NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — NATURE OF OPERATIONS
Description
of Business
The
overarching strategy of Vislink Technologies, Inc. (“Vislink Technologies,” the “Company,” “we,”
“our” or “us”) is to design, develop and deliver advanced wireless communications solutions that provide
customers within target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations
and missions. Vislink Technologies’ business lines include the leading brands Integrated Microwave Technologies LLC (“IMT”)
and Vislink Communications Systems (“Vislink” or “VCS”). There is considerable brand interaction, due
to complementary market focus, compatible product, and technology development roadmaps, and solution integration opportunities
IMT:
IMT
develops, manufactures, and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing)
technology. COFDM is a transmission technique that combines encoding technology with OFDM (Orthogonal Frequency Division Multiplexing)
modulation to provide the low latency and high image clarity required for real-time live broadcasting video transmissions. IMT
has extensive experience in ultra-compact COFDM wireless technology, and this has allowed IMT to develop integrated solutions
that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations.
Vislink:
Vislink
Communications Systems (“Vislink” or “VCS”) specializes in the wireless capture, delivery
and management of secure, high-quality, live video from the field to the point of usage. VCS designs and manufactures products
encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier
items. VCS serves two core markets: broadcast and media and law enforcement, and surveillance. In the broadcast
and media market, VCS provides broadcast communication links for the collection of live news and sports and entertainment events.
VCS’ customers in the broadcast and media market include national broadcasters, multi-channel broadcasters, network owners
and station groups, sports and live broadcasters and hosted service providers. In the law enforcement, and surveillance
market, VCS provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security
applications. VCS’ customers in the law enforcement, and surveillance market include metropolitan, regional
and national law enforcement agencies as well as domestic and international defense agencies and organizations.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 — LIQUIDITY AND FINANCIAL CONDITION
Under
ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company
has the responsibility to evaluate whether conditions and or events raise substantial doubt about its ability to meet its future
financial obligations as they become due within one year after the date that the financial statements are issued. As required
by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have
not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability
to continue as a going concern under the requirement of ASC 205-40.
As
reflected in the consolidated financial statements, the Company had $1.7 million in cash on the balance sheet at December 31,
2019. The Company had working capital and an accumulated deficit of $3.6 million and $252.6 million,
respectively. Additionally, the Company had a loss from operations of approximately $17.2 million and cash used in
operating activities of $8.4 million for the year ended December 31, 2019. As of February 14, 2020, the Company’s cash
balance was approximately $6.8 million after the February 2020 equity raise.
The Company has historically
funded its operations from debt and equity raises, attaining the following recent capital events:
|
|
●
|
On
July 11, 2019, the Company closed an equity financing for 1,550,000 shares of common stock, warrants to purchase 6,000,000
shares of common stock and, 4,450,000 pre-funded warrants to purchase common stock in place of common stock. The Company received
gross proceeds of approximately $11,996,000 from the offering, before deducting underwriting-related fees and other offering
expenses payable by the Company. The Company used the net proceeds to satisfy outstanding principal and accrued interest due
on convertible promissory notes of approximately $7,600,000 million and the balance for working capital.
|
|
|
|
|
|
|
●
|
On
November 27, 2019, the Company closed an equity financing for 3,201,200 shares of common stock, warrants to purchase 11,893,100
shares of common stock and, warrants to purchase 11,320,725 shares of Common Stock. The Company received gross proceeds of
approximately $3,988,000 from the offering, before deducting underwriting-related fees and other offering expenses payable
by the Company. The Company used the net proceeds from equity financing for working capital purposes.
|
|
|
|
|
|
|
●
|
On
February 14, 2020, the Company closed on an equity financing for 12,445,000 shares of common stock, 12,445,000 warrants to
purchase 9,333,750 shares of Common Stock, and 14,827,200 pre-funded warrants, with each Pre-Funded Warrant exercisable for
one share of Common Stock, together with 14,827,200 Warrants to purchase 11,120,400 shares of Common Stock. The Company received
gross proceeds of approximately $5,998,000, less offering costs of $560,000 for net proceeds of $5,438,000. The Company has
earmarked the use of the net proceeds from equity financing for working capital and general corporate purposes.
|
As
a result of the proceeds raised in the recent capital events, repaying substantially all of the Company’s debt
and ongoing cost management, the Company believes there are enough funds to mitigate the going concern uncertainty for at least
twelve months from the date of these financial statements are made available.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America or (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”), the
Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules
and regulations of the US Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries, IMT and Vislink. All intercompany accounts and
transactions among consolidated entities were eliminated upon consolidation.
Segment
Reporting
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance.
The Company’s decision-making group is the senior executive management team. The Company and the decision-making group view
the Company’s operations and manage its business as one operating segment with different product offerings. All long-lived
assets of the Company reside in the U.S. and U.K.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant
accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property,
plant, and equipment, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory
obsolescence reserve, allowance for deferred tax assets, valuation of warranty reserves, contingent consideration liabilities,
and the accrual of potential liabilities. Actual results could differ from these estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be
cash equivalents. The Company did not have any cash equivalents on hand as of December 31, 2019 and 2018.
Concentrations
of Credit Risk
The
Company does not have any off-balance-sheet concentrations of credit risk. Credit risk is the risk that counterparty will default
on its contractual obligations resulting in a financial loss to the Company. The Company’s credit risk is primarily attributable
to its cash and accounts receivables. The Company’s policy is to maintain its cash with high credit quality financial institutions
to limit its risk of loss exposure. Financial instruments that potentially subject the Company
to concentration of credit risk consist principally of cash deposits. Accounts held within the United States are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Additionally, the Company maintains cash balance accounts
at financial institutions located in the United Kingdom insured by the Financial Services Compensation Scheme up to £85,000,
subject to currency translation rates to the United States dollar. On December 31, 2019, the Company had
approximately $1.2 million above insured limits, respectively. The Company has not experienced any losses
in its bank accounts during the years ended December 31, 2019, and 2018. For customers, management assesses the credit quality
of the customer, considering its financial position and historical experience.
For
the years ended December 31, 2019, and 2018, the Company did not experience sales to one customer over 10% of the Company’s
total consolidated sales. On December 31, 2019, the Company recorded approximately $2,613,000 (39%) and $-0- of accounts
receivable to a single customer over 10% of the Company’s total consolidated accounts receivable.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables
and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves,
the Company makes judgements regarding its customer’s ability to make required payments, prevailing economic conditions,
past experience and other factors. As the financial condition of these factors change, circumstances develop or additional information
becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for credit
losses and losses have been within its expectations.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories,
consisting principally of raw materials, work-in-process and finished goods, and is recorded at the lower of cost, on a first-in,
first-out basis, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal and transportation. The Company evaluates inventory balances and either
writes-down inventory that is obsolete or based on a net realizable value analysis or records a reserve for slow moving or excess
inventory.
Property
and Equipment
Property
and equipment are presented at cost at the date of acquisition less depreciation. Depreciation is computed using the straight-line
method over estimated useful asset lives, which range from 1 to 10 years. The costs of the day-to-day servicing of property and
equipment, and repairs and maintenance are recognized in expenses as incurred.
Intangible
Assets
Software:
The
Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining
computer software for internal use or sale to others when both the preliminary project stage is completed, and it is probable
that the software will be used as intended with a product. Capitalized software costs include only (i) external direct costs of
materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees
who are directly associated with the product. Capitalized software costs are included in intangible assets on the Company’s
balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software,
which approximates 5 years. Capitalized Software was fully amortized as of December 31, 2018. Software amortization totaled $268,000
for the year ended December 31, 2018.
Patents
and licenses:
Patents
and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and
are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. Amortization totaled $669,000 and
$664,000 for the years ended December 31, 2019 and 2018, respectively.
Other
intangible assets:
The
Company’s remaining intangible assets include the trade names, technology and customer lists acquired in its acquisition
of IMT and Vislink. The value of these acquired assets was determined by a third-party appraisal completed for these business
combinations. Absent an indication of fair value from a potential buyer or similar specific transactions, the Company believes
that the use of the methods employed provided a reasonable estimate in the reporting of the fair value assigned.
The
Company includes these costs in intangible assets on the balance sheet and are amortized over their useful lives of 3 to 15 years.
Amortization totaled $1,800,000 and $2,000,000 for the years ended December 31, 2019 and 2018, respectively.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Warranty
Reserve
Although
the Company tests its product in accordance with its quality programs and processes, its warranty obligation is affected by product
failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service
costs differ from the Company’s estimates, which are based on limited historical data, where applicable, revisions to the
estimated warranty liability would be required. The claims made during the year ended December 31, 2019 and 2018 were ordinary and customary. Warranty reserve is
included in accrued expenses on the accompanying consolidated balance sheets and cost of components in the accompanying consolidated
statement of operations.
|
|
|
Warranty Reserve
|
|
|
December 31, 2017
|
|
$
|
507,000
|
|
|
Warranty reserve expense
|
|
|
23,000
|
|
|
Warranty claims settled and true-up of accrual
|
|
|
(205,000
|
)
|
|
December 31, 2018
|
|
$
|
325,000
|
|
|
Warranty reserve expense
|
|
|
231,000
|
|
|
Warranty claims settled and true-up of accrual
|
|
|
(221,000
|
)
|
|
December 31, 2019
|
|
$
|
335,000
|
|
Shipping
and Handling Costs
Shipping
and handling charges are invoiced to the customer and the Company nets these charges against the respective costs within general
and administrative expenses. For the years ended December 31, 2019 and 2018, the amount of shipping and handling costs incurred
were $614,000 and $774,000, respectively.
Convertible
Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on either a relative fair value or
fair value basis depending on the respective accounting treatment of each instrument. Beneficial conversion features are recorded
pursuant to the Beneficial Conversion (“BCF”) and Debt Topics of the FASB Accounting Standards Codification. The amounts
allocated to warrants and beneficial conversion rights are recorded as debt discounts with corresponding entries to derivative
liability and additional paid-in-capital. Costs paid to third parties (e.g., legal fees, printing costs, placement agent fees)
that are directly related to issuing the debt and that otherwise wouldn’t be incurred, are treated as a direct deduction
of the debt liability. Debt discount and issuance costs are generally amortized and recognized as additional interest expense
in the statement of operations over the life of the debt instrument using the effective interest method.
The
Company evaluates and bifurcates conversion features from the instruments containing such features and accounts for them as free
standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the underlying instrument, (b) the hybrid instrument that contains both the embedded derivative instrument and the
underlying instrument is not re-measured at fair value under otherwise applicable U.S. GAAP with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies common stock purchase warrants and other free-standing financial instruments as equity if the contracts (i)
require physical settlement or net-share settlement in common stock or (ii) give the Company a choice of net-cash settlement or
settlement in common stock (physical settlement or net-share settlement). The Company classifies the following contracts as either
an asset or a liability: contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract
if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement
or settlement in common stock (physical settlement or net-share settlement) or (iii) contain reset provisions. The Company assesses
classification of its freestanding derivatives at each reporting date to determine whether a change in classification between
assets and liabilities is required.
VISLINK
TECHNOLOGIES, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Treasury
Stock
Shares
of common stock repurchased are recorded at cost as treasury stock. When shares are reissued, the cost method is used. In accordance
with U.S. GAAP, the excess of the acquisition cost over the reissuance price of the treasury stock, if any, is recorded to additional
paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated
deficit.
Revenue
Recognition
The
Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers
(“ASC Topic 606”) on January 1, 2019 using the modified retrospective method. The Company’s operating results
for reporting periods beginning after January 1, 2019 are presented under ASC Topic 606, while prior period amounts continue to
be reported in accordance with our historic accounting under Topic 605. The timing and measurement of our revenues under ASC Topic
606 is similar to that recognized under previous guidance, accordingly, the adoption of ASC Topic 606 did not have a material
impact on our financial position, results of operations, cash flows, or presentation thereof at adoption or in the current period.
There were no changes in our opening retained earnings balance as a result of the adoption of ASC Topic 606.
ASC
Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods
or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application
of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance.
The
Company generates all its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance
obligation by transferring control of the promised goods or services to a customer in an amount that reflects the consideration
that we expect to receive in exchange for those services.
The
Company determines revenue recognition through the following steps:
1.
Identification of the contract, or contracts, with a customer;
2.
Identification of the performance obligations in the contract;
3.
Determination of the transaction price;
4.
Allocation of the transaction price to the performance obligations in the contract; and
5.
Recognition of revenue, when, or as, we satisfy a performance obligation.
At
contract inception, the Company assesses the goods and services promised in our contracts with customers and identifies a performance
obligation for each. To determine the performance obligations, the Company considers all the products and services promised in
the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction
of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration we expect
to receive in exchange for transferring goods and services. Excluded from income are the value-added sales taxes, and other charges
we collect concurrent with revenue-producing activities.
Remaining
Performance Obligations
Remaining
performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations
that the Company has not performed under its customer contracts. The Company has elected to use the optional exemption in ASC
606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original
expected duration of one year or less.
Research
and Development Expenses
Research
and development costs are charged to expense as incurred in performing research, design and development activities. These expenses
consist primarily of salary and benefit expenses, including stock-based compensation and payroll taxes for employees and costs
for contractors engaged in research, design and development activities, as well as costs for prototypes, facilities and travel.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Stock-Based
Compensation
The
Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with ASC 718
“Compensation – Stock Compensation”, which recognizes awards at fair value on the date of grant and recognition
of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes
Option Pricing Model. The fair value of common stock issued for services is determined based on the Company’s stock price
on the date of issuance.
Under
ASU 2018-07, the scope of Topic 718 was expanded to include share-based payment transactions for acquiring goods and services
from nonemployees. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date
at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s
performance is complete. Rather, they are now measured at the grant date. Nonemployee share-based payment awards with performance
conditions are measured at the lowest aggregate fair value under today’s guidance, which often results in zero
value. The new ASU aligns the accounting for nonemployee share-based payment awards with performance conditions with accounting
for employee share-based payment awards under Topic 718 by requiring entities to consider the probability of satisfying performance
conditions. Current guidance requires entities to use the contractual term for the measurement of the nonemployee share-based
payment awards. The new ASU allows entities to make an award-by-award election to use either the expected term (consistent with
employee share-based payment awards) or the contractual term for nonemployee awards
Leases
The
Company adopted ASC 842 on January 1, 2019, using the modified retrospective transition approach that applies the new standard
to all leases existing at the date of the initial application. ASC 842 supersedes nearly all existing lease accounting guidance
under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases. ASC 842 requires
that lessees recognize Right-Of-Use (” ROU”) assets and lease liabilities calculated based on the present value of
lease payments for all lease agreements with terms that are greater than twelve months. Lease contracts are measured and presented
in the statement of operations and statement of cash flows under ASC 842 either as a finance lease or operating lease.
At
lease inception, the Company determined if an arrangement is a lease and if it includes options to extend or terminate the contract
if it is reasonably sure that the options will be exercised. We recognize lease expense for lease payments on a straight-line
basis over the lease term. The Company includes operating
leases as ROU assets as “Right of use assets, operating leases” and are included in the consolidated balance sheets.
With respect to lease liabilities, operating lease liabilities are included in “Operating lease obligations, current”
and “Operating lease liabilities, net of current portion,” in the consolidated balance sheets. We
recognize Operating lease ROU assets and liabilities on the commencement date based on the present value of lease payments over
the lease term.
The
ROU asset and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments
using (1) the rate implicit in the lease or (2) the lessee’s IBR, defined as the rate of interest that a lessee would have
to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a comparable economic
environment. As most of our leases do not provide an implicit rate, we generally use our incremental
borrowing rates based on an analysis of prior collateralized borrowings over similar terms of the lease payments at the commencement
date as of January 1, 2019, to estimate the IBR applicable upon transition to ASC 842. There were no capital leases, which
are now titled “finance leases” under ASC 842, in the Company’s lease portfolio as of December 31, 2019.
As
a result of the adoption of ASU 2016-02, on January 1, 2019, the Company recognized a lease liability of approximately
$3.0 million, with corresponding assets of $2.9 million, based on the present value of the remaining minimum rental payments under
current leasing standards for existing operating leases, less derecognized deferred rent of approximately $0.06 million. There
are no changes to the Company’s previously reported results before January 1, 2019. Lease expense has not changed
materially as a result of the adoption of ASU 2016-02.
The
adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof. Refer to Note 11
for more information.
Impairment
of Long-Lived Assets
Management
reviews long-lived assets and other intangible assets for potential impairment whenever significant events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which
an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of
assets may not be recoverable. For long-lived assets used in operations, including right-of-use operating lease assets, impairment
losses are only recorded if the asset’s carrying amount is not recoverable when the estimated undiscounted cash flows expected
to result from the use of an asset and its eventual disposition is less than the carrying amount. If an impairment exists, the
resulting write-down would be the difference between the fair market value of the long-lived asset and the related net book value.
For the years ended December 31, 2019 and 2018, the Company recorded total impairment charges of $-0- and $0.4 million, respectively.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Income
Taxes
Income
taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided for those deferred tax assets for which management cannot conclude
that it is more likely than not that such deferred tax assets will be realized. The Company will be filing income
tax returns in the U.S. federal jurisdiction and will be filing in various state and foreign jurisdictions. The Company recognizes
the impact of an uncertain tax position in its financial statements if, in management’s judgment, the position is more-likely-than-not
sustainable upon audit based upon the position’s technical merits. This involves the identification of potential uncertain
tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for uncertain tax positions is necessary.
The Company’s policy is to classify assessments, if any, for tax-related interest expense and penalties as general and administrative
expenses.
Advertising
Costs
Advertising
costs are charged to operations as incurred. Advertising costs amounted to approximately $237,000 and $82,000, for the years ended
December 31, 2019 and 2018, respectively. Advertising costs are included in general and administrative expenses in the accompanying
consolidated statement of operations.
Sales
Tax and Value Added Taxes
The
Company accounts for sales taxes and value added taxes imposed on its goods and services on a net basis.
Loss
Per Share
The
Company reports loss per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes
standards for computing and presenting earnings per share. Basic (loss) earnings per common share is calculated by dividing
net (loss) earnings allocable to common stockholders by the weighted-average common shares outstanding during the period, inclusive
of penny warrants outstanding of 9,147,200 for the year end December 31, 2019, without consideration of common stock
equivalents. Diluted (loss) earnings per share is calculated by adjusting the weighted-average shares outstanding for the
dilutive effect of common stock equivalents, including stock options and warrants, outstanding for the period as determined
using the treasury stock method. For purposes of the diluted net loss per share calculation, common stock equivalents are
excluded from the calculation because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share
applicable to common stockholders is the same for periods with a net loss.
The
following table illustrates the anti-dilutive potential common stock equivalents excluded from the calculation of loss per share
(in thousands):
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Anti-dilutive potential common stock equivalents excluded from the calculation of loss per share:
|
|
|
|
|
|
|
|
Stock options
|
|
|
503
|
|
|
|
586
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
1,363
|
|
|
Warrants
|
|
|
13,160
|
|
|
|
1,187
|
|
|
|
|
|
13,663
|
|
|
|
3,136
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Fair
Value of Financial Instruments
U.S.
GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are
recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein is
not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement.
In
assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates
of market conditions and risks existing at the time. For certain instruments the fair value was estimated that the carrying amount
approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the
Company could borrow funds with similar remaining maturities and approximates fair value.
U.S.
GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes
the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs
that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy
is described below:
|
|
Level
1:
|
Quoted
prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1 inputs.
|
|
|
|
|
|
|
Level
2:
|
Observable
prices that are based on inputs not quoted on active markets but corroborated by market data.
|
|
|
|
|
|
|
Level
3:
|
Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
|
The
following table presents the Company’s assets and liabilities that are measured at fair value on a non-recurring
basis at December 31, 2019, consistent with the fair value hierarchy provisions. The asset impairment is a non-recurring level
3 measurement.
|
|
|
Quoted Prices
in Active Markets for
Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
The
following table presents the Company’s liabilities that are measured at fair value on a recurring and non-recurring
basis at December 31, 2018, consistent with the fair value hierarchy provisions:
|
|
|
Quoted Prices
in Active Markets for
Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Total
|
|
|
Assets (non-recurring):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
245,000
|
|
|
$
|
245,000
|
|
|
Capitalized software development costs
|
|
|
—
|
|
|
|
—
|
|
|
|
168,000
|
|
|
|
168,000
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
413,000
|
|
|
|
413,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,118,000
|
|
|
$
|
1,118,000
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,118,000
|
|
|
$
|
1,118,000
|
|
See
Note 13 for additional disclosure regarding the Company’s warrants liabilities accounted for at fair value.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Foreign
Currency and Other Comprehensive (Loss) Gain
The
functional currency of our foreign subsidiary is typically the applicable local currency which is British Pounds. The translation
from the respective foreign currency to United States Dollars (U.S. Dollar) is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for income statement accounts using an average exchange rate during the
period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive
income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for
the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated
and credited or charged to other comprehensive income.
Transaction
gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the
transaction date and on the reporting date. The foreign currency exchange gains and losses are included as a component of general
and administrative expenses, in the accompanying Consolidated Statements of Operations.
The
following table presents losses recognized from foreign exchange transactions; and changes in accumulated other comprehensive
income representing the gain or loss on the translation of our foreign subsidiary’s financial statements as follows:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net foreign exchange transactions:
|
|
|
|
|
|
|
|
|
|
(Gains) losses
|
|
$
|
(97,000
|
)
|
|
$
|
483,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated comprehensive income:
|
|
|
|
|
|
|
|
|
|
Unrealized loss on currency translation adjustment
|
|
$
|
68,000
|
|
|
$
|
79,000
|
|
The
exchange rate adopted for the foreign exchange transactions are the rates of exchange as quoted on an OANDA, a Canadian-based
foreign exchange company providing currency conversion, online retail foreign exchange trading, online foreign currency transfers,
and forex information, internet website. Translation of amounts from British Pounds into United States dollars was made at the
following exchange rates for the respective periods:
|
|
●
|
As
of December 31, 2019 – British Pounds $1.318462 to US$ 1.00
|
|
|
●
|
Average
rate for the year ended December 31, 2019 – British Pounds $1.76717 to US $1.00
|
|
|
●
|
As
of December 31, 2018 – British Pounds $1.2734340 to US$ 1.00
|
|
|
●
|
Average
rate for the year ended December 31, 2018 – British Pounds $1.3347667 to US $1.00
|
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring through the date the consolidated financial statements were issued and
determined that no events or transactions are required to be disclosed herein, except as disclosed.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies certain
aspects of income tax accounting guidance in ASC 740, reducing the complexity of its application. Certain exceptions to ASC 740
presented within the ASU include: intra-period tax allocation, deferred tax liabilities related to outside basis differences,
year-to-date loss in interim periods, among others. ASU 2019-12 is effective for annual reporting periods beginning after December
15, 2020 including interim periods therein with early adoption permitted. The Company is currently assessing the impact of the
ASU on its financial statements.
Other
recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present
or future consolidated financial statements.
NOTE
4 — ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Accounts receivable
|
|
$
|
7,425,000
|
|
|
$
|
6,740,000
|
|
|
Allowance for doubtful accounts
|
|
|
(711,000
|
)
|
|
|
(549,000
|
)
|
|
Net accounts receivable
|
|
$
|
6,714,000
|
|
|
$
|
6,191,000
|
|
During
the years ended December 31, 2019 and 2018, the Company incurred bad debt expense of $425,000 and $142,000, respectively.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 — INVENTORIES
Inventories
included in the accompanying consolidated balance sheet are stated at the lower of cost or market as summarized below:
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Raw materials
|
|
$
|
8,323,000
|
|
|
$
|
6,173,000
|
|
|
Work-in-process
|
|
|
815,000
|
|
|
|
3,711,000
|
|
|
Finished goods
|
|
|
3,857,000
|
|
|
|
4,052,000
|
|
|
Sub-total inventories
|
|
|
12,995,000
|
|
|
|
13,936,000
|
|
|
Less reserve for slow moving and excess inventory
|
|
|
(5,321,000
|
)
|
|
|
(886,000
|
)
|
|
Total inventories, net
|
|
$
|
7,674,000
|
|
|
$
|
13,050,000
|
|
Inventory
valuation adjustments consist primarily of items that are written off due to obsolescence or reserved for slow moving or excess
inventory. The Company recorded inventory valuation adjustments of $4,705,000 and $473,000 as of December 31, 2019 and
2018, respectively.
NOTE
6 — PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
|
|
|
Useful Life
|
|
December 31,
|
|
|
|
|
(Years)
|
|
2019
|
|
|
2018
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
1 – 10
|
|
$
|
282,000
|
|
|
$
|
291,000
|
|
|
(A) Leasehold improvements
|
|
1 - 14
|
|
|
821,000
|
|
|
|
228,000
|
|
|
Computers, software and equipment
|
|
1 - 11
|
|
|
3,585,000
|
|
|
|
6,495,000
|
|
|
Vehicles
|
|
1 - 7
|
|
|
—
|
|
|
|
22,000
|
|
|
|
|
|
|
|
4,688,000
|
|
|
|
7,036,000
|
|
|
Accumulated depreciation
|
|
|
|
|
(2,716,000
|
)
|
|
|
(4,940,000
|
)
|
|
Property and equipment, net
|
|
|
|
$
|
1,972,000
|
|
|
$
|
2,096,000
|
|
Depreciation
of property and equipment amounted to $596,000 and $918,000 for the years ended December 31, 2019 and 2018, respectively.
With
the Company dissolving the xG division, an impairment charge in the amount of $-0- and $245,000 was recorded during the years
ended December 31, 2019 and 2018, respectively. Additionally, the Company reported a gain on sale of property and equipment in
the amount of $-0- and $146,000 for the years ended December 31, 2019 and 2018, respectively. The gain was recorded as other income
in the Consolidated Statements of Operations and Comprehensive Loss.
(A)
The shorter of the economic life or remaining lease term.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 — INTANGIBLE ASSETS
Intangible
assets consist of the following finite assets:
|
|
|
Software
Development Costs
|
|
|
Patents and Licenses
|
|
|
Trade Names and Technology
|
|
|
Customer Relationships
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Costs
|
|
|
Amortization
|
|
|
Costs
|
|
|
Amortization
|
|
|
Costs
|
|
|
Amortization
|
|
|
Costs
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
18,647,000
|
|
|
$
|
(18,211,000
|
)
|
|
$
|
12,378,000
|
|
|
$
|
(9,171,000
|
)
|
|
$
|
1,450,000
|
|
|
$
|
(243,000
|
)
|
|
$
|
2,880,000
|
|
|
$
|
(836,000
|
)
|
|
$
|
6,894,000
|
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Eliminations
|
|
|
(18,647,000
|
)
|
|
|
18,647,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Impairments
|
|
|
—
|
|
|
|
(168,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(168,000
|
)
|
|
Amortization
|
|
|
—
|
|
|
|
(268,000
|
)
|
|
|
—
|
|
|
|
(664,000
|
)
|
|
|
—
|
|
|
|
(224,000
|
)
|
|
|
—
|
|
|
|
(879,000
|
)
|
|
|
(2,035,000
|
)
|
|
Balance as of December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
12,378,000
|
|
|
|
(9,835,000
|
)
|
|
|
1,450,000
|
|
|
|
(467,000
|
)
|
|
$
|
2,880,000
|
|
|
$
|
(1,715,000
|
)
|
|
$
|
4,691,000
|
)
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(669,000
|
)
|
|
|
—
|
|
|
|
(223,000
|
)
|
|
|
—
|
|
|
|
(877,000
|
)
|
|
|
(1,769,000
|
)
|
|
Balance as of December 31, 2019
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
12,378,000
|
|
|
$
|
(10,504,000
|
)
|
|
$
|
1,450,000
|
|
|
$
|
(690,000
|
)
|
|
$
|
2,880,000
|
|
|
$
|
(2,592,000
|
)
|
|
$
|
2,922,000
|
|
Software:
The
Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining
computer software for internal use or sale to others when both the preliminary project stage is completed, and it is probable
that the software will be used as intended with a product. Capitalized software costs include only (i) external direct costs of
materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees
who are directly associated with the product. Capitalized software costs are included in intangible assets on the Company’s
balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software,
which approximates 5 years. Capitalized Software was fully amortized as of December 31, 2018. Software amortization totaled $268,000
for the year ended December 31, 2018.
Patents
and Licenses:
Patents
and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and
are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. At December 31, 2019 and 2018, the
Company had net capitalized costs of patents and licenses of $1.9 million and $2.5 million, respectively. The costs of provisional
patents and pending applications is not amortized until the patent is filed and is reviewed each reporting period to determine
if it is likely that the patent will be successfully filed. For the years ended December 31, 2019 and 2018, the amortization of
patents and licenses amounted to $.7 million each, respectively.
Other
Intangible Assets:
The
Company’s remaining intangible assets include the trade names, technology, and customer lists acquired in its acquisition
of IMT and Vislink. On December 31, 2019 and 2018, the Company had net capitalized costs of other intangible assets of $1.0 million
and $2.1 million, respective. The Company includes these costs in intangible assets on the balance sheet and are amortized over
their useful lives of 3 to 15 years.
The
normal amortization of intangible assets amounted to $1.8 million and $2.0 million, for the years ended December 31, 2019 and
2018, respectively. There was an impairment of $-0- million and $0.2 million of software development costs for the years ended
December 31, 2019 and 2018, respectively. The weighted average remaining life of the amortization of the Company’s intangible
assets is approximately 3.7 years.
The
following table represents the estimated amortization expense for total intangible assets for the succeeding five years:
|
2020
|
|
$
|
1,053,000
|
|
|
2021
|
|
|
879,000
|
|
|
2022
|
|
|
546,000
|
|
|
2023
|
|
|
119,000
|
|
|
2024
|
|
|
119,000
|
|
|
Thereafter
|
|
|
206,000
|
|
|
|
|
$
|
2,922,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 — ACCRUED EXPENSES
Accrued
expenses consist of the following:
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Compensation
|
|
$
|
818,000
|
|
|
$
|
834,000
|
|
|
Commissions
|
|
|
94,000
|
|
|
|
90,000
|
|
|
Warranty
|
|
|
335,000
|
|
|
|
325,000
|
|
|
Rent
|
|
|
4,000
|
|
|
|
71,000
|
|
|
Payables
|
|
|
531,000
|
|
|
|
576,000
|
|
|
Interest
|
|
|
—
|
|
|
|
112,000
|
|
|
Deferred Equity
|
|
|
130,000
|
|
|
|
104,000
|
|
|
|
|
$
|
1,912,000
|
|
|
$
|
2,112,000
|
|
NOTE
9 — NOTES PAYABLE
|
|
|
Principal Balance
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Effective as of September 27, 2019, the Board of Directors of the Company consented
to assume the remaining balance of a note held by the related party MB Technology Holdings, LLC (“MBTH”).
MBTH originally borrowed funds for the benefit of the Company with the proceeds forwarded to the Company reflecting due to
a related party, which ultimately was converted into 15,953 shares returned to treasury. The note matures on September 18,
2020, with an annual interest rate of 8.022%. One payment of $18,519 of accrued interest plus $230,860 of principal, totaling
$249,379, is due on September 18, 2020.
|
|
$
|
231,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 2, 2019, the Company’s subsidiary, Integrated Microwave Technology (“IMT”), incurred a working capital loan of $150,000, with an annual interest rate of 1.9%, maturing on April 24, 2020. There is no payment schedule required by the lender and IMT has made $42,439 in principal and $14,429 in interest payments.
|
|
|
108,000
|
|
|
|
—
|
|
|
|
|
$
|
339,000
|
|
|
$
|
—
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 — CONVERTIBLE PROMISSORY NOTES
The
Company had convertible promissory notes ranging from 6% to 10% per annum; maturity dates ranging from May 29, 2019 to
September 29, 2019 with a range of conversion features. The table below summarizes the convertible promissory notes as of December
31, 2019 and 2018.
The
Company has listed a summary of the modified and non-modified debt as follows:
|
|
|
Debt
|
|
|
|
|
|
|
|
Modified
|
|
|
Non-Modified
|
|
|
Total
|
|
|
For the year ending December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2019
|
|
$
|
5,933,289
|
|
|
$
|
415,625
|
|
|
$
|
6,348,914
|
|
|
Principal conversions to shares of common stock
|
|
|
(122,808
|
)
|
|
|
(275,000
|
)
|
|
|
(397,808
|
)
|
|
Principal payments made in cash
|
|
|
(5,810,481
|
)
|
|
|
(140,625
|
)
|
|
|
(5,951,106
|
)
|
|
Ending balance, December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Debt discount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2019
|
|
|
47,307
|
|
|
|
15,683
|
|
|
|
62,990
|
|
|
Debt discount amortization
|
|
|
(47,307
|
)
|
|
|
(15,683
|
)
|
|
|
(62,990
|
)
|
|
Ending balance, December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Modified and un-modified debt, net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ending December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash proceeds
|
|
|
2,000,000
|
|
|
|
4,000,000
|
|
|
|
6,000,000
|
|
|
Effect of modification
|
|
|
4,130,610
|
|
|
|
—
|
|
|
|
4,130,610
|
|
|
Extinguishment of debt
|
|
|
—
|
|
|
|
(3,400,000
|
)
|
|
|
(3,400,000
|
)
|
|
Principal conversions to shares of common stock
|
|
|
(197,321
|
)
|
|
|
(100,000
|
)
|
|
|
(297,321
|
)
|
|
Principal payments made in cash
|
|
|
—
|
|
|
|
(84,375
|
)
|
|
|
(84,375
|
)
|
|
Ending balance, December 31, 2018
|
|
|
5,933,289
|
|
|
|
415,625
|
|
|
|
6,348,914
|
|
|
Debt discount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Debt discount incurred
|
|
|
—
|
|
|
|
2,461,698
|
|
|
|
2,461,698
|
|
|
Effect of modification
|
|
|
70,000
|
|
|
|
250,457
|
|
|
|
320,457
|
|
|
Debt discount amortization
|
|
|
(22,693
|
)
|
|
|
(2,277,962
|
)
|
|
|
(2,300,655
|
)
|
|
Extinguishment of debt
|
|
|
—
|
|
|
|
(418,510
|
)
|
|
|
(418,510
|
)
|
|
Ending balance, December 31, 2018
|
|
|
47,307
|
|
|
|
15,683
|
|
|
|
62,990
|
|
|
Modified and un-modified debt, net
|
|
$
|
5,885,982
|
|
|
$
|
399,942
|
|
|
$
|
6,285,924
|
|
Items
recorded to interest expense for the years ending December 31, 2019 and 2018: 2018 are:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Contractual interest expense
|
|
$
|
1,733,988
|
|
|
$
|
131,185
|
|
|
Debt discount amortization
|
|
|
62,990
|
|
|
|
488,791
|
|
|
Warrant costs
|
|
|
—
|
|
|
|
1,788,171
|
|
|
Total recorded to interest expense, net
|
|
$
|
1,796,978
|
|
|
$
|
2,408,147
|
|
During
the year ended December 31, 2019, the Company issued 328,932 shares of common stock valued at $528,465 in partial settlement of
$494,483 of principal and interest resulting in a loss in settlement of debt in the amount of $32,982. As of December 31,
2019, the convertible promissory notes have been fully satisfied.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 — CONVERTIBLE PROMISSORY NOTES (continued)
May
2018 Financing
On
May 29, 2018, the Company completed a private placement of $4 million in principal of 6% Senior Secured Convertible Debentures
(the “Debentures”) and warrants to purchase 3,000,000 shares of the Company’s common stock, par value $0.00001
per share, by executing certain agreements with accredited institutional investors. The Company received $3,636,760 net of debt
issuance costs consisting of legal and placement fees totaling $363,240. The Debentures have a maturity date of May 29, 2019,
with a conversion rate of $1.00 per share. If held beyond maturity, the conversion rate shall equal the lesser of (i) the then
conversion price and (ii) 85% of the VWAP for the trading day immediately prior to the applicable conversion date. The Company
shall pay interest to the holders on the aggregate and unconverted and outstanding principal amount on January 1, April 1, July
1 and October 1, with the remaining principal balance due at maturity.
The
warrants have a maturity date of May 29, 2023 with an exercise price of $1.00 per share. The warrants meet the definition of a
derivative as noted in ASC 815-10-15-83 and ASC 815-10-15-88. We allocated the proceeds from the issuance of this note and the
warrants based on the fair value for each item. Consequently, we recorded debt discount valued at $1,788,171 on the warrants and
these associated costs are required to be accounted for as liabilities and were immediately expensed as interest. The warrants
were valued using the binomial model style simulation. The assumptions used in the binomial model style simulation at the date
the funds were received are as follows: (1) dividend yield of 0%; (2) expected volatility of 163.50%; (3) risk-free interest rate
of 0.27%; and (4) expected life of 5.00 years. We also determined that the convertible promissory notes contained beneficial conversion
rights (“BCF”) and calculated the relative fair value and assigned $193,877 to the BCF.
Debt
Modification of the May 2018 Financing executed on October 9, 2018
On
October 9, 2018, the Company agreed to modify the May 2018 Financing (“old debt”) with two of the original four note
holders (the “majority holders”) issuing amended and restated agreements. These modifications principally provide
for:
|
|
1.
|
The
ability to make monthly redemption payments in common stock of the Company.
|
|
|
2.
|
The
issuance of 302,655 shares of common stock as compensatory shares;
|
|
|
3.
|
A
good-faith effort to modify the monthly redemption provisions before the next monthly redemption date;
|
|
|
4.
|
An
amendment of the conversion price to $0.45; and
|
|
|
5.
|
In
the event that any of the majority holders convert its amended debenture, the Company shall be given dollar for dollar credit
for any and all conversions effected in any month against any monthly redemption amount (as defined in the amended debentures)
and provided, further, that in the event that a majority holder’s conversions in any particular month exceed such majority
holder’s individual monthly redemption amount (as defined in the amended debentures), such overage shall carry over
into the succeeding month to be credited against the monthly redemption amount (as defined in the debentures).
|
For
the modification of the conversion option to $0.45 from $1.00, the Company applied ASC 470-50-40-10(a) and calculated the difference
between the fair value of the embedded conversion option immediately before and after the modification. It has been concluded
this is not a debt extinguishment. The Company determined that an increase in the conversion option fair value of $90,050 was
recorded as additional debt discount with an offset to equity. The amount calculated will be amortized as interest expense over
the remaining term of the debt instrument using the interest method.
The
Company considered ASC 470-50-40-17(b) to determine the proper accounting to apply for the 302,655 compensatory shares for the
majority holders. Since the modification is not to be accounted for in the same manner as a debt extinguishment, a fair market
value of $160,407 was assigned to the compensatory shares and recorded as additional debt discount was amortized as interest
expense over the remaining term of the debt instrument using the interest method.
On
December 3, 2018, the Company entered into a second modification agreement which led to an extinguishment of debt of the majority
holders of the May 2018 Financing and created new debt obligations with revised terms and amounts. See below – Debt Modification
of the May 2018 Financing executed on December 3, 2018.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 — CONVERTIBLE PROMISSORY NOTES (continued)
May
2018 Financing (continued)
Debt
Modification of the May 2018 Financing executed on December 3, 2018
On
December 3, 2018, the Company agreed to a second modification with the Majority Holders of the May 2018 financing issuing amended
and restated agreements. These modifications principally provide for:
|
|
1.
|
A
five percent (5%) original issue discount was retroactively applied to the principal amount.
|
|
|
2.
|
The
maturity date was extended to September 30, 2019
|
|
|
3.
|
The
equity conditions were modified
|
|
|
4.
|
A
floor price for all conversions and redemptions was added. The floor price with respect to the Trading Market that the Company’s
Common Stock is listed or quoted, shall be a price equal to twenty cents ($0.20) (subject to adjustment for forward and reverse
stock splits, recapitalizations and the like).
|
|
|
5.
|
The
definitions of Mandatory Redemption Amount, Monthly Redemption Date, Monthly Redemption Date, and Optional Redemption Amount
(each as defined in the Second Amended Debentures) were each modified.
|
|
|
6.
|
Interest
was retroactively modified to ten percent (10%), with 12 months interest guaranteed.
|
|
|
7.
|
An
alternate Conversion Price (as defined in the Second Amended Debentures) due to an Event of Default (as defined in the Second
Amended Debentures) was added.
|
|
|
8.
|
The
Monthly Redemption (as defined in the Second Amended Debentures) section was modified.
|
|
|
9.
|
Certain
negative covenants were added.
|
|
|
10.
|
The
Event of Default (as defined in the Second Amended Debentures) sections were modified.
|
The
Company considered ASC 470-50-40-6 to 40-23 for the proper accounting guidance to apply for the December 31, 2018 modification
of the May 2018 Financing. After the modification, it was concluded that the present value of cash flows under the terms of the
new debt instruments differ by at least 10% from the present value of the remaining cash flows under the terms of the original
debt instruments (commonly referred to as the “10% cash flow test”). The Company concludes that these modified terms
are considered substantially different from the original terms thus requiring extinguishment accounting. In accordance with ASC
470-50-40-17(a), the Company determined the new debt instrument’s value exceeded the extinguishment of the old debt instrument
plus fees paid associated with the modification and recognized a loss on debt extinguishment in the amount of $1,059,870.
The
modifications resulted in new debt instruments and the principal is summarized as follows:
|
Principal remaining on old debt modified
|
|
$
|
3,400,000
|
|
|
Accrued interest on old debt modified
|
|
|
100,300
|
|
|
Additional proceeds
|
|
|
2,000,000
|
|
|
Original issue discount
|
|
|
105,265
|
|
|
Redemption premiums
|
|
|
525,045
|
|
|
Total new principal
|
|
$
|
6,130,610
|
|
The
Company paid issuances costs associated with the debt modifications in the amount of $70,000 and was recorded as additional debt
discount. The amount calculated was amortized as interest expense over the remaining term of the debt instrument using
the interest method. In October 2018, the Company issued 222,224 shares valued at $100,000 as conversion of principal and interest.
On December 4, 2018, the Company issued 552,912 shares at a fair market value of $238,758 as a conversion of principal and interest.
As of December 31, 2018, the remaining period over which any discount will be amortized is nine months.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11— LEASES
Operating
lease ROU assets are included in “Right of use assets, operating leases” and are included in the consolidated balance
sheets. With respect to lease liabilities, operating lease liabilities are included in “Operating lease obligations, current”
and “Operating lease liabilities, net of current portion,” in the consolidated balance sheets.
The
Company’s leasing arrangements include agreements for office space, deployment sites, and storage warehouses, both domestically
and internationally. The operating leases contain various terms and provisions, with a remaining duration of 5 months to 3.8 years.
Certain individual leases contain rent escalation clauses and lease concessions that require additional rental payments in the
later years of the term. We recognize rent expense for these types of contracts on a straight-line basis over the minimum lease
term. Additionally, the Company sublets a portion of its space under operating leases with various lease terms at The Fairways,
Hemel, and Billerica locations, with a remaining duration of two months to one year.
As
of December 31, 2019, ROU assets and lease liabilities were approximately $1.93 million, net and $1.98 million ($0.82 million
of which is current), respectively. The weighted-average remaining term for lease contracts was 3.5 years on December 31, 2019,
with maturity dates ranging from April 2020 to March 2025. The weighted-average discount rate was 9.3% at December 31, 2019.
For
the years ended December 31, 2019, and 2018, the Company incurred approximately $1,159,000 and $1,466,000 of operating lease
expense, offset by sublet income of approximately $257,000 and $146,000, respectively. Adjustments for straight-line operating
lease expense for the respective periods was not material, and as such, the majority of costs recognized is reflected in cash
used in operating activities for the respective periods. This expense consisted primarily of payments for base rent on office
and warehouse leases. Amounts related to short-term lease costs and taxes and variable service charges on leased properties were
immaterial. Besides, we have the right, but no obligation, to renew individual leases for various renewal terms.
The
table below lists location and lease expiration dates 2020 through 2025:
|
Location
|
|
Lease-End
Date
|
|
Approximate
Future
Payments
|
|
|
Colchester, U.K. – Waterside House
|
|
May 2025
|
|
$
|
1,073,000
|
|
|
Anaheim, CA
|
|
Jul 2021
|
|
|
46,000
|
|
|
Billerica, MA
|
|
Dec 2026
|
|
|
587,000
|
|
|
Hemel, UK
|
|
Oct 2020
|
|
|
142,000
|
|
|
Singapore
|
|
Aug 2020
|
|
|
20,000
|
|
|
Hackettstown, NJ
|
|
Apr 2020
|
|
|
31,000
|
|
|
Sarasota, FL
|
|
Sep 2022
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
Sublets:
|
|
|
|
|
|
|
|
Colchester, UK – The Fairways
|
|
Mar 2020
|
|
$
|
13,000
|
|
|
Hemel, UK
|
|
Oct 2020
|
|
|
73,000
|
|
|
Billerica MA
|
|
May 2021
|
|
|
252,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 — LEASES (continued)
Under
previous lease guidance, future minimum lease payments under operating leases with noncancelable lease terms in excess of one
year from continuing operations as of December 31, 2019, were as follows:
|
Year Ending December 31,
|
|
Amount
|
|
|
2020
|
|
$
|
956,000
|
|
|
2021
|
|
|
491,000
|
|
|
2022
|
|
|
281,000
|
|
|
2023
|
|
|
255,000
|
|
|
2024
|
|
|
255,000
|
|
|
Thereafter
|
|
|
64,000
|
|
|
|
|
$
|
2,302,000
|
|
|
|
|
|
|
|
|
Sublets:
|
|
|
|
|
|
2020
|
|
$
|
264,000
|
|
|
2021
|
|
|
74,000
|
|
|
|
|
$
|
338,000
|
|
The
following table illustrates specific operating lease data as of December 31, 2019:
|
Lease cost:
|
|
|
|
|
|
Operating lease cost
|
|
$
|
1,106,000
|
|
|
Short-term lease cost
|
|
|
53,000
|
|
|
Variable lease cost
|
|
|
—
|
|
|
Sublease income
|
|
|
(257,000
|
)
|
|
Total lease cost
|
|
$
|
902,000
|
|
|
|
|
|
|
|
|
Cash paid for amounts in lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
1,136,000
|
|
|
|
|
|
|
|
|
Right-of-use assets and operating lease liabilities recognized
upon adoption
|
|
$
|
2,991,000
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term—operating leases
|
|
|
3.5 years
|
|
|
|
|
|
|
|
|
Weighted-average discount rate—operating leases
|
|
|
9.3
|
%
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 — RELATED PARTY TRANSACTIONS
On
January 1, 2019, a new related party agreement (the “MBMG Agreement”) became effective between the Company and MB
Merchant Group, LLC (“MBMG”). The MBMG Agreement supersedes the previous agreement with MB Technology Holdings, LLC
(“MBTH”). MBMG, the founding entity of MBTH, agrees to provide services in connection with, and Vislink Technologies
agrees to compensate MBMG for both consulting services via a retainer and, on a success basis, for future mergers and acquisitions
beginning January 1, 2019.
The
following directors of MBMG have significant influence with the Company:
|
|
●
|
Roger
Branton, the Company’s Chief Financial Officer and director,
|
|
|
|
|
|
|
●
|
Richard
Mooers, the Company’s director.
|
The
following table represents a summary of related party transactions for the years ended December 31, 2019 and 2018:
|
|
|
For the years ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Consulting fees incurred, recurring
|
|
$
|
600,000
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees incurred, non-recurring
|
|
$
|
358,000
|
|
|
$
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in satisfaction of amounts due:
|
|
|
|
|
|
|
|
|
|
Quantity of shares issued
|
|
|
12,469
|
|
|
|
429,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of shares issued
|
|
$
|
31,000
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts repaid to MBMG in cash
|
|
$
|
783,000
|
|
|
$
|
769,000
|
|
The
Company recorded fees incurred in general and administrative expenses on the accompanying Consolidated Statements of
Operations and included such fees in due to related parties on the Consolidated Balance Sheet. The balances
outstanding to MBMG at December 31, 2019 and 2018 were $505,000 and $361,000, respectively.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 — DERIVATIVE LIABILITIES
Each
of the warrants issued in connection with the August 2015 underwritten offering, the February 2016 Series B Preferred Stock Offering,
the May 2016 financing, the July 2016 financing, the August 2017 underwritten offering, and the May 2018 Financing have been accounted
for as derivative liabilities as each of the warrants contain a net cash settlement provision whereby, upon certain fundamental
events, the holders could put the warrants back to the Company for cash.
The
following are the critical assumptions used in connection with the valuation of the warrants exercisable into common stock as
of December 31, 2019 and 2018:
|
|
|
Years
Ended
|
|
|
|
December
31,
|
|
|
|
2019
|
|
2018
|
|
Number
of shares underlying the warrants
|
|
|
462,428
|
|
|
|
492,815
|
|
|
Fair
market value of stock
|
|
$
|
0.25
|
|
|
$
|
3.10
|
|
|
Exercise
price
|
|
$
|
1.00 to $ 24,000
|
|
|
$
|
4.50 to $ 137.90
|
|
|
Volatility
|
|
|
126%
to 160
|
%
|
|
|
118%
to 149
|
%
|
|
Risk-free
interest rate
|
|
|
1.51%
to 1.60
|
%
|
|
|
2.46%
to 2.51
|
%
|
|
Expected
dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Warrant
life (years)
|
|
|
1.4
to 3.41
|
|
|
|
0.1
to 4.41
|
|
Level
3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s
accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures.
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are
the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.
Level
3 Valuation Techniques:
Level
3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that
the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within
Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
The Company deems financial instruments that do not have fixed settlement provisions to be derivative instruments. Under U.S.
GAAP, the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because,
according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash
to its warrant holders. Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities.
Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated
statements of operations in each subsequent period.
The
Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due
to the use of significant unobservable inputs. In calculating the fair value, the Company uses a binomial model style simulation,
as the value of certain features of the warrant derivative liabilities would not be captured by the standard Black-Scholes model.
The
following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at
fair value on a recurring basis:
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Beginning balance
|
|
$
|
1,118,000
|
|
|
$
|
2,399,000
|
|
|
Recognition of warrant liabilities on issuance dates
|
|
|
—
|
|
|
|
1,905,000
|
|
|
Re-classification to equity upon warrants exercised
|
|
|
(24,000
|
)
|
|
|
—
|
|
|
Change in fair value of derivative liabilities
|
|
|
(1,064,000
|
)
|
|
|
(3,186,000
|
)
|
|
Ending balance
|
|
$
|
30,000
|
|
|
$
|
1,118,000
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY
Preferred
Stock
In
March 2013, by approval of the majority of the stockholders, the Company was authorized to issue 10,000,000 shares of “Blank
Check” preferred stock, par value $0.00001 per share. On December 31, 2014, 3,000,000 shares were designated as authorized
Series A Convertible Preferred Stock (“Series A Preferred Stock”). On February 11, 2015, 3,000,000 shares were designated
as authorized Series B Convertible Preferred Stock (“Series B Preferred Stock”). On February 24, 2015, 3,000,000 shares
were designated as authorized Series C Convertible Preferred Stock (“Series C Preferred Stock”). 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. On April 25, 2016, 5,000,000 shares were designated as authorized Series D Convertible
Preferred Stock (“Series D Preferred Stock”). On December 6, 2016, the Company terminated the Series B Preferred Stock.
In addition, on December 21, 2016, 5,000 shares were designated as authorized Series E Convertible Preferred Stock (“Series
E Preferred Stock”).
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 with
respect to dividend rights and/or rights upon distributions, liquidation, dissolution or winding up of the Company, other than
to the Series B Preferred Stock and any class of parity stock that the holders of a majority of the outstanding shares of Series
D Preferred Stock consent to the creation of.
Liquidation
Preference of Preferred Stock
Upon
the voluntary or involuntary liquidation, dissolution or winding up of the Company, before the payment of any amount to the holder
of shares of junior stock, but pari-passu with any parity stock, the holders of Preferred Stock are entitled to receive the amount
equal to the greater of (i) the stated value of the 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 prior to 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
with respect to certain material changes in the terms of the Series D Preferred Stock and certain other matters, and 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 holders of the Series D Preferred Stock is required 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 which was immediately converted 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. Holders of Series E Preferred Stock will
be prohibited 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 percentage not in excess of 9.99%, provided that any
increase in such percentage 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 required 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 with respect to any of the foregoing.
Dividends.
Shares
of Series E Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared 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, 2019,
and 2018, the Company had 21,551,333 and 1,877,697 shares of common stock outstanding, respectively. On April 30, 2019, our stockholders
approved a reverse stock split of our outstanding Common Stock . In accordance therewith, on May 13, 2019, a 1-for-10 reverse
stock split of our outstanding Common Stock became effective for the trading of our Common Stock.
Unless
otherwise noted, impacted amounts and share information included in the financial statements and notes thereto, 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. Proportional adjustments have been made to the exercise prices of the Company’s
outstanding warrants, stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive
Plans. Certain amounts in the financial statements, the notes thereto, and elsewhere in this Form 10-K, may be slightly different
than previously reported due to rounding of fractional shares as a result of the reverse stock split.
Common
Stock Issuances
For
the year ending December 31, 2019
November
2019 Financing
On
November 27, 2019, the Company closed an equity financing for 3,201,200 shares of common stock, warrants to purchase 11,893,100
shares of common stock and, warrants to purchase 11,320,725 shares of Common Stock. The
Company received gross proceeds of approximately $3,988,000 from the offering, before deducting underwriting-related fees and
other offering expenses payable by the Company.
July
2019 Financing
On
July 11, 2019, the Company closed an equity financing for 1,550,000 shares of common stock, warrants to purchase 6,000,000 shares
of common stock and, 4,450,000 pre-funded warrants to purchase common stock in place of common stock. The Company received gross proceeds of approximately $11,996,000 from the offering, before deducting underwriting-related
fees and other offering expenses payable by the Company.
Other
Stockholders’ Equity Transactions
During
the year ended December 31, 2019, the Company:
|
|
●
|
Issued
14,419,226 shares of common stock upon the exercise of (i) 37,701 common stock warrants at $4.50 per share (ii) the exercise
of 8,200,000 pre-funded warrants at $0.001 per share and, (iii) the exercise of 6,181,525 cashless warrants for net proceeds
of $177,900.
|
|
|
|
|
|
|
●
|
Issued
19,632 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
158,130 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
12,469 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
328,932 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 (continued)
Common
Stock Issuances (continued)
For
the year ending December 31, 2018
The
Company transacted the following:
|
|
●
|
issued
2,083,136 shares of its common stock for employees, directors, consultants and other professionals for a total value of $1,793,336.
The value of the common stock issued was based on the fair value of the stock at the time of issuance.
|
|
|
|
|
|
|
●
|
recognized
$2,069,158 of compensation costs associated with outstanding stock options recorded in general and administrative expenses.
|
|
|
|
|
|
|
●
|
issued
429,585 shares of its common stock in satisfaction of related party obligations valued at $240,000. The value of the common
stock issued was based on the fair value of the stock at the time of issuance.
|
|
|
|
|
|
|
●
|
issued
12,232 shares of common stock in satisfactions of amounts previously deferred for employee/consultant agreements in the amount
of $19,081.
|
|
|
|
|
|
|
●
|
issued
276,796 shares of its common stock in satisfaction of accrued interest on a convertible promissory note valued at $180,000.
The value of the common stock issued was based on the fair value of the stock at the time of issuance.
|
|
|
|
|
|
|
●
|
reviewed
the conversion features embedded in the May 2018 convertible promissory notes. We evaluated the beneficial conversion feature
(“BCF”) and calculated a relative fair value in the amount of $193,877. On October 9, 2018, the Company evaluated
a modification of the embedded conversion option and recognized an increase in the value of the BCF in the amount of $90,050.
The amounts recognized are recorded as a charge to debt discount and offset as a credit to additional paid-in capital. The
amounts charged to debt discount are amortized to interest expense using the interest method.
|
|
|
|
|
|
|
●
|
issued
775,184 shares of its common stock valued at $2,338,758 as payment towards outstanding convertible promissory notes. The value
of the common stock issued was based on the fair value of the stock at time of issuance.
|
|
|
|
|
|
|
●
|
issued
302,655 shares of its common stock valued at $160,407 as the compensatory fee incurred for the October 9, 2018 debt modification.
The value of the common stock issued was based on the fair value of the stock at time of issuance.
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock (continued)
Stock
Options — Equity Incentive Plans
The
Company’s stock option plans provide for the grant of 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 a payment of the exercise price of the option 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 has 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 a period of three years from the date of grant and expire ten years from
the date of grant.
The
Company has four plans under which they awarded share-based compensation grants of options to certain 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 of the immediate vesting of all remaining options
for employees who were terminated as part of the cost curtailment measures on April 30, 2018, and June 25, 2018.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Stock
Options — Equity Incentive Plans (continued)
During
the years ended December 31, 2019, and 2018, the Company recorded approximately $2,069,000 and $3,728,000, respectively, as stock
compensation expense from the amortization of stock options issued.
The
weighted average fair value of options granted during the years ended December 31, 2019 and 2018 was $3.20 and $8.90, respectively.
Each option is estimated on the date of grant, using the Black-Scholes model and the following assumptions (all in weighted averages):
|
|
|
2019
|
|
|
2018
|
|
|
Exercise price
|
|
$
|
3.20
|
|
|
$
|
8.90
|
|
|
Volatility
|
|
|
35.15
|
%
|
|
|
148.71
|
%
|
|
Risk-free interest rate
|
|
|
3.76
|
%
|
|
|
2.63
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected term (years)
|
|
|
1.2
|
|
|
|
6
|
|
The
risk-free rate is based on the rate for the U.S. Treasury note over the expected term of the option. The expected term for employees
represents the period that options granted are expected to be outstanding using the simplified method, as the Company’s
historical share option exercise experience does not provide a reasonable basis upon which to estimate 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 London Stock Exchange’s Alternative
Investment Market to the date of the grant.
As
of December 31, 2019, the weighted average remaining contractual life was 7.5 years for options outstanding and for options exercisable,
respectively. The intrinsic value of options exercisable at December 31, 2019, was $-0-.
As
of December 31, 2019, the remaining stock compensation expense is approximately $0.63 million with 1.1 years remaining
for the amortization period. The Company estimates forfeiture and volatility using historical information. The risk-free
interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues over the equivalent lives of the options.
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.
A
summary of the status of the Company’s stock option plan for the year ended December 31, 2019 is as follows:
|
|
|
Number
of Options
(in shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, January 1, 2019
|
|
|
585,717
|
|
|
$
|
15.50
|
|
|
Options granted
|
|
|
36,500
|
|
|
$
|
3.18
|
|
|
Options exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
Options cancelled/expired
|
|
|
(117,167
|
)
|
|
$
|
(14.79
|
)
|
|
Outstanding, December 31, 2019
|
|
|
505,050
|
|
|
$
|
14.83
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2019
|
|
|
341,083
|
|
|
$
|
15.68
|
|
|
|
|
|
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 $46,202
|
|
|
|
505,050
|
|
|
|
7.51
|
|
|
$
|
14.83
|
|
|
|
341,083
|
|
|
|
7.37
|
|
|
$
|
15.68
|
|
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 — STOCKHOLDERS’ EQUITY (continued)
Common
Stock Warrants
During
the year ended December 31, 2019, the Company granted 37,437,400 warrants, exercised 13,481,101 warrants, and 15,033 warrants
expired. The weighted average exercise prices of warrants outstanding at December 31, 2019 is $1.10 with a weighted average remaining
contractual life of 0.98 years. The intrinsic value of warrants outstanding at December 31, 2019, was approximately $2,277,000. Additionally,
the exercise price of common stock warrants issued in July 2016, as part of a financing, was adjusted down to $0.265 per share
from $1.00 by the terms of the “ratchet down” provision of the warrant agreement.
The
following tables sets forth common stock purchase warrants outstanding as of December 31, 2019:
|
|
|
Weighted Quantity
of
Warrants (in shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December 31, 2018
|
|
|
1,187,181
|
|
|
$
|
19.80
|
|
|
Warrants granted
|
|
|
37,437,400
|
|
|
$
|
0.90
|
|
|
Warrants exercised
|
|
|
(13,481,101
|
)
|
|
$
|
(2.20
|
)
|
|
Warrants cancelled/expired
|
|
|
(15,033
|
)
|
|
$
|
53.40
|
|
|
Outstanding, December 31, 2019
|
|
|
25,128,447
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2019
|
|
|
25,128,447
|
|
|
$
|
1.10
|
|
A
summary of the status of the Company’s stock option plans for the year ended December 31, 2019 is as follows:
|
Common Stock Issuable Upon Exercise of Warrants
Outstanding
|
|
|
Common Stock Issuable Upon Warrants Exercisable
|
|
|
Range of Exercise Prices
|
|
|
Number Outstanding at 12/31/19
|
|
|
Weighted Average Remaining
Contractual Life (Years)
|
|
|
Weighted Average Exercise
Price
|
|
|
Number Exercisable at 12/31/19
|
|
|
Weighted Average Exercise
Price
|
|
|
$
|
*0.001
|
|
|
|
9,143,100
|
|
|
|
0.91
|
|
|
$
|
0.001
|
|
|
|
9,143,100
|
|
|
$
|
0.001
|
|
|
$
|
**0.265
|
|
|
|
66,789
|
|
|
|
1.55
|
|
|
$
|
0.265
|
|
|
|
66,789
|
|
|
$
|
0.265
|
|
|
$
|
0.292
|
|
|
|
14,846,800
|
|
|
|
0.91
|
|
|
$
|
0.292
|
|
|
|
14,846,800
|
|
|
$
|
0.292
|
|
|
$
|
5.00
|
|
|
|
4,100
|
|
|
|
4.54
|
|
|
$
|
5.00
|
|
|
|
4,100
|
|
|
$
|
5.00
|
|
|
$
|
10.00
|
|
|
|
320,000
|
|
|
|
3.41
|
|
|
$
|
10.00
|
|
|
|
320,000
|
|
|
$
|
10.00
|
|
|
$
|
20.00
|
|
|
|
651,252
|
|
|
|
2.02
|
|
|
$
|
20.00
|
|
|
|
651,252
|
|
|
$
|
20.00
|
|
|
$
|
25.00
|
|
|
|
83,296
|
|
|
|
2.47
|
|
|
$
|
25.00
|
|
|
|
83,296
|
|
|
$
|
25.00
|
|
|
$
|
84.00
|
|
|
|
2,083
|
|
|
|
1.82
|
|
|
$
|
84.00
|
|
|
|
2,083
|
|
|
$
|
84.00
|
|
|
$
|
137.88
|
|
|
|
10,902
|
|
|
|
1.38
|
|
|
$
|
137.90
|
|
|
|
10,902
|
|
|
$
|
137.90
|
|
|
$
|
13,800.00
|
|
|
|
90
|
|
|
|
0.14
|
|
|
$
|
13,800.00
|
|
|
|
90
|
|
|
$
|
13,800.00
|
|
|
$
|
24,000.00
|
|
|
|
35
|
|
|
|
0.15
|
|
|
$
|
24,000.00
|
|
|
|
35
|
|
|
$
|
24,000.00
|
|
|
|
|
|
|
|
25,128,447
|
|
|
|
.98
|
|
|
$
|
1.10
|
|
|
|
25,128,447
|
|
|
$
|
1.10
|
|
* represents group of penny warrants
**represents group of warrants repriced to $0.265 from
the $1.00 exercise price
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 — COMMITMENTS AND CONTINGENCIES
Legal:
The
Company is subject, from time to time, 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. Pursuant to ASC Topic 450’s provision that a company must accrue a loss contingency if information
is available before the issuance of the financial statements, it has been determined that based upon a lawsuit filed by Hale Capital
Partners, LP (“Hale”) against the Company on July 29, 2019, the Company may be potentially liable for professional
fees incurred by Hale for a due diligence transaction in the amount of $140,000. The Company deems these fees excessive and is
vigorously defending the claim. This amount was accrued and included in accrued expenses in the consolidated balance
sheet as of December 31, 2019. There were no other material legal actions.
Pension:
The
Company, at its discretion, may make matching contributions to the 401(k) plan in which its employees participate. For the years
ended December 31, 2019, and 2018, the Company made matching contributions of $-0- and $27,000, respectively.
The
Company currently operates a Group Personal Pension Plan in its U.K. subsidiary, and funds are invested with Royal London. U.K.
employees are entitled to join the plan to which the Company contributes varying amounts subject to status. In addition, the Company
operates a stakeholder pension scheme in the U.K. For the year ended years ended December 31, 2019, and 2018, and the Company
made matching contributions of $173,000 and $236,000, respectively.
Delisting
Notice:
On
September 26, 2019, the Company received a written notification from The Nasdaq Stock Market LLC (“NASDAQ”) indicating
that the Company was not in compliance with NASDAQ Listing Rule 5550(a)(2) as Company’s closing bid price was below $1.00
per share for the previous 30 consecutive business days.
Pursuant
to the Nasdaq Listing Rule 5810(c)(3)(A), the Company was granted a 180-day compliance period, or until March 24, 2020, to regain
compliance with the minimum bid price requirements. During the compliance period, the Company’s shares of common stock will
continue to be listed and traded on Nasdaq Capital Market.
On March 25, 2020, the Company received
a written notification from Nasdaq that the Company was afforded a second 180 calendar day grace period to regain compliance with
the minimum bid price requirements. If the Company does not regain compliance by September 21, 2020, Nasdaq will provide notice
that the Company’s shares of common stock will be subject to delisting.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 — CONCENTRATIONS
Customer
concentration risk
For
the years ended December 31, 2019, and 2018, the Company did not experience sales to one customer over 10% of the Company’s
total consolidated sales
On
December 31, 2019, and 2018, the Company recorded approximately $2,613,000 (39%) and $-0- of accounts receivable, respectively,
to a single customer over 10% of the Company’s total consolidated accounts receivable.
Vendor
concentration risk
For
the year ended December 31, 2019, two vendors generated approximately $5,434,000 (31%) and $2,610,000 (15%) of the Company’s
consolidated inventory purchases, respectively. For the year ended December 31, 2018, two vendors generated approximately $2,165,000
(12%) and $2,596,000 (15%) of the Company’s consolidated inventory purchases, respectively.
On
December 31, 2019, and 2018, the Company recorded approximately $1,940,000 (29%) and $837,000 (12%) of accounts payable, respectively,
to a single vendor above 10% of the Company’s total consolidated accounts payable.
NOTE
17 – REVENUE
The
Company has one operating segment, and the decision-making group is the senior executive management team. In the following table,
revenue is disaggregated by primary geographical markets and revenue source.
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Primary geographical markets:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
13,054,000
|
|
|
$
|
17,686,000
|
|
|
South America
|
|
|
429,000
|
|
|
|
1,185,000
|
|
|
Europe
|
|
|
9,231,000
|
|
|
|
11,569,000
|
|
|
Asia
|
|
|
4,554,000
|
|
|
|
4,880,000
|
|
|
Rest of World
|
|
|
1,674,000
|
|
|
|
2,974,000
|
|
|
|
|
$
|
28,942,000
|
|
|
$
|
38,294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary revenue source:
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
25,657,000
|
|
|
$
|
35,055,000
|
|
|
Installation, integration and repairs
|
|
|
2,673,000
|
|
|
|
3,024,000
|
|
|
Warranties
|
|
|
171,000
|
|
|
|
215,000
|
|
|
Other (Note 18)
|
|
|
441,000
|
|
|
|
—
|
|
|
|
|
$
|
28,942,000
|
|
|
$
|
38,294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,616,000
|
|
|
$
|
5,637,000
|
|
|
United Kingdom
|
|
|
2,203,000
|
|
|
|
1,150,000
|
|
|
|
|
$
|
6,819,000
|
|
|
$
|
6,787,000
|
|
NOTE
18 — REBATES
In
May 2019, after the Company’s UK subsidiary filed for a rebate relating to the amount of funds spent on research costs for
the 2017 fiscal year, an amount of $441,000 was awarded to the Company. This rebate was classified as additional revenue during
the years ended December 31, 2019. The Company expects to file appropriate forms for the 2018, and 2019 fiscal years.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — INCOME TAXES
The
provision (benefit) for income taxes consists of the following:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Current tax provision
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
14,000
|
|
|
|
6,000
|
|
|
|
|
|
14,000
|
|
|
|
6,000
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,998,000
|
)
|
|
|
(3,567,000
|
)
|
|
State
|
|
|
2,879,000
|
|
|
|
(1,720,000
|
)
|
|
Foreign
|
|
|
(870,000
|
)
|
|
|
(127,000
|
)
|
|
Change in valuation allowance
|
|
|
998,000
|
|
|
|
(5,414,000
|
|
|
Income tax provision
|
|
$
|
14,000
|
|
|
$
|
6,000
|
|
A
reconciliation of the statutory tax rate to the effective tax rate is as follows:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Statutory Federal income tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
State and local taxes, net of Federal benefit
|
|
|
1.77
|
|
|
|
10.93
|
|
|
Permanent differences
|
|
|
1.56
|
|
|
|
4.35
|
|
|
Provision to return
|
|
|
1.52
|
|
|
|
1.40
|
|
|
DTA adjustment for state NOL
|
|
|
(16.83
|
)
|
|
|
(—
|
)
|
|
Foreign Rate Differential
|
|
|
(0.68
|
)
|
|
|
(0.14
|
)
|
|
Change rate
|
|
|
(1.00
|
)
|
|
|
(0.80
|
)
|
|
Valuation allowance
|
|
|
(7.43
|
)
|
|
|
(36.78
|
)
|
|
Effective tax rate
|
|
|
(0.08
|
)%
|
|
|
(0.04
|
)%
|
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, 2019 or 2018. 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:
|
|
|
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
|
Federal R&D credit
|
|
$
|
3,007,000
|
|
|
$
|
2,819,000
|
|
|
Inventory
|
|
|
683,000
|
|
|
|
78,000
|
|
|
Allowance for bad debt
|
|
|
55,000
|
|
|
|
32,000
|
|
|
Compensation Related
|
|
|
21,000
|
|
|
|
3,000
|
|
|
Pension
|
|
|
5,000
|
|
|
|
6,000
|
|
|
Other Accruals
|
|
|
63,000
|
|
|
|
305,000
|
|
|
State Net operating losses
|
|
|
5,638,000
|
|
|
|
8,532,000
|
|
|
Federal Net operating losses
|
|
|
38,177,000
|
|
|
|
36,079,000
|
|
|
Property & Equipment
|
|
|
—
|
|
|
|
12,000
|
|
|
Stock Options
|
|
|
6,565,000
|
|
|
|
6,214,000
|
|
|
Other
|
|
|
1,143,000
|
|
|
|
834,000
|
|
|
Valuation Allowance
|
|
|
(54,562,000
|
)
|
|
|
(53,573,000
|
)
|
|
Total Deferred Tax Assets
|
|
|
795,000
|
|
|
|
1,341,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
(141,000
|
)
|
|
|
(215,000
|
)
|
|
Intangibles
|
|
|
(630,000
|
)
|
|
|
(1,080,000
|
)
|
|
Inventory
|
|
|
—
|
|
|
|
—
|
|
|
Prepaid Expenses
|
|
|
(24,000
|
)
|
|
|
(24,000
|
)
|
|
Compensation Related
|
|
|
—
|
|
|
|
(22,000
|
)
|
|
Total Deferred Tax Liabilities
|
|
|
(795,000
|
)
|
|
|
(1,341,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset/(Liability)
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of December 31, 2019, the Company has federal net operating losses (“NOL”) of approximately $173.3 million that will
expire beginning in 2027. The Company has federal NOLs of approximately $16.4 million that may be carried forward indefinitely.
The Company also has state NOL carryforwards of $154.6 million which will expire beginning in 2027. In addition, the Company has
foreign NOL carryforwards of approximately $8.9 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 2016 to 2019 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 is satisfied.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — INCOME TAXES (continued)
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 prior to the ownership change and subsequent
ownership changes could further impact the amount of the annual limitation. An ownership change pursuant to 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
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
(as opposed to a deemed inclusion amounts under certain 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 limitations) 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 essentially permanent in duration. In general, it is the Company’s
practice and intention to reinvest the earnings of our foreign subsidiary in those operations. Generally, the earnings of our
foreign subsidiary have become subject to U.S. taxation based on certain provisions in U.S. tax law 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
Appointment
of new executives
On
January 15, 2020, the Board appointed Carleton M. Miller to the roles of Chief Executive Officer of the Company and a member of
the Board, effective January 15, 2020. As part of the Mr. Miller’s employment agreement, he will receive an inducement award
of a time-based option to purchase 2,155,481 shares of Common Stock. Additionally, he will receive an inducement award of a performance-based
option to purchase 1,500,000 shares of Common Stock under Nasdaq Listing Rule 5653(c)(4) outside of the Company’s existing
equity compensation plans (the “Performance-Based Option”).
On
February 27, 2020, the Company entered into an employment agreement with Michael Bond in connection with his contemplated employment
as Chief Financial Officer of the Company, effective as of April 1, 2020 (the “Bond Employment Agreement”). Pursuant
to the Bond Employment Agreement, Mr. Bond will receive an annual base salary of $250,000 per year, and an annual cash bonus in
accordance with the terms of any annual cash bonus incentive plan maintained for the Company’s key executive officers. The
Bond Employment Agreement also provides that on April 1, 2020 Mr. Bond will receive an award of stock options to purchase a quantity
of shares equal to one percent of the Company’s fully diluted outstanding shares of its common stock as of April 1, 2020
under Nasdaq Listing Rule 5635(c)(4) outside of the Company’s existing equity compensation plans (the “Inducement
Options”).
Public
offering
On
February 14, 2020, the Company closed on an equity financing for 12,445,000 shares of common stock, 12,445,000 warrants to purchase
9,333,750 shares of Common Stock, and 14,827,200 pre-funded warrants, with each Pre-Funded Warrant exercisable for one share of
Common Stock, together with 14,827,200 Warrants to purchase 11,120,400 shares of Common Stock. The Company received gross proceeds
of approximately $5,998,000, less offering costs of $560,000 for net proceeds of $5,438,000. The Company has earmarked the use
of the net proceeds from equity financing for working capital and general corporate purposes.
Departure
of former executive(s)
Payne
Separation Agreement
On
February 24, 2020, John Payne agreed to step down from his role as the Company President and Chief Operating Officer of Integrated
Microwave Technology, LLC (a wholly owned subsidiary) and is expected to conclude his employment with the Company on March 19,
2020. The Company expects to enter into a separation agreement with Mr. Payne in connection with the conclusion of his employment
(the “Payne Separation Agreement”). Provided that Mr. Payne executes the Payne Separation Agreement and does not revoke
the Payne Separation Agreement within seven days thereof, the Payne Separation Agreement is expected to provide that Mr. Payne
will be entitled to receive severance in the form of six (6) months of salary continuation for an aggregate amount of $175,000.
Mr. Payne will begin a transitional role until his expected March 19, 2020 separation date. Mr. Payne’s anticipated departure
from the Company is not the result of any disagreement with the Company on any matter relating to its operation, policies (including
accounting or financial policies) or practices. In connection with the foregoing, the board of directors of the Company has decided
to appoint Carleton M. Miller, the Company’s Chief Executive Officer, to the additional position of President of the Company,
effective upon Mr. Payne’s departure from the Company on March 19, 2020.
Branton
Separation Agreement
Roger
G. Branton will be stepping down as the Company’s Chief Financial Officer and Treasurer and is expected to conclude his
employment with the Company on March 31, 2020. The Company expects to enter into a separation agreement with Mr. Branton in connection
with the conclusion of his employment (the “Branton Separation Agreement”). Provided that Mr. Branton executes the
Branton Separation Agreement and does not revoke the Branton Separation Agreement within seven days thereof, the Branton Separation
Agreement is expected to provide that Mr. Branton will be entitled to receive severance pay in the form of salary continuation
for 12 months for an aggregate amount of $300,000. Mr. Branton will immediately begin a transitional role until his expected March
31, 2020 separation date from the Company.
VISLINK
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
20
— SUBSEQUENT EVENTS (continued)
Amended
related party agreement
Effective
February 25, 2020, an amendment of the related party agreement between Vislink Technologies, Inc. (the “Company”)
and MB Merchant Group, LLC (“MBMG”) was executed into a letter agreement (the “MBMG Agreement”), pursuant
to which the Company and MBMG agreed to amend and restate certain service agreements previously entered into with MBMG as well
as its predecessor entity (the “MBMG Agreements”). Pursuant to the MBMG Agreement, MBMG has agreed to provide only
the following services to the Company: (i) to conduct merger and acquisition searches, negotiating and structuring deal terms
and other related services in connection with closing suitable acquisitions for the Company, and (ii) to seek and secure financing
for the Company, except in those regions in which the Company had previously appointed a business representative to exclusively
seek such opportunities, and subject in each case to prior approval by the Company’s Chief Executive Officer on a case-by-case
basis (collectively, the “MBMG Services”). Pursuant to the MBMG Agreement, MBMG will no longer provide strategic planning
and financial structuring services or technical consulting services, review patent applications or provide consulting services
with respect to certain legal matters.
Pursuant
to the MBMG Agreement, in consideration for the MBMG Services, the Company agreed to compensate MBMG through payment of: (i) an
acquisition fee equal to (A) the greater of $250,000 or 6% of the total acquisition price for deals in which the total consideration
paid by the Company is less than $50 million; (B) $3,000,000 plus 4% of the consideration paid by the Company in excess of $50
million for deals in which the total consideration paid by the Company is between $50 million and $100 million; (C) $5,000,000
plus 2% of the consideration paid by the Company in excess of $100 million for deals in which the total consideration paid by
the Company is between $100 million and $400 million; or (D) $10,200,000 plus 1.1% of the consideration paid by the Company in
excess of $400 million for deals in which the total consideration paid by the Company exceeds $400 million; (ii) a success-based
due diligence fee of $250,000 on successfully closed deals, (iii) a waivable success-based finance fee of 2% of the acquisition
price and (iv) an incentive fee of 5% of an external advisor’s higher valuation of an acquisition, with such fees subject
to a customary 12-month tail period in the event of termination of the MBMG Agreement. The MBMG Agreement further provides that
(x) MBMG shall have the option to convert up to 50% of all such fees into the Company’s common stock so long as a receivable
remains outstanding, convertible at a fixed price of 110% of the lower of the price of such shares on the day of closing or such
price in connection with any acquisition financing, as applicable; (y) the Company will no longer compensate MBMG through, among
other discontinued fees, a $50,000 monthly consulting fee that would have been due pursuant to the MBMG Agreements and (z) in
full satisfaction of specified claims arising out of the MBMG Agreements, the Company shall pay MBMG $420,000, with $200,000 to
be paid within three days of the execution of the MBMG Agreement and $220,000 to be paid within 30 days of such execution.
MBMG
is an affiliate of Richard L. Mooers, a director of the Company, and Roger G. Branton, a director and the Chief Financial Officer
of the Company.
Nasdaq
Compliance
On
March 4, 2020, the Company received a letter from the Listing Qualifications Department (the “Staff”) of Nasdaq notifying
the Company that the Staff has determined that the Company did not comply with Listing Rule 5635(d) because the February 2020
Offering did not meet the Nasdaq definition of a public offering under Listing Rule IM-5635-3. The Staff’s determination
was based on (i) the extent of the offering’s distribution, (ii) the existence of a prior relationship between the Company
and the investors, and (iii) the significant discount to the minimum price, as defined in Nasdaq rules.
On
March 18, 2020, the Company submitted a plan to regain compliance with Rule 5635, which is currently under review by Nasdaq.
On March 25, 2020, the Company received
a written notification from Nasdaq that the Company was afforded a second 180 calendar day grace period to regain compliance with
the minimum bid price requirements. If the Company does not regain compliance by September 21, 2020, Nasdaq will provide notice
that the Company’s shares of common stock will be subject to delisting.
Other
events after December 31, 2019 to the date of this report:
|
|
|
Quantity of Warrants Exercised
|
|
|
Quantity of Common Stock
Issued
|
|
|
Proceeds Received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Exercises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Funded Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov 2019 Equity Raise
|
|
|
9,143,100
|
|
|
|
9,143,100
|
|
|
$
|
8,100
|
|
|
Feb 2020 Equity Raise
|
|
|
14,827,200
|
|
|
|
14,827,200
|
|
|
|
1,500
|
|
|
|
|
|
23,970,300
|
|
|
|
23,970,300
|
|
|
$
|
9,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov 2019 Equity Raise
|
|
|
8,245,181
|
|
|
|
10,993,575
|
|
|
$
|
-0-
|
|
|
Feb 2020 Equity Raise
|
|
|
7,893,394
|
|
|
|
10,524,525
|
|
|
|
-0-
|
|
|
|
|
|
16,138,575
|
|
|
|
21,518,100
|
|
|
$
|
-0-
|
|