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VISLINK TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
For the six months ended June 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 that identify 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 can only be 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 the results and outcomes 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. Report) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
The Company undertakes no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after this Report’s date. 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)
| June 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 | ||||||||
| 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 June 30, 2021, and December 31, 2020; -- shares issued and outstanding as of June 30, 2021, and December 31, 2020 | ||||||||
| Common stock – $ par value per share, shares authorized, and shares issued and and outstanding as of June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Treasury stock, at cost – shares at June 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 LOSS
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 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 loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Unrealized gain (loss) on currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive 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 SIX MONTHS ENDED JUNE 30, 2021
(IN THOUSANDS, EXCEPT SHARE DATA)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| 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-based compensation | — | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Unrealized gain on currency translation adjustment | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, June 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 SIX MONTHS ENDED JUNE 30, 2020
(IN THOUSANDS, EXCEPT SHARE DATA)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| 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 | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| 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, March 31, 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 issuance commitments | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Balance, June 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 Six Months Ended June 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 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: | ||||||||
| Notes payable recognized on D & O insurance policy | $ | $ | ||||||
| Common stock warrants issued in connection with: | ||||||||
| Settlement of amounts due to related parties | $ | $ | ||||||
| ROU assets and operating lease obligations recognized (Note 6): | ||||||||
| Operating lease assets recognized | $ | |||||||
| Less: non-cash changes to operating lease assets | ||||||||
| amortization | ( | ) | ( | ) | ||||
| lease termination | ( | ) | ||||||
| Operating lease liabilities recognized | $ | $ | ||||||
| Less: non-cash changes to operating lease liabilities | ||||||||
| accretion | ( | ) | ( | ) | ||||
| lease termination | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
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 scene of the action 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 of content, 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 the law enforcement and public safety community, 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. Additionally, short-range and long-range solutions are available in areas that include 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 aim to 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.
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 the instructions to Form 10-Q and Regulation S-X. 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 June 30, 2021, the results of its operations, and cash flow for the six months ended June 30, 2021, and 2020. Such adjustments are of a routine recurring nature. The results of operations for the six months ended June 30, 2021, may not indicate results for an entire year, any other interim period, or any future period.
| 8 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
The accompanying financial statements have been prepared in conformity with US GAAP as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”), and the rules and regulations of the SEC. The accompanying consolidated financial statements include the Company’s accounts and its wholly-owned subsidiaries, Vislink, LLC and Vislink, LTD. Upon consolidation, we eliminated all intercompany accounts and transactions among consolidated entities
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. These estimates also affect the reported amounts of revenues and expenses during the reporting periods. 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. 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 and information continues to evolve. Policymakers worldwide have responded with fiscal policy actions 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 costs of completion, disposal, and transportation. Inventory valuation adjustments are on the face of the unaudited condensed consolidated statements of operations for the six months ended June 30, 2021, and 2020.
| 9 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 June 30, 2021.
| 10 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 time-based and performance-based restricted stock units’ fair value.
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
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. For the diluted net loss per share calculation purposes, common stock equivalents are excluded from the calculation because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders is the same for a net loss period.
| Six months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Anti-dilutive potential common stock equivalents excluded from the calculation of loss per share: | ||||||||
| Stock options | ||||||||
| Warrants | ||||||||
| 11 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
The Company has recognized foreign exchanges gains and losses and changes in accumulated comprehensive income approximately as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net foreign exchange transactions: | ||||||||||||||||
| 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 at the following exchange rates for the respective periods:
| ● | As
of June 30, 2021 – £ | |
| ● | The
average exchange rate for the six months ended June 30, 2021 – £ |
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 the use of 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 June 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). |
| 12 |
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 14.
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.
2 — LIQUIDITY AND FINANCIAL CONDITION
The
Company incurred an approximate $
During
the six months ended June 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 remains unsettled, indeterminate, and volatile. 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.
We expect our existing capital resources to enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, we base our 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.
| 13 |
3 — INTANGIBLE ASSETS
Intangible assets consist of the following finite assets:
| Patents and Licenses | Trade Names and Technology | Customer Relationships | ||||||||||||||||||||||||||
| Accumulated | Accumulated | Accumulated | ||||||||||||||||||||||||||
| Costs | Amortization | Costs | Amortization | Costs | Amortization | Net | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Additions | ||||||||||||||||||||||||||||
| Impairments | ||||||||||||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
Patents and Licenses:
The
Company amortizes filed patents and licenses over their useful lives, ranging between
Other Intangible Assets:
The
Company amortizes these other intangible assets over their estimated useful lives of
The Company has recognized net capitalized intangible costs as follows:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Patents and Licenses | $ | $ | ||||||
| Trade Names and Technology | ||||||||
| Customer Relationships | ||||||||
| $ | $ | |||||||
The Company has recognized the amortization of intangible assets as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 2.9 years. The following table represents the estimated amortization expense for total intangible assets for the succeeding five years:
| Period ending June 30, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| $ | |||||
| 14 |
NOTE 4 — NOTES PAYABLE
The table below represents the Company’s notes payable as of June 30, 2021, and December 31, 2020
| Principal | ||||||||
| 6/30/21 | 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 $ | ||||||||
| $ | $ | |||||||
NOTE 5 – PAYROLL PROTECTION PROGRAM LOAN
On
April 10, 2020, the Company received approximately $
The
PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that
(1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2)
Management is accounting for the governmental grant under Topic ASC 470. The Company has recognized a liability for the total amount of the proceeds received. Any amount forgiven falls under ASC 405-20 and would be treated as a gain on loan extinguishment on 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:
| 6/30/21 | 12/31/20 | |||||||
| Total PPP loan | $ | $ | ||||||
| Less: current portion | ||||||||
| Non-current portion | $ | $ | ||||||
| 15 |
NOTE 6 — 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 six months ending June 30, 2021, ranging
from
On
June 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 six months ending June 30, 2021:
Dubai, UAE
On
May 24, 2021, the Company renewed its lease for office space
The following table illustrates operating lease data for three and six months ended June 30, 2021, and 2020:
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 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 June 30, 2021:
| 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 | $ | ||||
| 16 |
NOTE 6 — LEASES (continued)
The table below lists the location and lease expiration date from 2021 through 2026:
| Location | Square Footage | Lease-End Date | Approximate Future Payments | ||||||||
| Colchester, U.K. – Waterside House | $ | ||||||||||
| Singapore | |||||||||||
| Anaheim, CA | |||||||||||
| Sarasota, FL | |||||||||||
| Billerica, MA | |||||||||||
| Hemel, UK | |||||||||||
NOTE 7 — 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 identified and classified the following transactions as derivative liabilities: warrants issued in connection 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 June 30, 2021, and 2020:
Six months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| Number of shares underlying the warrants | ||||||||
| The fair market value of stock | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Volatility | % | % | ||||||
| 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.
| 17 |
NOTE 7 — DERIVATIVE LIABILITIES (continued)
The following table sets forth a summary of the changes in the fair value of Level 3 financial liabilities that are measured at fair value on a recurring basis:
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
NOTE 8 — STOCKHOLDERS’ EQUITY
Common stock issuances
During the six months ended June 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 $ | |
| ● | 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 six months ended June 30, 2021, the Company granted warrants, the holders exercised warrants, and warrants expired. The weighted average exercise price of warrants outstanding on June 30, 2021, is $, with a weighted average remaining contractual life of years. As of June 30, 2021, these outstanding warrants contained intrinsic value.
The following table sets forth common stock purchase warrants outstanding as of June 30, 2021:
Number of Warrants (in shares) | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Warrants granted | $ | |||||||
| Warrants exercised | ( | ) | $ | ( | ) | |||
| Warrants canceled/expired | ( | ) | $ | ( | ) | |||
| Outstanding, June 30, 2021 | $ | |||||||
| Exercisable, June 30, 2021 | $ | |||||||
| 18 |
NOTE 8 — STOCKHOLDERS’ EQUITY (continued)
Common stock options
Equity Incentive Plans
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 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.
The compensation cost is measured based on an award’s fair value at the grant’s date for each option award. The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC. Topic 718 for estimating the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to equity (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. During the six months ending June 30, 2021, and 2020, stock option awards were granted.
Number of Options (in shares) | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Options canceled/expired | ( | ) | $ | ( | ) | |||
| Outstanding, June 30, 2021 | $ | |||||||
| Exercisable, June 30, 2021 | $ | |||||||
| * |
| 19 |
NOTE 8 — 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
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 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.
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. The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC Topic 718 for estimating the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to equity (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 June 30, 2021, our CEO held time-vested options, of which options were exercisable. The weighted average exercise price of such options was $and $, respectively.
| 20 |
NOTE 8 — 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.
The compensation cost of Mr. Miller’s grant is measured based on an award’s fair value at the grant’s date for the performance-based option award. The Company uses the Black Scholes-Merton formula as a valuation technique under the guidance of ASC Topic 718 for estimating the fair values of employee share options and similar instruments. For employee equity-classified awards, compensation cost is recognized over the employee’s requisite service period with a corresponding credit to equity (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 June 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 expense related to the performance-based option award.
| Six months Ended | ||||||||
| June 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 June 30, 2021, Mr. Miller held performance-based stock options, and -- options were exercisable. The weighted average exercise price of such options was $.
| 21 |
NOTE 8 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
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.
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 time-based and performance-based restricted stock units’ fair value.
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 June 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 June 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 June 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is $-- per share.
As of June 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 years.
| 22 |
NOTE 8 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
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
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.
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 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 June 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.
| 23 |
NOTE 8 — STOCKHOLDERS’ EQUITY (continued)
Common stock options (continued)
CFO Inducement Awards (continued)
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.
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 June 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 June 30, 2021, the un-amortized stock-based compensation is approximately $, and the intrinsic value of restricted stock units is per share.
As of June 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.
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NOTE 9 — 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 the financial statements’ issuance.
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 $ |
| March 15, 2021 | $ | |||
| April 15, 2021 | $ | |||
| May 15, 2021 | $ | |||
| June 15, 2021 | $ | |||
| July 15, 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.
| 25 |
NOTE 9 — COMMITMENTS AND CONTINGENCIES (continued)
The table below represents the Company’s matching contributions as follows:
| Three months Ended | Six months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| Company matching contributions - Group Personal Pension Plan, U.K. | $ | $ | $ | $ | |||||||||||||
NOTE 10 — CONCENTRATIONS
Customer concentration risk
During
the three and six months ended June 30, 2021,
On
June 30, 2021,
Vendor concentration risk
During
the three months ended June 30, 2021, approximately $
On
June 30, 2021, two vendors representing approximately $
NOTE 11 – 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:
| Three months Ended | Six months Ended | |||||||||||||||
| June 30, | June 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 12) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Long-Lived Assets: | ||||||||||||||||
| United States | $ | $ | ||||||||||||||
| United Kingdom | ||||||||||||||||
| $ | $ | |||||||||||||||
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NOTE 12 — 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.
NOTE 13 — GAIN ON SETTLEMENT OF DEBT
During
the six months ending June 30, 2021, the Company negotiated a vendor accounts payable balance of $
NOTE 14 — SUBSEQUENT EVENTS
The Company evaluated subsequent events under ASC 855 "Subsequent Events." The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.
Office lease
The
Company renewed its lease for
Share issuance
The
Company issued shares of common stock and received gross proceeds of approximately $
Stock purchase agreement
On August 16, 2021, the Company entered into a
stock purchase agreement (the “Agreement”) with Mobile Viewpoint Corporate B.V. (“MVP”). The Agreement is between
Vislink, LTD, our U.K. subsidiary, and Triple I.T. Corporate B.V., for the approximate cash acquisition price of $
Military contract
The
Company included in deferred revenue a shipment of products to the U.S. Army in the amount of $
| 27 |
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. While we began to experience disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, we 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. 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 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 additional states and cities will implement similar conditions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic negatively impacts almost every industry directly or indirectly, including 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.
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.
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Overview
Vislink is a global technology business specializing in collecting, delivering, and managing high-quality live video and associated data from the scene of the action 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 of content, 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 the law enforcement and public safety community, 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. Additionally, short-range and long-range solutions are available in areas that include 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 aim to 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.
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Results of Operations
Comparison for the three and six months ended June 30, 2021, and 2020
Revenues
In the three months ended June 30, 2021, the revenue was $7.6 million compared to $6.0 million for the three months ended June 30, 2020, representing an increase of $1.6 million or 27%. In the six months ended June 30, 2021, the revenue was $11.6 million compared to $11.4 million for the six months ended June 30, 2020, representing an increase of $0.2 million or 2%.
The increase in revenue is primarily attributable to the current quarter recognition of previous delayed sales orders due to the effects of the worldwide pandemic, coupled with a strong showing of our new product lines in advanced video solutions. Additionally, the company partially recognized a U.S. Department of Defense $3.8 million contract in revenue.
Cost of Revenue and Operating Expenses
Cost of Components and Personnel
In the three months ended June 30, 2021, the cost of components and personnel was $3.5 million compared to $2.4 million for the three months ended June 30, 2020, representing an increase of $1.1 million or 46%. In the six months ended June 30, 2021, the cost of components and personnel was $5.7 million compared to $5.2 million for the six months ended June 30, 2020, representing an increase of $0.5 million or 10%.
The increase in the cost of components and personal is a direct reflection of the recognition of delayed sales orders from the prior quarter, successful new product line sales, and the partial acknowledgment of the U.S. Department of Defense contract for raw materials essential to meet contract requirements.
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 June 30, 2021, the general and administrative expenses were $3.8 million compared to $3.3 million for the three months ended June 30, 2020, representing an increase of $0.5 million or 15%. In the six months ended June 30, 2021, the general and administrative expenses were $7.4 million compared to $9.5 million for the six months ended June 30, 2020, representing a decrease of $2.1 million or 22%.
The three-month decrease of $0.5 million is primarily attributable to an increase in salaries and benefits of $0.4 million, $0.3 in consulting fees, and $0.2 million in insurance. The increase was offset by a decrease in legal fees of $0.3 million and professional fees of $0.2 million.
The six-month decrease of $2.1 million is primarily attributable to a reduction of $0.5 million each for foreign exchange, stock-based compensation, and office expenses; in addition to a decrease in salaries and benefits of $0.4 million, consulting fees of $0.3 million, and professional fees of $0.2 million.
Many of these decreases are related to the liquidity preservation actions taken in late March 2020 and early April 2020 in light of the uncertainty generated by the COVID-19 pandemic. The Company cannot predict the effect the COVID-19 pandemic may have on future general and administrative expenses.
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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 June 30, 2021, research and development expenses were $0.8 million compared to $0.6 million for the three months ended June 30, 2020, representing an increase of $0.2 million or 33%. In the six months ended June 30, 2021, research and development expenses were $1.4 million compared to $1.2 million for the six months ended June 30, 2020, representing an increase of $0.2 million or 17%.
The three-month and six-month increase of $0.2 million is primarily attributable to miscellaneous research expenses of $0.2 million.
The Company cannot predict the effect the COVID-19 pandemic may have on future general and administrative expenses.
Amortization and Depreciation
In the three months ended June 30, 2021, amortization and depreciation expenses reflected no change compared to the three months ended June 30, 2020. In the six months ended June 30, 2021, amortization and depreciation expenses were $0.5 million compared to $0.8 million for the six months ended June 30, 2020, representing a decrease of $0.3 million or 38%.
The decline is attributable to an increase in fully depreciated long-lived assets.
Other
Gain on settlement of related party obligations
In the three months ended June 30, 2021, and 2020, no transactions occurred requiring the recognition of gain on settlement of related party obligations. In the six months ended June 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 months ended June 30, 2021, and 2020, no transaction occurred requiring recognition of gain on settlement debt. In the six months ended June 30, 2021, and 2020, the gain on debt settlement was $0.2 million and $-0-, respectively, representing a decrease of $0.2 million or 100%.
This decrease is attributable to no transactions occurring in the current quarter to recognize the results of a gain on settlement in the fiscal year 2021.
In the three months ended June 30, 2021, the Company had a net loss of $0.8 million compared to a net loss of $0.7 million for the three months ended June 30, 2020, or a decrease of $0.1 million or 14%. In the six months ended June 30, 2021, the Company had a net loss of $3.5 million compared to a net loss of $5.2 million for the six months ended June 30, 2020, or a decrease of $1.6 million or 31%.
The reduction in net loss is primarily attributable to the Company’s strategic initiative plan implemented in the fiscal year of 2020.
| 31 |
Liquidity and Capital Resources
The Company incurred an approximate $3.7 million loss from operations and $8.2 million of cash used in operating activities for the six months ending June 30, 2021. The Company had $63.4 million in working capital, $273.6 million in accumulated deficits, and $38.5 million of cash on hand as of August 16, 2021.
During the six months ended June 30, 2021, the Company issued 6,079,598 shares of common stock for net proceeds of $12,271,000 under its at-the-market facility with Alliance Global Partners (the “ATM”). As of August 16, 2021, approximately $4,500,000 of capacity remains under the ATM.
On February 8, 2021, the Company completed an underwritten public for net proceeds of $46,820,000. The Company issued 18,181,820 shares of common stock, supplemented by 9,090,910 five-year warrants with an exercise price of $3.25 per share exercisable for one share of common stock.
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. 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.
We expect our existing capital resources to enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, we base our 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 six months ended June 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.
Cash Flows
The following table sets forth the significant components of our cash flows data statements for the periods presented.
For the Six Months Ended
(In Thousands)
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (8,234 | ) | $ | (7,723 | ) | ||
| Net cash used in investing activities | (122 | ) | (158 | ) | ||||
| Net cash provided by (used) in financing activities | 58,652 | 11,204 | ||||||
| Effect of exchange rate changes on cash | 15 | 5 | ||||||
| Net increase in cash | $ | 50,311 | $ | 3,328 | ||||
| 32 |
Cash Flows (continued)
Operating Activities
Net cash used in operating activities of approximately $8.2 million during the six months ended June 30, 2021, was principally attributable to an increase in account receivable of $4.5 million, inventory of $4.0 million. The increases were offset by a net loss of $3.5 million and an increase in deferred revenue and customer deposits of $4.4 million. Net cash used in operating activities of approximately $7.7 million during the six months ended June 30, 2020, was principally attributable to a $3.1 million decrease in accounts payable, a decrease of $2.0 million in accounts receivable, a decrease of $1.5 million of deferred revenue and customer deposits. The reductions were offset by increases of $0.9 million of inventory, $0.8 million of depreciation and amortization, and $0.6 of stock-based compensation.
Investing Activities
Net cash used by investing activities for the six months ended June 30, 2021, and 2020 were $0.1 million and $0.1 million, respectively, and principally relate to the capital expenditures for furniture and computer equipment.
Financing Activities
Net cash provided by financing activities of approximately $58.65 million during the six months ended June 30, 2021, was principally attributable to net proceeds from equity raises and common stock warrants’ exercise. Net cash provided by financing activities of approximately $11.2 million during the six months ended June 30, 2020, was principally attributable to net proceeds from equity raises and common stock warrants’ exercise.
| 33 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of June 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
Our Chief Executive Officer, and our Chief Financial Officer, are responsible for establishing the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)), as of June 30, 2021, our management has not completed an adequate assessment of the Company’s design and operation of our disclosure controls.
Additionally, we engaged accounting consultants to assist in the preparation of our financial statements. In light of this fact, we performed additional analysis and other post-closing procedures to ensure our financial statements, included in this quarterly report, have been prepared according to generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP.
However, it is mindful that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system’s objectives are met. Also, any control system’s design is based on certain assumptions about the likelihood of future events.
(b) Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes under accounting principles generally accepted in the United States of America (US GAAP).
Our Annual Report on Form 10-K for the year ended December 31, 2020, identifies material weaknesses in our internal control over financial reporting due to not correctly performing an adequate risk assessment or monitoring our internal controls over financial reporting. As of June 30, 2021, we still do not have sufficient accounting staffing to establish and maintain adequate control over financial reporting, concluding that these material weaknesses continue to exist.
c) Changes in Internal Controls over Financial Reporting
During the six months ended June 30, 2021, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely materially affect our internal control over financial reporting.
In the second quarter of 2021, management has hired a consulting firm to evaluate and assist in the Company’s design and operation of disclosure controls and procedures. Additionally, the Company is committed to improving its internal control over financial reporting. This process is ongoing as of the date of this report.
| 34 |
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
You should carefully consider the risk factors included in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 15, 2021. In addition, you should carefully consider 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 our risk factors and the risks described elsewhere in this report on Form 10-Q occur, our business, operating results, and financial condition could be seriously harmed. Accordingly, this report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Therefore, our actual results could differ materially from those anticipated in the forward-looking statements due to our risk factors and risks elsewhere in this report or otherwise.
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
| 35 |
Item 6. Exhibits.
| 36 |
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) | Filed as an Exhibit on Current Report to Form 8-K with the SEC on November 13, 2020. |
| 37 |
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: August 16, 2021 | By: | /s/ Carleton Miller |
| Carleton Miller | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 16, 2021 | By: | /s/ Michael Bond |
| Michael Bond | ||
| Chief Financial Officer | ||
| (Principal Accounting and Financial Officer) | ||
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