Vislink Technologies, Inc 10-Q for FY2021 Q3
Vislink Technologies, Inc. (VISL)
About this 10-Q
Vislink Technologies, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $11.2M
- up 134.4% from $4.78M a year earlier
- Net income
- $676K
- compared with a net loss of $2.79M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
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For the transition period from ____________to _______________.
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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The registrant’s common stock shares outstanding as of November 12, 2021, is .
VISLINK TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
For the nine months ended September 30, 2021
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Consolidated Financial Statements
| 1 |
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) (the “Report”) contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar words and phrases intended to identify forward-looking statements. However, this is not an all-inclusive list of words or phrases identifying forward-looking statements in this Report. Also, all information concerning future matters is forward-looking statements.
Although forward-looking statements in this Report reflect our management’s good faith judgment, such information is based on facts and circumstances currently known by us. Forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from those discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed elsewhere in this Report.
The Company files reports with the Securities and Exchange Commission (“SEC”), and those reports are available free of charge on our website (www.vislinktechnologies.com) under “About/Investor Information/SEC Filings.” The reports available include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, which are available as soon as reasonably practicable after the Company electronically files such materials or furnish them to the SEC. The SEC also maintains an Internet site (sec. gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
Except as required by law, the Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements. The Company urges you to carefully review and consider all the disclosures made in this Report
REFERENCES TO VISLINK
In this Quarterly Report, unless otherwise stated or the context otherwise indicates, references to “VISL,” “Vislink,” “the Company,” “we,” “us,” “our,” and similar references refer to Vislink Technologies, Inc., a Delaware corporation.
EXPLANATORY NOTE
On July 31, 2020, the Board of Directors approved a 1-for-6 reverse stock split. Upon effectiveness of the reverse stock split, every six shares of an outstanding common stock decreased to one share of common stock. The Company has retroactively applied the reverse split throughout this Report to all periods presented.
| 2 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Right of use assets, operating leases | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable | ||||||||
| Current portion of PPP loan | ||||||||
| Operating lease obligations, current | ||||||||
| Customer deposits and deferred revenue | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term portion of PPP loan | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 9) | - | |||||||
| Stockholders’ equity | ||||||||
| Preferred stock – $ par value per share: shares authorized as of September 30, 2021, and December 31, 2020; -- shares issued and outstanding as of September 30, 2021, and December 31, 2020 | ||||||||
| Common stock – $ par value per share, shares authorized, and shares issued and and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Treasury stock, at cost – shares at September 30, 2021, and December 31, 2020, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenue and operating expenses | ||||||||||||||||
| Cost of components and personnel | ||||||||||||||||
| Inventory valuation adjustments | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Gain on lease termination | ( | ) | ||||||||||||||
| Research and development expenses | ||||||||||||||||
| Amortization and depreciation | ||||||||||||||||
| Total cost of revenue and operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Changes in fair value of derivative liabilities | ||||||||||||||||
| Gain on settlement of related party obligation | ||||||||||||||||
| Gain on settlement of debt | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Unrealized gain (loss) on currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(IN THOUSANDS, EXCEPT SHARE DATA)
For the Three Months Ended September 30, 2021:
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Series D | Additional | Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Comprehensive | Treasury | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Stock | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Unrealized loss on currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock in connection with: | ||||||||||||||||||||||||||||||||||||
| Underwriting equity raise, net of offering costs | — | |||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Exercise of cashless common stock warrants | ||||||||||||||||||||||||||||||||||||
| Exercise of cashless common stock warrants,shares | ||||||||||||||||||||||||||||||||||||
| Warrants issued in a settlement agreement | ||||||||||||||||||||||||||||||||||||
| Stock issuance commitments | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||
For the Nine Months Ended September 30, 2021:
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Series D | Additional | Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Comprehensive | Treasury | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Stock | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Unrealized loss on currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock in connection with: | ||||||||||||||||||||||||||||||||||||
| Underwriting equity raise, net of offering costs | — | |||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Exercise of cashless common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Warrants issued in a settlement agreement | ||||||||||||||||||||||||||||||||||||
| Stock issuance commitments | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
(IN THOUSANDS, EXCEPT SHARE DATA)
For the Three Months Ended September 30, 2020:
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Series D | Additional | Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Comprehensive | Treasury | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Stock | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Unrealized loss on currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock in connection with: | ||||||||||||||||||||||||||||||||||||
| Underwriting equity raise, net of offering costs | — | |||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Exercise of cashless common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
For the Nine Months Ended September 30, 2020:
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Series D | Additional | Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Comprehensive | Treasury | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Stock | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Unrealized loss on currency translation adjustment | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with: | ||||||||||||||||||||||||||||||||||||
| Underwriting equity raise, net of offering costs | — | |||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Exercise of cashless common stock warrants | — | |||||||||||||||||||||||||||||||||||
| Stock issuance commitments | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows used in operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Gain on lease termination | ( | ) | ||||||
| Gain on settlement of related party obligations | ( | ) | ||||||
| Gain on settlement of debt | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Stock issuance commitments | ||||||||
| Warrants issued in a settlement agreement | ||||||||
| Provision for bad debt | ||||||||
| Recovery of bad debt | ( | ) | ||||||
| Inventory valuation adjustments | ||||||||
| Amortization of right of use assets, operating assets | ||||||||
| Depreciation and amortization | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and interest expense | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deferred revenue and customer deposits | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows used in investing activities | ||||||||
| Cash acquired from MVP acquisition | ||||||||
| Cash used in the acquisition of 100% of MVP outstanding shares | ( | ) | ||||||
| Cash used for property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows provided in financing activities | ||||||||
| Proceeds received from equity financings | ||||||||
| Costs incurred in connection with equity financing | ( | ) | ( | ) | ||||
| Proceeds from the exercise of common stock warrants | ||||||||
| Principal payments in connection with working capital financing note | ( | ) | ||||||
| Principal payments on D & O notes payable | ( | ) | ( | ) | ||||
| Proceeds received from PPP loan | ||||||||
| Net cash provided in financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash information: | ||||||||
| Forgiveness of PPP government grant | $ | $ | ||||||
| Notes payable recognized on D & O insurance policy | $ | $ | ||||||
| Common stock warrants issued in connection with: | ||||||||
| Settlement of amounts due to related parties | $ | $ | ||||||
| Compensation awards previously accrued | $ | $ | ||||||
| ROU assets and operating lease obligations recognized (Note 6): | ||||||||
| Operating lease assets recognized | $ | |||||||
| Less: non-cash changes to operating lease assets | ||||||||
| amortization | ( | ) | ( | ) | ||||
| lease termination | ( | ) | ||||||
| (166 | ) | (309 | ) | |||||
| Operating lease liabilities recognized | $ | $ | ||||||
| Less: non-cash changes to operating lease liabilities | ||||||||
| accretion | ( | ) | ( | ) | ||||
| lease termination | ( | ) | ||||||
| $ | (371 | ) | $ | (379 | ) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Vislink is a global technology business specializing in collecting, delivering, and managing high-quality, live video and associated data from the action scene to the viewing screen. Vislink provides solutions for collecting live news, sports, and entertainment events for the broadcast markets. Vislink also furnishes the surveillance and defense markets with real-time video intelligence solutions using various tailored transmission products. The Vislink team also provides professional and technical services utilizing a staff of technology experts with decades of applied knowledge and real-world experience in the terrestrial microwave, satellite, fiber optic, surveillance, and wireless communications systems delivering a broad spectrum of customer solutions.
Live Broadcast:
Vislink delivers an extensive portfolio of solutions for live news, sports, and entertainment industries. These solutions encompass the video collection, transmission, management, and distribution via microwave, satellite, cellular, I.P., and MESH networks. With over 50 years in operation, Vislink has the expertise and technology portfolio to deliver fully integrated, seamless, end-to-end solutions.
Industry-wide contributors acknowledge Vislink’s live broadcast solutions. The transmission of a vast majority of all outside wireless broadcast video content uses our equipment, with over 200,000 systems installed worldwide. We work closely with the majority of the world’s broadcasters. Vislink wireless cameras and ultra-compact encoders help bring many of the world’s most prestigious sporting and entertainment events to life. Recent examples include globally watched international sporting contests, award shows, racing events, and annual music and cultural events.
Military and Government:
Building on our knowledge of live video delivery, Vislink has developed high-quality solutions to meet surveillance and defense markets’ operational and industry challenges. Vislink solutions are specifically designed with interagency cooperation in mind, utilizing a standard international protocol, I.P., platform, and a web interface for video delivery. Vislink provides comprehensive video, audio, and data communications solutions to law enforcement and public safety, including Airborne, Unmanned Systems, Maritime, and Tactical Mobile Command Posts. These solutions may include airborne downlinks, terrestrial point-to-point, tactical mobile command, maritime, UAV, and personal portable products that meet the demands of field operations, command centers, and central receiving sites. Short-range and long-range solutions are available in areas including established infrastructure and exceptionally remote regions, making valuable video intelligence available regardless of location. Vislink public safety and surveillance solutions are deployed worldwide, including throughout the U.S., Europe, and the Middle East, at the local, regional, and federal levels of operation, a criminal investigation, crisis management, mobile command posts, and field operations.
Satellite Communications:
Over 30 years of technical expertise supports Vislink’s satellite solutions. These solutions ensure robust, secure communications while delivering low transmission costs for any organization that needs high-quality, reliable satellite transmission. We offer turnkey solutions that begin with state-of-the-art coding, compression, engine modulation and end with our robust, lightweight antenna systems. Vislink Satellite solutions focus heavily on being the smallest, lightest, and most efficient in their categories, making transportation and ease of use a key driver in the customer experience. Vislink offers an extensive range of satellite designs that allow customers to optimize bit rate, size, weight, and total cost. Our satellite systems are used extensively globally, with over 2,000 systems deployed by governments, militaries, and broadcasters alike.
Recent Developments:
On
August 16, 2021, the Company, through a wholly-owned subsidiary, entered into a stock purchase agreement with Triple I.T. Corporate B.V.,
a private company incorporated in the Netherlands, under which the Company acquired
The Mobile Viewpoint acquisition will enable Vislink to fulfill its strategic aim of providing an industry-leading portfolio of live video acquisition, contribution, and distribution solutions that meet the demanding needs of media, enterprise, defense, and government organizations. Vislink and its customers will benefit from the ability to address the most transformative trends in today’s live video market, such as:
| ● | Live internet video traffic is growing fast: from 2016 to 2021, there was a 15-fold increase in live video internet traffic (71.9% CAGR); | |
| ● | The acceleration towards cloud-based remote production; | |
| ● | The increasing demand for enhanced video content formats such as 4K, 8K, and 360-degree video; and | |
| ● | The proliferation of new video transport capable networks such as 5G and Starlink. |
| 8 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared under the United States generally accepted accounting principles (“US GAAP”) for interim financial information and following Form 10-Q and Regulation S-X instructions. Accordingly, these financial statements do not include all information or notes required by GAAP for annual financial statements. The Company recommends reading these financial statements in conjunction with the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020, filed with the United States Securities and Exchange Commission (the “SEC”) April 15, 2021.
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present the Company’s consolidated financial position as of September 30, 2021, the results of its operations, and cash flow for the nine months ended September 30, 2021, and 2020. Such adjustments are of a routine recurring nature. The results of operations for the nine months ended September 30, 2021, may not indicate results for an entire year, any other interim period, or any future period.
| 9 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business Combinations
Business combinations are accounted for under the purchase method of accounting according to Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The total cost is allocated to the underlying net assets based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. The fair value of assets acquired and liabilities assumed is determined based on assumptions that reasonable market participants would use in the principal (or most advantageous) market for the asset or liability. Determining the fair value of certain assets acquired and liabilities assumed is judgmental in nature, and it often involves using significant estimates and assumptions, including future cash flows, discount rates, growth rates, customer attrition rates, and asset lives.
Definition of a Business—The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. If substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business. If not, for an acquisition to be considered a business, it would have to include an input and a substantive process that significantly contribute to creating outputs (i.e., there is a continuation of revenue before and after the transaction). A substantive process is not ancillary or minor, cannot be replaced without significant costs, effort, or delay, or is otherwise considered unique or scarce. To qualify as a business without outputs, the acquired assets would require an organized workforce with the necessary skills, knowledge, and experience that performs a substantive process.
Asset Acquisitions—For acquisitions that are not deemed to be businesses, the assets acquired are recognized based on their cost to the Company as the acquirer, and no gain or loss is recognized. The cost of assets acquired in a group is allocated to individual assets within the group based on their relative fair values and does not give rise to goodwill. Transaction costs related to the acquisition of assets are included in the cost basis of the assets acquired.
Business Combinations—The Company accounts for acquisitions that qualify as business combinations by applying the acquisition method. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity, net of the fair value of any previously held interest in the acquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.
Goodwill
Goodwill
includes the excess of the Company’s fair value above the fair value accounting basis of the net assets and liabilities of the
Company as previously applied under pushdown accounting under the acquisition method of accounting under ASC 805 “Business Combinations.”
The Company recorded goodwill and finite intangible assets with the MVP acquisition on August 16, 2021, totaling approximately $
Goodwill is not amortized, but per ASC 350, goodwill is tested for impairment annually and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Judgment is involved in determining if an indicator of impairment has occurred during the course of the year. Such indicators may include a decline in expected cash flows, unanticipated competition, or slower growth rates, among others. When testing goodwill for impairment, the Company may assess qualitative factors for its reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, the Company may bypass this qualitative assessment and perform the quantitative goodwill impairment test.
As of September 30, 2021, the Company concluded that no indicators of impairment relating to goodwill existed, and an interim test was not performed in the three or nine months then ended.
| 10 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property, plant, and equipment, the useful lives of right-of-use assets, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for deferred tax assets, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. These estimates also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimates, and any such differences may be material to our financial statements.
Risks and Uncertainties
The Company’s operations will be subject to significant risks and uncertainties, including financial, operational, regulatory, and other risks associated, including the potential risk of business failure. The COVID-19 pandemic and related economic repercussions have created significant uncertainty. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict as the response to the pandemic, information, and policy continues to evolve. Policymakers worldwide have responded with fiscal policy actions and vaccine mandates to support their industries and economies, but these interventions’ magnitude and overall effectiveness remain uncertain. Although capital markets and economies worldwide improved after the initial negative impacts of the COVID-19 pandemic, there remains uncertainty around the strength and timing of global economic recoveries, which could cause a local or global economic recession. Such economic disruption could have a material adverse effect on our business.
The severity of the impact of the COVID-19 pandemic on the Company’s business depends on numerous factors, including the duration, its severity, the effect on the Company’s customers, and our supply chain. The delay in payments of outstanding receivable amounts beyond standard payment terms, implementation of Company-wide initiatives or programs addressing financial and operational functions can unfavorably impact our customers and influence the Company’s operations and liquidity. Any economic disruption could have a material adverse effect on our business, capital resources, access to capital, financial condition, and operating results. As of the date of issuance of these Consolidated Financial Statements, the extent to which the COVID-19 pandemics may materially impact the Company’s financial condition, liquidity, or operating results remains uncertain.
Inventories
The Company records inventory 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 completion, disposal, and transportation costs. Inventory valuation adjustments are on the face of the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021, and 2020.
Revenue Recognition
The Company accounts for revenue under ASC Topic 606. It is a comprehensive revenue recognition model that requires income to be recognized when the Company transfers control of the promised goods or services to the Company’s customers at an amount that reflects the consideration that the Company expects to receive. The application of ASC Topic 606 uses increased judgment and estimates compared to previously issued guidance.
The Company generates all its revenue from contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to a customer in an amount that reflects the consideration it expects 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, the Company satisfies a performance obligation.
| 11 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
At contract inception, the Company assesses the goods and services promised in its 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. The Company measures revenue as the amount of consideration it expects to receive in exchange for transferring goods and services. Excluded from income are the value-added sales taxes and other charges the Company collects concurrent with revenue-producing activities.
The remaining performance obligations, or backlog, represent the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less.
Leases
The
Company determines if an arrangement is a lease at inception. The Company recognizes lease expense for lease payments on a straight-line
basis over the lease term. The Company includes operating leases as “Right of use assets, operating leases” (“ROU”)
in the consolidated balance sheets. For lease liabilities, operating lease liabilities are included in “Operating lease obligations,
current” and “Operating lease liabilities, net of current portion” in the consolidated balance sheets. The Company
recognizes operating lease ROU assets and liabilities on the commencement date based on the present value of lease payments for all leases
with a term longer than
The ROU assets and related lease liabilities recorded under ASC 842 are calculated based on the present value of the lease payments using (1) the rate implicit in the lease or (2) the lessee’s incremental borrowing rate (“IBR”), defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a comparable economic environment. As most of our leases do not provide an implicit rate, we 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 to estimate the IBR under ASC 842. There were no capital leases, which are now titled “finance leases” under ASC 842, in the Company’s lease portfolio as of September 30, 2021.
The Company accounts for stock compensation with persons classified as employees for accounting purposes under ASC 718 “Compensation-Stock Compensation,” which recognizes awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes Option Pricing Model. The fair value of common stock issued for services is determined based on the Company’s stock price on the issuance date. The Company uses the closing stock price on the grant date to estimate the fair value of the time-based and performance-based restricted stock units.
The expansion of Topic 718 fell under ASU 2018-07 to include share-based payment transactions for acquiring goods and services from nonemployees. The measurement date for equity-classified nonemployee share-based payment awards is no longer at the earlier date at which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. Instead, the grant date is now considered the measurement date. Under today’s guidance, the measurement of nonemployee share-based payment awards with performance conditions is at the lowest aggregate fair value, often resulting in a zero value. The new ASU aligns the accounting for nonemployee share-based payment awards with performance conditions with accounting for employee share-based payment awards under Topic 718 by requiring entities to consider the probability of satisfying performance conditions. Current guidance requires entities to use the contractual term for the measurement of the nonemployee share-based payment awards. The new ASU allows entities to make an award-by-award election to use either the expected duration (consistent with employee share-based payment awards) or the contractual term for nonemployee awards
| 12 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company reports loss per share under ASC Topic 260, “Earnings Per Share,” which establishes computing standards and presents earnings per share. The basic loss per share calculation divides the net loss allocable to common stockholders by the weighted-average shares of common stock outstanding during the period without considering common stock equivalents. The diluted loss per share calculation adjusts the weighted-average shares of common stock outstanding for the dilutive effect of common stock equivalents, including stock options and warrants outstanding for the period as determined using the treasury stock method. Common stock equivalents are excluded for the diluted net loss per share calculation purposes because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders is the same for a net loss period.
SCHEDULE OF EARNINGS PER SHARE, BASIC AND DILUTED
| 2021 | 2020 | |||||||
| Nine months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Common stock equivalents excluded from the calculation of loss per share: | ||||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Antidilutive securities excluded from computation of earnings per share, amount | ||||||||
Foreign Currency and Other Comprehensive (Loss)/Income
The Company has a single foreign subsidiary incorporated in the United Kingdom. Its functional currency is the British Pound. The translation from the respective foreign currency to United States Dollars arises for balance sheet accounts using current exchange rates in effect at the balance sheet date, and the income statement accounts use an average exchange rate for the period presented. We record gains or losses resulting from such translation as a separate component of accumulated other comprehensive income. The Company includes gains or losses resulting from foreign currency transactions in foreign currency losses or income, except for the effect of exchange rates on long-term intercompany transactions considered a long-term investment, which is credited or charged to other comprehensive income.
The Company recognizes transaction gains and losses in its results of operations based on the difference between the foreign exchange rates on the transaction date and the reporting date. The Company includes, as a component of general and administrative expenses, the foreign currency exchange gains and losses in the accompanying unaudited condensed consolidated statements of operations.
Foreign Currency and Other Comprehensive (Loss)/Income (continued)
The Company has recognized foreign exchanges gains and losses and changes in accumulated comprehensive income approximately as follows:
SCHEDULE OF FOREIGN EXCHANGES AND CHANGES IN ACCUMULATED COMPREHENSIVE INCOME
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net foreign exchange transactions: | ||||||||||||||||
| Gains (Losses) | $ | $ | $ | $ | ( |
) | ||||||||||
| Accumulated comprehensive income: | ||||||||||||||||
| Unrealized gain (losses) on currency translation adjustment | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
The exchange rates adopted for the foreign exchange transactions are exchange rates, as quoted on OANDA, a Canadian-based foreign exchange company and internet website providing currency conversion, online retail foreign exchange trading, online foreign currency transfers, and forex information. The Company translated amounts from British Pounds into United States Dollars and Euros to British Pounds at the following exchange rates for the respective periods:
| ● | As
of September 30, 2021 – £ | |
| ● | The
average exchange rate for the nine months ended September 30, 2021 – £ |
| 13 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
GAAP requires disclosing financial instruments’ fair value to the extent practicable for financial instruments recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein does not necessarily represent the potential amount 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 various methods and assumptions based on estimates of market conditions and risks existing at the time. For specific instruments, including accounts receivable and accounts payable, the Company estimated that the carrying amount approximated fair value because of these instruments’ short maturities. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.
GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes observable inputs and minimizes unobservable inputs by requiring the use of the most observable inputs when available. Observable inputs consist of items 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 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. Below is the description of the hierarchy. As of September 30, 2021, the Company had no fair valued assets or liabilities classified under Level 1 or Level 2.
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities, | |
| ● | Level 2 – Observable prices 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 (see Note 7). |
Subsequent Events
Management evaluation if any events or transactions occurred after the balance sheet date through the issuance date of the consolidated financial statements necessitates disclosure herein. The Company concluded that no disclosure is necessary, except as acknowledged in Note 15.
Recently Issued Accounting Principles Adopted
On May 21, 2020, the SEC issued Final Rule Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (“SEC Rule 33-10786”), which amends the disclosure requirements applicable to acquisitions and dispositions of businesses to improve the financial information provided to investors, facilitate more timely access to capital, and reduce the complexity and costs to prepare disclosure. The SEC Rule 33-10786 amends, among other things, (i) the tests used to determine significance and expand the use of proforma financial information; (ii) revise the proforma information requirements; (iii) reduce a maximum number of years for which financial statements under Regulation S-X are required to two years; (iv) permit abbreviated financial statements for certain acquisitions; (v) modify the disclosure requirements relating to the aggregate effect of acquisitions for which financial statements are not required; and, (vi) conform the significance threshold and tests on both disposed and acquired business. The amendments are effective January 1, 2021, but early compliance is permitted. The Company adopted the standard effective January 1, 2021, with no material impact on its Condensed Consolidated 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 condensed consolidated financial statements.
| 14 |
NOTE 2 — LIQUIDITY AND FINANCIAL CONDITION
The
Company incurred an approximate $
During
the nine months ended September 30, 2021, the Company issued shares of common stock for net proceeds of $
On
February 8, 2021, the Company completed an underwritten public for net proceeds of $
The continuous impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations, and cash flows may experience volatility. The unpredictability of the pandemic’s scope, severity, duration, and actions implemented to alleviate its direct and indirect economic effects and containment measures provides no assurances that the pandemic will not have material adverse repercussions on the Company’s operations, liquidity, financial condition, and any residual unfavorable consequences to global economics.
The Company bases its evaluation on possibilities that may prove wrong and could exhaust our available capital resources sooner than we expect. Developments may take place, including those beyond our control, that would cause us to consume our available capital more quickly, including but not limited to those relating to the markets in which we compete or wish to enter, strategic acquisitions, our market strategy, our research and development activities, regulatory matters, and technology and product innovations. Notwithstanding these risks and uncertainties, based on management’s liquidity preservation program and proactive spending reductions implemented in the fiscal year 2020, as well as the capital injections discussed above, the Company believes it will have sufficient funds to continue its operations for at least twelve months from the date of these financial statements.
NOTE 3 – Acquisition of Mobile Viewpoint Corporate B.V.
On
August 16, 2021, the Company, through a wholly-owned subsidiary, entered into a stock purchase agreement with Triple I.T. Corporate B.V.,
a private company incorporated in the Netherlands, under which the Company acquired
The
Company accounts for the acquisition under the acquisition method under ASC 805 “Business Combinations,” and we elected not
to apply pushdown accounting upon the purchase of MVP. Therefore, we chose to recognize the preliminary historical basis of MVP’s
acquired assets and liabilities. We identity any excess of the consideration paid in excess of the net assets acquired in the table below.
In addition, we recorded approximately $
The allocation of the consideration paid in excess of the net assets acquired, obtained from a third-party appraiser, assigned preliminary values to the intangible assets illustrated below. Once the Company receives a final valuation report from the third-party appraiser, it is reasonably possible that there could be significant changes to the preliminary values below.
| 15 |
NOTE 3 – Acquisition of Mobile Viewpoint Corporate B.V. (continued)
The following table summarizes the preliminary allocation of the historical value of the assets and liabilities as of the acquisition date, preliminary allocation of the consideration paid in excess of net assets acquired, relative useful lives, and amortization method of the listed intangible assets. Material amounts may adjust the preliminary allocation to certain assets and liabilities as the Company finalizes its analysis of MVP.
Fair value of consideration transferred:
Schedule of Identifiable Assets Acquired and Liabilities Assumed
| Cash | $ | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Cash | $ | |||
| Accounts receivable, net | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment, net | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Customer deposits and deferred revenue | ( | ) | ||
| Total identifiable net assets | $ | |||
| Consideration paid | $ | |||
| Total identifiable net assets acquired | ||||
| Excess of consideration paid over net assets acquired | $ |
| Preliminary allocation of the consideration paid in excess of the net assets acquired: | ||||
| Trade name | $ | |||
| Proprietary technology | ||||
| Customer relationships | ||||
| Goodwill | ||||
| Total intangible assets acquired | $ | |||
Intangible assets acquired:
The Purchaser acquired intangible assets from MVP as a result of the Transaction. The Tradename, Proprietary Technology, and Customer Relationships are intangible assets noted to have a finite life while Goodwill has an indefinite life span. The finite life intangible assets will be amortized using the straight-line method of the respective lives of each asset, while the indefinite life intangible assets will not be amortized.
Based thereon, below are the acquired intangibles with their relative useful lives and method of amortization:
Schedule of acquired intangibles with their relative useful lives
| Intangible Asset | Useful Life | Amortization Method | ||
| Tradename | Straight-line | |||
| Proprietary Technology | Straight-line | |||
| Customer Relationships | Straight-line | |||
| Goodwill | N/A |
| 16 |
NOTE 3 – Acquisition of Mobile Viewpoint Corporate B.V. (continued)
The following presents the unaudited Pro-forma combined results of operations of Vislink with MVP as if the entities were combined on January 1, 2020.
Schedule of Unaudited Pro-forma Combined Results of Operations
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Net income (loss) allocable to common stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
The unaudited Pro-forma results of operations are presented for information purposes only. The unaudited Pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.
The
estimated useful life remaining on the property and equipment acquired is
Note 4 — INTANGIBLE ASSETS
Intangible assets consist of the following finite assets:
SCHEDULE OF INTANGIBLE ASSETS
| Goodwill | Proprietary Technology | Patents and Licenses | Trade Names & Technology | Customer Relationships | ||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||
| Cost | Cost | Amortization | Cost | Amortization | Cost | Amortization | Cost | Amortization | Net | |||||||||||||||||||||||||||||||
| Balance | ||||||||||||||||||||||||||||||||||||||||
| 12/31/20 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance | ||||||||||||||||||||||||||||||||||||||||
| 9/30/20 | $ | | $ | | $ | ( | ) | $ | | $ | ( | ) | $ | | $ | ( | ) | $ | | $ | ( | ) | $ | | ||||||||||||||||
Goodwill is not amortized, but under ASC Topic 350, goodwill is tested for impairment annually and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.
Proprietary Technology
The
Company amortizes proprietary technology over their useful lives of
Patents and Licenses:
The
Company amortizes filed patents and licenses over their useful lives, ranging between
Trade Name and Technology:
The
Company amortizes these other intangible assets over their estimated useful lives of
| 17 |
NOTE 4 — INTANGIBLE ASSETS (CONTINUED)
The Company has recognized net capitalized intangible costs as follows:
SCHEDULE OF CAPITALIZED INTANGIBLE COSTS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Goodwill | $ | $ | ||||||
| Proprietary Technology | ||||||||
| Patents and Licenses | ||||||||
| Trade Names and Technology | ||||||||
| Customer Relationships | ||||||||
| $ | $ | |||||||
The Company has recognized the amortization of intangible assets as follows:
SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Proprietary Technology | $ | $ | $ | $ | ||||||||||||
| Patents and Licenses | ||||||||||||||||
| Trade Names and Technology | ||||||||||||||||
| Customer Relationships | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The weighted average remaining life of the amortization of the Company’s intangible assets is approximately 5.9 years. The following table represents the estimated amortization expense for total intangible assets for the succeeding five years:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE FOR INTANGIBLE ASSETS
| Period ending September 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Finite-Lived Intangible Assets, net, Total | $ | |||
NOTE 5 — NOTES PAYABLE
SCHEDULE OF NOTES PAYABLE
| Principal | ||||||||
| 9/30/21 | 12/31/20 | |||||||
| On April 13, 2020, the Company entered into a D & O insurance policy agreement for
a $ | $ | $ | ||||||
| On April 5, 2021, the Company renewed its D & O insurance policy and increased
the premium to approximately $ | ||||||||
| $ | $ | |||||||
| 18 |
NOTE 6 – PAYROLL PROTECTION PROGRAM LOAN
On
April 10, 2020, the Company received $
Management is accounted for the governmental grant under Topic ASC 470. The Company has recognized a liability for the total amount of the proceeds received. The $1,168,000 forgiven fell under ASC 405-20 and was treated as a gain on loan extinguishment in the statement of operations. The PPP proceeds are cash inflows from financing activities on the statement of cash flows. Any amounts forgiven are a non-cash financing activity.
The table below represents the Company’s obligation under the terms of the PPP loan:
SCHEDULE OF PAYROLL PROTECTION PROGRAM LOAN
| 9/30/21 | 12/31/20 | |||||||
| Total PPP loan | $ | $ | ||||||
| Less: current portion | ||||||||
| Non-current portion | $ | $ | ||||||
NOTE 7 — LEASES
The
Company’s leasing arrangements include office space, deployment sites, and storage warehouses domestically and internationally.
The operating leases contain various terms and provisions, with remaining lease terms, for the nine months ending September 30, 2021,
ranging from
On
September 30, 2021, the Company’s balance sheet had (i) $
Adjustments for straight-line rental expenses for the respective periods were not material. The majority of costs recognized are reflected in cash used in operating activities for the respective periods. This expense consisted primarily of payments for base rent on office and warehouse leases. Amounts related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. The Company has an option to renew certain leases for additional periods.
The following represents lease activity for the nine months ending September 30, 2021:
Dubai, UAE
On
May 24, 2021, the Company renewed its lease for office space
| 19 |
NOTE 7 — LEASES (continued)
The following table illustrates operating lease data for three and nine months ended September 30, 2021, and 2020:
SCHEDULE OF OPERATING LEASE DATA
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Lease cost: | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for lease liabilities: | ||||||||||||||||
| Cash flows from operating leases | $ | $ | ||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||||||||||
| Weighted-average remaining lease term—operating leases | ||||||||||||||||
| Weighted-average discount rate—operating leases | % | % | ||||||||||||||
Maturities of operating lease liabilities were as follows as of September 30, 2021:
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
| Amount | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Present value of lease liabilities | ||||
| Less: Current lease liabilities | ||||
| Non-current lease liabilities | $ | |||
The table below lists the location of ROU assets and lease expiration date from 2022 through 2026:
SCHEDULE OF LEASE OBLIGATIONS ASSUMED
| Location | Square Footage | Lease-End Date | Approximate Future Payments | |||||||
| Colchester, U.K. – Waterside House | $ | |||||||||
| Singapore | ||||||||||
| Sarasota, FL | ||||||||||
| Billerica, MA | ||||||||||
| Hemel, UK | ||||||||||
| 20 |
NOTE 8 — DERIVATIVE LIABILITIES
Under the guidance of ASC 815, Accounting for Derivative Instruments and Hedging Activities, the Company, identified common stock warrants in various offerings containing a net cash settlement provision whereby, upon certain fundamental events, the holders could put these warrants back to the Company for cash. We classified the following transactions as derivative liabilities: warrants issued with the July 2016 financing, the August 2017 underwritten offering, and the May 2018 financing.
The Company records derivative liabilities on its consolidated balance sheet at their fair value on the issuance date. The Company revalues the derivative liabilities on each subsequent balance sheet until exercised or expired, with any changes in the fair value between reporting periods recorded as other income or expense. The Company uses option pricing models and assumptions based upon the instruments’ characteristics on the valuation date. We use assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate to estimate fair value.
The following are the critical assumptions used in connection with the valuation of the warrants exercisable into common stock on September 30, 2021, and 2020:
SCHEDULE OF VALUATION AND WARRANTS EXERCISABLE
Nine months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Number of shares underlying the warrants | ||||||||
| The fair market value of stock | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Volatility |
to | % |
to | % | ||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | ||||||||
| Warrant life (years) | ||||||||
Level 3 liabilities are valued using unobservable inputs to the valuation methodology significant in measuring the liabilities’ fair value. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, subject to the approval of the Chief Financial Officer, determines the applicable valuation policies and procedures.
Level 3 Valuation Techniques:
Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities, such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company deems financial instruments that do not have fixed settlement provisions to be derivative instruments. Under US GAAP, the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders. Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities. Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated operations statements in each subsequent period. To calculate fair value, the Company uses a binomial model style simulation, as the standard Black-Scholes model would not capture the value of certain features of the warrant derivative liabilities.
The following table sets forth a summary of the changes in the fair value of Level 3 financial liabilities measured at fair value on a recurring basis:
SCHEDULE OF CHANGES IN FAIR VALUE OF LEVEL 3 FINANCIAL LIABILITIES
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| 21 |
NOTE 9 — STOCKHOLDERS’ EQUITY
Common stock issuances
During the nine months ended September 30, 2021, the Company:
| ● | Specifically,
on February 8, 2021, the Company closed on equity financing and received gross proceeds of approximately $ | |
| ● | Issued
shares of common stock and received gross proceeds of approximately $ | |
| ● | Issued
shares of common stock upon warrant holders exercising common stock warrants, receiving approximately $ | |
| ● | Issued shares of common stock upon warrant holders exercising cashless public common stock warrants. | |
| ● | Issued
-year common stock warrants with an exercise price of $ | |
| ● | Issued
shares of common stock to specific board members under a commitment agreement valued at $ | |
| ● | Recognized approximately $ of stock-based compensation costs associated with outstanding stock options recorded in general and administrative expenses with the offset to additional paid-in capital. |
Common stock warrants
During the nine months ended September 30, 2021, the Company granted warrants, the holders exercised warrants, and warrants expired. The weighted average exercise price of warrants outstanding on September 30, 2021, is $, with a weighted average remaining contractual life of years. As of September 30, 2021, these outstanding warrants contained intrinsic value.
The following table sets forth common stock purchase warrants outstanding as of September 30, 2021:
SCHEDULE OF WARRANT OUTSTANDING
Number
of (in shares) | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Warrants granted | $ | |||||||
| Warrants exercised | ( | ) | $ | ( | ) | |||
| Warrants canceled/expired | ( | ) | $ | ( | ) | |||
| Outstanding, September 30, 2021 | $ | |||||||
| Exercisable, September 30, 2021 | $ | |||||||
| 22 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options
Equity Incentive Plans
SCHEDULE OF STOCK OPTION PLANS
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average remaining contractual life — options outstanding | years | years | ||||||||||||||
| Weighted average remaining contractual life — options exercisable | years | years | ||||||||||||||
| Remaining expense of stock-based compensation | $ | $ | ||||||||||||||
| Remaining amortization period | ||||||||||||||||
| Intrinsic value per share | $ | -- | $ | -- | ||||||||||||
The Company used the U.S. Treasury note’s rate over the expected option term for the risk-free rate. Employees’ expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For nonemployee options, the expected term is the entire term of the option. Expected volatility is based on the average weekly share price changes over the shorter expected term or the period from the Nasdaq Capital Markets Exchange placement to the grant’s date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues over the options’ equivalent lives. The Company has not paid dividends on its common stock, and no assumption of dividend payment(s) is made in the model.
Under ASC Topic 718, the compensation cost is measured based on an award’s fair value at the grant’s date for each option award using the Black Scholes-Merton formula as a valuation technique. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to additional paid-in capital. The employee’s requisite service period begins at the service inception date and ends when the requisite service has been provided. No stock option awards were granted during the nine months ending September 30, 2021, and 2020.
SCHEDULE OF STOCK OPTION ACTIVITY
Number of Options (in shares) | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Options canceled/expired | ( | ) | $ | ( | ) | |||
| Outstanding, September 30, 2021 | $ | |||||||
| Exercisable, September 30, 2021 | $ | |||||||
| * | The above does not include equity instruments issued to senior management. |
| 23 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CEO Inducement Awards
Time Vested Options
On January 22, 2020, the Company granted an inducement award of a ten-year, non-statutory option to purchase shares of the Company stock as part of the employment agreement for Carleton M. Miller, our CEO. The award has an exercise price of $ per share, vesting commencement date of , expiration date of , and
SCHEDULE OF STOCK OPTION PLANS
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average remaining contractual life — options outstanding and exercisable | ||||||||||||||||
| Remaining expense of stock-based compensation | $ | $ | ||||||||||||||
| Remaining amortization period | ||||||||||||||||
| Intrinsic value per share | $ | $ | -- | |||||||||||||
The Company used the U.S. Treasury note’s rate over the expected option term for the risk-free rate. Employees’ expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For nonemployee options, the expected term is the entire term of the option. Expected volatility is based on the average weekly share price changes over the shorter expected term or the period from the Nasdaq Capital Markets Exchange placement to the grant’s date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues over the options’ equivalent lives. The Company has not paid dividends on its common stock, and no assumption of dividend payment(s) is made in the model.
Under ASC Topic 718, the compensation cost of Mr. Miller’s grant is measured based on an award’s fair value at the grant’s date for the time vested option award using the Black Scholes-Merton formula as a valuation technique. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to additional paid-in capital. The employee’s requisite service period begins at the service inception date and ends when the requisite service has been provided. As of September 30, 2021, our CEO held time-vested options, of which options were exercisable. The weighted average exercise price of such outstanding and exercisable options was $ and $, respectively.
| 24 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CEO Inducement Awards (continued)
Performance-Based Option
On January 22, 2020, the Company granted an inducement award of a ten-year, non-statutory option to purchase shares of the Company stock as part of the CEO’s employment agreement. The award has an exercise price of $, a vesting commencement date of , and an expiration date of . The Option Shares will vest in three (3) equal tranches upon attainment of the following applicable performance conditions for each tranche, provided that the CEO remains in continuous employment with the Company through the relevant date of achievement of the performance conditions:
| ● | ||
| ● | ||
| ● |
The Company used the U.S. Treasury note’s rate over the expected option term for the risk-free rate. Employees’ expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For nonemployee options, the expected term is the entire term of the option. Expected volatility is based on the average weekly share price changes over the shorter expected term or the period from the Nasdaq Capital Markets Exchange placement to the grant’s date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues over the options’ equivalent lives. The Company has not paid dividends on its common stock, and no assumption of dividend payment(s) is made in the model.
Under ASC Topic 718, the compensation cost of Mr. Miller’s grant is measured based on an award’s fair value at the grant’s date for the time vested option award using the Black Scholes-Merton formula as a valuation technique. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to additional paid-in capital. The employee’s requisite service period begins at the service inception date and ends when the requisite service has been provided
The probability of achieving any required metrics for vesting is inconclusive as of September 30, 2021. When the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation expense. In addition, we will record any unrecognized costs over the remaining requisite service period of the awards. The Company has not yet recognized compensation expenses related to the performance-based option award.
| 25 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CEO Inducement Awards (continued)
Performance-Based Option (continued)
SCHEDULE OF STOCK OPTION PLANS
| Nine months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Weighted average remaining contractual life — options outstanding and exercisable | ||||||||
| Remaining expense of stock-based compensation | $ | $ | ||||||
| Remaining amortization period | ||||||||
| Intrinsic value per share | $ | $ | ||||||
As of September 30, 2021, Mr. Miller held performance-based stock options, and -- options were exercisable. The weighted average exercise price of such options was $.
Restricted Stock Awards
CEO Restricted Stock Units — Time-Based and Performance-Based
On March 3, 2021, Carleton Miller, the Company’s Chief Executive, received an award under the amended Plan of restricted stock units (“RSUs”). The RSUs are subject to both performance vesting conditions and service vesting requirements as follows:
Time-Based RSUs: RSUs shall , and RSUs shall thereafter, provided that the Grantee remains in continuous employment with the Company on each applicable vesting date.
Performance-Based RSUs: Subject to adjustment as set forth below, RSUs will upon attainment of the following applicable performance conditions for each tranche; provided that the Grantee remains in continuous employment with the Company through the date on which the Committee certifies that the revenue targets below have been attained:
| ● | |
| ● | |
| ● |
The determination of revenue for any fiscal period shall be made based on the Company’s revenues on a consolidated basis for each such fiscal period if Mr. Miller remains in continuous employment with the Company through the date the Compensation Committee certifies the revenue for such fiscal period and authorizes the issuance of the underlying shares of common stock to Mr. Miller according to his award agreement. Except as provided in Mr. Miller’s employment agreement, if he ceases to be an employee of the Company before any vesting date, the remaining portion of the total number of shares unvested is forfeited.
| 26 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CEO Inducement Awards (continued)
CEO Restricted Stock Units – Time-Based and Performance-Based (continued)
Compensation cost recognition
Stock-based compensation costs associated with Mr. Miller’s grant of restricted stock units (“RSUs”) are determined using the fair market value of the Company’s common stock on the date of the grant. The Company uses the closing stock price on the grant date to estimate the fair value of the time-based and performance-based restricted stock units.
Time-based RSUs
For an award with graded vesting subject only to a service condition (e.g., time-based vesting), ASC 718-10-35-8 provides an accounting policy choice between either graded vesting attribution or straight-line attribution. Under ASC 718-10-35-8, the Company elects the graded vesting method, recognizing compensation cost over the requisite service period for each separately vesting tranche as though each tranche of the award is, in substance, a separate award. The Company recognizes compensation expense for only the portion of awards expected to vest. Forfeitures of time-based units and awards are recognized as they occur. As of September 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is $-- per share.
Performance-based RSUs
To recognize compensation costs, the Company must compute the probability to achieve the above revenue level thresholds before generating compensation cost calculations. The probability of achieving any required metrics for vesting for the performance-based awards is inconclusive as of September 30, 2021. When the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount. Upon meeting probable performance conditions, we will record any unrecognized costs over the awards’ remaining requisite service period using the graded vesting method. Forfeitures of performance-based units and awards are recognized as they occur. As of September 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is $-- per share.
As of September 30, 2021, Mr. Miller held unvested time-based restricted stock units and unvested performance-based restricted stock units, both with a weighted average exercise price of $ and a weighted average remaining contractual life of and years for time-based and performance-based restricted stock units, respectively.
CFO Inducement Awards
Time Vested Options
On February 27, 2020, the Company entered into an employment agreement with Michael Bond in connection with his appointment as Chief Financial Officer of the Company, effective as of April 1, 2020, under which Mr. Bond received a time-based option. Accordingly, Mr. Bond received an inducement award of a time-based option to purchase shares of the Company’s stock under NASDAQ Listing Rule 5653(c)(4) outside of the Company’s existing equity compensation plans, in consideration of Mr. Bond’s continued employment by the Company on the applicable vesting date.
The Company granted an inducement award of a ten-year, non-statutory option to purchase shares of the Company stock as part of the CFO’s employment agreement. The award has an exercise price of $, vesting commencement date of , expiration date of , and
| 27 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CFO Inducement Awards (continued)
Time Vested Options (continued)
The Company used the U.S. Treasury note’s rate over the expected option term for the risk-free rate. Employees’ expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide a reasonable basis for estimating the expected term. For nonemployee options, the expected term is the entire term of the option. Expected volatility is based on the average weekly share price changes over the shorter expected term or the period from the Nasdaq Capital Markets Exchange placement to the grant’s date. The Company estimates forfeiture and volatility using historical information. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues over the options’ equivalent lives. The Company has not paid dividends on its common stock, and no assumption of dividend payment(s) is made in the model.
SCHEDULE OF STOCK OPTION PLANS
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average remaining contractual life — options outstanding and exercisable | ||||||||||||||||
| Remaining expense of stock-based compensation | $ | $ | ||||||||||||||
| Remaining amortization period | ||||||||||||||||
| Intrinsic value per share | $ | $ | ||||||||||||||
As of September 30, 2021, Mr. Bond held time-vested options, of which options were exercisable. The weighted average exercise price per share of such options outstanding and exercisable was $ and $, respectively. The weighted average remaining contractual life is years.
Restricted Stock Awards
CFO Restricted Stock Units — Performance-Based
On December 31, 2020, Michael Bond, the Company’s Chief Financial Officer, received an award under the amended Plan of restricted stock units (“RSUs”). The RSUs vest in three equal tranches on or prior to the fifth anniversary of the grant date, subject to the Company achieving certain revenue levels in any trailing four-quarter fiscal period. The RSUs will vest in three (3) equal tranches upon attainment of the following applicable performance conditions for each tranche; provided that the Grantee remains in continuous employment with the Company through the date on which the Committee certifies that the revenue targets below have been attained:
| ● | ||
| ● | ||
| ● |
Except as provided in Mr. Bond’s employment agreement, if Mr. Bond ceases to be an employee of the Company before any Vesting Date, the remaining portion of the Total Number of Shares unvested is forfeited.
| 28 |
NOTE 9 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CFO Inducement Awards (continued)
Restricted Stock Awards (continued)
CFO Restricted Stock Units — Performance-Based (continued)
Compensation cost recognition
Stock-based compensation costs associated with Mr. Bond’s restricted stock units (“RSUs”) are determined using the fair market value of the Company’s common stock on the date of the grant. The Company uses the closing stock price on the grant date to estimate performance-based restricted stock units’ fair value.
To recognize compensation costs, the Company must compute the probability to achieve the above revenue level thresholds before generating compensation cost calculations. The probability of achieving any required metrics for vesting for the performance-based awards is inconclusive as of September 30, 2021. When the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount. Upon meeting probable performance conditions, we will record any unrecognized costs over the awards’ remaining requisite service period using the graded vesting method. Forfeitures of performance-based units and awards are recognized as they occur. As of September 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is $ per share.
As of September 30, 2021, Mr. Bond held unvested performance-based restricted stock units, with a weighted exercise price of $ and a weighted average remaining contractual life of years.
Managing Director Inducement Awards
Time-Vested Restricted Stock Award Units
In connection with the MVP acquisition, the Company’s Board of Directors granted Michel Bais restricted stock units in connection with his appointment as Managing Director of the newly acquired subsidiary MVP. Accordingly, Mr. Bais received an inducement award of restricted stock units with a grant date of August 17, 2021, under NASDAQ Listing Rule 5653(c)(4) outside of the Company’s existing equity compensation plans, in consideration of Mr. Bais’s continued employment by the Company on the applicable vesting date. The units will vest as follows: units on , and units shall thereafter, provided that Mr. Bais remains in continuous employment with the Company on each applicable vesting date.
Compensation cost recognition
Stock-based compensation costs associated with Mr. Bais’s grant of restricted stock units (“RSUs”) are determined using the fair market value of the Company’s common stock on the date of the grant. The Company uses the closing stock price on the grant date to estimate the fair value of the time-based restricted stock units.
For an award with graded vesting subject only to a service condition (e.g., time-based vesting), ASC 718-10-35-8 provides an accounting policy choice between either graded vesting attribution or straight-line attribution. Under ASC 718-10-35-8, the Company elects the graded vesting method, recognizing compensation cost over the requisite service period for each separately vesting tranche as though each tranche of the award is, in substance, a separate award. The Company recognizes compensation expense for only the portion of awards expected to vest. Forfeitures of time-based units and awards are recognized as they occur. As of September 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is $-- per share.
As of September 30, 2021, Mr. Bais held unvested time-based restricted stock units with a weighted average exercise price of $ and a weighted average remaining contractual life of years.
| 29 |
NOTE 10 — COMMITMENTS AND CONTINGENCIES
Legal:
From time to time, the Company is subject to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition, and cash flows. Accordingly, under ASC Topic 450, the Company must accrue a loss contingency if the information is available before issuing the financial statements.
On
August 28, 2020, Macnica, Ltd. filed a lawsuit against the Company. The case involved several outstanding purchase orders for specific
encoders totaling $
| ● | Vislink
acknowledges Macnica, Ltd.’s claim of $ | |
| ● | The Company has taken delivery of the remaining encoders. | |
| ● | Vislink
effected a one-time payment of $ | |
| ● | The
Company agreed to five subsequent monthly payments of $ |
SCHEDULE OF SUBSEQUENT MONTHLY PAYMENTS
| March 15, 2021 | $ | |||
| April 15, 2021 | $ | |||
| May 15, 2021 | $ | |||
| June 15, 2021 | $ | |||
| July 15, 2021 | $ | |||
| August 13, 2021 | $ |
Pension:
At its discretion, the Company may make a matching contribution to the 401(k) plan in which its employees participate. Vislink also has a Group Personal Plan in our U.K. Subsidiary, investing funds with Royal London. U.K. employees are entitled to join the Plan to which the Company contributes varying amounts subject to status. Additionally, the Company operates a stakeholder pension scheme in the U.K.
The table below represents the Company’s matching contributions as follows:
SCHEDULE OF MATCHING CONTRIBUTIONS
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Company matching contributions - Group Personal Pension Plan, U.K. | $ | $ | ( | ) | $ | $ | ||||||||||
NOTE 11 — CONCENTRATIONS
Customer concentration risk
During
the three months ending September 30, 2021,
On
September 30, 2021, approximately $
| 30 |
NOTE 11 — CONCENTRATIONS (continued)
Vendor concentration risk
During
the three months ending September 30, 2021, no vendor accounted for more than 10% of the Company’s quarterly only consolidated
purchases. During the nine months ending September 30, 2021,
During
the three months ended September 30, 2020, one vendor has generated approximately $
On
September 30, 2021, two vendors representing approximately $
On
September 30, 2020, the Company recorded two vendor balances of approximately $
NOTE 12 – REVENUE
The Company has one operating segment, and the decision-making group is the senior executive management team. The Company disaggregated revenue by primary geographical markets and revenue source in the following tables:
SCHEDULE OF DISAGGREGATION OF REVENUE
| Three months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Primary geographical markets: | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| South America | ||||||||||||||||
| Europe | ||||||||||||||||
| Asia | ||||||||||||||||
| Rest of World | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Primary revenue source: | ||||||||||||||||
| Equipment sales | $ | $ | $ | $ | ||||||||||||
| Installation, integration, and repairs | ||||||||||||||||
| Warranties | ||||||||||||||||
| Other (See Note 13) | **( |
) | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Long-Lived Assets: | ||||||||||||||||
| United States | $ | $ | ||||||||||||||
| United Kingdom | ||||||||||||||||
| $ | $ | |||||||||||||||
| ** |
NOTE 13 — REBATES
The amounts generated in Note 11 as part of Primary revenue source “other” resulted from rebates issued to the Company’s filing appropriate governmental forms related to the research costs incurred by our U.K. subsidiary in prior fiscal years. The Company expects to continue filing applicable rebate forms for the 2021 fiscal year but can provide no assurances that such rebates will be available in future financial periods at similar levels or at all.
| 31 |
NOTE 14 — GAIN ON SETTLEMENT OF DEBT
During
the nine months ending September 30, 2021, the Company negotiated a vendor accounts payable balance of $
On
July 26, 2021, the Payroll Protection Program (“PPP”) loan of $
NOTE 15 — SUBSEQUENT EVENTS
On November 1, 2021, the Company entered into
a lease agreement with a non-affiliated third party (the “Landlord”) to rent approximately
SCHEDULE OF MONTHLY BASE RENT
| Period | Monthly Base Rent | |||
| 11/1/21 to 1/31/22 | $ | |||
| 2/1/22 to 1/31/23 | $ | |||
| 2/1/23 to 1/31/24 | $ | |||
| 2/1/24 to 1/31/25 | $ | |||
| 2/1/25 to 1/31/26 | $ | |||
| 2/1/26 to 1/31/27 | $ | |||
The Company is relocating its corporate facilities
from Hackettstown, NJ, to Mount Olive, NJ, with the projected completion date by December 31, 2021, as part of the strategic initiative
plan implemented in early 2020. The anticipated effect of this lease on our right-of-use asset and lease liability will be approximately
$
| 32 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the accompanying consolidated financial statements, and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission
Cautionary Note About Forward-Looking Statements
This report includes forward-looking statements that, although based on assumptions that we consider reasonable, are subject to risks and uncertainties, which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. Accordingly, you should read this report and the documents that we reference in this report and have filed as exhibits to this report entirely and with the understanding that our actual future results may be materially different from what we expect. You should also review the factors and risks we describe in the reports we will file or submit from time to time with the SEC after this report’s date. We qualify all of our forward-looking statements by these cautionary statements.
Overview of COVID-19 Effects
The Company closely monitors the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact business partners. The COVID-19 pandemic in generating cases worldwide affects air and sea cargo shippers, factory shutdowns, and closures, creating global supply-chain bottlenecks, shortages of components, and surging prices of critical raw materials squeezing manufacturers globally. The Company is experiencing supply chain delays obtaining specific inventory items, and mitigating these issues, the Company’s operations team increased inventory levels in its purchase management of these components. The execution of this policy has improved our ability to ship products.
The Company cannot predict the impact that the COVID-19 pandemic will continue to have on our financial condition, results of operations, and cash flows due to numerous uncertainties. These uncertainties include the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the development, rollout, and availability of effective treatments and vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving, and many countries have reacted by instituting quarantines, mandating business closures, and restricting travel. The federal government and certain states and cities, including those where the location of our principal place of business is and sales force seek to operate, have also reacted by vaccine mandates, instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate. The Company cannot predict if the federal government or additional states and cities will implement similar or other restrictions or when restrictions or mandates currently in place will expire.
As a result, the COVID-19 pandemic negatively impacts almost every industry directly or indirectly, including the industries in which we operate. Further, the impacts of a potential worsening of global economic conditions with continued disruptions, volatility in the credit and financial markets, consumer spending, and other unanticipated consequences remain unknown. See Item 1A. Risk Factors in this Form 10-Q, for discussion of certain risks associated with COVID-19, including the potential adverse effects on our operations, supply chain, and cash flow due to the U.S. Government vaccine mandate for employees, contractors, and subcontractors that service federal contracts. Additionally, see the section titled Risk Factors in our 2020 Annual Report on Form 10-K for discussion of risks related to COVID-19.
Vislink enforces strict social distancing, symptom self-assessments, sanitation, and mask protocols within its facilities. We believe that we comply with all public health guidance, and we continue to take precautionary measures, make contingency plans, and improve our response to the ongoing situation. The Company continues to perform most administrative operations remotely, in the U.S. and overseas. The Company continues to limit business travel and face-to-face meetings, and a portion of its non-manufacturing employees work remotely. Remote work arrangements and travel restrictions have not adversely affected Vislink’s ability to maintain operations and financial reporting, and the Company does not anticipate a material impact on its human capital resources or productivity.
Climate Change-Related Effects
Climate change is an important global issue that presents opportunities and challenges for our company, partners, and communities. Climate change matters for our company are likely to be driven by changes in physical climate parameters, regulations and/or public policy, and changes in technology and product demand.
While we seek to mitigate the risks associated with climate change, we recognize inherent climate-related risks regardless of where we conduct our businesses. Access to clean water and reliable energy in the communities where we operate our company is a priority. Any of our locations may be vulnerable to the adverse effects of climate change. Climate-related events can potentially disrupt our business, including our customers, and cause us to experience higher attrition, losses, and additional costs to resume operations.
| 33 |
Overview
Vislink is a global technology business specializing in collecting, delivering, and managing high-quality live video and associated data from the action scene to the viewing screen. Vislink provides solutions for collecting live news, sports, and entertainment events for the broadcast markets. Vislink also furnishes the surveillance and defense markets with real-time video intelligence solutions using various tailored transmission products. The Vislink team also provides professional and technical services utilizing a technology expert staff with decades of applied knowledge and real-world experience in the terrestrial microwave, satellite, fiber optic, surveillance, and wireless communications systems delivering a broad spectrum of customer solutions.
LIVE BROADCAST:
Vislink delivers an extensive portfolio of solutions for live news, sports, and entertainment industries. These solutions encompass the video collection, transmission, management, and distribution via microwave, satellite, cellular, I.P., and MESH networks. With over 50 years in operation, Vislink has the expertise and technology portfolio to deliver fully integrated, seamless, end-to-end solutions.
Industry-wide contributors acknowledge Vislink’s live broadcast solutions. The transmission of a vast majority of all outside wireless broadcast video content uses our equipment, with over 200,000 systems installed worldwide. We work closely with the majority of the world’s broadcasters. Vislink wireless cameras and ultra-compact encoders help bring many of the world’s most prestigious sporting and entertainment events to life. Recent examples include globally watched international sporting contests, award shows, racing events, and annual music and cultural events.
MILITARY AND GOVERNMENT:
Building on our knowledge of live video delivery, Vislink has developed high-quality solutions to meet surveillance and defense markets’ operational and industry challenges. Vislink solutions are specifically designed with interagency cooperation in mind, utilizing a standard international protocol, I.P., platform, and a web interface for video delivery. Vislink provides comprehensive video, audio, and data communications solutions to law enforcement and public safety, including Airborne, Unmanned Systems, Maritime, and Tactical Mobile Command Posts. These solutions may include airborne downlinks, terrestrial point-to-point, tactical mobile command, maritime, UAV, and personal portable products that meet the demands of field operations, command centers, and central receiving sites. Short-range and long-range solutions are available in areas including established infrastructure and exceptionally remote regions, making valuable video intelligence available regardless of location. Vislink public safety and surveillance solutions are deployed worldwide, including throughout the U.S., Europe, and the Middle East, at the local, regional, and federal levels of operation, a criminal investigation, crisis management, mobile command posts, and field operations.
SATELLITE COMMUNICATIONS:
Over 30 years of technical expertise supports Vislink’s satellite solutions. These solutions ensure robust, secure communications while delivering low transmission costs for any organization that needs high-quality, reliable satellite transmission. We offer turnkey solutions that begin with state-of-the-art coding, compression, engine modulation and end with our robust, lightweight antenna systems. Vislink Satellite solutions focus heavily on being the smallest, lightest, and most efficient in their categories, making transportation and ease of use a key driver in the customer experience. Vislink offers an extensive range of satellite designs that allow customers to optimize bit rate, size, weight, and total cost. Our satellite systems are used extensively globally, with over 2,000 systems deployed by governments, militaries, and broadcasters alike.
RECENT DEVELOPMENTS:
On August 16, 2021, the Company, through a wholly-owned subsidiary, entered into a stock purchase agreement with Triple I.T. Corporate B.V., a private company incorporated in the Netherlands, under which the Company acquired 100% of the outstanding capital of Mobile Viewpoint Corporate B.V. (“MVP”).
The Mobile Viewpoint acquisition will enable Vislink to fulfill its strategic aim of providing an industry-leading portfolio of live video acquisition, contribution, and distribution solutions that meet the demanding needs of media, enterprise, defense, and government organizations. Vislink and its customers will benefit from the ability to address the most transformative trends in today’s live video market, such as:
| ● | Live internet video traffic is growing fast: from 2016 to 2021, there was a 15-fold increase in live video internet traffic (71.9% CAGR); | |
| ● | The acceleration towards cloud-based remote production; | |
| ● | The increasing demand for enhanced video content formats such as 4K, 8K, and 360-degree video; | |
| ● | The proliferation of new video transport capable networks such as 5G and Starlink. |
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Results of Operations
Comparison for the three and nine months ended September 30, 2021, and 2020
Revenues
In the three months ended September 30, 2021, the revenue was $11.2 million compared to $4.8 million for the three months ended September 30, 2020, representing an increase of $6.4 million or 133%. In the nine months ended September 30, 2021, the revenue was $22.8 million compared to $16.1 million for the nine months ended September 30, 2020, representing an increase of $6.7 million or 42%.
The increase in revenues is predominantly twofold: (1) the company’s revenue recognition of a U.S. Army contract, previously deferred in the prior quarter, by the satisfaction of its performance obligations in July 2021, (2) recognition of additional revenue upon the August 16, 2021 acquisition of MVP.
Cost of Revenue and Operating Expenses
Cost of Components and Personnel
In the three months ended September 30, 2021, the cost of components and personnel was $4.2 million compared to $3.3 million for the three months ended September 30, 2020, representing an increase of $0.9 million or 27%. In the nine months ended September 30, 2021, the cost of components and personnel was $9.9 million compared to $8.5 million for the nine months ended September 30, 2020, representing an increase of $1.4 million or 16%.
The increase in the cost of components and personal is predominantly twofold: (1) the company’s satisfaction of a second-quarter 2021 open order with the U.S. Army contract by the compliance of its performance obligations in July 2021, (2) and additional costs of components resulting upon the August 16, 2021 acquisition of MVP.
General and Administrative Expenses
General and administrative expenses are costs incurred in the operation of the day-to-day business, including salaries and benefits, stock-based compensation, payroll taxes, trade shows, marketing programs, promotional materials, professional services, facilities upkeep, general liability insurance, travel other operating expenses associated with an established public entity.
In the three months ended September 30, 2021, the general and administrative expenses were $6.0 million compared to $3.2 million for the three months ended September 30, 2020, representing an increase of $2.8 million or 88%. In the nine months ended September 30, 2021, the general and administrative expenses were $13.4 million compared to $12.7 million for the nine months ended September 30, 2020, representing an increase of $0.7 million or 6%.
The three-month increase of $2.8 million is primarily attributable to an increase of $1.6 million of transaction/acquisition costs incurred as part of the Company’s acquisition of MVP, an increase in salaries and benefits of $0.8 million, an increase of $0.5 million in foreign exchange expense recognized, an increase of $0.3 in commissions, and an increase of $0.2 of directors fees. The increase was offset by a decrease of $0.6 million in rent and utilities.
The nine-month increase of $0.7 million is primarily attributable to an increase of $1.3 million of transaction/acquisition costs incurred as part of the Company’s acquisition of MVP, an increase of $0.5 million of salaries and benefits offset by a decrease of $0.7 million in rent and utilities, and a reduction of $0.6 million in stock-based compensation.
Research and Development Expenses
Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, payroll taxes, prototypes, facilities, and travel costs.
In the three months ended September 30, 2021, research and development expenses were $0.8 million compared to $0.6 million for the three months ended September 30, 2020, representing an increase of $0.2 million or 33%. In the nine months ended September 30, 2021, research and development expenses were $2.2 million compared to $1.8 million for the nine months ended September 30, 2020, representing an increase of $0.4 million or 22%.
The three-month increase of $0.2 million is primarily attributable to miscellaneous research expenses. The nine-month increase of $0.4 million is primarily attributable to increased employee expenses and miscellaneous research expenses of $0.2 million each.
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Amortization and Depreciation
In the three months ended September 30, 2021, amortization and depreciation expenses were $0.3 million compared to $0.3 million for the three months ended September 30, 2020, representing no change.
In the nine months ended September 30, 2021, amortization and depreciation expenses were $0.9 million compared to $1.1 million for the nine months ended September 30, 2020, representing a decrease of $0.2 million or 18%.
The decline is attributable to an increase in fully depreciated long-lived assets.
Other Income
Gain on settlement of debt
In the three months ended September 30, 2021, and 2020, no transactions occurred requiring the recognition of gain on settlement of related party obligations. In the nine months ended September 30, 2021, and 2020, the gain on settlement of related party obligations was $-0- million and $0.3 million, respectively, representing a decrease of $0.3 million or 100%.
This decrease is attributable to no transactions occurring in the current quarter to recognize the results of related party transactions in the fiscal year 2021.
Gain on settlement of debt
In the three and nine months ended September 30, 2021, the company recognized a gain on settlement of debt amounting to $1.2 million and $1.4 million, respectively. The company did not identify a gain on settlement of debt in 2020. The increase is predominantly attributable to the forgiveness of the PPP government grant in July 2021.
Net Loss
In the three months ended September 30, 2021, the Company had a net income of $0.7 million compared to a net loss of $2.8 million for the three months ended September 30, 2020, or an increase of $3.5 million or 125%. In the nine months ended September 30, 2021, the Company had a net loss of $2.8 million compared to a net loss of $8.0 million for the nine months ended September 30, 2020, or a decrease of $5.2 million or 65%.
The reduction in net loss is primarily attributable to the Company’s strategic initiative plan implemented in the fiscal year of 2020.
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Liquidity and Capital Resources
The Company incurred an approximate $4.2 million loss from operations and $8.2 million of cash used in operating activities for the nine months ending September 30, 2021. The Company had $49.8 million in working capital, $273.0 million in accumulated deficits, and $37.9 million of cash on hand as of November 15, 2021.
During the nine months ended September 30, 2021, the Company issued 6,163,198 shares of common stock for net proceeds of $12,600,000 under its at-the-market facility with Alliance Global Partners (the “ATM”). As of November 15, 2021, $4,500,000 of capacity remains under the ATM.
The continuous impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations, and cash flows remains unsettled, indeterminate, and volatile such as vaccine mandates by federal, state, and local governments. The unpredictability of the pandemic’s scope, severity, duration, and actions implemented to alleviate its direct and indirect economic effects and containment measures provides no assurances that the pandemic will not have material adverse repercussions on the Company’s operations, liquidity, financial condition, and any residual unfavorable consequences to global economics.
The Company bases its evaluation on possibilities that may prove wrong and could exhaust our available capital resources sooner than we expect. Developments may take place, including those beyond our control, that would cause us to consume our available capital more quickly, including but not limited to those relating to the markets in which we compete or wish to enter, strategic acquisitions, our market strategy, our research and development activities, regulatory matters, and technology and product innovations. Notwithstanding these risks and uncertainties, based on management’s liquidity preservation program and proactive spending reductions implemented in the fiscal year 2020, as well as the capital injections discussed above, the Company believes it will have sufficient funds to continue its operations for at least twelve months from the date of these financial statements.
Critical Accounting Policies
As of the date of the filing of this quarterly report, we believe there have been no material changes to our critical accounting policies during the nine months ended September 30, 2021, compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 15, 2021. The location of additional information about these critical accounting policies is in the “Management’s Discussion & Analysis of Financial Condition and Results of Operations” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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Cash Flows
The following table sets forth the significant components of our cash flows data statements for the periods presented.
For the Nine Months Ended
(In Thousands)
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (8,229 | ) | $ | (10,698 | ) | ||
| Net cash used in investing activities | (17,504 | ) | (227 | ) | ||||
| Net cash provided by financing activities | 58,605 | 12,294 | ||||||
| Effect of exchange rate changes on cash | (5 | ) | 17 | |||||
| Net increase in cash | $ | 32,867 | $ | 1,386 | ||||
Operating Activities
Net cash used in operating activities of approximately $8.3 million during the nine months ended September 30, 2021, was principally attributable to an increase in inventory of $4.8 million, an increase in gain on settlement of debt of $1.4 million, an increase in net income of $2.8 million, a decrease in accounts payable of $1.9 million. The increases were predominantly offset by an increase in deferred revenue and customer deposits of $0.3 million, $0.9 of amortization and depreciation, $0.5 million of inventory valuation adjustments, and $0.2 million of bad debt.
Net cash used in operating activities of approximately $10.7 million during the nine months ended September 30, 2020, was principally attributable to decreases in accounts payable of $3.3 million, accounts receivable of $2.3 million, and deferred revenue and customer deposits of $1.2 million. The reductions were substantially offset by an increase in inventory of $2.2 million.
Investing Activities
Net cash used by investing activities for the nine months ended September 30, 2021, and 2020 were $17.5 million and $0.2 million, respectively, and principally related to the cash used in the acquisition of 100% of MVP’s outstanding shares, cash acquired from the MVP acquisition, offset by a decrease capital expenditure for furniture and computer equipment.
Financing Activities
Net cash provided by financing activities of approximately $58.6 million during the nine months ended September 30, 2021, was principally attributable to net proceeds from equity raises and common stock warrants’ exercise.
Net cash provided by financing activities of approximately $12.3 million during the nine months ended September 30, 2020, was principally attributable to net proceeds of $11.6 million from equity raises and $1.2 million from a PPP governmental loan. It was offset by $0.4 million of principal payments connected with the working capital financing and notes payable.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of September 30, 2021, there have been no material changes to the information related to quantitative and qualitative disclosures about the market risk provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 15, 2021.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that the disclosure of required information is in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information requiring disclosure in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting
As required by Rules 13a-15f and 15d-15 under the Exchange Act, our Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon their evaluation, our Certifying Officers concluded that our disclosure controls and·procedures (as defined in Rules 1 3a -15(e) and I5d-15(e) under the Exchange Act) were not effective as of September 30, 2021, due to the previously reported material weakness in our internal control over financial reporting. We identified the material weakness and discussed it in our annual report for the year ended December 31, 2020.
Notwithstanding the identified material weakness as of September 30, 2021, management, including the Certifying Officers, believe that the unaudited condensed consolidated financial statements contained in this Quarterly Report filing fairly present, in all material respect, our financial condition, results of operations, and cash flows for the fiscal period presented in conformity with GAAP.
c) Changes in Internal Controls over Financial Reporting
We have continued our remediation efforts in connection with the identification of material weaknesses, as discussed above. Specifically, we have enhanced the supervisory review of our accounting procedures. As of September 30, 2021, the material weakness discussed above had not been fully remediated. Accordingly, we continue to remediate our controls regarding operating efficiency.
On August 16, 2021, the Company acquired Mobile Viewpoint Corporate B.V. (“MVP”). See Note 3 of “Notes to The Condensed Consolidated Financial Statements.” We are currently integrating MVP into our operations and internal control processes. As we complete this integration, we are analyzing, evaluating, and, where necessary, making changes in control and procedures related to the MVP business, which we expect to complete within one year after the date of acquisition. Under the SEC’s guidance that an assessment of a recently acquired company may be omitted from the scope of an evaluation in the year of purchase, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2021, may exclude MVP to the extent that they are not yet integrated into our internal controls environment.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
You should carefully consider the following risk factors, in addition to the other information in this report on Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report on Form 10-Q occurs, our business, operating results, and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements due to factors described below and elsewhere in this report. The risk factor set forth below contains changes to the similarly titled risk factor included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 15, 2021.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic has unfavorably affected the Company’s business, financial condition, and operating results and could affect the Company’s liquidity. We cannot predict, with any certainty, how future events may affect our operations in the near and long-term in the COVID-19 pandemic environment.
The global supply chain weaknesses involve computer chips and other components essential to specific product lines. The Company is subject to supply chain risks relating to its dependence on suppliers, the majority of which are single-source providers of parts or components for particular Company product lines. The Company's ability to continue to prepare for and sustain production depends, among other things, on the readiness and solvency of suppliers and vendors through all macroeconomic factors, including factors resulting from the COVID-19 pandemic. Shipping delays, slowdowns in worldwide shipping, and shortages of containers affect the arrival of components from overseas. We have undertaken to maintain an efficient supply chain; however, we cannot anticipate if a chip or component shortage will unfavorably affect the Company's manufacturing process and its ability to deliver products.
The COVID-19 pandemic and the continued measures to reduce its spread have negatively impacted the global economy, disrupted consumer/customer demand and global supply chains, and created significant volatility and financial markets disruption. These measures and the continued volatility of the worldwide economy adversely affected our results of operations for 2020.
The extent to which COVID-19 will impact our business remains uncertain and will depend on various changing factors on a day-to-day basis. We may not be able to predict such items accurately as:
| ● | the duration and scope of the pandemic, | |
| ● | the disruption of the national and global economy, | |
| ● | the span of the economic downturn, | |
| ● | the laws, executive orders, programs, vaccine mandates, and actions governments will enact or take, | |
| ● | the possibility to which our clients’ businesses contract or fail, | |
| ● | the applicability to which new regulations intended to help small and medium-sized businesses, | |
| ● | the extent to which our operations are impacted by facility closures, remote work and/or infections, | |
| ● | and how quickly and to what time normal economic and operating conditions can resume. |
Any of these factors could exacerbate the risks and uncertainties related to the COVID-19 pandemic.
The Company fully implemented a strategic initiative plan during the first quarter of 2020. We executed spending reductions to improve liquidity, a partial workforce reduction, the furlough of employees, and discretionary spending reduction. The Company continued its focus in November 2020, further reducing the workforce, eliminating inventory related to discontinued product lines, reducing individual facilities usage, and reducing operations expenditures.
Risks Related to the Company and Our Business
We face risks related to COVID-19, which could significantly disrupt our operations and have a material adverse impact on us and our business.
The extent to which COVID-19 continues to impact the Company’s operations, results of operations, liquidity, and financial condition will depend on future developments. With the current Presidential administration working towards “herd immunity,” President Biden issued an executive order requiring all on-site and remote federal employees, contractors, and sub-contractors to be vaccinated against COVID-19 or receive an approved medical or religious exemption by December 8, 2021, which may apply to us because of our products and solutions provided to the U.S. government. Legal challenges to this executive order are currently underway with additional challenges expected, which leads to uncertainty about the constitutionality and enforceability of the executive order. However, failure to comply with the executive order at this time could lead to loss of a contract, which could have a material adverse effect on our business, revenues, financial condition, and results of operations. The timing and efficacy of the vaccination programs in the jurisdictions in which the Company operates, and the actions implemented to contain the impact of COVID-19 by Federal and local governments, limit determining the foreseeable resulting economic effects with any level of predictability.
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Risks Related to the Company and Our Business (continued)
Our business may suffer from risks related to acquisitions and potential future acquisitions.
Part of our strategic business plan is to grow our business through acquisitions, and we continue to evaluate and engage in discussions concerning potential acquisition opportunities, some of which could be material. For example, in August 2021, we acquired MVP. Failure to successfully integrate or otherwise realize the anticipated benefits of the MVP or other potential acquisitions could adversely impact our long-term competitiveness and profitability. The integration of any investment will involve several risks that could harm our financial condition, results of operations, and competitive position. In particular:
| ● | We base the integration plans for our acquisitions on benefits that involve assumptions as to future events, including our ability to successfully achieve anticipated synergies, leveraging our existing relationships, as well as general business and industry conditions, many of which are beyond our control and may not materialize. Unforeseen factors may offset components of our integration plans in whole or in part. As a result, our actual results may vary considerably or be delayed significantly, compared to our estimates; | |
| ● | the integration process could disrupt the activities of the businesses that are being combined. The combination of companies requires, among other things, coordination of administrative and other functions. In addition, the loss of key employees, customers, or vendors of acquired businesses could materially and adversely impact the integration of the acquired companies; | |
| ● | the execution of our integration plans may divert the attention of our management from other vital responsibilities; | |
| ● | our financial results may be negatively impacted by cash expenses and non-cash charges incurred in connection with an acquisition if goodwill or other intangible assets we acquire become impaired; | |
| ● | we may enter new markets or markets in which we have limited prior experience; | |
| ● | we may incur substantial indebtedness to finance an acquisition, enhancing our vulnerability to increased debt service requirements should interest rates rise, reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions, and limiting our flexibility in planning for or reacting to changes in our businesses and industries; | |
| ● | we may assume unanticipated liabilities and contingencies or other exposures (including regulatory risks) for which we do not have adequate insurance coverage, indemnification, or additional protection; or | |
| ● | our acquisition targets could fail to perform per our expectations at the time of purchase. |
Our ability to grow through the acquisition of other companies depends on identifying acceptable acquisition targets and opportunities, our ability to consummate prospective transactions on favorable terms, or at all, and the availability of capital to complete the necessary acquisition arrangements. We intend to finance our acquisitions through a combination of our available cash resources, third-party financing, and the further issuance of equity and/or debt securities in appropriate circumstances.
Acquiring other companies could significantly affect our financial position and cause substantial fluctuations in our quarterly and yearly operating results. Also, acquisitions could result in the recording of significant goodwill and intangible assets on our financial statements, the amortization or impairment of which would reduce reported earnings in subsequent years.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
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Item 6. Exhibits.
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In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
| * | Filed herewith | |
| (1) | Filed as an Exhibit on Form S-1 with the SEC on October 23, 2013. | |
| (2) | Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 13, 2014. | |
| (3) | Filed as an Exhibit on Current Report on From 8-K with the SEC on July 20, 2015. | |
| (4) | Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 20, 2016. | |
(5) (6) (7) |
Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 20, 2021. Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 16, 2021 Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 16, 2021 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VISLINK TECHNOLOGIES, INC. | ||
| Date: November 15, 2021 | By: | /s/ Carleton Miller |
| Carleton Miller | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 15, 2021 | By: | /s/ Michael Bond |
| Michael Bond | ||
| Chief Financial Officer | ||
| (Principal Accounting and Financial Officer) | ||
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