Vislink Technologies(VISL) - 2023 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements The company's financial statements for the period ended June 30, 2023, show a decrease in total assets and an increase in total liabilities compared to December 31, 2022. Revenue declined for both the three and six-month periods compared to the prior year, leading to an increased net loss for the quarter but a slightly decreased net loss for the six-month period. Cash flow from operations remained negative, and the company made significant investments in held-to-maturity securities Condensed Consolidated Balance Sheets As of June 30, 2023, total assets were $49.7 million, a decrease from $51.8 million at year-end 2022, primarily due to a significant drop in cash and cash equivalents from $25.6 million to $11.0 million, partially offset by a new $10.8 million investment in held-to-maturity securities. Total liabilities increased to $9.1 million from $8.1 million, while total stockholders' equity decreased from $43.7 million to $40.6 million Condensed Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $10,973 | $25,627 | | Investments held to maturity | $10,837 | $0 | | Total current assets | $43,110 | $44,887 | | Total assets | $49,704 | $51,796 | | Liabilities & Equity | | | | Total current liabilities | $7,490 | $6,273 | | Total liabilities | $9,079 | $8,144 | | Total stockholders' equity | $40,625 | $43,652 | | Total liabilities and stockholders' equity | $49,704 | $51,796 | Unaudited Condensed Consolidated Statements of Operations For the three months ended June 30, 2023, revenue decreased to $5.0 million from $6.8 million in the prior-year period, with the net loss widening to $3.0 million from $2.5 million. For the six-month period, revenue fell to $12.2 million from $13.6 million, while the net loss slightly narrowed to $4.8 million from $5.3 million year-over-year Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $5,043 | $6,766 | $12,231 | $13,626 | | Loss from operations | $(3,384) | $(2,576) | $(5,732) | $(5,720) | | Net loss | $(3,028) | $(2,526) | $(4,784) | $(5,293) | | Basic and diluted loss per share | $(1.27) | $(1.10) | $(2.02) | $(2.30) | Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash used in operating activities was $3.2 million, an improvement from $8.2 million used in the same period of 2022. Net cash used in investing activities significantly increased to $11.2 million, primarily due to the purchase of held-to-maturity investments. Consequently, cash and cash equivalents decreased by $14.7 million during the period, ending at $11.0 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,194) | $(8,238) | | Net cash used in investing activities | $(11,184) | $(298) | | Net cash used in financing activities | $(213) | $(458) | | Net decrease in cash and cash equivalents | $(14,654) | $(9,352) | | Cash and cash equivalents, end of period | $10,973 | $26,879 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide details on the company's operations, liquidity, accounting policies, and financial statement components. Key events include a 1-for-20 reverse stock split in May 2023, significant investments in federal bonds, and a strategic decision to relocate UK manufacturing to the US. The company believes it has sufficient funds for the next twelve months despite recurring losses. Revenue is primarily from equipment sales, with North America and Europe being the largest geographical markets - The company designs, develops, and deploys products and solutions for real-time video collection and delivery for broadcast, military, and government sectors[33] - On May 1, 2023, the company effected a 1-for-20 reverse stock split of its common stock to regain compliance with Nasdaq's minimum bid price rule[34][73] - Despite a net loss of $5.7 million from operations and using $3.2 million in cash for operations in the first six months of 2023, management believes the company has sufficient funds to continue operations for at least the next twelve months[42][44] - In July 2023, the company decided to relocate its UK manufacturing division to the United States, expecting to incur approximately $0.2 million in severance costs over the next six months[101] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 25% decrease in Q2 2023 revenue to the discontinuation of several underperforming product lines in late 2022. The company is now focusing on its more successful products. Operating expenses saw mixed changes, with a decrease in R&D and cost of components, but an increase in G&A expenses. The net loss widened for the quarter but narrowed for the six-month period. The company invested a significant portion of its cash reserves into government-backed bonds and money market funds to generate interest income. A key strategic move is the relocation of UK manufacturing to the US, which is expected to yield annual savings of approximately $1.0 million - The company is relocating its UK manufacturing division to the United States starting in September 2023, which is anticipated to result in approximately $1.0 million in annual savings and will cost about $0.2 million in severance[111] - Revenue decreased by 25% for the three months and 10% for the six months ended June 30, 2023, compared to the same periods in 2022. This is attributed to the discontinuation of several product lines in late 2022[123][124] - The company invested approximately $10.8 million in Federal bonds and $11.3 million in money market mutual funds during the first quarter of 2023 to increase investment income[141] Results of Operations For Q2 2023, revenue fell by $1.7 million (25%) YoY, primarily due to discontinuing product lines. Cost of components decreased in line with revenue. However, G&A expenses rose by $0.3 million, while R&D expenses fell by $0.3 million. The net loss for the quarter increased by $0.6 million to $3.1 million. For the six-month period, the net loss decreased by $0.4 million to $5.0 million, aided by lower costs and higher interest income, which partially offset the $1.4 million revenue decline Key Financial Metrics Comparison (YoY) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | ↓ $1.7M (25%) | ↓ $1.4M (10%) | | Cost of Components | ↓ $0.8M (25%) | ↓ $0.9M (14%) | | G&A Expenses | ↑ $0.3M (7%) | ↑ $0.4M (4%) | | R&D Expenses | ↓ $0.3M (25%) | ↓ $0.6M (26%) | | Net Loss | ↑ $0.6M (23%) | ↓ $0.4M (7%) | Liquidity and Capital Resources As of June 30, 2023, the company had $11.0 million in cash and $35.6 million in working capital. Despite incurring a $5.7 million operating loss and using $3.2 million in cash for operations during the first six months of 2023, management asserts that the company has sufficient funds to continue operations for at least the next twelve months. A significant portion of cash reserves was invested in Federal bonds and money market funds to generate income - The company held $11.0 million in cash and $35.6 million in working capital as of June 30, 2023[140] - Management believes it has sufficient funds to operate for at least twelve months from the filing date, despite ongoing operational losses[142] Cash Flows For the first six months of 2023, net cash used in operating activities improved to $3.2 million from $8.2 million in the prior year period. Cash used in investing activities was $11.2 million, a substantial increase from $0.3 million in 2022, driven by investments in government-backed securities. Cash used in financing activities was minimal at $0.2 million for principal payments on D&O policy premiums Cash Flow Comparison for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,194) | $(8,238) | | Net cash used in investing activities | $(11,184) | $(298) | | Net cash used in financing activities | $(213) | $(458) | Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to the information regarding quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to market risk disclosures were reported for the period ended June 30, 2023[151] Controls and Procedures Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were ineffective due to material weaknesses. These weaknesses stem from an insufficient number of accounting personnel to ensure proper segregation of duties and risk assessment, and inadequate documentation of internal control effectiveness. The company has engaged a third-party consultant to assist with remediation efforts, which are ongoing - Management identified material weaknesses in internal controls over financial reporting as of June 30, 2023[153] - The weaknesses are due to (i) an insufficient number of accounting personnel for proper segregation of duties and risk assessment, and (ii) inadequate documentation of internal control assessment[153] - A third-party consultant has been engaged to help document and remediate the control deficiencies[154] PART II: OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other disclosures, and exhibits Legal Proceedings The company reports that it is not currently a party to any material pending legal proceedings that would have an adverse effect on its financial position or results of operations - The company is not currently involved in any material legal proceedings[159] Risk Factors The company highlights new risks associated with the strategic relocation of its manufacturing division from the United Kingdom to the United States. These risks are categorized into economic (currency fluctuations, tax implications), operational (workforce and supply chain disruption), and legal/regulatory factors (differences in employment laws). Failure to manage this relocation effectively could materially harm business and financial performance - New risks have been identified related to the relocation of a division from the U.K. to the U.S[161] - Key risks include currency fluctuations, different tax laws, potential workforce and supply chain disruptions, and navigating different employment laws between the U.K. and U.S[161][162][163] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[166] Other Information The company reports that no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2023 - No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements during the quarter[170] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Sections 302 and 906 of the Sarbanes-Oxley Act) and Inline XBRL documents - Lists required certifications from the Principal Executive Officer and Principal Financial Officer, as well as XBRL data files[171]