Vislink Technologies(VISL) - 2020 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2020 Condensed Consolidated Balance Sheets The balance sheet shows decreased total assets and liabilities, while total stockholders' equity increased as of March 31, 2020 | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | |:---|:---|:---|:---| | Total Assets | $23,604 | $21,774 | $(1,830) | | Total Liabilities | $14,375 | $10,997 | $(3,378) | | Total Stockholders' Equity | $9,229 | $10,777 | $1,548 | Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss The company reported a wider net loss in Q1 2020 compared to the prior year, driven by a significant decrease in revenue | Metric | Q1 2019 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---| | Revenue, net | $8,206 | $5,352 | $(2,854) | -34.8% | | Total cost of revenue and operating expenses | $10,872 | $10,104 | $(768) | -7.1% | | Loss from operations | $(2,666) | $(4,752) | $(2,086) | 78.2% | | Net (loss) income | $(3,090) | $(4,430) | $(1,340) | 43.4% | | Basic and diluted loss per share | $(1.62) | $(0.09) | $1.53 | -94.4% | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased in Q1 2020, primarily due to equity raises that offset the net loss for the period | Metric | Jan 1, 2020 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | |:---|:---|:---|:---| | Total Stockholders' Equity | $9,229 | $10,777 | $1,548 | | Additional Paid In Capital | $261,871 | $267,572 | $5,701 | | Accumulated Deficit | $(252,572) | $(257,002) | $(4,430) | Unaudited Condensed Consolidated Statements of Cash Flows The company experienced a net increase in cash, as cash from financing activities more than offset cash used in operations | Cash Flow Activity | Q1 2019 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | |:---|:---|:---|:---| | Net cash used in operating activities | $(1,564) | $(4,435) | $(2,871) | | Net cash used in investing activities | $(39) | $(97) | $(58) | | Net cash provided (used) in financing activities | $(85) | $5,250 | $5,335 | | Net increase (decrease) in cash | $(1,681) | $722 | $2,403 | | Cash, end of period | $324 | $2,459 | $2,135 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's accounting policies, liquidity, assets, liabilities, equity, and revenue breakdown NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Vislink Technologies focuses on advanced wireless communication solutions for broadcasting, sports, law enforcement, and surveillance markets[20] - The IMT subsidiary specializes in COFDM microwave communications equipment for real-time live video broadcasting[21][22] - The Vislink subsidiary specializes in the wireless capture, delivery, and management of secure, high-quality live video[23][24] Basis of Presentation and Principles of Consolidation - Financial statements are prepared under US GAAP for interim information, following Form 10-Q and Regulation S-X[25] - Consolidated financial statements include Vislink Technologies and its wholly-owned subsidiaries, with intercompany transactions eliminated[26] Use of Estimates and Risks and Uncertainties - Significant accounting estimates include asset useful lives, impairment, allowances for receivables, and various reserves[27] - The COVID-19 pandemic poses highly uncertain and difficult-to-predict risks with potential adverse material effects on the business[28][29][30] Inventories and Revenue Recognition - Inventory is valued at the lower of cost (FIFO) or net realizable value[31] - Revenue is recognized under ASC Topic 606 when control of goods or services is transferred to customers[32][33][34] Leases - Operating leases are recognized as ROU assets and liabilities on the balance sheet for terms over 12 months[36] - The incremental borrowing rate (IBR) is generally used to calculate ROU assets and lease liabilities[37] Stock-Based Compensation and Loss Per Share - Stock compensation is recognized at fair value over the service period, following ASC 718 for employees and ASU 2018-07 for non-employees[39][40] - Basic and diluted loss per share are calculated by dividing net loss by weighted-average shares outstanding, excluding anti-dilutive equivalents[41] | Anti-dilutive Potential Common Stock Equivalents (in thousands) | Mar 31, 2020 | Mar 31, 2019 | |:---|:---|:---| | Stock options | 391 | 610 | | Convertible debt | — | 1,352 | | Warrants | 8,604 | 1,187 | | Total | 8,995 | 3,149 | Fair Value of Financial Instruments and Foreign Currency - Fair value is determined using a three-level hierarchy, prioritizing observable inputs[45][48] - Foreign currency translation gains/losses are recognized in accumulated other comprehensive income or the income statement[46][47] | Foreign Exchange (in thousands) | Mar 31, 2020 | Mar 31, 2019 | |:---|:---|:---| | Net foreign exchange transactions: Losses (gains) | $584 | $(89) | | Accumulated comprehensive income: Unrealized (gains) losses on currency translation adjustment | $(277) | $33 | Subsequent Events and Recently Issued Accounting Principles - No material subsequent events were identified for disclosure, except as explicitly mentioned[50] - The company is evaluating ASU No. 2016-13 (Credit Losses), with an effective date postponed to fiscal years after December 15, 2022[51] NOTE 2 — LIQUIDITY AND FINANCIAL CONDITION Capital-raising events and Strategic Initiatives | Capital-Raising Event | Date | Gross Proceeds (approx.) | Net Proceeds (approx.) | Purpose | |:---|:---|:---|:---|:---| | Equity Financing (Common Stock, Pre-funded Warrants, Warrants) | Nov 27, 2019 | $3,988,096 | N/A | Alleviate backorders, working capital | | Equity Financing (Common Stock, Warrants, Pre-funded Warrants) | Feb 14, 2020 | $5,998,000 | $5,438,000 | Working capital, general corporate purposes | | Shelf Registration Statement on Form S-3 | May 5, 2020 | Up to $100,000,000 | N/A | Future offerings of common/preferred stock, warrants, units | - Strategic initiatives include remote work, renegotiating leases (81% reduction in rental fees), and proactive spending reductions for approximately $5.0 million in annual savings[55][56] Paycheck Protection Program ("PPP") and Liquidity - Received a $1.2 million PPP loan on April 10, 2020, with a 1.00% interest rate[57][112][145] - PPP loan forgiveness is available for documented payroll costs, rent, and utilities, subject to certain conditions[58][146] - The company believes it has sufficient funds for at least 12 months, but future performance is subject to uncertainty from COVID-19[59][147] NOTE 3 — INTANGIBLE ASSETS | Intangible Asset Category | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Amortization Q1 2020 (in thousands) | |:---|:---|:---|:---| | Patents and Licenses Technology (Net) | $1,900 | $1,700 | $200 | | Other Intangible Assets (Net) | $1,022 | $921 | $101 | | Total Intangible Assets (Net) | $2,922 | $2,621 | $301 | - The weighted average remaining life of the company's intangible assets is approximately 3.6 years[65] NOTE 4 — NOTES PAYABLE | Note Payable | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Maturity | Interest Rate | |:---|:---|:---|:---|:---| | MB Technology Holdings, LLC | $231 | $231 | Sep 18, 2020 | 8.022% | | IMT Working Capital Loan | $108 | $62 | Apr 24, 2020 | 1.9% | | Total Notes Payable | $339 | $293 | | | NOTE 5 — LEASES - Operating lease liabilities were approximately $1.72 million as of March 31, 2020, with a weighted-average remaining term of 5.0 years[70] - A new lease agreement at the Billerica location reduced square footage by 79% and resulted in a $21,000 lease termination gain[69] | Lease Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | |:---|:---|:---| | Operating lease cost | $202 | $301 | | Short-term lease cost | $102 | $31 | | Sublease income | $(46) | $(35) | | Total lease cost | $258 | $297 | | Operating cash flows from operating leases | $253 | $310 | | Right-of-use assets obtained in exchange for new operating lease liabilities | $546 | $2,899 | NOTE 6 — RELATED PARTY TRANSACTIONS - Amended agreement with MB Merchant Group, LLC (MBMG) to narrow services, focusing on M&A and financing[75] - Negotiated a final settlement of $561,000 due to MBMG for approximately $230,000, recognizing a $331,000 gain[75][140] | Related Party Transaction | Q1 2020 (in thousands) | Q1 2019 (in thousands) | |:---|:---|:---| | Consulting fees incurred, recurring | $200 | $150 | | Consulting fees incurred, non-recurring | $120 | $25 | | Amounts repaid to MBMG in cash | $825 | $230 | NOTE 7 — DERIVATIVE LIABILITIES - Warrants with net cash settlement provisions are classified as Level 3 derivative liabilities, valued using a binomial model[77][79][80] | Derivative Liabilities (in thousands) | Mar 31, 2020 | Mar 31, 2019 | |:---|:---|:---| | Beginning balance | $30 | $1,118 | | Change in fair value of derivative liabilities | $(17) | $74 | | Ending balance | $13 | $1,192 | NOTE 8 — STOCKHOLDERS' EQUITY Common Stock Issuances and Warrants - In February 2020, the company closed an equity financing, resulting in $5.3 million net proceeds for working capital[82] - Issued 47.1 million common shares from the exercise of warrants, generating approximately $9,600 in net proceeds[82] | Common Stock Warrants | Dec 31, 2019 (shares) | Mar 31, 2020 (shares) | Weighted Average Exercise Price (Mar 31, 2020) | |:---|:---|:---|:---| | Outstanding | 25,125,447 | 11,094,709 | $2.00 | | Granted | N/A | 42,099,400 | $0.20 | | Exercised | N/A | (56,127,764) | $(0.20) | | Cancelled/Expired | N/A | (5,374) | $(411.80) | Common Stock Options | Stock Option Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | |:---|:---|:---| | Stock compensation expense | $386 | $609 | | Stock Options | Dec 31, 2019 (shares) | Mar 31, 2020 (shares) | Weighted Average Exercise Price (Mar 31, 2020) | |:---|:---|:---|:---| | Outstanding | 505,050 | 486,050 | $14.83 | | Exercisable | N/A | 391,424 | $15.42 | CEO Inducement Award — Time Vested Option - CEO granted a time-vested option for 2,155,481 shares at a $0.285 exercise price[87] | Time Vested Option Metric | Q1 2020 (in thousands) | |:---|:---| | Stock compensation expense | $18 | | Remaining stock compensation expense | $574 | | Remaining amortization period | 3.81 years | CEO Inducement Award — Performance-Based Option - CEO granted a performance-based option for 1,500,000 shares vesting upon achieving cumulative EBITDA targets[91][93] - As of March 31, 2020, $414,000 of stock-based compensation expense for this award remains unrecognized[93] NOTE 9 — COMMITMENTS AND CONTINGENCIES Legal and Pension - Accrued $140,000 for potential liability in a lawsuit filed by Hale Capital Partners, LP[95] | Pension Contributions | Q1 2020 (in thousands) | Q1 2019 (in thousands) | |:---|:---|:---| | UK Group Personal Pension Plan matching contributions | $43 | $33 | Nasdaq Compliance - Received Nasdaq notices for non-compliance with the $1.00 minimum bid price rule, with the compliance period extended to December 7, 2020[98][99][100][101] - Received a public reprimand from Nasdaq for violating shareholder approval rules in a February 2020 equity offering[102][103] - Delisting from Nasdaq could make it difficult to trade common stock and raise additional capital[104] NOTE 10 — CONCENTRATIONS | Concentration Type | Q1 2020 | Q1 2019 | |:---|:---|:---| | Revenue from single customer | 16% ($854,000) | <10% | | Accounts receivable from one customer | 15% ($605,000) | 12% ($649,000) | | Inventory purchases from one vendor | 36% ($1,084,000) | 43% ($2,467,000) | | Accounts payable from top three vendors | 41% ($634k, $494k, $459k) | <10% for any single vendor | NOTE 11 – REVENUE | Revenue Category | Q1 2020 (in thousands) | Q1 2019 (in thousands) | % Change | |:---|:---|:---|:---| | Total Revenue | $5,352 | $8,206 | -34.8% | | Primary Geographical Markets: | | | | | North America | $2,076 | $3,919 | -47.0% | | Europe | $1,963 | $2,350 | -16.4% | | Asia | $105 | $1,390 | -92.4% | | Rest of World | $1,187 | $528 | 124.8% | | Primary Revenue Source: | | | | | Equipment sales | $4,980 | $7,561 | -34.2% | | Installation, integration and repairs | $329 | $601 | -45.2% | | Warranties | $43 | $44 | -2.3% | NOTE 12 — SUBSEQUENT EVENTS - Received a $1.2 million Paycheck Protection Program (PPP) loan on April 10, 2020[112] | Warrant Exercises (Post Mar 31, 2020) | Quantity of Warrants Exercised | Quantity of Common Stock Issued | |:---|:---|:---| | Nov 2019 Equity Raise (Cashless) | 20,000 | 15,000 | | Feb 2020 Equity Raise (Cashless) | 9,547,836 | 7,160,877 | | Total | 9,567,836 | 7,175,877 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of COVID-19 on financial performance and outlines mitigation strategies for Q1 2020 Potential Impacts of the COVID-19 Pandemic - COVID-19 has adversely affected operations, leading to potential supplier limitations and delivery difficulties[117][118] - Mitigation measures include reducing discretionary spending, streamlining staffing, and securing government assistance[119][120] - The cumulative effects of COVID-19 on operating results, cash flows, and financial condition are currently unassessable[119][121][122] Overview of Business - Vislink Technologies' strategy is to deliver advanced wireless communications solutions for reliability, mobility, and performance[123] - The IMT subsidiary specializes in COFDM microwave communications for live broadcasting and surveillance markets[124][125] - The Vislink subsidiary focuses on wireless capture and management of secure, high-quality live video for broadcast and law enforcement[126][127] Results of Operations Revenues | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Revenue, net | $5.4 | $8.2 | $(2.8) | -34% | - Revenue reduction is attributable to supply chain issues due to the COVID-19 pandemic and a decline in new orders[129] Cost of Revenue and Operating Expenses | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Cost of components and personnel | $2.8 | $4.1 | $(1.3) | -32% | - The decrease in cost of components and personnel is proportional to the revenue decline[130] General and Administrative Expenses | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | General and administrative expenses | $6.2 | $5.2 | $1.0 | 19% | - The increase was driven by $0.7 million in foreign exchange losses and $0.5 million in public entity expenditures[133] Research and Development Expenses | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Research and development expenses | $0.7 | $0.9 | $(0.2) | -22% | - The decrease was primarily due to reductions in consulting fees and miscellaneous research expenditures[137] Amortization and Depreciation | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Amortization and depreciation | $0.4 | $0.6 | $(0.2) | -33% | - The decline is attributed to an increase in fully depreciated long-lived assets[139] Other (Expense) Income | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Gain on settlement of related party obligations | $0.3 | $0.0 | $0.3 | 100% | | Interest expense | $0.0 | $0.4 | $(0.4) | -100% | - A gain on settlement resulted from negotiating a related party obligation for less than face value[140] - Interest expense decreased due to the payoff of significant long-term debt in fiscal year 2019[141] Net (Loss) Income | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | Change (in millions) | % Change | |:---|:---|:---|:---|:---| | Net (loss) income | $(4.4) | $(3.1) | $(1.3) | 42% | - The increase in net loss is mainly associated with the decline in revenue experienced in Q1 2020[142] Liquidity and Capital Resources Capital-raising events | Capital-Raising Event | Date | Gross Proceeds (approx.) | Purpose | |:---|:---|:---|:---| | Equity Financing (Nov 2019) | Nov 27, 2019 | $3,988,000 | Alleviate backorders, working capital | | Equity Financing (Feb 2020) | Feb 14, 2020 | $5,998,000 | Working capital, general corporate purposes | | Shelf Registration (Form S-3) | May 5, 2020 | Up to $100,000,000 | Future offerings | Paycheck Protection Program ("PPP") and Liquidity - Received a $1.2 million PPP loan on April 10, 2020, with a 1.00% interest rate[145] - Loan forgiveness is available for payroll, rent, and utilities, subject to conditions on headcount and salary reductions[146] - Combined capital raises and the PPP loan provide sufficient funds for at least 12 months, though future performance remains uncertain[147] Cash Flows | Cash Flow Activity | Q1 2020 (in thousands) | Q1 2019 (in thousands) | Change (in thousands) | |:---|:---|:---|:---| | Net cash used in operating activities | $(4,435) | $(1,564) | $(2,871) | | Net cash used in investing activities | $(97) | $(39) | $(58) | | Net cash provided by (used) in financing activities | $5,250 | $(85) | $5,335 | | Net increase (decrease) in cash | $722 | $(1,681) | $2,403 | - Operating cash flow was negatively impacted by increased inventory and decreased deferred revenue[151] - Financing cash flow was significantly boosted by net proceeds from equity raises and warrant exercises[154] Nasdaq Compliance - Received Nasdaq notices for non-compliance with the $1.00 minimum bid price rule, with the compliance period extended to December 7, 2020[156][157][158][159] - Received a public reprimand from Nasdaq for violating shareholder approval rules in a February 2020 equity offering[160] - Delisting from Nasdaq could make it difficult to trade common stock and raise additional capital[161] Off-Balance Sheet Arrangements - The company does not have any material off-balance sheet arrangements[162] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Vislink Technologies is not required to provide these disclosures - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[163] Item 4. Controls and Procedures Management concluded disclosure controls were not effective due to a lack of segregation of duties and material weaknesses Evaluation of Disclosure Controls and Procedures - Disclosure controls and procedures were not effective as of March 31, 2020, due to a lack of segregation of duties[165] - Material weaknesses in internal control over financial reporting, identified in the 2019 Form 10-K, continue to exist[167] - The company is materially dependent on limited accounting personnel and expects to make improvements as resources permit[166][168] Changes in Internal Controls - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2020[169] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company had no material litigation matters pending as of March 31, 2020 - The company is subject to ordinary course litigation but had no material litigation matters pending as of March 31, 2020[172][173] Item 1A. Risk Factors As a smaller reporting company, Vislink Technologies is not required to provide detailed risk factors - As a smaller reporting company, the registrant is not required to provide risk factors[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[175] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities to report[176] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[177] Item 5. Other Information No material changes were made to the procedures for recommending Board of Director nominees - No material changes to procedures for security holders to recommend Board nominees[178] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (Sarbanes-Oxley Act Sections 302 and 906) and XBRL taxonomy documents[180][186] SIGNATURES The report was duly signed by the CEO and CFO on behalf of the company on May 27, 2020 - The report is signed by Carleton Miller (CEO) and Michael Bond (CFO) on May 27, 2020[184]