Vislink Technologies(VISL) - 2020 Q4 - Annual Report

Part I Business Vislink Technologies provides live video and data solutions for broadcast, military, and satellite markets, implementing cost reductions and product integration - The company operates in three main sectors: Live Broadcast, Military and Government (Mil/Gov), and Satellite Communications, providing end-to-end video transmission solutions[18][21][22] - In 2020, the company implemented significant cost reduction initiatives, including workforce reductions and reduced discretionary spending, projecting annual savings of approximately $5.0 million[24] - A key strategy involves leveraging the integrated IMT and Vislink product lines to offer an expanded suite of products across international and domestic markets, covering both licensed and non-licensed spectrum solutions[27] - As of December 31, 2020, the company held 36 granted patents in the U.S. and 12 internationally[52] - As of December 31, 2020, the company employed 109 full-time employees, contractors, or consultants[59] Risk Factors The company faces risks from the COVID-19 pandemic, recurring operating losses, potential Nasdaq delisting, internal control weaknesses, and supply chain dependencies - The company's financial statements include disclosures regarding liquidity and financial condition due to recurring operating losses and cash used from operations; for the year ended Dec 31, 2020, the operating loss was approximately $17.9 million[66][71] - The company acknowledges material weaknesses in its financial reporting controls, including ineffective risk assessment, challenges in integrating accounting systems from acquisitions, and limitations in accounting personnel due to workforce reductions and the COVID-19 pandemic[88][92][96] - The COVID-19 pandemic has negatively impacted business, financial condition, and operating results, and the company cannot predict the full extent of future impacts[67][68] - The company faces risks of delisting from Nasdaq if it fails to comply with continued listing requirements; it previously received a letter of reprimand in April 2020 for non-compliance with Listing Rule 5635(d)[73][74] - The company relies on a limited number of suppliers for several components and does not have long-term contracts, which could disrupt manufacturing if a supplier is lost[102] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[147] Properties The company leases all properties, renegotiating several in 2020 to reduce costs, including headquarters and facilities in the UK and Singapore Key Leased Properties and Annual Rent | Location | Details | Annual Rent (Approx.) | | :--- | :--- | :--- | | Hackettstown, NJ | Headquarters, new one-year lease effective May 1, 2020 | $239,000 | | Billerica, MA | New lease effective March 24, 2020, reducing space by ~79% | $95,000 | | Singapore | New lease effective August 10, 2020 | $30,500 | | Hemel, UK | Lease extended to October 27, 2023 | $175,000 | | Colchester, UK | Lease expires March 24, 2025 | $275,000 | Legal Proceedings The company is not a party to any material litigation, nor is it aware of any pending or threatened litigation that would materially affect its business - As of the report date, the company is not a party to any material litigation[153] Mine Safety Disclosures This item is not applicable to the company - Not applicable[154] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Vislink's common stock trades on Nasdaq under 'VISL', with 45.65 million shares outstanding as of March 2021, and the company has never paid cash dividends - The company's common stock trades on the Nasdaq Capital Market under the ticker 'VISL'[156] - As of March 29, 2021, there were 45,652,249 shares of common stock outstanding[156] - The company has never declared or paid a cash dividend and does not expect to in the foreseeable future[158] Selected Financial Data As a smaller reporting company, Vislink is not required to provide disclosures for this item - Disclosure under this item is not required as the company is a smaller reporting company[161] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, revenue decreased 21% to $22.9 million due to COVID-19, while net loss slightly improved to $17.6 million, driven by cost savings and significant post-year-end equity financing Consolidated Results of Operations (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | $22,882 | $28,942 | | Cost of components and personnel | $13,867 | $15,741 | | General and administrative expenses | $17,024 | $20,099 | | Impairment of inventory | $3,801 | $0 | | Impairment of right-of-use assets | $895 | $0 | | Loss from operations | ($17,888) | ($17,200) | | Interest expense, net | ($121) | ($1,878) | | Net loss | ($17,575) | ($18,047) | - Revenue decreased by $6.0 million (21%) in 2020 compared to 2019, attributed to the negative impacts of the COVID-19 pandemic on the international marketplace[177][178] - The company's cash position improved significantly after year-end, from $5.2 million on December 31, 2020, to approximately $59.3 million on April 14, 2021, due to subsequent equity financing[199][304] Cash Flow Summary (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($14,354) | ($8,355) | | Net cash used in investing activities | ($258) | ($425) | | Net cash provided by financing activities | $17,998 | $8,519 | | Net increase (decrease) in cash | $3,453 | ($268) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Vislink is not required to provide disclosures for this item - Disclosure under this item is not required as the company is a smaller reporting company[237] Financial Statements and Supplementary Data The company's audited financial statements and notes are filed starting on page F-1 of the report - The company's audited financial statements and notes are filed starting on page F-1[238] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[239] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2020, due to material weaknesses in internal control over financial reporting, including ineffective risk assessment and integration challenges - Management concluded that the company's internal control over financial reporting was not effective as of December 31, 2020[241][91] - Identified material weaknesses include: (1) Ineffective risk assessment and monitoring of internal controls (2) Risks related to integrating information from various accounting systems post-acquisitions (3) Delays and limitations in accounting personnel due to the COVID-19 pandemic and workforce reductions[248][253] - The company plans to remediate these weaknesses by appointing additional qualified personnel and adopting more robust written policies as resources become available and it moves towards a more unified accounting system[245][249] Other Information The company reports no other information for this item - None[253] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters Information for Items 10 through 14 is incorporated by reference from the company's forthcoming 2021 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2021 proxy statement[255][256][257] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including financial statements and various agreements, with financial schedules omitted as not applicable - The section provides a detailed index of all exhibits filed with the report, including charter documents, material contracts, and certifications[262][264] - Financial statement schedules were omitted because they were not applicable or the information was already included in the financial statements or notes[262] Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the financial statements, highlighting a critical audit matter regarding inventory valuation adjustments - The auditor's opinion is that the financial statements are fairly presented in conformity with U.S. GAAP[276] - A Critical Audit Matter was identified related to the 'Evaluation of Net Realizable Value Adjustments to Inventories for Excess or Obsolescence' due to the high degree of judgment involved in management's estimates[281][283] Consolidated Financial Statements The consolidated financial statements show a decrease in total assets and liabilities, a slight improvement in net loss to $17.6 million, and a net cash increase driven by financing activities Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $16,515 | $16,785 | | Total assets | $20,651 | $23,604 | | Total current liabilities | $8,846 | $13,212 | | Total liabilities | $10,654 | $14,375 | | Total stockholders' equity | $9,997 | $9,229 | Consolidated Statement of Operations Data (in thousands) | | For the Year Ended Dec 31, 2020 | For the Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Revenue, net | $22,882 | $28,942 | | Loss from operations | ($17,888) | ($17,200) | | Net loss | ($17,575) | ($18,047) | | Basic and diluted loss per share | ($1.19) | ($12.08) | Notes to Consolidated Financial Statements The notes detail liquidity, significant equity events including a reverse stock split and financings, lease impairments, legal settlements, and a crucial post-year-end $50 million capital raise - Despite a $17.9 million operating loss in 2020, management believes it has sufficient funds to continue operations for at least 12 months, primarily due to significant capital raised after the fiscal year-end[304][309] - The company executed a 1-for-6 reverse stock split effective July 31, 2020; all share and per-share amounts have been retroactively adjusted[439] - In 2020, the company recorded a $3.8 million impairment charge on inventory due to the elimination of specific product lines and an $895,000 impairment on right-of-use lease assets due to facility consolidations[377][406] - The company has significant federal net operating loss (NOL) carryforwards of approximately $177.5 million, but a full valuation allowance has been recorded against the related deferred tax assets due to uncertainty of realization[508][509] - Subsequent to year-end, on February 8, 2021, the company closed an equity financing for gross proceeds of approximately $50 million, significantly strengthening its balance sheet[518]