred Stock. When issued, the shares of Series E Preferred Stock will be validly issued, fully paid, and non-assessable.
Each share of Series E Preferred Stock will have a stated value of $1,000 per share. In connection with the December 2016 financing,
the Company issued 2,400 shares of Series E Preferred Stock, with an immediate conversion into 1,200,000 shares of common stock
after closing.
Rank
The
Series E Preferred Stock will rank on parity to our common stock.
Conversion
Each
share of the Series E Preferred is convertible into shares of the Company’s common stock (subject to adjustment as provided
in the related certificate of designation of preferences, rights, and limitations) at any time at the option of the holder at
a conversion price of not less than 100% of the public offering price of the common stock. There is a prohibitive clause in place
for the Holders of Series E Preferred Stock from converting Series E Preferred Stock into shares of common stock if, as a result
of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of common
stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other rate not above 9.99%,
provided that any increase in such rate shall not be effective until 61 days after such notice to the Company.
Liquidation
Preference
In
the event of the Company’s liquidation, dissolution or winding-up, holders of Series E Preferred Stock will be entitled
to receive an amount equal to the stated value per share before any distribution shall be made to the holders of any junior securities,
and then will be entitled to receive the same amount that a holder of common stock would receive if the Series E Preferred Stock
were fully converted into shares of common stock at the conversion price (disregarding for such purposes any conversion limitations)
which amounts shall be paid pari-passu with all holders of common stock.
Voting
Rights
Shares
of Series E Preferred Stock will generally have no voting rights, except as required by law and except that the affirmative vote
of the holders of a majority of the then outstanding shares of Series E Preferred Stock is necessary to (a) alter or change adversely
the powers, preferences or rights given to the Series E Preferred Stock, (b) amend the Company’s certificate of incorporation
or other charter documents in any manner that materially adversely affects any rights of the holders, (c) increase the number
of authorized shares of Series E Preferred Stock, or (d) enter into any agreement concerning any of the preceding.
Dividends
Shareholders
of Series E Preferred Stock are not entitled to receive any dividends unless and until declared explicitly by the Company’s
board of directors. The holders of the Series E Preferred Stock will participate, on an as-if-converted-to-common stock basis,
in any dividends to the holders of common stock.
Redemption
The
Company is not obligated to redeem or repurchase any shares of Series E Preferred Stock. Shares of Series E Preferred Stock are
not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock
The
Company is authorized to issue up to 100,000,000 shares of Common Stock, $0.00001 par value per share. As of December 31, 2020,
and 2019, the Company had 21,382,290 and 3,594,548 shares issued, 21,379,631 and 3,591,889 outstanding, respectively. On July
31, 2020, the Board of Directors approved a 1-for-6 reverse stock split. Upon the reverse stock split’s effectiveness, every
six shares of an outstanding common stock decreased to one share of common stock. We have retroactively applied the reverse split
throughout this quarterly report to all periods presented.
Unless
otherwise noted, impacted amounts and share information included in the financial statements and notes to it, and elsewhere in
this Form 10-K have been retroactively adjusted for the reverse stock split as if such reverse stock split occurred on the first
day of the first period presented. The Company executed proportional adjustments to outstanding warrants’ exercise prices,
stock options, and the number of shares issued and issuable under the Company’s Stock Incentive Plans. Specific amounts
in the financial statements, the notes to it, and elsewhere in this Form 10-K may be slightly different from previously reported
due to rounding of fractional shares due to the reverse stock split.
Common
Stock Issuances
For
the year ending December 31, 2020
February
2020 Financing
On
February 14, 2020, the Company closed on an equity financing for 2,074,167 shares of common stock, 2,074,167 warrants to purchase
1,555,625 shares of Common Stock, 2,471,200 pre-funded warrants, with each Pre-Funded Warrant exercisable for one share of Common
Stock, and together with 2,471,200 Warrants to purchase 1,853,400 shares of Common Stock. The holders of these warrants are limited
to settlement in shares of common stock; there is no provision for net cash settlement alternatives; therefore, the Company classified
these warrants as equity. The Company received gross proceeds of approximately $5,998,000, less offering costs of $712,000 for
net proceeds of $5,286,000. The Company has earmarked the net proceeds from equity financing for working capital and general corporate
purposes.
During
the year ended December 31, 2020, the Company:
|
●
|
Issued
6,508,860 shares of common stock and received gross proceeds of approximately $12,548,000, less offering costs of $488,000
for net proceeds of $12,060,000 under the Company’s shelf registration filed on May 5, 2020.
|
|
|
|
|
●
|
Issued
3,829,885 shares of common stock upon warrant holders exercising 3,996,553 common stock warrants, receiving approximately
$11,000 in net proceeds.
|
|
|
|
|
●
|
Issued
5,225,913 shares of common stock upon warrant holders exercising 6,967,883 public common stock warrants.
|
|
|
|
|
●
|
Issued
148,917 shares of common stock in satisfaction of amounts deferred for consultant agreements in the amount of $330,000. The
determination of the fair value of the common stock is at the time of issuance.
|
|
|
|
|
●
|
Recognized
approximately $715,000 of compensation costs associated with outstanding stock options recorded in general and administrative
expenses with the offset as a credit to additional paid-in capital.
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock (continued)
Common
Stock Issuances (continued)
For
the year ending December 31, 2019
November
2019 Financing
On
November 27, 2019, the Company closed an equity financing for 533,534 shares of common stock, warrants to purchase 1,982,183 shares
of common stock and warrants to purchase 1,886,788 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.
July
2019 Financing
On
July 11, 2019, the Company closed an equity financing for 258,333 shares of common stock, warrants to purchase 1,000,000 shares
of common stock and, 741,667 pre-funded warrants to purchase 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.
Other
Stockholders’ Equity Transactions
During
the year ended December 31, 2019, the Company:
|
●
|
Issued
2,403,204 shares of common stock upon the exercise of (i) 6,284 common stock warrants at $27.00 per share, (ii) the exercise
of 1,366,667 pre-funded warrants at $0.006 per share and, (iii) the exercise of 1,030,254 cashless warrants for net proceeds
of $177,900.
|
|
|
|
|
●
|
Issued
3,272 shares of common stock for employees, directors, consultants, and other professionals for a total fair value of $70,625.
The determination of the fair value of the common stock is at the time of issuance.
|
|
|
|
|
●
|
Issued
26,355 shares of common stock in satisfaction of amounts previously deferred for employee/consultant agreements in the amount
of $223,967, and the liability equaled the fair value of the shares issued.
|
|
|
|
|
●
|
Issued
2,078 shares of common stock in satisfaction of related party obligations valued at $31,466. The determination of the fair
value of the common stock is at the time of issuance, and the liability equaled the fair value of the shares issued.
|
|
|
|
|
●
|
Issued
54,822 shares of common stock in satisfaction of principal and interest for convertible promissory notes valued at $528,000.
Of which $97,675 was for interest, $397,808 was for principal with a loss of $32,982 recognized on conversion. The determination
of the fair value of the common stock is at the time of issuance.
|
|
|
|
|
●
|
Recognized
$2,069,158 of compensation costs associated with outstanding stock options recorded in general and administrative expenses.
|
|
|
|
|
●
|
Recognized
$23,638 related to the intrinsic value of common stock warrants with embedded derivative liabilities, transferred into additional
paid-in capital.
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock Options
Stock
Options — Equity Incentive Plans
The
Company’s stock option plans provide options to purchase shares of common stock to officers, directors, other key employees,
and consultants. The purchase price may be paid in cash or “net settled” in shares of the Company’s common stock.
In a net settlement of an option, the Company does not require payment of the exercise price from the holder but reduces the number
of shares of common stock issued upon the exercise of the stock option by the smallest amount of whole shares that have an aggregate
fair market value equal to or over the aggregate exercise price for the option shares covered by the option exercised. Options
generally vest over three years from the date of grant and expire ten years from the grant date.
The
Company has four plans under which they awarded share-based compensation grants of options to individual directors, employees,
and advisors of the Company: the 2013 Stock Option Plan, 2015 Incentive Compensation Plan, 2016 Incentive Compensation Plan, and
the 2017 Incentive Compensation Plan.
Effective
April 30, 2018, the Board of Directors, by unanimous written consent, approve the immediate vesting of all remaining options for
terminated employees as part of the cost curtailment measures on April 30, 2018, and June 25, 2018.
On
December 31, 2020, the board of directors of the Company approved an amendment (the “Amendment”) to the Company’s
2013 Long-Term Stock Incentive Plan (the “Plan”), effective January 1, 2021. The Amendment removed a provision that
no single participant may receive more than 25% of the total shares awarded in any single year under the Plan and incorporated
specific immaterial clarifying changes.
The
following table illustrates various plan data as of December 31, 2020, and 2019:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock-based
compensation expense
|
|
$
|
610,000
|
|
|
$
|
2,069,000
|
|
Weighted average
remaining contractual life — options outstanding
|
|
|
6.55
years
|
|
|
|
7.5
years
|
|
Weighted average
remaining contractual life — options exercisable
|
|
|
6.45
years
|
|
|
|
7.5
years
|
|
Remaining expense
of stock-based compensation
|
|
$
|
30,000
|
|
|
$
|
630,000
|
|
Remaining amortization period
|
|
|
1.1
years
|
|
|
|
2.1
years
|
|
Intrinsic value per share
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
The
Company used the U.S. Treasury note’s rate over the expected term of the option for the risk-free rate. Employees’
expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s
historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For non-employee
options, the expected term is the full term of the option. Expected volatility is based on the average of the weekly share price
changes over the shorter of the expected term or the period from the placement on Nasdaq Capital Markets Exchange to the grant’s
date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the
implied yield on U.S. Treasury zero-coupon issues over the options’ equivalent lives. The expected life of the options represents
the estimated period using the simplified method. The Company has not paid dividends on its common stock, and no assumption of
dividend payment(s) is made in the model.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock Options (continued)
Stock
Options — Equity Incentive Plans (continued)
The
compensation cost is measured based on an award’s fair value at the grant’s date for each option award. The Company
uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC. Topic 718 for estimating the fair values
of employee share options and similar instruments. For employee equity-classified awards, compensation cost is recognized over
the employee’s requisite service period with a corresponding credit to equity (additional paid-in capital). The employee’s
requisite service period begins at the service inception date and ends when the requisite service has been provided. In determining
the award’s grant-date fair value, the following assumptions were used (all in weighted averages):
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Exercise price
|
|
$
|
—
|
|
|
$
|
19.2
|
|
Volatility
|
|
|
—
|
|
|
|
35.15
|
%
|
Risk-free interest
rate
|
|
|
—
|
|
|
|
3.76
|
%
|
Expected dividend
yield
|
|
|
—
|
|
|
|
-0-
|
%
|
Expected term
(years)
|
|
|
—
|
|
|
|
1.2
years
|
|
A
summary of the status of the Company’s stock options as of December 31, 2020:
|
|
Number
of Options (in shares)
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding, December 31, 2019
|
|
|
84,175
|
|
|
$
|
88.98
|
|
Options granted
|
|
|
—
|
|
|
$
|
—
|
|
Options exercised
|
|
|
—
|
|
|
$
|
—
|
|
Options canceled/expired
|
|
|
(27,776
|
)
|
|
$
|
(91.30
|
)
|
Outstanding, December 31, 2020
|
|
|
56,399
|
|
|
$
|
89.79
|
|
Exercisable, December 31, 2020
|
|
|
53,009
|
|
|
$
|
92.01
|
|
|
|
|
Common
stock issuable upon
exercise
of options outstanding
|
|
|
Common
stock issuable upon
options
exercisable
|
|
Range
of Exercise Prices
|
|
|
Options
Outstanding (in shares)
|
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Options
Exercisable (in shares)
|
|
|
Weighted
Average Remaining Exercisable Contractual Life (years)
|
|
|
Weighted
Average Exercise Price
|
|
$
|
-0-
to $277,212
|
|
|
|
56,399
|
|
|
|
6.55
|
|
|
$
|
89.79
|
|
|
|
53,009
|
|
|
|
6.45
|
|
|
$
|
92.01
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock Options – CEO
On
January 22, 2020, the Company entered into an employment agreement with Carleton M. Miller in connection with his appointment
as Chief Executive Officer of the Company, under which Mr. Miller received a time-based option and performance-based option. Mr.
Miller received an inducement award of a time-based option to purchase 359,247 shares of the Company’s stock and a performance-based
option to purchase 250,000 shares of the Company’s common stock, both under NASDAQ Listing Rule 5653(c)(4) outside of the
Company’s existing equity compensation plans, in each case to Mr. Miller’s continued employment by the Company on
the applicable vesting date.
CEO
Inducement Award — Time Vested Options
On
January 22, 2020, the Company granted an inducement award of a ten-year, non-statutory option to purchase 359,247 shares of the
Company stock as part of the CEO’s employment agreement. The award has an exercise price of $1.71, vesting commencement
date of January 22, 2020, expiration date of January 22, 2030, and the options vest as follows: 25% of such option shares shall
vest on January 22, 2021; and the remaining 75% will vest in substantially equal monthly installments over the thirty-six (36)
month period after that, subject to the CEO’s continued employment by the Company on the applicable vesting date.
The
following table illustrates various plan data as of December 31, 2020, and 2019:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock-based
compensation expense
|
|
$
|
90,000
|
|
|
$
|
—
|
|
Weighted average
remaining contractual life — options outstanding and exercisable
|
|
|
9.07
years
|
|
|
|
—
|
|
Remaining expense
of stock-based compensation
|
|
$
|
503,000
|
|
|
$
|
—
|
|
Remaining amortization period
|
|
|
3.1
years
|
|
|
|
—
|
|
Intrinsic value per share
|
|
$
|
0.51
|
|
|
$
|
—
|
|
The
Company used the US Treasury note’s rate over the expected term of the option for the risk-free rate. Employees’ expected
term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s
historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For non-employee
options, the expected term is the full term of the option. Expected volatility is based on the average of the weekly share price
changes over the shorter of the expected term or the period from the placement on Nasdaq Capital Markets Exchange to the grant’s
date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the
implied yield on US Treasury zero-coupon issues over the options’ equivalent lives. The expected life of the options represents
the estimated period using the simplified method. The Company has not paid dividends on its common stock, and no assumption of
dividend payment(s) is made in the model.
For
the time vested option award, the compensation cost is measured based on an award’s fair value at the grant’s date.
The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC. Topic 718 for estimating
the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is
recognized over the employee’s requisite service period with a corresponding credit to equity (additional paid-in capital).
The employee’s requisite service period begins at the service inception date and ends when the requisite service has been
provided. In determining the award’s grant-date fair value, the following assumptions were used (all in weighted averages):
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Exercise price
|
|
$
|
1.71
|
|
|
$
|
—
|
|
Volatility
|
|
|
153.02
|
%
|
|
|
—
|
|
Risk-free interest
rate
|
|
|
1.57
|
%
|
|
|
—
|
|
Expected dividend
yield
|
|
|
-0-
|
%
|
|
|
—
|
|
Expected term
(years)
|
|
|
6.3
|
|
|
|
—
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Common
Stock Options – CEO (continued)
CEO
Inducement Award — Time Vested Options (continued)
A
summary of the status of the Company’s time vested stock options for Mr. Miller on December 31, 2020, is as follows:
|
|
Number
of Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
Options granted
|
|
|
359,247
|
|
|
$
|
1.65
|
|
Options exercised
|
|
|
—
|
|
|
$
|
—
|
|
Options canceled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, December 31, 2020
|
|
|
359,247
|
|
|
$
|
1.40
|
|
Exercisable, December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Common
stock issuable upon
exercise
of options outstanding
|
|
|
Common
stock issuable upon
options
exercisable
|
Range
of Exercise Prices
|
|
Options
Outstanding (in shares)
|
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Options
Exercisable
(in
shares)
|
|
|
Weighted
Average Remaining Exercisable Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.71
|
|
359,247
|
|
|
9.07
|
|
|
$
1.40
|
|
|
—
|
|
|
—
|
|
|
—
|
CEO
Inducement Award — Performance-Based Option
On
January 22, 2020, the Company granted an inducement award of a ten-year, non-statutory option to purchase 250,000 shares of the
Company stock as part of the CEO’s employment agreement. The award has an exercise price of $1.71, a vesting commencement
date of January 22, 2020, and an expiration date of January 22, 2030. The Option Shares will vest in three (3) equal tranches
upon attainment of the following applicable performance conditions for each tranche, provided that the CEO remains in continuous
employment with the Company through the relevant date of achievement of the performance conditions:
|
●
|
Tranche
1: 83,333 Option Shares will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Vesting
Commencement Date, of Cumulative EBITDA of more than $6,000,000 accumulated over four consecutive fiscal quarters.
|
|
|
|
|
●
|
Tranche
2: 83,333 Option Shares will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Vesting
Commencement Date, of Cumulative EBITDA of more than $15,000,000 accumulated over four consecutive fiscal quarters.
|
|
|
|
|
●
|
Tranche
3: 83,333 Option Shares will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Vesting
Commencement Date, of Cumulative EBITDA of more than $23,000,000 accumulated over four consecutive fiscal quarters.
|
The
following table illustrates various plan data as of December 31, 2020, and 2019:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock-based compensation
expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Weighted average
remaining contractual life — options outstanding and exercisable
|
|
|
9.07
years
|
|
|
|
—
|
|
Remaining
expense of stock-based compensation
|
|
$
|
414,000
|
|
|
$
|
—
|
|
Remaining amortization period
|
|
|
4.1
years
|
|
|
|
—
|
|
Intrinsic value per share
|
|
$
|
0.26
|
|
|
$
|
—
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Common
Stock Options – CEO (continued)
CEO
Inducement Award — Performance-Based Option (continued)
The
Company used the US Treasury note’s rate over the expected term of the option for the risk-free rate. Employees’ expected
term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s
historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For non-employee
options, the expected term is the full term of the option. Expected volatility is based on the average of the weekly share price
changes over the shorter of the expected term or the period from the placement on Nasdaq Capital Markets Exchange to the grant’s
date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the
implied yield on US Treasury zero-coupon issues over the options’ equivalent lives. The expected life of the options represents
the estimated period using the simplified method. The Company has not paid dividends on its common stock, and no assumption of
dividend payment(s) is made in the model.
The
compensation cost is measured based on an award’s fair value at the grant’s date for the performance-based option
award. The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC. Topic 718 for estimating
the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is
recognized over the employee’s requisite service period with a corresponding credit to equity (additional paid-in capital).
The employee’s requisite service period begins at the service inception date and ends when the requisite service has been
provided. In determining the award’s grant-date fair value, the following assumptions were used (all in weighted averages):
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Exercise price
|
|
$
|
1.71
|
|
|
$
|
—
|
|
Volatility
|
|
|
153.02
|
%
|
|
|
—
|
|
Risk-free interest
rate
|
|
|
1.57
|
%
|
|
|
—
|
|
Expected dividend
yield
|
|
|
-0-
|
%
|
|
|
—
|
|
Expected term
(years)
|
|
|
6.5
|
|
|
|
—
|
|
The
probability of achieving any required metrics for vesting is inconclusive as of December 31, 2020. When the Company determines
that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based
compensation amount. We will record any un-recognized costs over the remaining requisite service period of the awards.
A
summary of the status of the Company’s performance-based stock options for Mr. Miller on December 31, 2020, is as follows:
|
|
Number
of Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
Options granted
|
|
|
250,000
|
|
|
$
|
1.65
|
|
Options exercised
|
|
|
—
|
|
|
$
|
—
|
|
Options canceled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, December 31, 2020
|
|
|
250,000
|
|
|
$
|
1.65
|
|
Exercisable, December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
Common
stock issuable upon
exercise
of options outstanding
|
|
|
Common
stock issuable upon
options
exercisable
|
Range
of
Exercise
Prices
|
|
|
Options
Outstanding (in shares)
|
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Options
Exercisable
(in
shares)
|
|
|
Weighted
Average Remaining Exercisable Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.71
|
|
|
250,000
|
|
|
9.07
|
|
|
$
1.65
|
|
|
—
|
|
|
—
|
|
|
—
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Common
Stock Options – CFO
On
February 27, 2020, the Company entered into an employment agreement with Michael Bond in connection with his appointment as Chief
Financial Officer of the Company, effective as of April 1, 2020, under which Mr. Bond received a time-based option. Mr. Bond received
an inducement award of a time-based option to purchase 135,168 shares of the Company’s stock under NASDAQ Listing Rule 5653(c)(4)
outside of the Company’s existing equity compensation plans, in consideration of Mr. Bond’s continued employment by
the Company on the applicable vesting date.
CFO
Inducement Award — Time Vested Options
The
Company granted an inducement award of a ten-year, non-statutory option to purchase 135,168 shares of the Company stock as part
of the CFO’s employment agreement. The award has an exercise price of $0.96, vesting commencement date of April 1, 2020,
expiration date of April 1, 2030, and the options vest as follows: 25% of such option shares shall vest on April 1, 2021; and
the remaining 75% will vest in substantially equal monthly installments over the thirty-nine (36) month period after that, subject
to the CEO’s continued employment by the Company on the applicable vesting date.
The
following table illustrates various plan data as of December 31, 2020, and 2019:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock-based compensation
expense
|
|
$
|
15,000
|
|
|
$
|
—
|
|
Weighted average remaining contractual
life — options outstanding and exercisable
|
|
|
9.25
years
|
|
|
|
—
|
|
Remaining expense of stock-based compensation
|
|
$
|
108,000
|
|
|
$
|
—
|
|
Remaining amortization period
|
|
|
3.3
years
|
|
|
|
—
|
|
Intrinsic value per share
|
|
$
|
1.11
|
|
|
$
|
-0-
|
|
The
Company used the US Treasury note’s rate over the expected term of the option for the risk-free rate. Employees’ expected
term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s
historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For non-employee
options, the expected term is the full term of the option. Expected volatility is based on the average of the weekly share price
changes over the shorter of the expected term or the period from the placement on Nasdaq Capital Markets Exchange to the grant’s
date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the
implied yield on US Treasury zero-coupon issues over the options’ equivalent lives. The expected life of the options represents
the estimated period using the simplified method. The Company has not paid dividends on its common stock, and no assumption of
dividend payment(s) is made in the model.
For
the time vested option award, the compensation cost is measured based on an award’s fair value at the grant’s date.
The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC. Topic 718 for estimating
the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is
recognized over the employee’s requisite service period with a corresponding credit to equity (additional paid-in capital).
The employee’s requisite service period begins at the service inception date and ends when the requisite service has been
provided. In determining the award’s grant-date fair value, the following assumptions were used (all in weighted averages):
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Exercise
price
|
|
$
|
0.96
|
|
|
$
|
—
|
|
Volatility
|
|
|
155.00
|
%
|
|
|
—
|
|
Risk-free
interest rate
|
|
|
0.62
|
%
|
|
|
—
|
|
Expected dividend
yield
|
|
|
-0-
|
%
|
|
|
—
|
|
Expected term
(years)
|
|
|
6.3
|
|
|
|
—
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Common
Stock Options – CFO (continued)
CFO
Inducement Award — Time Vested Options (continued)
A
summary of the status of the Company’s time vested stock options for Mr. Miller on December 31, 2020, is as follows:
|
|
Number
of Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
Options granted
|
|
|
135,168
|
|
|
$
|
0.91
|
|
Options exercised
|
|
|
—
|
|
|
$
|
—
|
|
Options canceled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding, December 31, 2020
|
|
|
135,168
|
|
|
$
|
0.80
|
|
Exercisable, December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
Common
stock issuable upon
exercise
of options outstanding
|
|
|
Common
stock issuable upon
options
exercisable
|
Range
of Exercise Prices
|
|
|
Options
Outstanding (in shares)
|
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Options
Exercisable
(in
shares)
|
|
|
Weighted
Average Remaining Exercisable Contractual Life (years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.96
|
|
|
135,168
|
|
|
9.3
|
|
|
$
0.80
|
|
|
—
|
|
|
—
|
|
|
—
|
Restricted
Stock Awards
CFO
Restricted Stock Units — Performance-Based
On
December 31, 2020, Michael Bond, the Company’s Chief Financial Officer, received an award pursuant to the amended Plan of
368,715 restricted stock units (“RSUs”). The RSUs vest in three equal tranches on or prior to the fifth anniversary
of the grant date, subject to the Company achieving certain revenue levels in any trailing four-quarter fiscal period. The RSUs
will vest in three (3) equal tranches upon attainment of the following applicable performance conditions for each tranche; provided
that the Grantee remain in continuous employment with the Company through the date on which the Committee certifies that the revenue
targets below have been attained:
|
●
|
Tranche
1: 122,905 RSUs will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Grant Date,
of revenue of more than $23,487,000 accumulated over four consecutive fiscal quarters.
|
|
|
|
|
●
|
Tranche
2: 122,905 RSUs will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Grant Date,
of revenue of more than $27,010,500 accumulated over four consecutive fiscal quarters.
|
|
|
|
|
●
|
Tranche
3: 122,905 RSUs will vest upon the Company’s attainment, on or before the fifth (5th) anniversary of the Grant Date,
of revenue of more than $31,061,556 accumulated over four consecutive fiscal quarters.
|
Except
as provided in the Grantee’s employment agreement, if the Grantee ceases to be an employee of the Company before any Vesting
Date, the remaining portion of the Total Number of Shares unvested is forfeited.
The
Company uses the closing stock price on the grant date to estimate performance-based restricted stock units’ fair value.
The recording for the award’s stock-based compensation expense is over the vesting period based on the awards’ grant
date fair value and achievement of specified performance targets. Forfeitures of performance stock units and awards are recognized
as they occur. As of December 31, 2020, the un-amortized stock-based compensation is approximately $487,000, and the intrinsic
value of restricted stock units is $0.59 per share.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Restricted
Stock Awards (continued)
CFO
Restricted Stock Units — Performance-Based (continued)
The
probability of achieving any required metrics for vesting is inconclusive as of December 31, 2020. When the Company determines
that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based
compensation amount. We will record any un-recognized costs over the remaining requisite service period of the awards.
A
summary of the status of the Company’s restricted stock units for Mr. Bond on December 31, 2020, is as follows:
|
|
Number
of Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Unvested, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
368,715
|
|
|
$
|
1.32
|
|
Vested
|
|
|
—
|
|
|
$
|
—
|
|
Unvested, December 31, 2020
|
|
|
368,715
|
|
|
$
|
1.32
|
|
Common
Stock Warrants
The
Company granted 7,016,567 common stock warrants, warrant holders exercised 10,964,436 of their warrants, and 17,846 warrants expired
during the year ended December 31, 2020. The weighted average exercise price of warrants outstanding on December 31, 2020, is
$89.60, with a weighted average remaining contractual life of 1.23 years. As of December 31, 2020, these outstanding warrants
contained no intrinsic value.
The
following table sets forth common stock purchase warrants outstanding as of December 31, 2020:
|
|
Number
of Options
(in
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2019
|
|
|
4,188,075
|
|
|
$
|
6.60
|
|
Warrants granted
|
|
|
7,016,567
|
|
|
$
|
0.90
|
|
Warrants exercised
|
|
|
(10,964,436
|
)
|
|
$
|
(1.00
|
)
|
Warrants canceled/expired
|
|
|
(17,846
|
)
|
|
$
|
(114.30
|
)
|
Outstanding, December 31, 2020
|
|
|
222,360
|
|
|
$
|
89.60
|
|
Exercisable, December 31, 2020
|
|
|
222,360
|
|
|
$
|
89.60
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY – (continued)
Common
Stock Warrants (warrants)
|
|
|
|
Common
stock issuable upon
exercise
of warrants outstanding
|
|
Common
stock issuable upon
warrants
exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
of Exercise Prices
|
|
Warrants
Outstanding (in shares)
|
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
Weighted
Average Exercise
Price
|
|
Warrants
Exercisable
(in
shares)
|
|
|
Weighted
Average Remaining Exercisable Contractual Life (years)
|
|
Weighted
Average Exercise
Price
|
|
*
|
|
$
|
0.906
|
|
|
9,623
|
|
|
0.55 yrs
|
|
$
|
0.906
|
|
|
9,623
|
|
|
0.55 yrs
|
|
$
|
0.906
|
|
|
|
$
|
1.452
|
|
|
35,000
|
|
|
0.12 yrs
|
|
$
|
1.452
|
|
|
35,000
|
|
|
0.12 yrs
|
|
$
|
1.452
|
|
|
|
$
|
30.000
|
|
|
683
|
|
|
3.54 yrs
|
|
$
|
30.000
|
|
|
683
|
|
|
3.54 yrs
|
|
$
|
30.000
|
|
|
|
$
|
60.000
|
|
|
53,333
|
|
|
2.41 yrs
|
|
$
|
60.000
|
|
|
53,333
|
|
|
2.41 yrs
|
|
$
|
60.000
|
|
|
|
$
|
120.000
|
|
|
108,550
|
|
|
1.01 yrs
|
|
$
|
120.000
|
|
|
108,550
|
|
|
1.01 yrs
|
|
$
|
120.000
|
|
|
|
$
|
150.000
|
|
|
13,008
|
|
|
1.63 yrs
|
|
$
|
150.000
|
|
|
13,008
|
|
|
1.63 yrs
|
|
$
|
150.000
|
|
|
|
$
|
504.000
|
|
|
347
|
|
|
0.82 yrs
|
|
$
|
504.000
|
|
|
347
|
|
|
0.82 yrs
|
|
$
|
504.000
|
|
|
|
$
|
827.280
|
|
|
1,816
|
|
|
0.37
yrs
|
|
$
|
827.280
|
|
|
1,816
|
|
|
0.37
yrs
|
|
$
|
827.280
|
|
|
|
|
|
|
|
222,360
|
|
|
1.23
yrs
|
|
$
|
89.60
|
|
|
222,360
|
|
|
1.23
yrs
|
|
$
|
89.60
|
|
*represents
a group of warrants repriced to $ 0.906 from $1.59.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 — COMMITMENTS AND CONTINGENCIES
Legal:
From
time to time, the Company is subject to claims by third parties under various legal theories. The defense of such claims, or any
adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial
condition, and cash flows. Under ASC Topic 450, the Company must accrue a loss contingency if the information is available before
the financial statements’ issuance.
On
July 19, 2019, Hale Capital Partners, LP (“Hale”) filed a lawsuit against the Company. The case involved professional
fees connected with a canceled financing transaction in the amount of $140,000 owed to Hale. The $140,000 was accrued and previously
included in accrued expenses on the consolidated balance sheet. On October 23, 2020, the Company entered into a settlement agreement
with Hale Capital Partners. The agreement instructed the Company to settle the original debt by making a payment of $50,000, resulting
in a gain on settlement of debt in the amount of $90,000 recognized in the statement of operations for the year ending December
31, 2020.
On
August 28, 2020, Macnica, Ltd. filed a lawsuit against the Company. The case involved several outstanding purchase orders for
specific encoders totaling $1,520,000. An amount of $476,800 was paid towards a partial quantity of encoders, leaving an outstanding
balance payable of $1,043,200. The parties reached a settlement agreement and consented as follows:
|
●
|
Vislink
acknowledges Macnica, Ltd.’s claim of $1,043,200.
|
|
●
|
The
Company has taken delivery of the remaining encoders.
|
|
●
|
Vislink
effected a one-time payment of $450,000 to Macnica on February 26, 2021.
|
|
●
|
The
Company agreed to five subsequent monthly payments of $100,000 and a smaller final installment of $93,200. The Company made
its first monthly payment of $100,000 on March 11, 2021.
|
The
Company recorded the $1,043,200 liability and included it in accounts payable on the balance sheet on December 31, 2020.
Pension:
At
its discretion, the Company may make a matching contribution to the 401(k) plan in which its employees participate. We also have
a Group Personal Plan in our UK Subsidiary, investing funds with Royal London. UK employees are entitled to join the plan to which
the Company contributes varying amounts subject to status. Additionally, the Company operates a stakeholder pension scheme in
the UK.
The
table below represents the Company’s matching contributions as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Company
matching contributions - 401K Plan
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Company matching
contributions - Group Personal Pension Plan, UK
|
|
$
|
92,000
|
|
|
$
|
173,000
|
|
Nasdaq
Compliance:
On
August 17, 2020, the Company received a letter from the staff of The Nasdaq Stock Market LLC (“Nasdaq”) stating that
the Nasdaq staff determined that the Company regained compliance with the Nasdaq Capital Market minimum bid price requirement
for continued listing outlined in Nasdaq Listing Rule 5550(a)(2).
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 — CONCENTRATIONS
Customer
concentration risk
For
the years ended December 31, 2020, and 2019, there were no individual customer recorded sales over 10% of the Company’s
total consolidated sales.
On
December 31, 2020, and 2019, the Company recorded accounts receivable of approximately $1,244,000 (27%) and 2,613,000 (39%), respectively,
to a single customer over 10% of the Company’s total consolidated accounts receivable.
Vendor
concentration risk
For
the year ended December 31, 2020, one vendor-generated inventory purchases of approximately $3,852,000 (37%) over 10% of the Company’s
consolidated inventory purchases. For the year ended December 31, 2019, two vendors generated approximately $5,434,000 (31%) and
$2,610,000 (15%) over 10% of the Company’s consolidated inventory purchases, respectively.
On
December 31, 2020, the Company recorded a single vendor balance of approximately $764,000 (15%) of accounts payable over 10% of
the Company’s consolidated accounts payable. On December 31, 2019, the Company recorded one vendor balance of approximately
$1,940,000 (29%) of accounts payable over 10% of the Company’s consolidated accounts payable.
NOTE
17 – REVENUE
The
Company has one operating segment, and the decision-making group is the senior executive management team. We disaggregated revenue
by primary geographical markets and revenue source in the following tables:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Primary geographical markets:
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
9,107,000
|
|
|
$
|
13,054,000
|
|
South America
|
|
|
106,000
|
|
|
|
429,000
|
|
Europe
|
|
|
9,435,000
|
|
|
|
9,231,000
|
|
Asia
|
|
|
2,413,000
|
|
|
|
4,554,000
|
|
Rest of World
|
|
|
1,821,000
|
|
|
|
1,674,000
|
|
|
|
$
|
22,882,000
|
|
|
$
|
28,942,000
|
|
Primary revenue source:
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
20,087,000
|
|
|
$
|
25,657,000
|
|
Installation, integration,
and repairs
|
|
|
2,199,000
|
|
|
|
2,673,000
|
|
Warranties
|
|
|
254,000
|
|
|
|
171,000
|
|
Other
(See Note 18)
|
|
|
342,000
|
|
|
|
441,000
|
|
|
|
$
|
22,882,000
|
|
|
$
|
28,942,000
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,676,000
|
|
|
$
|
4,616,000
|
|
United
Kingdom
|
|
|
1,460,000
|
|
|
|
2,203,000
|
|
|
|
$
|
4,136,000
|
|
|
$
|
6,819,000
|
|
NOTE
18 — REBATES
The
amounts generated in Note 17 as part of Primary revenue source “other” resulted from rebates issued to the Company’s
filing appropriate governmental forms related to the research costs incurred by our U.K. subsidiary in prior fiscal years. The
Company expects to continue filing applicable rebate forms for the 2020 fiscal year but can provide no assurances that such rebates
will be available in future financial periods at similar levels, or at all.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — INCOME TAXES
The
provision (benefit) for income taxes consists of the following:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Current tax provision
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
9,000
|
|
|
|
14,000
|
|
|
|
|
9,000
|
|
|
|
14,000
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,861,000
|
)
|
|
|
(2,998,000
|
)
|
State
|
|
|
(55,000
|
)
|
|
|
2,879,000
|
)
|
Foreign
|
|
|
(2,040,000
|
)
|
|
|
(870,000
|
)
|
Change in valuation
allowance
|
|
|
(3,956,000
|
)
|
|
|
989,000
|
|
Income tax provision
|
|
$
|
9,000
|
|
|
$
|
14,000
|
|
A
reconciliation of the statutory tax rate to the effective tax rate is as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Statutory Federal income
tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State and local taxes, net of Federal
benefit
|
|
|
1.67
|
|
|
|
1.77
|
|
Permanent differences
|
|
|
(0.13
|
)
|
|
|
1.56
|
|
Provision to return
|
|
|
(0.06
|
)
|
|
|
1.52
|
|
DTA adjustment for state NOL
|
|
|
(0.63
|
)
|
|
|
(16.83
|
)
|
Foreign Rate Differential
|
|
|
(0.94
|
)
|
|
|
(0.68
|
)
|
Change rate
|
|
|
(0.72
|
)
|
|
|
(1.00
|
)
|
Valuation allowance
|
|
|
(20.24
|
)
|
|
|
(7.43
|
)
|
Effective
tax rate
|
|
|
(0.05
|
)%
|
|
|
(0.08
|
)%
|
Under
the provisions of ASC 740, the Company may recognize the benefits of uncertain tax positions when it is more likely than not that
the merits of the position(s) will be sustained upon audit by the relevant tax authorities. There were no uncertain tax positions
taken or expected to be taken on a tax return that would be determined to be an unrecognized tax benefit recorded on the Company’s
financial statements for the years ended December 31, 2020, or 2019. The Company does not expect its unrecognized tax benefit
position to change during the next twelve months.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — INCOME TAXES (continued)
Deferred
income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
accounting purposes and the amounts used for income tax reporting. Significant components of the Company’s deferred tax
assets are as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Federal
R&D credit
|
|
$
|
3,007,000
|
|
|
$
|
3,007,000
|
|
Inventory
|
|
|
1,287,000
|
|
|
|
683,000
|
|
Allowance for bad
debt
|
|
|
72,000
|
|
|
|
55,000
|
|
Compensation Related
|
|
|
17,000
|
|
|
|
21,000
|
|
Pension
|
|
|
8,000
|
|
|
|
5,000
|
|
Other Accruals
|
|
|
29,000
|
|
|
|
63,000
|
|
State Net operating
losses
|
|
|
5,710,000
|
|
|
|
5,638,000
|
|
Federal Net operating
losses
|
|
|
40,992,000
|
|
|
|
38,177,000
|
|
Property & Equipment
|
|
|
98,000
|
|
|
|
—
|
|
Stock Options
|
|
|
6,673,000
|
|
|
|
6,565,000
|
|
Other
|
|
|
1,154,000
|
|
|
|
1,143,000
|
|
Valuation
Allowance
|
|
|
(58,518,000
|
)
|
|
|
(54,562,000
|
)
|
Total
Deferred Tax Assets
|
|
|
529,000
|
|
|
|
795,000
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
(87,000
|
)
|
|
|
(141,000
|
)
|
Intangibles
|
|
|
(419,000
|
)
|
|
|
(630,000
|
)
|
Inventory
|
|
|
—
|
|
|
|
—
|
|
Prepaid Expenses
|
|
|
(23,000
|
)
|
|
|
(24,000
|
)
|
Compensation
Related
|
|
|
—
|
|
|
|
—
|
|
Total
Deferred Tax Liabilities
|
|
|
(529,000
|
)
|
|
|
(795,000
|
)
|
Net
Deferred Tax Asset/(Liability)
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of December 31, 2020, the Company has federal net operating losses (“NOL”) of approximately $177.5 million that will
expire beginning in 2027. The Company has federal NOLs of approximately $20.5 million that may be carried forward indefinitely.
The Company also has state NOL carryforwards of $155.6 million, which will expire beginning in 2027. Besides, the Company has
foreign NOL carryforwards of approximately $18.9 million that generally do not expire except under certain circumstances. The
Company also has research and development credits of approximately $3.0 million, which will begin to expire in 2027. The years
that remain open for review by taxing authorities are 2017 to 2020 for Federal, Foreign, and State Income Tax returns.
Realization
of the NOL carryforwards and other deferred tax temporary differences is contingent on future taxable earnings. The Company’s
deferred tax assets were reviewed for expected utilization using a “more likely than not” approach by assessing the
available positive and negative evidence surrounding its recoverability. Accordingly, a valuation allowance has been recorded
against the Company’s deferred tax assets, as it was determined based upon past and present losses that it was “more
likely than not” that the Company’s deferred tax assets would not be realized. The valuation allowance was increased
to the full carrying amount of the Company’s deferred tax assets. In future years, if the deferred tax assets are determined
by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of
the valuation allowance will be recorded. The Company will continue to assess and evaluate strategies that will enable the deferred
tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately as such time when it is determined
that the “more likely than not” criteria are satisfied.
The
net operating loss carryovers may be subject to annual limitations under Internal Revenue Code Section 382 and similar state provisions,
should there be a greater than 50% ownership change as determined under the applicable income tax regulations. The amount of the
limitation would be determined based on the value of the Company immediately before the ownership change, and subsequent ownership
changes could further impact the amount of the annual limitation. An ownership change under Section 382 may have occurred in the
past or could happen in the future, such that the NOLs available for utilization could be significantly limited. The Company plans
to perform a Section 382 analysis in the future.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — INCOME TAXES (continued)
Effective
for tax years beginning after December 31, 2017, the Tax Act includes a participation exemption system of taxation, which generally
provides for 100% dividends received deduction on certain qualifying dividend distributions received by U.S. C-corporation shareholders
from their 10% or more owned foreign subsidiaries. As a result of this new participation exemption system, it is generally anticipated
that the Company should not be subject to additional U.S. federal income taxation on its future receipt of actual dividend income
(instead of a deemed inclusion amounts under specific anti-deferral rules) from its foreign subsidiary.
For
tax years beginning after December 31, 2017, the Tax Act introduced a new limitation on the deduction of interest expense whereby
current year interest deductions are limited (among other restrictions) to 30% of adjusted taxable income, with various modifications
and exceptions. The Company does incur interest expense and evaluates each year the impact, if any, of the new limitation.
The
Company has not provided for deferred taxes and foreign withholding taxes on the excess of the financial reporting basis over
the tax basis in our investments in foreign subsidiaries that are nearly permanent in duration. In general, it is the Company’s
practice and intention to reinvest our foreign subsidiary’s earnings in those operations. Generally, our foreign subsidiary’s
earnings have become subject to U.S. taxation based on specific U.S. tax law provisions, such as the recently enacted territorial
transition tax under section 965 and under certain other circumstances. Due to the complexities of the provisions introduced with
the Tax Act, and the underlying assumptions that would have to be made, it is not practicable to estimate the amount of tax provision
required to account for these foreign undistributed earnings. The Company will account for any additional expense or deduction
in the year it is claimed. The Company will continue to review each year whether this treatment is appropriate.
The
Company did not identify any material uncertain tax positions and is not under any income tax examinations.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
20
— SUBSEQUENT EVENTS
On
February 8, 2021, the Company closed on equity financing and received gross proceeds of approximately $50,000,000, less offering
costs of $3,180,000 for net proceeds of $46,820,000. The Company issued 18,181,120 shares of common stock, supplemented by 9,090,910
five-year warrants with an exercise price of $3.25 per share exercisable for one share each of common stock.
From
January 2021 to March 2021, the Company issued 6,079,598 shares of common stock and received gross proceeds of approximately $12,663,000,
less offering costs of $392,000 for net proceeds of $12,271,000 under the May 5, 2020 shelf registration.
The
Company entered into a one-year lease for 600 square feet of administrative office space in Lutton, Uk commencing on February
1, 2021, and terminating on January 31, 2022, for approximately £1,674 monthly.
On
March 3, 2021, Mickey Miller, Chief Executive Officer of Vislink Technologies, Inc. (the “Company”), received an award
of 1,497,330 restricted stock units (“RSUs”). Subject to Mr. Miller’s continued employment with the Company,
199,555 of the RSUs vest on March 3, 2022, 399,110 of the RSUs vest in substantially equal monthly increments over the 24 months
after that, and 898,665 of the RSUs vest in three equal tranches on or before December 31, 2025, subject to the Company achieving
certain revenue levels in any trailing four-quarter fiscal period. The RSUs will become fully vested if, during the 13 months
commencing on a change in control of the Company, the Company terminates Mr. Miller’s employment without Cause (as defined
in Mr. Miller’s employment agreement) or he terminates
his employment for Good Reason (as defined in Mr. Miller’s employment agreement).