10-K 1 form10-k.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

or

 

  [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from__________ to__________

 

Commission File Number: 001-35988

 

Vislink Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   20-5856795
(State or other jurisdiction
of incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

240 S. Pineapple Avenue, Suite 701

Sarasota, FL 34236

(Address of principal executive offices) (Zip Code)

 

(Registrant’s telephone number, including area code): (941) 953-9035

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Name of each exchange on which registered:
Common Stock, par value $0.00001   The NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

As of June 30, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $10.7 million based on the closing price of $0.64 for the registrant’s common stock as quoted on NASDAQ Capital Market on that date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

 

The registrant had 19,054,595 shares of its common stock outstanding as of April 1, 2019.

 

 

 

 
   

 

VISLINK TECHNOLOGIES, INC.

FORM 10-K

ANNUAL REPORT

For the Fiscal Year Ended December 31, 2018

 

TABLE OF CONTENTS

 

  Page
PART I  
Item 1. Business 4
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Mine Safety Disclosures 15
PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
Item 6. Selected Financial Data 17
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 31
Item 9A. Controls and Procedures 31
Item 9B. Other Information 32
PART III  
Item 10. Directors, Executive Officers and Corporate Governance 33
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 41
Item 13. Certain Relationships and Related Transactions, and Director Independence 44
Item 14. Principal Accounting Fees and Services 45
PART IV  
Item 15. Exhibits, Financial Statement Schedules 46
SIGNATURES 50
FINANCIAL STATEMENTS F-1

 

 2 
 

 

FORWARD-LOOKING INFORMATION

 

This Annual Report on Form 10-K (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 are 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 statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Report reflect the good faith judgment of our management, such statements 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.

 

We file 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 we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Report. We urge you to carefully review and consider all the disclosures made in this Report.

 

 3 
 

 

PART I

 

Item 1. Business

 

Overview

 

The overarching strategy of Vislink Technologies, Inc. (the “Company”) is to design, develop and deliver advanced wireless communications solutions that provide customers in its target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. The Company’s business lines include the brands of Integrated Microwave Technologies LLC (“IMT”) and Vislink Communication Systems (“Vislink” or “VCS”). There is considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities.

 

Effective February 11, 2019, xG Technology, Inc. changed its name to Vislink Technologies, Inc.

 

IMT

 

The IMT business manufactures and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. COFDM is a transmission technique that combines encoding technology with OFDM (Orthogonal Frequency Division Multiplexing) modulation to provide the low latency and high image clarity required for real-time live broadcasting video transmissions. IMT has extensive experience in ultra-compact COFDM wireless technology, which has allowed IMT to develop integrated solutions over the past 20 years that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations.

 

IMT provides product and service solutions marketed under the well-established brand names Nucomm, RF Central and IMT. Its video transmission products primarily address three major market areas: broadcasting, sports and entertainment, and surveillance (for military and government).

 

The broadcasting market consists of electronic news gathering, wireless camera systems, portable microwave, and fixed point to point systems. Customers within this market are blue-chip, tier-1 major network TV stations that include over-the-air broadcasters and cable and satellite news providers. For this market, IMT designs, develops and markets solutions for use in news helicopters, ground-based news vehicles, camera operations, central receive sites, remote onsite and studio newscasts and live television events. In this market, IMT’s Nucomm line is recognized as a premium brand of digital broadcast microwave video systems.

 

The sports and entertainment market consist of key segments that include sports production, sports venue entertainment systems, movie director video assist, esports and the non-professional user segment. Customers within this market are major professional sports teams, movie production companies, live video production service providers, system integrators and a growing segment of drone and unmanned ground vehicle providers. Among the key solutions IMT provides to this market are wireless camera systems and mobile radios. IMT’s RF Central is a well-established brand of compact microwave video equipment in the market for both licensed and license-free sports and entertainment applications.

 

The government/surveillance market consists of key segments that include state and local law enforcement agencies, federal agencies and military system integrators. Customers within this market include recognizable state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Homeland Security. The key solutions IMT provides to this market are mission-critical wireless video solutions for applications, including manned and unmanned aerial and ground systems, mobile and handheld receive systems and transmitters for concealed video surveillance. IMT’s products in this market are sold under the brand name IMT.

 

 4 
 

 

Vislink

 

The Company originally announced the acquisition of Vislink on October 20, 2016 in a $16 million binding asset purchase agreement. On February 2, 2017, Vislink Technologies completed the acquisition of the net assets that constituted the business of Vislink pursuant to an asset purchase agreement by and among the Company, Vislink PLC, an England and Wales registered limited company (the “Guarantor”), Vislink International Limited, an England and Wales registered limited liability company (the “U.K. Seller”), and Vislink Inc., a Delaware corporation (the “U.S. Seller,” and together with the U.K. Seller, the “Sellers”), dated December 16, 2016, as amended on January 13, 2017.Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video from the field to the point of usage. Vislink designs and manufactures products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier items.

 

Vislink serves two core markets: (i) broadcast & media and (ii) law enforcement, public safety and surveillance. In the broadcast and media market, Vislink provides broadcast communication links for the collection of live news and sports and entertainment events. Customers in this market include national broadcasters, multi-channel broadcasters, network owners and station groups, sports and live broadcasters and hosted service providers. In the law enforcement, public safety and surveillance market, Vislink provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. Its law enforcement, public safety and surveillance customers include metropolitan, regional and national law enforcement agencies, as well as domestic and international defense agencies and organizations. Across its core markets, Vislink is also a leading global manufacturer of satellite communication services, with solutions destined for use in both fixed installations and small, rapidly-deployable configurations.

 

In 2017, we merged Vislink’s product offerings and operations with those of IMT into Vislink Technologies. We have completed the co-branding of IMT and Vislink, while still preserving the Vislink brand and its legacy brands, including Gigawave, Link, Advent and MRC, in markets where strong brand identification still exists. IMT has assumed the Vislink product warranties and support for all the Vislink and IMT product offerings. Vislink’s business in the Americas has become part of IMT, the legacy xG technology business was curtailed as part of the cost reduction initiatives.

 

Cost Reduction Initiatives

 

The Company completed a cost reduction plan announced in April 2018 that resulted in approximately $8.2 million in annual savings. Savings were realized through immediate cost reductions by eliminating certain personnel costs, associated benefits and reduction in facilities and other expenses. Specifically, the Company eliminated 65 full-time and contracted positions from the business, with salary and benefits savings totaling $7.3 million. The Company also removed $900,000 in non-labor costs from the business.

 

The Company has also identified an additional $1.3 million in additional savings, primary related to facilities consolidation and severance. This includes consolidating the two sites in Colchester, U.K. into one, expected to be completed by April 2019 and the expected savings are approximately $0.5 million through June 2020. Although no assurance can be provided the Company will successfully consolidate these two locations. As part of cost cutting measures, the Company will not be renewing office or warehouse space it currently leases in Sunrise, Florida with the lease expiring May 13, 2019.

 

 5 
 

 

Our Strategy

 

Our acquisitions of IMT and Vislink are now operating as brands of Vislink Technologies, Inc. After the completion of our cost reduction initiatives in 2018, the plan going forward is to diversify and grow the business in the following industries: broadcast and media, sports and entertainment and public safety, surveillance and defense. These industries allow us to offer a broad array of end-to-end, high-reliability, high-data rate, long-range wireless video transmission solutions. Our solutions are being used for applications in growing market segments, including in-game sports video mobile feeds, real-time capture and display of footage from drones and other aerial platforms, and rapid-response electronic news gathering operations.

 

The key sector strategies for IMT and Vislink are to expand the various markets for existing miniature wireless video products, which include the educational sector, videographers, and video service providers, provide complete end-to-end solutions for the video surveillance market, and introduce complete end-to-end IP technology into the broadcast and media market.

 

The acquisition of Vislink offered the Company the opportunity to realize synergies with its IMT business unit, while allowing both entities to offer an expanded suite of services and product offerings in the markets they are already active in. A key advantage is that there was limited overlap in product offerings, sales channels and market coverage between the two companies. For example, Vislink had a substantial client base in international markets where IMT has had a limited presence. In addition, IMT had a very strong product portfolio targeted to U.S. federal law enforcement and high-end sports broadcasting customers who now have access to additional solutions based on Vislink’s product configurations. Finally, Vislink has traditionally focused on licensed spectrum solutions where IMT has pioneered the use of non-licensed spectrum for many applications. Combining Vislink Technologies shared spectrum and interference mitigation intellectual property with an expanded IMT/Vislink product lineup may provide an opening into additional customer bases that currently do not have access to licensed spectrum.

 

 6 
 

 

Market Overview

 

Our IMT and Vislink services and product offerings broadly address three markets: (1) broadcasting and media: (2) sports and entertainment; and (3) law enforcement/public safety, surveillance and defense. In addition, IMT and Vislink solutions may address new potential markets for potential growth, including the transportation, oil and gas and industrial sectors.

 

The broadcasting and media market consists of electronic news gathering, wireless camera systems, portable microwave, and fixed point to point systems. The market looks to improve operational efficiencies in the gathering, production, and transmission of wireless content. Recent trends in the market include a movement towards IP connectivity over point to point links for infrastructure, high definition upgrades of remote news gathering vehicles, and continued pressure to reduce expenses by improving operational efficiencies. Customers within this market are major network TV stations, including over-the-air broadcasters and cable and satellite news providers, national broadcasters, multi-channel broadcasters, network owners and station groups, sports and live broadcasters and hosted service providers. IMT and Vislink focus on the specific ways these customers create and gather content wirelessly. As the wireless communications industry begins transitioning to fifth-generation (5G) networks, the increases in speed they will usher in are expected to augment the availability of on-demand live streaming, where IMT and Vislink equipment is already in use.

 

The sports and entertainment market consists of key segments, including sports production, sports venue entertainment systems, movie director video assist, and the non-professional user segment. Generally, this market is focused on more agile wireless video systems. Drivers in this market include small, lightweight, easy to use equipment, low-latency video systems, reliability of the wireless links, and the ability to use licensed and unlicensed bands. Current trends within the market are to further reduce the size and improve agility of the wireless video systems as users are demanding higher link reliabilities at longer ranges. There is also an increased desire to provide audiences with new points of view and camera angles to enhance the viewing experience. Customers within this market are professional sports teams, movie production companies, live video production service providers, system integrators and a growing segment of drone and unmanned ground vehicle providers. Among the new subsections of the sports and entertainment market the Company has identified the burgeoning e-sports market as one where our solutions have applicability.

 

The law enforcement, public safety and surveillance market consists of key segments including state and local law enforcement agencies, federal agencies and military system integrators. The market looks to improve the reliability and quality of video content without adding complexity. The video systems must be operated without technical intervention. State and local agencies benefit from Department of Homeland Security grant programs to improve overall security. Recent trends within these segments include improved interoperability within agencies, and demand for fully integrated systems including robust microwave combined with ubiquitous IP networks. As wireless video systems are becoming more reliable and easier to deploy, the adoption rate of wireless systems is increasing. Customers within this market include state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Homeland Security.

 

 7 
 

 

Our Products

 

Through our IMT and Vislink businesses, we can offer a full spectrum of wireless video products which are built around providing complete solutions. Both companies have traditionally focused on the development of core product technologies that have the potential for application in final assembled products that cross market segments. Such technology focus areas include RF and microwave component development spanning the frequency range from DC to 18GHz, waveform modulation, H.264 video encoding and decoding, 4K UHD (Ultra High Definition) camera systems, IP-based electronic newsgathering systems, and digital signal processing. Through these products, we are positioned with significant technology IP and an established reputation for rapidly and economically delivering complex, bespoke engineering products and solutions to customers that are expertly managed to tight deadlines. Production of these products can be rapidly scaled to respond to changes in market demand.

 

IMT Products

 

Broadcast: IMT offers a line of high-margin receiver products including the CRx2, CRx6 and CIRAS-X6. These products may be interconnected over IP networks, expanding and simplifying their overall use and reducing the deployment cost significantly. The MicroLite is a small, low-cost wireless camera system enabling broadcast news operators to eliminate the use of coaxial cables in their remote news operations. This significantly reduces labor costs in the operation and increases the speed and agility of the cameramen to focus on capturing engaging content.

 

 

CRx2 Receiver

 

 

CRx6 Receiver

 

 

 8 
 

 

 

CIRAS-X6 Receiver

 

Sports and Entertainment: The MicroLite 2 is a professional-grade wireless transmitter that is available in both licensed and unlicensed frequency bands, the latter enabling non-TV broadcasters to capture broadcast quality video without the cost and limitations of gaining a frequency license. The unlicensed market is very large and just being opened to high quality technologies

 

 

MicroLite 2

 

Government/Surveillance: IMT has focused on miniature transmitters and handheld receivers and benefits from limited competition in this area. The IMT DragonFly is designed to capture real-time, high-quality video from UAV/UGV/Body Cams/Concealments for display on fixed or mobile receive applications. The MiniMobile Commander and Mobile Commander are handheld receiver/monitors designed for tactical situations. The IMT Transport Stream Management System (TSM-2020), part of the comprehensive Airborne Video Downlink System used by law enforcement entities, extends critical situational video to an unlimited number of observers who can view the video over any network connection, including wired Ethernet, Wi-Fi, IP satellite and IP cellular.

 

 

IMT DragonFly

 

 

MiniMobile Commander
Receiver Monitor

 

 9 
 

 

 

Mobile Commander
Receiver Monitor

 

Vislink Products

 

Vislink designs and manufactures products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier items. Vislink solutions include the following product categories:

 

 

Vislink’s key product offerings include:

 

  HCAM, a 4K Ultra HD-capable on-camera wireless video transmitter;
     
  HDX-1100, a high-powered aircraft downlink transmitter;
     
  ViewBack, a lightweight, low power, low latency, dual channel diversity receiver-decoder that enables quicker production, more efficient editing, and more effective collaboration between camera operators and studio teams;
     
  SatWare, a high-performance embedded computing and routing system designed to provide enhanced capability and simplified use of broadcast equipment in the field; and
     
  AirPro-75, a compact, lightweight, single-button IP satellite data terminal designed for rapid deployment.

 

 

HCAM

 


 

HDX-1100

 

 10 
 

 

Competition and Competitive Positioning

 

The primary competitors of IMT and Vislink are Domo Tactical Communications (formerly a division of Cobham), Silvus Technologies, Persistent Systems, Troll Systems and several smaller market- specific businesses.

 

The union of IMT and Vislink created the market share leader in the professional broadcast and media video transmission sector. We believe that their products solve a growing market need for stable, high-definition, wireless video communications. Separately, IMT and Vislink have been able to successfully leverage their long history of broadcast industry leadership, reputations for advanced technology, and ability to provide end-to-end-solutions in order to maintain and increase their customer bases and to continue providing highly competitive offerings. Both companies have mature product offerings that address applications in growing market segments, including in-game sports video mobile feeds, real-time capture and display of footage from drones and other aerial platforms, and rapid-response electronic news gathering operations.

 

With the business integrated, we believe these advantages have been further strengthened. Because there is currently minimal overlap in product offerings between IMT and Vislink, we believe we now offer an expanded range of product offerings, additional services and enhanced capabilities. We believe this expansion of product offerings will position us for continued growth in the broadcast and sports and entertainment markets, and we expect near term growth in the government/surveillance market. We also believe there are opportunities for growth in sectors that include transportation, oil and gas, and industrial. As we have realized full control of the production processes of IMT and Vislink, we expect to be able to realize improving margins, control over product quality and competitive agility.

 

 11 
 

 

Sales and Marketing

 

Our sales team currently is comprised of sales managers responsible for defined regional areas, inside sales personnel, and business development representatives focused on targeted sectors and/or regions. They are supported by solution engineers trained in technical sales with a given market focus. This sales team is focused on supporting our current customers, as well as nurturing relationships with prospective customers in key domestic and international markets. For our IMT and Vislink brands, we employ a combination of sales channels, including direct-to-end customer sales, network group sales, reseller/integrators and Original Equipment Manufacturer (“OEM”) sales channels in order to use the most efficient means of reaching customers depending on the market segment. Sales efforts are supported by marketing and public relations activities, digital and print marketing initiatives, the creation of support materials, and trade show and other event appearances.

 

As of December 31, 2018, our business development, sales and marketing team consisted of 44 full-time employees or contractors.

 

Customers

 

Our IMT and Vislink entities have developed significant followings based on the reputation of their product offerings for performance, reliability and use of advanced technology. Both have developed diverse and stable customer bases for repeat product purchases from blue chip, tier-1 clients in the broadcasting and sports and entertainment markets, as well as among high-profile agencies and organizations in the surveillance (military and government) markets.

 

Manufacturing and Suppliers

 

We have historically retained contract manufacturers to manufacture, test, assure the quality of, and ship our products. With the acquisitions of IMT and Vislink, we have additional options for both internal and external manufacturing of products. This provides us the opportunity to develop optimal supply chains that are tailored to our needs on a per-product and per-solution basis. Going forward, we anticipate that we will focus on our core strengths, which are innovation and technology design and the development and creation and exploitation of our intellectual property.

 

While we have integrated IMT and Vislink into our plan to build our products, we may continue to rely, particularly in the short term, on third party components and technology to build our products, as we procure components, subassemblies and products necessary for the manufacture of our products based upon our design, development and production needs. While components and supplies are generally available from a variety of sources, we currently depend on a single or limited number of suppliers for several components for our products. We rely on purchase orders rather than long-term contracts with our suppliers. We do not currently stockpile enough components to mitigate any potential supply disruption if we are required to re-engineer our products to use alternative components.

 

 12 
 

 

Intellectual Property

 

We have developed a broad portfolio of intellectual property that covers wired and wireless communications systems. As of December 31, 2018, in the U.S., we have 51 patents granted, 1 patent application pending, 1 provisional application pending and 1 disclosure. Internationally, we have 23 patents granted no patent applications pending, and no Patent Cooperation Treaty (PCT) applications.

 

Areas of our development activities that have culminated in filings and/or awarded patents include:

 

  Spatial Processing (MIMO);
  Self-Organizing Networks;
  RF Modulation;
  Compression (protocols, payload, signaling, etc.);
  Modulators/Demodulators;
  Antennas/Shielding;
  Wired and Wireless Networks;
  Media Access Control Protocols;
  Interference Mitigation;
  Cognition enabling over the air protocols (MAC layer);
  Wireless data compression;
  Dynamic Spectrum Access (DSA);
  Quality of Service; and Quality of Service; and
  Digital Broadcasting over Microwave Links.

 

We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also actively engage in monitoring activities with respect to infringing uses of our intellectual property by third parties.

 

In addition to these contractual arrangements, we also rely on a combination of trade secret, copyright, trademark, trade dress, domain name and patents to protect our products and other intellectual property. We typically own the copyright to our software code, as well as the brand or title name trademark under which our products are marketed. We pursue the registration of our domain names, trademarks, and service marks in the United States and in locations outside the United States. Our registered trademarks in the United States include “xG” “IMT”, “Vislink”, the names of our products, among others.

 

Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which our products are sold or distributed. Also, the efforts we have taken to protect our proprietary rights may not be enough or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results.

 

Companies in the mobile wireless communications technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We may face allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. As our business grows, we will likely face more claims of infringement.

 

 13 
 

 

Company Information

 

Effective February 11, 2019, xG Technology, Inc. changed its name to Vislink Technologies, Inc. Our executive offices are located at 240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035. Our website address is www.vislinktechnologies.com. Information contained in our website does not form part of the report and is intended for informational purposes only.

 

As of January 1, 2019, we are no longer an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012.

 

Employees

 

As of December 31, 2018, we employed a total of 167 full-time employees, contractors or consultants, which included 38 in development, 2 officers, 17 in general and administrative, 4 in business development, 66 in operations and 40 in sales and marketing. We also engage several temporary employees and consultants. None of our employees are represented by a labor union or are party to collective bargaining agreements. We believe that we have good relations with our employees.

 

 14 
 

 

Item 1A. Risk Factors

 

As a smaller reporting company, the Company is not required to include the disclosure required under this Item 1A.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Our headquarters are in Hackettstown, New Jersey which has 14,416 square feet pursuant to a lease that expires on April 29, 2020 and an executive, marketing and business development office is in Sarasota, Florida, in an office consisting of a total of 3,403 square feet pursuant to a lease that expires on October 31, 2019. The Company also has 39,327 square feet in Billerica, Massachusetts pursuant to a lease that expires on May 31, 2021; 12,435 square feet in Hemel, United Kingdom pursuant to a lease that expires October 31, 2020; 14,000 square feet in Colchester, United Kingdom pursuant to a lease that expires on March 24, 2025; 839 square feet in Dubai, U.A.E. pursuant to a lease that expires on July 2, 2019; 1,100 square feet in Singapore pursuant to a lease that expires on August 9, 2020; and 3,000 square feet in Anaheim, California pursuant to a lease that expires on July 31, 2021. The Company terminated its lease in Sunrise, Florida which consisted of 11,029 square feet. The Sunrise lease is set to expire on May 13, 2019.

 

We believe our current facilities are enough for our current needs and will be adequate, or that suitable additional or substitute space will be available on commercially reasonable terms, for the foreseeable future

 

Item 3. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. From time to time, we may become involved legal proceedings, lawsuits, claims and regulations in the ordinary course of our business.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 15 
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our shares of common stock are currently listed on The NASDAQ Stock Market under the symbol “VISL”.

 

The following table shows the high and low market prices for our shares for each fiscal quarter for the two most recent fiscal years. Market prices for our shares have fluctuated significantly. As a result, the market prices shown in the following table may not be indicative of the market prices at which our shares of common stock will trade after this filing.

 

   Share Price 
Quarter  High   Low 
Fourth Quarter 2018  $0.69   $0.22 
Third Quarter 2018  $0.74   $0.37 
Second Quarter 2018  $1.27   $0.63 
First Quarter 2018  $1.64   $0.66 
Fourth Quarter 2017  $1.98   $1.35 
Third Quarter 2017  $2.65   $1.55 
Second Quarter 2017  $2.29   $1.31 
First Quarter 2017  $2.92   $1.34 

 

Holders

 

As of April 1, 2019, there were 19,054,959 shares of common stock outstanding and approximately 149 holders of record of our shares. Because shares of our common stock are held by depositories, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record. The Company’s transfer agent and registrar is Continental Stock Transfer & Trust Company, 17 Battery Place, 8th Floor, New York, New York 10004.

 

Dividend Policy

 

We have never declared or paid any cash dividend on our common stock. We intend to retain any future earnings and do not expect to pay any cash dividends in the foreseeable future.

 

Securities Authorized For Issuance under Equity Compensation Plans

 

Reference is made to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized for Issuance under Equity Compensation Plans” for the information required by this item.

 

Recent Sales of Unregistered Securities

 

None.

 

 16 
 

 

Item 6. Selected Financial Data

 

As a smaller reporting company, the Company is not required to include the disclosure required under this Item 6.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2018 and December 31, 2017 should be read in conjunction with the accompanying consolidated financial statements and the related notes included in Item 8 in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

Overview

 

Effective February 11, 2019, xG Technology, Inc. changed its name to Vislink Technologies, Inc.

 

The overarching strategy of Vislink Technologies, Inc. (“Vislink Technologies”, the “Company”, “we”, “our”, “us”) is to design, develop and deliver advanced wireless communications solutions that provide customers in our target markets with enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. Vislink Technologies business lines include the main brands Integrated Microwave Technologies (“IMT”) and Vislink (“Vislink”). The Vislink Technologies name serves as the corporate umbrella for its current brands, as well as any new ones that might be added to its portfolio in the future. There is considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities.

 

IMT

 

The IMT business develops, manufactures and sells microwave communications equipment utilizing COFDM (Coded Orthogonal Frequency Division Multiplexing) technology. COFDM is a transmission technique that combines encoding technology with OFDM (Orthogonal Frequency Division Multiplexing) modulation to provide the low latency and high image clarity required for real-time live broadcasting video transmissions. IMT has extensive experience in ultra-compact COFDM wireless technology, which has allowed IMT to develop integrated solutions over the past 20 years that deliver reliable video footage captured from both aerial and ground-based sources to fixed and mobile receiver locations.

 

IMT provides product and service solutions marketed under the well-established brand names Nucomm, RF Central and IMT. Its video transmission products primarily address three major market areas: broadcasting, sports and entertainment, and surveillance (for military and government).

 

The broadcasting market consists of electronic news gathering, wireless camera systems, portable microwave, and fixed point to point systems. Customers within this market are blue-chip, tier-1 major network TV stations that include over-the-air broadcasters and cable and satellite news providers. For this market, IMT designs, develops and markets solutions for use in news helicopters, ground-based news vehicles, camera operations, central receive sites, remote onsite and studio newscasts and live television events. In this market, IMT’s Nucomm line is recognized as a premium brand of digital broadcast microwave video systems.

 

The sports and entertainment market consists of key segments, including sports production, sports venue entertainment systems, movie director video assist, and the non-professional user segment. Generally, this market is focused on more agile wireless video systems. Drivers in this market include small, lightweight, easy to use equipment, low-latency video systems, reliability of the wireless links, and the ability to use licensed and unlicensed bands. Current trends within the market are to further reduce the size and improve agility of the wireless video systems as users are demanding higher link reliabilities at longer ranges. There is also an increased desire to provide audiences with new points of view and camera angles to enhance the viewing experience. Customers within this market are professional sports teams, movie production companies, live video production service providers, system integrators and a growing segment of drone and unmanned ground vehicle providers. Among the new subsections of the sports and entertainment market, the Company has identified the burgeoning e-sports market as one where our solutions have applicability.

 

The government/surveillance market consists of key segments that include state and local law enforcement agencies, federal agencies and military system integrators. Customers within the government/surveillance market include recognizable state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Homeland Security. The key solutions IMT provides to this market are mission-critical wireless video solutions for applications, including manned and unmanned aerial and ground systems, mobile and handheld receive systems and transmitters for concealed video surveillance. IMT’s products in this market are sold under the brand name IMT.

 

 17 
 

 

Vislink

 

The Company originally announced the acquisition of Vislink on October 20, 2016 in a $16 million binding asset purchase agreement. On February 2, 2017, the Company completed the acquisition of the net assets that constituted the business of Vislink, pursuant to an asset purchase agreement by and among the Company, Vislink PLC, an England and Wales registered limited company, Vislink International Limited, an England and Wales registered limited liability company, and Vislink Inc., a Delaware corporation, dated December 16, 2016, as amended on January 13, 2017.

 

Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video from the field to the point of usage. Vislink designs and manufactures products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier items.

 

Vislink serves two core markets: (i) broadcast and media and (ii) law enforcement, public safety and surveillance. In the broadcast and media market, Vislink provides broadcast communication links for the collection of live news and sports and entertainment events. Customers in this market include national broadcasters, multi-channel broadcasters, network owners and station groups, sports and live broadcasters and hosted service providers. In the law enforcement, public safety and surveillance market, Vislink provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. Its law enforcement, public safety and surveillance customers include metropolitan, regional and national law enforcement agencies, as well as domestic and international defense agencies and organizations.

 

In 2017, we merged Vislink’s product offerings and operations with those of IMT into Vislink Technologies. We have completed the co-branding of IMT and Vislink, while still preserving the Vislink brand and its legacy brands, including Gigawave, Link, Advent and MRC, in markets where strong brand identification still exists. IMT has assumed the Vislink product warranties and support for all the Vislink and IMT product offerings. Vislink’s business in the Americas has become part of IMT, while its business in the rest of the world is operated by Vislink’s U.K. operation.

 

 18 
 

 

Results of Operations

 

The following table sets forth the items contained in the consolidated statements of operations of the financial statements included herewith for the fiscal years ended December 31, 2018, and 2017.

 

VISLINK TECHNOLOGIES, INC. (f/k/a xG TECHNOLOGY, INC.)

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS)

 

   For the Years Ended 
   December 31, 
   2018   2017 
Revenue  $38,294   $47,824 
Cost of revenue and operating expenses          
Cost of components and personnel   19,192    28,220 
Inventory valuation adjustments   473    1,781 
General and administrative expenses   21,817    27,015 
Research and development   7,873    9,799 
Impairment charge   413     
Amortization and depreciation   2,953    4,398 
Total cost of revenue and operating expenses   52,721    71,213 
Loss from operations   (14,427)   (23,389)
Other (expenses) income          
Changes in fair value of derivative liabilities   3,186    105 
Gain on bargain purchase       10,911 
(Loss) gain on debt and payable extinguishment   (1,060)   2,900 
Other income (expense)   146    (251)
Interest expense   (2,718)   (629)
Total other (expenses) income   (446)   13,036 
Net loss  $(14,873)  $(10,353)

 

Revenue

 

Revenues for the year ended December 31, 2018 were $38.3 million compared to $47.8 million for the year ended December 31, 2017, representing a decrease of $9.5 million or 20%. The decrease can be attributed to one-time sales being recorded in the second quarter of 2017 which included a $2.4 million government sale in South America to upgrade their systems from analog to digital. The Company experienced a decline in revenue for the North American, Europe, Asia and rest of world markets in the amount of approximately $3.8 million for the year ended December 31, 2018. Part of the decrease in sales was the result of the cost reduction programs implemented in the second through fourth quarters of 2018 which led to specific actions to also rationalize our best revenue opportunities and eliminate low value sales. Efforts were also focused on relieving supply chain shortages in order to be able to deliver backorders to customers on a timely basis.

 

 19 
 

 

Cost of Revenue and Operating Expenses

 

Cost of Components and Personnel

 

Cost of components and personnel for the year ended December 31, 2018 were $19.2 million compared to $28.2 million for the year ended December 31, 2017, representing a decrease of $9.0 million or 32%. The decrease is primarily due to a decline in revenue resulting in less cost of components. However, we did have increased margins on revenue for the year ended December 31, 2018 as the inclusion of the amortization of “Inventory Step-Up” generated by the fair value assessed by third-party appraisals associated with the acquisition of IMT and Vislink was included in cost of components for the year ended December 31, 2017 and fully amortized by the end of fiscal year 2018. The assigned fair value associated with our business acquisitions have been amortized and included in cost of components and personnel in the amounts $-0- for the year ended December 31, 2018, compared to $3.5 million for the year ended December 31, 2017.

 

Inventory Valuation Adjustments

 

Inventory valuation adjustments consist primarily of items that are written off due to obsolescence or written down to their net realizable value. Inventory valuation adjustments decreased by $1.3 million or 72%, from $1.8 million in the year ended December 31, 2017 to $0.5 million for the year ended December 31, 2018. The decrease is primarily due to a diminutive write-down of inventory to the lower of cost or net realizable value.

 

General and Administrative Expenses

 

General and administrative expenses are the expenses of operating the business daily and include salary and benefit expenses including stock-based compensation and payroll taxes, as well as the costs of trade shows, marketing programs, promotional materials, professional services, facilities, general liability insurance, and travel.

 

General and administrative expenses for the year ended December 31, 2018 were $21.8 million compared to $27.0 million for the year ended December 31, 2017, representing a decrease of $5.2 million or 19%.

 

The decrease of $5.2 million is primarily due the cost cutting efforts employed in fiscal year 2018 leading to decreases of $1.5 million in fees related to prior year business acquisitions; $0.9 million in consulting fees; $0.6 million in salary and benefits; $0.5 million in legal fees, $0.4 in warranty costs; $0.3 million in insurance; $0.3 million in freight and postage; and $0.2 million each in rent, commissions, and advertising. The decreases were partially offset by increases of $0.7 million in stock based compensation largely associated with the expense of stock options granted and acceleration of the vesting of options of terminated employees; and $0.2 million each in foreign exchanges losses and telephone costs.

 

The Company expects future general and administrative costs to decline going forward as a result of the cost cutting measures implemented throughout 2018.

 

Research and Development

 

Research and development expenses consist primarily of salary and benefit expenses including stock-based compensation and payroll taxes, as well as costs for prototypes, facilities and travel.

 

Research and development expenses for the year ended December 31, 2018 were $7.9 million compared to $9.8 million for the year ended December 31, 2017, representing a decrease of $1.9 million or 19%.

 

The decrease of $1.9 million is primarily due to decreases of $2.6 million of salaries and benefits; $0.2 million of miscellaneous research costs; and $0.1 million each for legal fees, rent, telephone and travel costs. The decreases were partially offset by an increase of $1.3 million in stock based compensation largely associated with the expense of stock options granted and acceleration of the vesting of options of terminated employees.

 

The Company expects future research and development costs to decline going forward as a result of the cost cutting measures implemented throughout fiscal year 2018.

 

 20 
 

 

Impairment

 

Impairments related to the long-lived assets or amortized intangible assets were recorded during the year ended December 31, 2018 in the amount of $0.4 million. The Company recorded these impairment charges relating to the remaining balance of xMax software development costs in association with the discontinuance of the xMax division during fiscal year 2018. No impairment related to long-lived assets or amortized intangible assets were recorded during fiscal year 2017.

 

Amortization and Depreciation

 

Amortization and depreciation expenses for the year ended December 31, 2018 were $3.0 million compared to $4.4 million for the year ended December 31, 2017, representing a decrease of $1.4 million or 32%. The decrease of $1.4 million is primarily due to the reduction of amortizable and depreciable assets as the Company impaired a significant amount of these assets over the past two fiscal years.

 

Other (Expense) Income

 

The changes in fair value of derivative liabilities increased by $3.1 million gain, or 3100%, from a $0.1 million gain in the year ended December 31, 2017 to a $3.2 million gain in the year ended December 31, 2018. This is due to the decrease in our common stock price in fiscal year 2018 as compared to fiscal year 2017 that resulted in an unrealized gain in the fair value of the derivative liabilities.

 

The gain on bargain purchase of $10.9 million in 2017 was not a recurring financial statement item as the Company did not experience a business acquisition during fiscal year 2018.

 

The loss on debt and payables extinguishments was $1.1 million for the year ended December 31, 2018 compared to a gain on debt and payable extinguishment of $2.9 million for the year ended December 31, 2017, representing a decrease of $4.0 million or 138%. The 2018 loss on debt and payables extinguishments of $1.1 was due to the terms of the December 3, 2018 debt modification of the May 2018 financing.

 

Other income increased to $0.1 million for the year ended December 31, 2018 compared to other expense of $0.3 million for the year ended December 31, 2017, an increase of $0.4 million or 133%.

 

Interest expense for the year ended December 31, 2018 was $2.7 million compared to $0.6 million for the year ended December 31, 2017, an increase of $2.1 million or 350%. The increase is attributable to the Company recognizing interest expense for the amortization of debt discount and the recognition of the stated coupon rate of interest for new debt instruments incurred during fiscal year 2018.

 

Vislink Bargain Purchase

 

The Company utilized the services of an independent appraisal company to assist it in assessing the fair value of the Vislink assets and liabilities acquired. This assessment included an evaluation of the fair value of inventory, fixed assets and the fair value of the intangible assets acquired based upon the expected cash flows from the assets acquired. Additionally, the Company incorporated the carrying value of the remaining working capital, as Vislink’s management represented that the carrying value of these assets and liabilities served as a reasonable proxy for fair value. The valuation process included discussion with management regarding the history and business operations of Vislink, a study of the economic and industry conditions in which Vislink competes and an analysis of the historical and projected financial statements and other records and documents.

 

When it became apparent there was a potential for a bargain purchase gain, management reviewed the Vislink assets and liabilities acquired and the assumptions utilized in estimating their fair values. The Company determined that provisional amounts, previously recognized, required adjustments to reflect new information obtained. According to ASC 805-10-25-15, the Company has a period of time, referred to as the measurement period, to finalize the accounting for a business combination. Upon additional review of identifying and valuing all assets and liabilities of the business, the Company concluded that recording a bargain purchase gain with respect to Vislink was appropriate and required under GAAP.

 

The Company then undertook a review to determine what factors might contribute to a reasonable conclusion of recognizing the recording of a bargain purchase. Factors that contributed to the conclusion to recognize a bargain purchase price were:

 

  The Vislink acquisition was completed with motivated Sellers who had a public strategy to concentrate on growing their software business as opposed to their technology and hardware businesses. As a strategic decision, the Sellers intended to sell off the assets of the hardware business.
     
  The announcement of the U.K. leaving the European Union led to a decline in the pound, which led to pressure by Vislink’s creditors to raise funds. The owners of Vislink were motivated to complete a transaction in order to use the proceeds to reduce the line of credit they owed to the bank.
     
  The industry in 2015 and 2016 experienced a downturn as decreased spending combined with economic uncertainty caused corporations to delay wireless and broadcast infrastructure upgrades. The Sellers believed these trends would continue. According to IBISWorld, industry revenue is expected to fall at an annualized rate of 0.6% over the next five years reflecting further deterioration in the industry. As a result, the Sellers decided to sell the business.
     
 

Prior to the U.K. leaving the European Union, Vislink was under contract to be sold for a much higher price. The Company took advantage of the economic and industry downturn to negotiate a favorable price which was less than the value of the assets acquired for a total purchase consideration of $16 million.

 

Based upon these factors, the Company concluded that the occurrence of a bargain purchase was reasonable.

 

Net Loss

 

For the year ended December 31, 2018, the Company had a net loss of $14.9 million, as compared to a net loss of $10.4 million for the year ended December 31, 2017, an increase of $4.6 million or 44.23%. The increase in the loss of $4.6 million is primarily attributable to the recognition of bargain purchase gain in fiscal year 2017; an increase in loss on extinguishment of debt as a result of a debt modification in fiscal year 2018; an increase in interest expense due to the Company’s issuance of new convertible promissory notes during fiscal year 2018. The increase was offset by a gain in fair value of derivatives precipitated by the reduction of the Company’s market value of common stock during fiscal year 2018; and an increase in the gain on sale of property and equipment disposed by the Company during fiscal year 2018.

 

 21 
 

 

Liquidity and Capital Resources

 

Cost Reduction Initiatives

 

The Company completed a cost reduction plan announced in April 2018 that resulted in approximately $8.2 million in annual savings. Savings were realized through immediate cost reductions by eliminating certain personnel costs, associated benefits and reduction in facilities and other expenses. Specifically, the Company eliminated 65 full-time and contracted positions from the business, with salary and benefits savings totaling $7.3 million. The Company also removed $900,000 in non-labor costs from the business.

 

The Company has also identified an additional $1.3 million in additional savings, primary related to facilities consolidation and severance. This includes consolidating the two sites in Colchester, U.K. into one, expected to be completed by April, 2019 and the expected savings are approximately $0.5 million through June 2020. Although no assurance can be provided the Company will successfully consolidate these two locations. As part of cost cutting measures, the Company will not be renewing office or warehouse space it currently leases in Sunrise, Florida with the lease expiring May 13, 2019.

 

Our operations primarily have been funded through cash generated by debt and equity financing. Cash consists of cash on hand and demand deposits. Our cash balances were as follows (in thousands):

 

   December 31, 
   2018   2017 
Cash   2,005    2,799 

 

Cash Flows

 

The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented (in thousands).

 

   Year Ended
December 31, 2018
   Year Ended
December 31, 2017
 
Net cash used in operating activities  $(6,379)  $(4,485)
Net cash provided (used) in investment activities   181    (6,874)
Net cash provided by financing activities   5,435    5,041 
Effect of exchange rate changes on cash   (31)   63 
Net decrease in cash  $(794)  $(6,255)

 

Operating Activities

 

Net cash used in operating activities for the year ended December 31, 2018 totaled $6.4 million as compared to $4.5 million for the year ended December 31, 2017, an increase of $1.9 million or 42.22%. The increase of $1.9 million is attributable to an increase in net loss of $4.5 million; a decrease of $6.4 million in accounts payable; an increase of $3.1 million in the change in fair value of derivative liabilities; a decrease of $1.8 million in due to related parties; a decrease of $1.5 million of accrued expense and interest expense; a decrease of $1.2 million of inventory; a decrease of $1.4 million of depreciation and amortization; a decrease of $1.3 million of inventory valuation adjustments; a decrease of $1.2 million of stock-based compensation payroll and consultants; a decrease of $0.7 million of prepaid expenses and other current assets; a decrease of $0.4 million of guaranteed interest and debt issuance costs; a decrease of $0.3 million of a line of credit commitment fee; a decrease of $0.2 million each for stock issuance commitments and provision for bad debts, respectively; and an increase of $0.1 million for the gain on sale of property and equipment. These changes were offset by the $10.9 million decrease of gain on bargain purchase; a $2.9 million decrease in the gain on debt and payables extinguishment; a $2.9 million increase in accounts receivable; an increase of $2.3 million of non-cash interest costs; an increase of $1.5 million in stock-based compensation option awards; an increase of $1.1 million in the loss of extinguishment of debt; a $0.6 million in deferred revenue and customer deposits; and an increase of $0.4 million of impairment charge.

 

Investing Activities

 

Net cash provided by investing activities for the year ended December 31, 2018 was $0.2 million compared $6.9 million net cash used by investing activities for the year ended December 31, 2017, an increase of $7.10 million or 102.9%. The increase of $7.1 million was attributable to the increase $0.3 million of proceeds from the sale of a property and equipment; the decrease of $0.3 million for cash disbursed the acquisition for property and equipment in fiscal 2017; and a decrease of $6.5 million in connection with the acquisition of Vislink.

 

Financing Activities

 

Our net cash provided by financing activities for the year ended December 31, 2018, was $5.4 million. The $5.4 million in 2018 primarily consisted of net proceeds of $5.6 million from the issuance of convertible promissory notes. This amount was offset by the principal payments made towards capital lease obligations and convertible promissory notes in the amounts of $0.05 million and $0.08 million, respectively. 

 

Our net cash provided by financing activities for the year ended December 31, 2017, was $5.0 million as compared to $16.8 million for 2016. The $5.0 million in 2017 primarily consisted of net proceeds from the issuance of common stock and warrants in two underwritten public offerings in February 2017 and August 2017 in addition to the exercise of warrants totaling $7.9 million. This amount was offset by the Company's repayment of $2.0 million in principal regarding notes issued as part of the acquisition of Vislink and $0.9 million of other convertible promissory notes. Our cash used in financing activities would have been more significant if it were not for the exchange of the debt outstanding to the Sellers of Vislink for the accrued expenses we assumed.

 

 22 
 

 

Going Concern and Liquidity

 

Under ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.

 

As reflected in the consolidated financial statements, the Company had $2.0 million in cash on the balance sheet at December 31, 2018. The Company had working capital and an accumulated deficit of $9.4 million and $234.5 million, respectively. Additionally, the Company had a loss from operations in the amount of $14.4 million and cash used in operating activities of $6.4 million for the year ended December 31, 2018.

 

The Company’s consolidated financial statements are prepared assuming the Company can continue as a going concern, which contemplates continuity of operations through realization of assets, and the settling of liabilities in the normal course of business. The Company completed a cost reduction plan announced in April 2018 that resulted in approximately $8.2 million in annual savings. Savings were realized through immediate cost reductions affecting the xMax division by eliminating certain personnel costs, associated benefits and reduction in facilities and other expenses. The Company has also identified an additional $1.3 million in additional savings, primary related to facilities consolidation and severance. The Company believes it can raise additional working capital through equity or debt offerings; however, no assurance can be provided that the Company will be successful in such capital raising efforts.

 

On May 29, 2018, the Company completed a private placement of $4 million in principal amount of 6% Senior Secured Convertible Debentures and warrants to purchase 3,000,000 shares of the Company’s common stock, $0.00001 par value per share, by executing certain agreements with accredited institutional investors. During the months of October 2018 and December 2018, the Company negotiated modifications of the terms of such private placement with a majority of the accredited institutional investors, whereby the Company at its option can satisfy these obligations with shares of common stock. With the proceeds of the May 2018 financing, as amended, along with the significant cost reductions, management believes substantial doubt has been mitigated. The Company believes it will have sufficient working capital to fund operations for at least the next twelve months from the date of issuance of these financial statements.

 

The ability to recognize revenue and ultimately cash receipts is contingent upon, but not limited to, acceptable performance of the delivered equipment and services. If the Company is unable to close on some of its revenue producing opportunities in the near term, the carrying value of its assets may be materially impacted.

 

Nasdaq Compliance

 

On May 17, 2018 the Company, received a written notification from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) as Company’s closing bid price was below $1.00 per share for the previous 30 consecutive business days.

 

Pursuant to the Nasdaq Listing Rule 5810(c)(3)(A), the Company was granted a 180-day compliance period, or until November 13, 2018, to regain compliance with the minimum bid price requirements. During the compliance period, the Company’s shares of common stock will continue to be listed and traded on Nasdaq.

 

The Company was afforded a second 180 calendar day grace period by NASDAQ to regain compliance with the minimum bid price requirements. If the Company does not regain compliance by May 13, 2019, Nasdaq will provide notice that the Company’s shares of common stock will be subject to delisting.

 

 23 
 

 

Financings

 

May 2018 Private Placement and Subsequent Amendments

 

General

 

On May 30, 2018, the Company completed a private placement (the “May Private Placement”) of $4 million in principal amount of 6% Senior Secured Convertible Debentures (the “Original May Debentures”) and warrants to purchase 3,000,000 shares of Common Stock (the “May Warrants”) with certain institutional investors (the “May Investors”). The Original May Debentures and May Warrants were issued pursuant to a Securities Purchase Agreement, dated May 29, 2018 (the “May Purchase Agreement”), by and among the Company and the May Investors. The May Private Placement resulted in gross proceeds of $4 million before fees and other expenses associated with the transaction. The proceeds will be used primarily for working capital and general corporate purposes.

 

Pursuant to the terms of a Security Agreement, dated May 29, 2018 (the “May Security Agreement”), by and among the Company, its subsidiaries, and the May Investors, the Company’s obligations under the Original May Debentures and the subsidiary companies’ obligations under the Subsidiary Guarantee, dated May 29, 2018 (the “May Subsidiary Guarantee”), executed by such subsidiaries, are secured by all of the assets of the Company and the subsidiary companies, including without limitation, all right, title and interest of the Company in and to all trademarks, patents and copyrights and applications and licenses therefore and products and proceeds thereof.

 

Pursuant to the Registration Rights Agreement, dated May 29, 2018 (the “May Registration Rights Agreement”), by and among the Company and the May Investors, the Company was required within thirty (30) days of the closing date to file with the SEC a registration statement on Form S-3 (or other applicable registration statement under the Securities Act) covering the resale of all shares of Common Stock issuable upon conversion of the Original May Debentures. Such registration statement was filed with the SEC on Form S-1 (File No. 333-225975).

 

On October 11, 2018, the Company entered into an agreement with a majority of the May Investors (the “Majority Investors”) to modify the Original May Debentures by issuing amended and restated debentures (the “First Amended May Debentures”) to the Majority Investors (the “October 2018 Amendments”). In connection with the October 2018 Amendments, the Company issued to the Majority Investors an aggregate of 302,655 shares of Common Stock as compensatory shares (the “Compensatory Shares”).

 

On December 3, 2018, the Company entered into an agreement with the Majority Investors to modify the First Amended May Debentures by issuing the second amended and restated debentures (the “Second Amended May Debentures”; and together with the Original May Debentures and the First Amended May Debentures, the “May Debentures”) to the Majority Investors.

 

The May Warrants are exercisable to purchase up to an aggregate of 3,000,000 shares of Common Stock commencing on the date of issuance at an exercise price of $1.00 per share (the “Exercise Price”). The May Warrants are exercisable immediately and will expire on the fifth (5th) anniversary of their date of issuance. The Exercise Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

 

A.G.P./Alliance Global Partners served as the placement agent for the Company (“AGP” or the “Placement Agent”). The Placement Agent received warrants to purchase 200,000 shares of Common Stock (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable commencing on the date of issuance at an exercise price of $1.00 per share (the “Placement Agent Exercise Price”). The Placement Agent Warrants are exercisable immediately and will expire on the fifth (5th) anniversary of their date of issuance. The Placement Agent Exercise Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes

 

Description of the Second Amended May Debentures

 

The Second Amended May Debentures contain a five percent (5%) original issue discount to the principal amounts contained therein. Prior to the May Debentures Maturity Date (as defined below), the Second Amended May Debentures bear interest at 10% per annum, with 12 months interest guaranteed. Interest shall be paid quarterly in cash on January 1, April 1, July 1, and October 1 beginning on the first such date after the issuance of the Second Amended May Debentures, on each Conversion Date (as defined in the Second Amended May Debentures), on each redemption date (as set forth in the Second Amended May Debentures), and on the May Debentures Maturity Date (as defined below). The Second Amended May Debentures rank senior to the Company’s existing and future indebtedness and are secured to the extent and as provided in the May Security Agreement and the May Subsidiary Guarantee.

 

 24 
 

 

The Second Amended May Debentures are convertible at any time after their date of issuance at the option of the Majority Investors into shares of Common Stock at $0.45 per share (the “May Conversion Price”). The Second Amended May Debentures mature on September 30, 2019 (the “May Debentures Maturity Date”). Commencing on December 1, 2018, and continuing for each fiscal month thereafter through the May Debentures Maturity Date, the Company will make payments of principal and interest as Monthly Redemptions (as defined in the Second Amended May Debentures) to the Majority Investors in order to fully amortize the Second Amended May Debentures. The May Conversion Price is subject to adjustment for Events of Default (as defined in the Second Amended May Debentures) and upon stock splits, reverse stock splits, and similar capital changes.

 

At any time after issuance of the Second Amended May Debentures, and subject to the certain Equity Conditions (as defined in the Second Amended May Debentures) the Company may redeem any portion of the principal amount of the Second Amended May Debentures, any accrued and unpaid, and any other amounts due under the Second Amended May Debentures. If the Company exercises its right to prepay the Second Amended May Debentures, the Company will pay to the Majority Investors an amount in cash equal to the sum of the then outstanding principal amount of the Second Amended May Debentures and guaranteed interest as follows: (i) from the initial issuance date of the Second Amended May Debentures to the day prior to the 181-day anniversary of the issuance of the Second Amended May Debentures, a 110% premium; and (ii) from the 181-day anniversary of the issuance of the Second Amended May Debentures to the May Debentures Maturity Date, a 115% premium. The Majority Investors may continue to convert the Second Amended May Debentures until the Optional Redemption Payment (as defined in the Second Amended May Debentures) is paid.

 

At any time after issuance of the Second Amended May Debentures, in the event that the Company consummates a Subsequent Financing (as defined in the Second Amended May Debentures), the Company must make a mandatory redemption in full of the Second Amended May Debentures, in cash, to the Majority Investors at the same premiums described with respect to the Optional Redemption (as defined in the Second Amended May Debentures).

 

Until the 60-day anniversary of the issuance of the Second Amended May Debentures, the Company may not consummate a Subsequent Financing (as defined in the Second Amended May Debentures). So long as the Second Amended May Debentures are outstanding, the Company is prohibited from entering into any Variable Rate Transactions (as defined in the Second Amended May Debentures).

 

The conversion of the Second Amended May Debentures are subject to beneficial ownership limitations such that a Majority Investor may not convert a Second Amended May Debenture to the extent that such conversion would result in the Majority Investor being the beneficial owner in excess of 4.99% (or, upon election of such Majority Investor, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company. Additionally, the Company may not issue shares of Common Stock underlying the Second Amended May Debentures equal to more than 19.99% of the issued and outstanding shares of Common Stock as of May 29, 2018, without stockholder approval.

 

The principal differences between the Original May Debentures that are still held by the May Investors who are not the Majority Investors, and the Second Amended Debentures held by the Majority Investors are as follows:

 

  1. The conversion price of the Original May Debentures is $1.00 per share;
  2. The foregoing conversion price is not modified upon an Event of Default (as defined in the Original May Debentures), except for the passing of the Maturity Date (as defined in the Original May Debentures);
  3. There is no floor price of $0.20 contained in the Original May Debentures;
  4. Certain negative covenants were added to the Second Amended Debentures;
  5. There is no retroactive original issue discount contained in the Original May Debentures;
  6. Interest is six percent (6%) under the Original May Debentures and is not guaranteed;
  7. The Monthly Redemptions (as defined in the Original May Debentures) may only be paid in cash;
  8. The commencement of the Monthly Redemptions (as defined in the Original May Debentures) is September 29, 2018;
  9. Certain sections related to the other forms of redemptions were modified in the Second Amended May Debentures; and
  10. Certain sections related to the equity conditions and events of default were modified in the Second Amended May Debentures.

 

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December 2018 Private Placement

 

On December 3, 2018, the Company complete a private placement (the “December Private Placement”) of up to $3.5 million in principal amount of 10% Senior Secured Convertible Debentures (the “December Debentures”). The December Debentures were issued pursuant to a Securities December Purchase Agreement, dated December 3, 2018 (the “December Purchase Agreement”), by and among the Company and the Majority Investors. The initial closing of the December Private Placement resulted in gross proceeds of $2 million before fees and other expenses associated with the transaction. The proceeds will be used primarily for working capital and general corporate purposes.

 

The December Debentures contain a five percent (5%) original issue discount to the principal amounts contained therein. Prior to the December Debentures Maturity Date (as defined below), the December Debentures bear interest at 10% per annum, with 12 months interest guaranteed. Interest shall be paid quarterly in cash on January 1, April 1, July 1, and October 1 beginning on the first such date after the issuance of the December Debentures, on each Conversion Date (as defined in the December Debentures), on each redemption date (as set forth in the December Debentures), and on the December Debentures Maturity Date (as defined below). The December Debentures rank senior to the Company’s existing and future indebtedness (except with respect to the Second Amended May Debentures) and are secured to the extent and as provided in that certain Security Agreement, dated December 3, 2018 (the “December Security Agreement”), by and among the Company, its subsidiaries, and the Majority Investors, and that certain Subsidiary Guarantee, dated December 3, 2018 (the “December Subsidiary Guarantee”), executed by each of the Company’s subsidiaries.

 

The December Debentures are convertible at any time after their date of issuance at the option of the Majority Investors into shares of Common Stock at $0.45 per share (the “December Conversion Price”). The December Debentures mature on September 30, 2019 (the “December Debentures Maturity Date”). Commencing on February 1, 2019 and continuing for each fiscal month thereafter through the December Debentures Maturity Date, the Company will make payments of principal and interest as Monthly Redemptions (as defined in the December Debentures) to the Majority Investors in order to fully amortize the December Debentures. The December Conversion Price is subject to adjustment for Events of Default (as defined in the December Debentures) and upon stock splits, reverse stock splits, and similar capital changes.

 

At any time after issuance of the December Debentures, and subject to the certain Equity Conditions (as defined in the December Debentures) the Company may redeem any portion of the principal amount of the December Debentures, any accrued and unpaid, and any other amounts due under the December Debentures. If the Company exercises its right to prepay the December Debentures, the Company will pay to the Majority Investors an amount in cash equal to the sum of the then outstanding principal amount of the December Debentures and guaranteed interest as follows: (i) from the initial issuance date of the Debentures to the day prior to the 181-day anniversary of the issuance of the December Debentures, a 110% premium; and (ii) from the 181-day anniversary of the issuance of the December Debentures to the December Debentures Maturity Date, a 115% premium. The Majority Investors may continue to convert the December Debentures until the Optional Redemption Payment (as defined in the December Debentures) is paid.

 

At any time after issuance of the December Debentures, in the event that the Company consummates a Subsequent Financing (as defined in the December Debentures), the Company must make a mandatory redemption in full of the December Debentures, in cash, to the Majority Investors at the same premiums described with respect to the Optional Redemption (as defined in the December Debentures).

 

Until the 90-day anniversary of the issuance of the December Debentures, the Company may not consummate a Subsequent Financing (as defined in the December Debentures). So long as the December Debentures are outstanding, the Company is prohibited from entering into any Variable Rate Transactions (as defined in the December Debentures).

 

The conversion of the December Debentures are subject to beneficial ownership limitations such that a Majority Investor may not convert a December Debenture to the extent that such conversion would result in the Majority Investor being the beneficial owner in excess of 4.99% (or, upon election of such Majority Investor, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company. Additionally, the Company may not issue (i) shares of Common Stock underlying the (a) Original May Debentures (as applicable), (b) the May Warrants, (c) the Placement Agent Warrants, (d) the Second Amended May Debentures, (e) the December Debentures, and (ii) the Compensatory Shares, in the aggregate, equal to more than 19.99% of the issued and outstanding shares of Common Stock as of May 29, 2018, without stockholder approval.

 

Pursuant to the terms of the December Security Agreement, the Company’s obligations under the December Debentures and the subsidiary companies’ obligations under the December Subsidiary Guarantee, are secured by all of the assets of the Company and the subsidiary companies, including without limitation all right, title and interest of the Company in and to all trademarks, patents and copyrights and applications and licenses therefore and products and proceeds thereof.

 

Pursuant to the Registration Rights Agreement, dated December 3, 2018 (the “December Registration Rights Agreement”), by and among the Company and the Majority Investors, the Company was required within ten (10) days of the initial closing date to file with the SEC a registration statement on Form S-3 (or other applicable registration statement under the Securities Act) covering the resale of all shares of Common Stock issuable upon conversion of the December Debentures. Such registration statement was filed with the SEC on Form S-3 (File No. 333- 228793).

 

In connection with the foregoing, the Company obtained from the Majority Investors, Voting Agreements, dated December 3, 2018 (each, a “December Voting Agreement”), whereby the Majority Investors agree to vote all shares of Common Stock over which they have voting control in favor of any resolution presented to the stockholders of the Company to approve the issuance, in the aggregate, of more than 19.99% of the number of shares of Common Stock outstanding on May 29, 2018.

 

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Off-Balance Sheet Arrangements

 

As of December 31, 2018, and 2017, we had no off-balance sheet arrangements.

 

Recent Accounting Pronouncements – Adopted and Not Yet Adopted

 

In April 2012, the Jumpstart Our Business Startups Act, or JOBS Act was enacted in the United States. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In addition, pursuant to guidance issued by the SEC on December 1, 2017 in Section 10230.1(f) of the Division of Corporation Finance Financial Reporting Manual regarding the adoption of new accounting standards for emerging growth companies, “if an EGC loses its status after it would have had to adopt a standard absent the extended transition, the issuer should adopt the standard in its next filing after losing status.” We have irrevocably elected to use this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies and emerging growth companies. Effective January 1, 2019 the Company’s EGC status expired.

 

Adopted on January 1, 2019

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), that will supersede virtually all existing revenue guidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the entitled consideration received in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the customer contracts. This update is effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company has been able to defer adoption to January 1, 2019, under the emerging growth company (“EGC”) status that expired on December 31, 2018. Upon the loss of EGC status, an issuer is required to adopt the standard in its next filing. This accounting standard becomes effective for the Company for reporting periods beginning after December 15, 2018, and interim reporting periods thereafter, specifically the first quarter of 2019.

 

On January 1, 2019, the Company adopted ASU 2014-09 “Revenue from Contracts with Customers” and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets. The Company will adopt ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2019. Under the modified retrospective transition method, an entity compares the revenue recognized from contract inception up to the date of initial application to the amount that would have been recognized if it had applied ASC 606 since contract inception. The difference between those two amounts would be accounted for as a cumulative effect adjustment and recognized on the date of initial application. The Company has completed its assessment of the new standard, including a review of the Company’s revenue streams to identify potential differences in accounting because of the new standard. This evaluation has influenced the Company to conclude that the adoption of the new guidance will not have a material impact and will not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment will is expected. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

 

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. As a lessor and lessee, we do not anticipate the classification of our leases to change, but we expect to recognize right-of-use assets and lease liabilities for substantially virtually all our operating lease commitments leases for which we are the lessee as a lease liability and corresponding right-of-use asset on consolidated balance sheet. The accounting for lessors remains largely unchanged from existing guidance.

 

The new standard is effective for us on January 1, 2019. We expect to adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We adopted the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

 

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The new standard provides several optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of- hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

 

We expect that this standard will have a material effect on our financial statements. While we continue to assess all the effects of adoption, we currently believe the most significant effects relate to the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases.

 

On adoption, the Company expects recognition of additional assets and corresponding liabilities pertaining to its operating leases on its consolidated balance sheets. The Company does not expect the adoption of the new standard to have a significant impact on its consolidated statements of operations and cash flows.

 

The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all our leases of real estate.

 

New Standards Not Yet Adopted

 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic) 808: Clarifying the Interaction between Topic 808 and Topic 606. The amendments in the update affect all entities that have collaborative arrangements. The amendments to this update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows:

 

Clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

 

Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606.

 

Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

 

The amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. An entity may not adopt the amendments earlier than its adoption date of Topic 606. The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of Topic 606. An entity may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. An entity should disclose its election. An entity may elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. We are currently evaluating this guidance to determine the impact to our consolidated financial statements.

 

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments to this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10. For entities other than private companies, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within the fiscal years beginning after December 15, 2021. All entities are required to apply the amendments in this update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earlies period presented. Early adoption is permitted. The adoption of ASC 2017-17 is not expected to have a material impact on our results of operations, financial position or liquidity of our related financial statement disclosures.

 

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 consolidated financial statements.

 

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Critical Accounting Policies and Estimates

 

Critical accounting estimates are those that management deems to be most important to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified our critical accounting estimates which are discussed below.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, and debt discounts and the valuation of the assets and liabilities acquired in the acquisitions of IMT and Vislink.

 

Principles of Consolidation

 

The consolidated financial statements which have been prepared in accordance with U.S. GAAP include the accounts of Vislink Technologies and its wholly-owned subsidiaries, IMT and Vislink, since the date the acquisitions of IMT and Vislink were completed. All intercompany transactions and balances have been eliminated in the consolidation.

 

Segment Reporting

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s decision-making group is the senior executive management team. The Company and the decision-making group view the Company’s operations and manage its business as one operating segment. All long-lived assets of the Company reside in the U.S. and U.K.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgements regarding its customer’s ability to make required payments, prevailing economic conditions, past experience and other factors. As the financial condition of these factors change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for credit losses and such losses have been within the Company’s expectations.

 

Intangible Assets

 

Software:

 

The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use or sale to others when both the preliminary project stage is completed, and it is probable that the software will be used as intended with a product. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the product. Capitalized software costs are included in intangible assets on the Company’s balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which approximates 5 years. Software amortization totaled $268,000 and $923,000 for the years ended December 31, 2018 and 2017, respectively. As a result of the closing of the XG division, the Company recording an impairment charge in the amount of $168,000 and $-0- for the years ended December 31, 2018 and 2017, respectively.

 

Patents and licenses:

 

Patents and licenses, measured initially at purchase cost, are included in intangible assets on the Company’s balance sheet and are amortized on a straight-line basis over their estimated useful lives of 18.5 to 20 years. Amortization totaled $664,000 for the years ended December 31, 2018 and 2017, respectively.

 

Other intangible assets:

 

The Company’s remaining intangible assets include the trade names, technology and customer lists acquired in its acquisition of IMT and Vislink. The value of these acquired assets was determined by a third-party appraisal completed for these business combinations. Absent an indication of fair value from a potential buyer or similar specific transactions, the Company believes that the use of the methods employed provided a reasonable estimate in the reporting of the fair value assigned.

 

The Company includes these costs in intangible assets on the balance sheet and are amortized over their useful lives of 3 to 15 years. Amortization amounted to $1,103,000 and $1,011,000 for the years ended December 31, 2018 and 2017, respectively. Other intangible assets capitalized were $-0- and $3,620,000 for the years ended December 31, 2018 and 2017, respectively.

 

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Revenue Recognition

 

The Company recognizes revenues when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. Revenues from management and consulting, time-and-materials service contracts, maintenance agreements and other services are recognized as the services are provided or at the time the goods are shipped, and title as passed.

 

Stock-Based Compensation

 

The Company accounts for stock compensation with persons classified as employees for accounting purposes in accordance with 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 date of issuance.

 

The Company accounts for stock compensation arrangements with persons classified as non-employees for accounting purposes in accordance with ASC 505-50 “Stock-Based Transactions with Nonemployees”, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as the underlying instruments vest. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and the compensation charges are amortized over the vesting period.

 

Impairment of Long-Lived Assets

 

Management reviews long-lived assets and other intangible assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the estimated undiscounted cash flows expected to result from the use of an asset and its eventual disposition is less than it’s carrying amount. If an impairment exists, the resulting write-down would be the difference between the fair market value of the long-lived asset and the related net book value. For the years ended December 31, 2018 and 2017, the Company recorded total impairment charges of $0.4 million and $-0-, respectively.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement in common stock or (ii) give the Company a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement). The Company classifies the following contracts as either an asset or a liability: contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in common stock (physical settlement or net-share settlement) or (iii) contain reset provisions. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

 

Convertible Instruments

 

The Company records debt net of debt discount for beneficial conversion features and warrants, on either a relative fair value or fair value basis depending on the respective accounting treatment of each instrument. Beneficial conversion features are recorded pursuant to the Beneficial Conversion (“BCF”) and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discounts with corresponding entries to derivative liability and additional paid-in-capital. Costs paid to third parties (e.g., legal fees, printing costs, placement agent fees) that are directly related to issuing the debt and that otherwise wouldn’t be incurred, are treated as a direct deduction of the debt liability. Debt discount and issuance costs are generally amortized and recognized as additional interest expense in the statement of operations over the life of the debt instrument using the effective interest method.

  

The Company evaluates and bifurcates conversion features from the instruments containing such features and accounts for them as free standing derivative financial instruments, according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the underlying instrument, (b) the hybrid instrument that contains both the embedded derivative instrument and the underlying instrument is not re-measured at fair value under otherwise applicable U.S. GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the underlying instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.

 

Commitments and Contingencies

 

Except as otherwise disclosed in this Report, we have no material commitments or contingent liabilities.

 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

We are not required to provide the information required by this Item 7A. as we are a smaller reporting company.

 

Item 8. Financial Statements and Supplementary Data

 

The Company’s audited financial statements and notes thereto appear in this Report beginning on page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedure

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive who also serves as our principal financial officer, we conducted an evaluation as of December 31, 2018 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of management, including our principal executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on this evaluation under the COSO Framework, management concluded that our internal control over financial reporting was not effective as of December 31, 2018.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

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As of December 31, 2018, management has not completed an effective assessment of the Company’s internal control over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that as of December 31, 2018, our internal control over financial reporting was not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.

 

  1. We did not perform an effective risk assessment or monitor internal controls over financial reporting.
     
  2. With the acquisitions of IMT and Vislink, there are risks related to the timing and accuracy of the integration of information from various accounting and ERP systems. The Company has experienced delays in receiving information in a timely manner from its subsidiaries.
     
  3.

Due to the demands of integrating the accounting and finance functions, along with turnover in the accounting department, the impact of new accounting standards were not completed on a timely basis.

 

In 2017, the Company acquired additional accounting personnel in connection with the Vislink acquisition and additional accounting personnel who can assist in supporting the Company’s accounting department. The Company expects improvements to be made on the integration of information issues in 2019 as we plan to move towards one accounting and ERP system. The Company is continuing to further remediate the material weakness identified above as its resources permit.

 

This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only the management’s report in this Report.

 

Changes in Internal Control over Financial Reporting

 

There were no material changes, other than those described above, in our internal control over financial reporting during our most recent fiscal quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

 

Effective February 11, 2019, the Company changed its name to Vislink Technologies, Inc.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Our directors and executive officers and their ages and positions are as follows:

 

Name   Age   Position   Date First
Elected or Appointed
             
Roger G. Branton   51   Chief Executive Officer, Chief Financial Officer, and Director   July 19, 2018
             
Susan Swenson   70   Executive Chairman of the Board   October 31, 2018
             
Richard L. Mooers   55   Director   February 4, 2004
             
George F. Schmitt   75   Director   February 4, 2011
             
Raymond M. Sidney   49   Director   July 18, 2013
             
General James T. Conway   71   Director   January 6, 2015
             
John C. Coleman   65   Director   January 19, 2011
             
Belinda Marino   59   Secretary   August 20, 2013
             
John B. Payne IV   49   President and Chief Operating Officer   January 29,2016

 

Roger G. Branton, Chief Executive Officer, Chief Financial Officer, and Director

 

Mr. Branton, together with Richard Mooers, co-founded the Company in August 2002, and he has served as Chief Executive Officer since July 19, 2018 and Chief Financial Officer of the Company since August 26, 2002. Mr. Branton also serves in similar capacities at MBTH, a company he co-founded with Richard Mooers and George F. Schmitt in 2010. Mr. Branton graduated from West Chester University in Pennsylvania with a Bachelor of Science degree in accounting in 1989. He trained as a certified public accountant until 1992 and then worked at an investment/merchant bank which specialized in the technology, agriculture, and environmental industries, where his duties included acting as interim chief financial officer for several companies within its investment portfolio. In 1997, Mr. Branton co-founded Mooers Branton & Company, an international merchant bank which provides early-stage financing to emerging businesses.

 

Mr. Branton was selected to serve on our Board based on his broad experience with the Company and in the wireless industry, he is the Company’s Chief Executive Officer and Chief Financial Officer, and he is a co-founder of the Company.

 

Susan Swenson, Executive Chairman of the Board

 

Ms. Swenson’s appointment to Executive Chairman of the Board became effective on October 31, 2018. Ms. Swenson has several decades of operating experience in wireless telecom, video technologies and digital media, as well as telematics and small business software. Ms. Swenson currently serves on the board of Harmonic, Inc. and chairs the Governance and Nominating Committee. Harmonic, Inc. is the worldwide leader in video delivery technology and services enabling media companies and service providers to deliver ultra-high-quality broadcast and OTT video services to consumers globally.

 

From August 2012 to August 2018 Ms. Swenson served on the board of the First Responder Network Authority and chaired the board from 2014 to 2018. This independent authority within NTIA/Department of Commerce established a single nationwide public safety broadband network enabling first responders to have voice and data communications across all 56 states, territories and commonwealths.

 

From October 2015 to June 2017, Ms. Swenson served as Chair and Chief Executive Officer of Inseego Corp. (previously Novatel Wireless, Inc), a wireless internet solutions and telematics provider, and served as the board chair from April 2014 to June 2017 after joining the board in 2012. From March 2008 to April 2011, Ms. Swenson served as President and Chief Executive Officer of Sage Software-North America, a division of The Sage Group PLC, a global supplier of business management software and services.

 

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From August 2007 to March 2008, she was Chief Operating Officer at Atrinsic, Inc. a digital content company. Prior to joining Atrinsic, Inc., she served as Chief Operating Officer of Amp’d Mobile, Inc, a mobile virtual network start-up, from 2006 to 2007. Ms. Swenson was the President and Chief Operating Officer of T-Mobile USA from 2004 to 2005 and of Leap Wireless International, Inc. from 1999 to 2004. She served as the President and Chief Executive Officer of Cellular One from 1994 to 1999. From 1979 to 1994 she served in various management capacities at Pacific Bell, ultimately serving as President and Chief Operating Officer of PacTel Cellular and Vice President, Pacific Bell - Northern California Business Unit. Ms. Swenson holds a B.A. in French from San Diego State University.

 

Mr. Swenson was selected to serve on our Board based on her extensive experience with technology and networking companies and broad experience in the telecommunications industry.

 

Richard L. Mooers, Director

 

Richard Mooers has been involved in telecommunications activities for over 20 years and has significant expertise in accounting, risk management, and controls. For the past 11 years, he has served in a variety of positions with our company since its founding in August 2002. Mr. Mooers served as our Executive Chairman of the Board from inception until July 19, 2013 and continues to serve as a director of the Company, a position he has held from inception. He also serves as a Director of MBTH, a company he co-founded with Roger G. Branton and George F. Schmitt in 2010. Mr. Mooers graduated summa cum laude from the University of Maine, with a Bachelor of Science degree in business administration in 1985. He remains one of the major investors in the Company.

 

Mr. Mooers was selected to serve on our Board based on his extensive experience with technology and telecommunications companies, including as a founder, executive and investor.

 

George F. Schmitt, Director

 

Mr. Schmitt has over 40 years of broad telecom experience in wireless and wireline companies and has built wireless networks in a dozen countries. He is a major investor in the Company through his personal holdings and through his holdings in MBTH. Mr. Schmitt has served as a director of the Company since February 4, 2011. From July 19, 2013 to April 23, 2018, Mr. Schmitt served as Executive Chairman of the Board of the Company. He also served as Chief Executive Officer of the Company from February 12, 2015 to April 23, 2018. In addition, Mr. Schmitt previously served as the Chief Executive Officer of MBTH from December 2010 through December 2013. Mr. Schmitt currently sits on the board of directors of SecureAlert, Culient, and the California Thoroughbred Breeders Association. Mr. Schmitt previously served as a director of TeleAtlas, Objective Systems Integrators, Omnipoint and LHS Group. Mr. Schmitt is a principal of Sierra Sunset II, LLC and served as a former Trustee of St. Mary’s College. In addition, Mr. Schmitt has served as a director of many privately held companies including Voice Objects, Knowledge Adventure, Jungo and Cybergate, among others. Mr. Schmitt has also served as Financial Vice President of Pacific Telesis and chaired the Audit Committees of Objective Systems Integrations and TeleATLAS. Mr. Schmitt received an M.S. in Management from Stanford University, where he was a Sloan Fellow, and a B.A. in Political Science from Saint Mary’s College.

 

Mr. Schmitt was selected to serve on our Board based on his extensive experience with technology and networking companies and broad experience in the telecommunications industry and his status as a significant investor in the Company.

 

Raymond M. Sidney, Director

 

Dr. Sidney has established several real estate investment ventures and been involved with a number of companies, including Covia Labs, Hemedex, Edison2 and Commuter Cars as an investor, board member or advisor. He also serves on the Vision Circle of the X PRIZE Foundation. Prior to this, Dr. Sidney was the second software engineer hired at Google, Inc. Dr. Sidney previously worked as a security expert and software engineer at RSA Labs and D.E. Shaw & Co., among other companies. He provided the implementation expertise for RC6, RSA’s candidate cipher for NIST’s quest for AES, a successor to the Data Encryption Standard. Dr. Sidney attended Caltech and Harvard, and he received a bachelor’s degree in mathematics from Harvard in 1991. He then entered the graduate program in mathematics at MIT, where he specialized in cryptography and received a PhD in 1995. His higher mathematics knowledge will be helpful to our development team. Dr. Sidney’s business experience includes running and investing in startups through his venture capital company, Big George Ventures. In addition, he is active in many educational and environmental undertakings in the Lake Tahoe area.

 

Dr. Sidney was selected to serve on our Board based on his extensive experience with technology companies and broad experience in the venture capital industry.

 

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General James T. Conway, Director

 

General Conway retired from active military duty in 2010. Since retiring, General Conway has consulted for several corporate and non-profit boards, including Textron Inc., Colt Defense and General Dynamics. General Conway also co-chairs the Energy Security Leadership Council, a non-partisan energy policy think tank. Prior to his retirement, General Conway served as the 34th Commandant of the U.S. Marine Corps for four years. Prior to becoming Commandant, General Conway served for four years on the Joint Chiefs of Staff as Senior Operations Officer in the U.S. military, where he oversaw the war efforts in Iraq and Afghanistan. As a member of the Joint Chiefs of Staff, General Conway functioned as a military advisor to the Secretary of Defense, the National Security Council, and the President.

 

General Conway was selected to serve on our Board based on his significant experience assessing and implementing military technology operations.

 

John C. Coleman, Director

 

Mr. Coleman brings to us 35 years of combined experience in expeditionary operations from both government service and the private sector. Since February 2015, Mr. Coleman has served as the President of our Federal and Expeditionary Business Division. From June 2010 to February 2015, he served as the Chief Executive Officer and Chief Operating Officer of the Company. From January 2009 to June 2012, he was the Chief Executive Officer of Joint Command and Control Consulting (JC3), a consulting services firm he founded that is focused on the development, integration, and delivery of mature and emerging technologies in support of expeditionary operations, particularly as related to command, control, and communications. In conjunction with its strategic partners, JC3 provides C4ISR-related systems, service, training, and support to expeditionary responders, both civil and military. He also served as a Vice-President of Hunter Defense Technology, a position he held from July 2006 to December 2008. In the 30 years preceding private sector employment, Mr. Coleman served the United States as a U.S. Marine Officer. Defining the character of his service upon retirement, Mr. Coleman was awarded the nation’s Distinguished Service Medal, an honor very rarely and only under exceptional circumstance bestowed to Marines below the rank of General Officer. He retired from the U.S. Marine Corp as a Colonel. He possesses top secret clearance which gives him access to several of our major markets.

 

Mr. Coleman was selected to serve on our Board based on his significant experience with the military and military operations.

 

Belinda Marino, Secretary

 

Mrs. Marino has served as Secretary since August 2013. Mrs. Marino is also an employee of the Company serving as the Director of Human Resources since 2006. In addition to the above, Mrs. Marino has ongoing responsibilities for functions that include corporate banking activities and corporate governance. Mrs. Marino earned a PHR (Professional in Human Resources) Certificate from the HR Certification Institute in 2009.

 

John B. Payne IV, President and Chief Operating Officer

 

Mr. Payne previously served as President of the IMT Division since January 29, 2016. Mr. Payne was previously the Chief Technology Officer of IMT from February 2012 to January 2016, VP of Engineering of IMT from February 2012 to January 2015, and Chief Operating Officer of IMT from January 2015 through January 2016. From August 2010 through March 2012, Mr. Payne was the Vice President of Technology for IMT, a Vitec Group company. From 1996 through August 2010, Mr. Payne worked for Nucomm, Inc. in various positions, including as Vice President of Engineering. Mr. Payne holds several patents in the area of wireless communications and is considered an industry expert in the wireless video communication industry related to broadcast television and military and civil manned and unmanned systems. Mr. Payne has a Master of Science in communication systems from the University of Southern California and a Bachelor of Science in engineering from the Rochester Institute of Technology.

 

Board of Directors

 

The Board oversees our business affairs and monitors the performance of our management. In accordance with our corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with the Chief Executive Officer, other key executives and by reading the reports and other materials sent to them and by participating in Board and committee meetings. Our directors hold office until the next Annual Meeting of Stockholders and until their successors are elected and qualified or until their earlier resignation or removal, or if for some other reason they are unable to serve in the capacity of director.

 

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Our Board currently consists of seven (7) members: Roger G. Branton; Susan Swenson; Richard L. Mooers; George F. Schmitt; John C. Coleman; Raymond M. Sidney; and General James T. Conway. All of our directors will serve until our next Annual Meeting of Stockholders and until their successors are duly elected and qualified.

 

Board Committees

 

Our Board has an Audit Committee, a Compensation Committee and a Governance and Nomination Committee. Each committee has a charter, which is attached as an appendix to this Proxy Statement. Each of the board committees has the composition and responsibilities described below. The members of these committees are:

 

Audit Committee   Compensation Committee   Governance and Nomination Committee
         
Susan Swenson*   General James T. Conway*   Susan Swenson*
         
General James T. Conway   Raymond Sidney   Raymond Sidney
         
Raymond Sidney   Susan Swenson   General James T. Conway

 

*Denotes Chairman of Committee.

 

Audit Committee

 

We have an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act. The members of our Audit Committee are Susan Swenson, General James T. Conway, and Raymond Sidney. Susan Swenson, General James T. Conway and Raymond Sidney are “independent directors” within the meaning of Rule 10A-3 under the Exchange Act and Nasdaq Rule 5605(a)(2).

 

The Audit Committee oversees our accounting and financial reporting processes and oversees the audit of our financial statements and the effectiveness of our internal control over financial reporting. The specific functions of the Audit Committee include:

 

●Selecting and recommending to our Board the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;

 

●Approving the fees to be paid to the independent registered public accounting firm;

 

●Helping to ensure the independence of our independent registered public accounting firm;

 

●Overseeing the integrity of our financial statements;

 

●Preparing an audit committee report as required by the SEC to be included in our annual proxy statement;

 

●Reviewing major changes to our auditing and accounting principles and practices as suggested by our Company’s independent registered public accounting firm, internal auditors (if any) or management;

 

●Reviewing and approving all related party transactions; and

 

●Overseeing our compliance with legal and regulatory requirements.

 

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Compensation Committee

 

The members of our Compensation Committee are General James T. Conway, Raymond Sidney, and Susan Swenson. Each member of the Compensation Committee is “independent” within the meaning of Nasdaq Rule 5605(a)(2). In addition, each member of our Compensation Committee qualifies as a “non-employee director” under Rule 16b-3 of the Exchange Act. Our Compensation Committee assists the Board in the discharge of its responsibilities relating to the compensation of the members of the Board and our executive officers. General James T. Conway serves as Chairman of our Compensation Committee.

 

The Compensation Committee’s compensation-related responsibilities include:

 

●Assisting our Board in developing and evaluating potential candidates for executive positions and overseeing the development of executive succession plans;

 

●Reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer;

 

●Reviewing, approving and recommending to our Board on an annual basis the evaluation process and compensation structure for our other executive officers;

 

●Providing oversight of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors;

 

●Reviewing our incentive compensation and other stock-based plans and recommending changes in such plans to our Board as needed, and exercising all the authority of our Board with respect to the administration of such plans;

 

●Reviewing and recommending to our Board the compensation of independent directors, including incentive and equity-based compensation; and

 

●Selecting, retaining and terminating such compensation consultants, outside counsel and other advisors as it deems necessary or appropriate.

 

Governance and Nomination Committee

 

The members of our Governance and Nomination Committee are Susan Swenson, Raymond Sidney, and General James T. Conway. Each member of the Governance and Nomination Committee is “independent” within the meaning of Nasdaq Rule 5605(a)(2). The purpose of the Governance and Nomination Committee is to recommend to the Board nominees for election as directors and persons to be elected to fill any vacancies on the Board, develop and recommend a set of corporate governance principles and oversee the performance of the Board. Kenneth Hoffman serves as chairman of our Governance and Nomination Committee.

 

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The Governance and Nomination Committee’s responsibilities include:

 

Selecting director nominees. The Governance and Nomination Committee recommends to the Board nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the Board. The Governance and Nomination Committee will consider candidates proposed by stockholders and will apply the same criteria and follow substantially the same process in considering such candidates as it does when considering other candidates. The Governance and Nomination Committee may adopt, in its discretion, separate procedures regarding director candidates proposed by our stockholders. Director recommendations by stockholders must be in writing, include a resume of the candidate’s business and personal background and include a signed consent that the candidate would be willing to be considered as a nominee to the Board and, if elected, would serve. Such recommendation must be sent to the Company’s Secretary at the Company’s executive offices. When it seeks nominees for directors, our Governance and Nomination Committee takes into account a variety of factors including (a) ensuring that the Board, as a whole, is diverse and consists of individuals with varied and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise (including expertise that could qualify a director as a “financial expert”, as that term is defined by the rules of the SEC), local or community ties and (b) minimum individual qualifications, including strength of character, mature judgment, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially. The Company is of the view that the continuing service of qualified incumbents promotes stability and continuity in the board room, contributing to the ability of the Board to work as a collective body, while giving the Company the benefit of the familiarity and insight into the Company’s affairs that its directors have accumulated during their tenure. Accordingly, the process of the Governance and Nomination Committee for identifying nominees reflects the Company’s practice of re-nominating incumbent directors who continue to satisfy the committee’s criteria for membership on the Board whom the committee believes continue to make important contributions to the Board and who consent to continue their service on the Board. The Board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. The Governance and Nomination Committee may adopt, and periodically review and revise as it deems appropriate, procedures regarding director candidates proposed by stockholders;

 

Reviewing requisite skills and criteria for new Board members and Board composition. The Governance and Nomination Committee reviews with the entire Board, on an annual basis, the requisite skills and criteria for Board candidates and the composition of the Board as a whole;

 

Hiring of search firms to identify director nominees. The Governance and Nomination Committee has the authority to retain search firms to assist in identifying Board candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee;

 

Selection of committee members. The Governance and Nomination Committee recommends to the Board on an annual basis the directors to be appointed to each committee of the Board;

 

Evaluation of the Board. The Governance and Nomination Committee will oversee an annual self-evaluation of the Board and its committees to determine whether it and its committees are functioning effectively;

 

Development of corporate governance guidelines. The Governance and Nomination Committee will develop and recommend to the Board a set of corporate governance guidelines applicable to the Company.

 

The Governance and Nomination Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Governance and Nomination Committee is authorized to retain independent legal and other advisors and conduct or authorize investigations into any matter within the scope of its duties.

 

Director Nominating Procedures

 

Since May 22, 2017, there have been no material changes to the procedures by which our security holders may recommend nominees to our Board of Directors.

 

Family Relationships

 

There are no relationships between any of the officers or directors of the Company.

 

 38 
 

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten (10) years:

 

●Been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

●Had any petition under federal or state bankruptcy laws filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for, the business or property of the person, or any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time;

 

●Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

●Been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

●Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

●Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

 

Leadership Structure of the Board

 

The Board does not currently have a policy on whether the same person should serve as both the Chief Executive Officer and Executive Chairman of the Board or, if the roles are separate, whether the Executive Chairman of the Board should be selected from the non-employee directors or should be an employee. The Board believes that it should have the flexibility to make these determinations at any given point in time in the way that it believes best to provide appropriate leadership for the Company at that time.

 

Risk Oversight

 

The Board oversees risk management directly and through its committees associated with their respective subject matter areas. Generally, the Board oversees risks that may affect the business of the Company as a whole, including operational matters. The Audit Committee is responsible for oversight of the Company’s accounting and financial reporting processes and also discusses with management the Company’s financial statements, internal controls and other accounting and related matters. The Compensation Committee oversees certain risks related to compensation programs and the Governance and Nomination Committee oversees certain corporate governance risks. As part of their roles in overseeing risk management, these committees periodically report to the Board regarding briefings provided by management and advisors as well as the committees’ own analysis and conclusions regarding certain risks faced by the Company. Management is responsible for implementing the risk management strategy and developing policies, controls, processes and procedures to identify and manage risks.

 

 39 
 

 

Code of Ethics

 

The Board has adopted a Code of Business Ethics and Conduct (the “Code of Conduct”) which constitutes a “code of ethics” as defined by applicable SEC rules and a “code of conduct” as defined by applicable rules of the Nasdaq Stock Market. We require all employees, directors and officers, including our principal executive officer and principal financial officer, to adhere to the Code of Conduct in addressing legal and ethical issues encountered in conducting their work. The Code of Conduct requires that these individuals avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity. The Code of Conduct contains additional provisions that apply specifically to our Chief Executive Officer, Chief Financial Officer and other finance department personnel with respect to accurate reporting. The Code of Conduct is available on our website at www.vislinktechnologies.com. Information contained in our website does not form part of this Proxy Statement and is intended for informational purposes only. The Company will post any amendments to the Code of Conduct, as well as any waivers that are required to be disclosed by the rules of the SEC on such website. Information contained on our website is not a part of, and is not incorporated into, this Proxy Statement, and the inclusion of our website address in this Proxy Statement is an inactive textual reference only.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent (10%) of the Common Stock, to file with the SEC the initial reports of ownership and reports of changes in ownership of Common Stock. Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Specific due dates for such reports have been established by the SEC, and the Company is required to disclose in this Proxy Statement any failure to file reports by such dates during fiscal year 2018. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no Forms 5 were required for such persons, the Company believes that during the fiscal year ended December 31, 2018, there was no failure to comply with Section 16(a) filing requirements applicable to its executive officers, directors or greater than ten percent (10%) stockholders other than as listed in the table below:

 

Name  

Number of

Late Reports

  Description
John C. Coleman   3   3 transactions were not reported on a timely basis upon the acquisition of Common Stock.
Raymond M. Sidney   1   1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
Gary Cuccio   3   3 transactions were not reported on a timely basis upon the acquisition of Common Stock.
Richard Mooers   6   6 transactions were not reported on a timely basis upon the acquisition of Common Stock.
George F. Schmitt   2   2 transactions were not reported on a timely basis upon the acquisition of Common Stock.
Kenneth Hoffman   1   1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
Roger G. Branton   1   1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
John B. Payne IV   2   John B. Payne IV’s Form 3 was not filed on a timely basis; 1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
James M. Walton   2   James M. Walton’s Form 3 was not filed on a timely basis; 1 transaction was not reported on a timely basis upon the acquisition of Common Stock.
Belinda Allen Marino   3   3 transactions were not reported on a timely basis upon the acquisition of Common Stock.
James T. Conway   1   1 transaction was not reported on a timely basis upon the acquisition of Common Stock.

 

Item 11. Executive Compensation

 

Summary Compensation Table for Fiscal Years 2018 and 2017

 

The following table sets forth all plan and non-plan compensation for the last two completed fiscal years paid to all individuals who served as the Company’s principal executive officer (“PEO”) or acted in a similar capacity and the Company’s two other most highly compensated executive officers during the last completed fiscal year, as required by Item 402(m)(2) of Regulation S-K of the Securities Act. We refer to all of these individuals collectively as our “Named Executive Officers.”

 

Name and Principal Position   Fiscal
Year
   Salary
($)
   Bonus
($)
   Stock
Awards
($)
   Option
Awards
($)(1)
   Non-Equity
Incentive
Plan
Compensation
($)
   Non-qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)(2)
   Total
($)
 
Roger G. Branton,
Chief Executive Officer and Chief Financial Officer
   2018    293,800    0    104,000    73,873            19,615    491,288 
    2017    240,000    0    0    63,268            17,665    320,933 
John B. Payne IV,
Chief Operating Officer
   2018    286,917    0    78,000    73,873            28,428    467,218 
    2017    254,108    0    0    63,268            28,428    345,804 
George F. Schmitt,
Chief Executive Officer (former)
   2018    87,500    0    104,000    73,873            0    265,373 
    2017    300,000    0    0    63,268            0    363,268 

 

  (1) Amounts relate to grants of stock options made under the 2013 Long-Term Stock Incentive Plan and the 2015 and 2016 Incentive Compensation Plans. With respect to each stock option grant, the amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718 “Stock Compensation”.
     
  (2) Includes employer-paid insurance.

 

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Outstanding Equity Awards as of December 31, 2018

 

The following table presents information regarding the outstanding options held by our Named Executive Officers as of December 31, 2018:

 

   Option Awards    
   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
   Option
Exercise
Price
($)
   Option
Expiration
Date
Roger G. Branton   50,000    100,000    1.55   3/24/2027
John Payne   50,000    100,000    1.55   3/24/2027

 

(1) 50,000 of these options vested on March 24, 2018, 50,000 of these options vest on March 24, 2019 and 50,000 of these options vest on March 24, 2020.

 

Director Compensation for Fiscal Year 2018

 

The Company compensates our non-employee directors on a negotiated basis including expenses for their service. In the fiscal year ended December 31, 2018, each of these directors received compensation in the amount of  $25,000 or $30,000, annually, based on committee responsibilities, payable quarterly in cash or the same value in shares of Common Stock of the Company, based on the director’s determination. Each award has a vesting schedule of one-third vesting each year on the anniversary date over three (3) years. The table below summarizes the compensation earned by our non-employee directors for the fiscal year ended December 31, 2018.

 

Name  Fees earned or paid in cash ($)   Stock Awards ($)   Option Awards ($)(1)(2)    Non-equity incentive plan compensation ($)   Change in pension value and nonqualified deferred compensation earnings ($)   All Other Compensation ($)   Total ($) 
Gary Cuccio   4,542    12,904    36,936    0    0    0    54,382 
Richard Mooers   6,250    15,625    36,936    0    0    0    58,811 
Kenneth Hoffman   7,500    16,250    36,936    0    0    0    60,686 
Raymond Sidney   6,566    16,200    36,936    0    0    0    59,702 
General James T. Conway   7,500    18,750    36,936    0    0    0    63,186 
George F. Schmitt   2,465    8,715    73,873    0    0    0    85,053 
John C. Coleman   270    9,514    73,873    0    0    0    83,657 
Susan Swenson   0    8,790    0    0    0    0    8,790 

 

  (1) Amounts relate to grants of stock options made under the 2015 and 2016 Incentive Compensation Plans. With respect to each stock option grant, the amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718 “Stock Compensation.”
     
  (2) Except for George F. Schmitt and John C. Coleman, each director had 50,000 outstanding option awards as of December 31, 2018. George F. Schmitt and John C. Coleman each had 100,000 outstanding option awards as of December 31, 2018.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of April 1, 2019, information regarding beneficial ownership of our capital stock by:

 

  each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;
  each of our named executive officers;
  each of our directors; and
  all of our current executive officers and directors as a group.

 

Beneficial ownership is determined according to the rules of the U.S. Securities and Exchange Commission (the “SEC’) and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options that are currently exercisable or exercisable within sixty (60) days of April 1, 2019. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable.

 

Common Stock subject to stock options currently exercisable or exercisable within sixty (60) days of April 1, 2019, are deemed to be outstanding for computing the percentage ownership of the person holding these options and the percentage ownership of any group of which the holder is a member but are not deemed outstanding for computing the percentage of any other person.

 

 41 
 

 

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Vislink Technologies, Inc., 240 S. Pineapple Avenue, Suite 701, Sarasota, Florida 34236.

 

Name and Address of Beneficial Owner: 

Amount and

Nature of

Beneficial
Ownership

  

Percent
of Class of
Common Stock(1)

 
5% Stockholders:          
None          
Named Executive Officers and Directors:          
George F. Schmitt(2)   814,181    4.26%
Roger G. Branton(3)   185,492    * 
John C. Coleman(4)   284,783    1.49%
John B. Payne IV(5)   125,000    *  
Belinda Marino(6)   25,007    *  
Richard L. Mooers(7)   381,719    2.00%
Raymond M. Sidney(8)   77,073    *  
General James T. Conway(9)   76,726    *  
Susan Swenson(10)   24,004    *  
All Executive Officers and Directors as a Group (9 Persons):   1,993,985    10.30%

 

* Less than 1%

 

(1) Based on 19,054,595 shares of Common Stock issued and outstanding as of April 1, 2019. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within sixty (60) days of April 1, 2019, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.

 

(2) Includes 598,944 shares of Common Stock and 50,520 shares of Common Stock underlying options and warrants that are presently exercisable and held directly by Mr. Schmitt, and 162,949 shares of Common Stock and 1,768 shares of Common Stock underlying options and warrants that are presently exercisable and beneficially owned through MB Technology Holdings, LLC (“MBTH”). Mr. Schmitt has a direct 76.24% ownership interest in MBTH.

 

(3) Includes 135,369 shares of Common Stock and 50,123 shares of Common Stock underlying options and warrants that are presently exercisable, beneficially owned through Branton Partners, LLC, of which various family entities, including Mr. Branton’s spouse, children and trusts for the benefit of Mr. Branton’s children, beneficially own 100%, 12 shares of Common Stock beneficially owned through Mooers Branton and Company (“MBC”), of which Mr. Branton is a 20% owner. Mr. Branton beneficially holds 20% of the issued share capital of MB Merchant Group, LLC (“MBMG”). MBMG abandoned its shares in MBTH on December 31, 2018, and therefore holds no equity ownership interest.

 

(4) Includes 173,783 shares of Common Stock and 50,000 shares of Common Stock underlying options and warrants that are presently exercisable. Includes 10 shares of Common Stock owned by Mr. Coleman’s wife. Mr. Coleman will not stand for re-election as a director.

 

(5) Includes 75,000 shares of Common Stock and 50,000 shares of Common Stock underlying options and warrants that are presently exercisable.

 

(6) Includes 7 shares of Common Stock and 25,000 shares of Common Stock underlying options and warrants that are presently exercisable.

 

(7) Includes 346,605 shares of Common Stock and 25,066 shares of Common Stock underlying options and warrants that are presently exercisable. Mr. Mooers’ family entities and trusts for the benefit of his and his wife’s children hold 80% of the share capital of MBMG and MBC. MBMG abandoned its shares in MBTH on December 31, 2018, and therefore holds no equity ownership interest. MBC directly owns 12 shares of Common Stock.

 

(8) Includes 42,025 shares of Common Stock and 25,000 shares of Common Stock underlying options and warrants that are presently exercisable.

 

(9) Includes 39,668 shares of Common Stock and 50,000 shares of Common Stock underlying options and warrants that are presently exercisable.

 

(10) Includes 11,946 shares of Common Stock.

 

 42 
 

 

Equity Compensation Plan Information as of December 31, 2018

 

Plan Category   Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options
    Weighted Average
Exercise Price of
Outstanding
Options
    Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(excluding securities
reflected in column
(a))
 
    (a)     (b)     (c)  
Equity compensation plans approved by security holders(1)     820,000     $ 1.55       2,693,547  
Equity compensation plans approved by security holders(2)     755,500     $ 1.55       57,797  
Equity compensation plans approved by security holders(3)                 5,571,197  
Equity compensation plans approved by security holders(4)     1,496,667     $ 1.55       8,507,429  
Equity compensation plans approved by security holders(5)     2,785,001     $ 1.55       4,214,999  
      5,857,168     $ 1.55       21,044,969  

 

 

 

(1) Represents the shares authorized for issuance under the 2013 Long-Term Stock Incentive Plan, which was approved by the Company’s stockholders. The maximum aggregate number of shares of Common Stock that may be issued under the 2013 Option Plan, including stock options, stock awards, and stock appreciation rights is limited to 15% of the shares of Common Stock outstanding on the first trading day of any fiscal year, or 2,693,547 shares of Common Stock for fiscal year 2018.
     
  (2) Represents the shares authorized for issuance under the 2015 Incentive Compensation Plan, which was approved by the Company’s stockholders. The maximum aggregate number of shares of Common Stock that may be issued under the 2015 Incentive Compensation Plan, including stock options and stock awards is limited to $17,975 of shares of Common Stock, which based on the closing price of $0.311 of our Common Stock on December 31, 2018, as listed on the Nasdaq Capital Market, was equal to 57,797 shares of Common Stock.
     
  (3) Represents the shares authorized for issuance under the 2016 Employee Stock Purchase Plan, which was approved by the Company’s stockholders. The maximum aggregate number of shares of Common Stock that may be issued under the 2016 Employee Stock Purchase Plan is limited to $1,732,642 shares of Common Stock, which based on the closing price of $0.311 of our Common Stock on December 31, 2018, as listed on the Nasdaq Capital Market, was equal to 5,571,197 shares of Common Stock.
     
  (4) Represents the shares authorized for issuance under the 2016 Incentive Compensation Plan, which was approved by the Company’s stockholders. The maximum aggregate number of shares of Common Stock that may be issued under the 2016 Incentive Compensation Plan, including stock options and stock awards is limited to $3,111,274 of shares of Common Stock, which based on the closing price of $0.311 of our Common Stock on December 31, 2018, as listed on the Nasdaq Capital Market, was equal to 10,004,096 shares of Common Stock.
     
  (5) Represents the shares authorized for issuance under the 2017 Incentive Compensation Plan, which was approved by the Company’s stockholders. The maximum aggregate number of shares of Common Stock that may be issued under the 2017 Incentive Compensation Plan, including stock options and stock awards is limited to 7,000,000 of shares of Common Stock.

 

 43 
 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Certain Relationships and Related Transactions

 

Other than compensation arrangements, the following is a description of transactions to which we were a participant or will be a participant to, in which:

 

●the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000; and

 

●any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

Our Audit Committee considers and approves or disapproves any related person transaction as required by Nasdaq Stock Market regulations.

 

MB Technology Holdings, LLC and MB Merchant Group, LLC

 

On April 29, 2014, the Company entered into a management agreement (the “Management Agreement”) with MB Technology Holdings, LLC (“MBTH”), pursuant to which MBTH agreed to provide certain management and financial services to the Company. The Management Agreement was effective January 1, 2014. Roger G. Branton, the Company’s Chief Executive Officer and Chief Financial Officer and a member of the Board of Directors of the Company; George F. Schmitt, a member of the Board of Directors of the Company and former Chief Executive Officer and Executive Chairman of the Board; and Richard Mooers, a member of the Board of Directors of the Company, are each directors of MBTH.

 

The Company has agreed to award MBTH a 3% cash success fee if MBTH arranges financing, a merger, consolidation or sale by the Company of substantially all of its assets. On November 29, 2016, the Company and MBTH entered into an acquisition services agreement (the ‘‘M&A Services Agreement’’) pursuant to which the Company engaged MBTH to provide services in connection with merger and acquisition searches, negotiating and structuring deal terms and other related services. The M&A Services Agreement incorporated by reference the terms of the Management Agreement, as well as the Company’s agreement with MBTH on January 12, 2013 to pay MBTH a 3% success fee on any financing arranged for the Company, merger or consolidation of the Company or sale by the Company of substantially all of its assets. The M&A Services Agreement also provided for additional fees owed to MBTH.

 

On February 16, 2017, the Board of Directors amended the terms of the Block Purchase Option in the M&A Services Agreement to allow MBTH the option to acquire 25% of the fully diluted outstanding shares of common stock and warrants of the Company at a price of $2.10 per share and for a five-year term (the “Dilutive Option”).

 

On December 31, 2018, MBTH terminated the foregoing agreements and services provided to the Company. In connection therewith, we entered into an acquisition services agreement, dated December 29, 2018 (the “MBMG Agreement”) with MB Merchant Group, LLC (“MBMG”). Under the MBMG Agreement, MBMG will continue to provide the services provided by MBTH to the Company. The term of the MBMG Agreement commenced on January 1, 2019 and will renew automatically annually thereafter until sooner terminated by either party on thirty (30) days’ prior written notice. Roger G. Branton and Richard Mooers are the only members and partners of MBMG. Principally, MBMG will receive the following fees and compensation under the MBMG Agreement:

 

  1. An acquisition fee comprised of the greater of $250,000 or 6% of the total acquisition price for all deals where the total consideration for the acquisition paid by the Company is less than $10 million. For deals which are $10 million to $100 million, the Company will pay MBMG a fee of $600k (for the first $10 million) plus a 4% fee of the excess value over $10 million. For deals which are $100 million to $400 million, the Company will pay MBMG a fee of $4.2 million (for the first $100 million) plus a 2% fee of the excess over $100 million. For deals which are over $400 million, the Company will pay MBMG a fee of $10.2 million plus a 1.1% fee of the excess over $400 million.
     
  2. A success-based due diligence fee of $250,000, only on successfully closed deals, in addition to any other fees.
     
  3. The 3% success fee referred to with respect to MBTH above shall be waived on a case by case basis whenever an acquisition fee is more than $1 million. The waiver should be for that part of the financing which is for the acquisition and should not relate to any additional fees raised for the Company above the acquisition price. And such 3% fee was decreased to 2% beginning January 1, 2019.
     
  4. Should the Company engage an external, independent advisor to value the acquisition, and the result is a higher value than the price MBMG negotiated, then MBMG will receive an additional fee of 5% of such gain. This is to further incent MBMG to help the Company achieve the best value in acquisitions.
     
  5. Reimbursement for certain expenses.

 

 44 
 

 

MBMG shall have the option to convert up to 50% of its fees into common shares of the Company so long as the receivable remains outstanding. The conversion price will be fixed at 110% of the price of the shares on the day of closing or the price in connection with any acquisition financing, whichever is lower. Provided MBMG converts at least 25% of its fees, then the Company agrees to register all of shares in the Company held by MBMG.

 

MBMG and MBTH have separately agreed to split the Dilutive Option effective January 1, 2019. The split will be based on present ownership in MBTH and provided that MBMG be willing to accept this assignment to continue such merger and acquisition services to the Company. The Company agreed to allow both MBTH and MBMG to amend the strike price of said options based on any financing consummated in 2019 and such reset to be at the lowest and same price as the Company may agree to in any of its 2019 financings.

 

Additionally, MBMG will receive a monthly fee of $50,000, and the Company at its sole discretion will have the option to credit such fees against future acquisition fees due each year to the extent it deems that appropriate based on all services received from MBMG.

 

George F. Schmitt - Due to Related Party

 

George F. Schmitt, a Director and the former Chairman of the Board and Chief Executive Officer of the Company, earned an annual salary of $300,000 and received all of his compensation in shares of the Company’s common stock in 2017 and 2016. In 2017, Mr. Schmitt received 221,427 shares with a fair market value of $300,000. In 2016, Mr. Schmitt received 46,637 shares with a fair market value of $296,000. In 2018, Mr. Schmitt received 148,657 shares with a fair market value of $147,166.

 

On July 25, 2016, the Company repaid the outstanding principal totaling $300,000 and $70,484 in interest to Mr. Schmitt on loans originating in 2015. As of December 31, 2016, the Company has repaid in full the advances George F. Schmitt made to the Company in 2015. For the year ended December 31, 2016, the Company accrued interest expense of $14,000.

 

In October 2016, the Board of Directors agreed to give George F. Schmitt 27,977 shares of common stock for being the guarantor of the $2.5 million debt related to the IMT acquisition and the Company recorded the fair market value of the shares at $103,000 in general and administrative expenses in the accompanying Consolidated Statement of Operations. These shares of common stock were issued in January 2017. At the same meeting, the Board of Directors also agreed to give George F. Schmitt 20,833 warrants at an exercise price of $8.40 and the Company recorded the grant date fair value of the warrants at $77,000.

 

John C. Coleman

 

We’ve entered into a non-exclusive license agreement with our former Chief Executive Officer and director [(who is not standing for re-election)], John C. Coleman. Because there is no minimum and no financial commitment by either us or Mr. Coleman, we cannot adequately place a value on the agreement at this time.

 

Director Independence

 

As we are listed on the Nasdaq Capital Market, our determination of independence of directors is made using the definition of  “independent director” contained in Rule 5605(a)(2) of the Marketplace Rules of the Nasdaq Stock Market (“Nasdaq Rule 5605(a)(2)”). As of the date of this Proxy Statement, our Board affirmatively determined that Susan Swenson, General James T. Conway, and Raymond Sidney are “independent directors” within the meaning of Nasdaq Rule 5605(a)(2). On April 23, 2018, upon the retirement of George F. Schmitt as Executive Chairman of the Board and Chief Executive Officer of the Company, the Board appointed Gary Cuccio as Executive Chairman of the Board and Interim Chief Executive Officer of the Company, effective immediately. On July 19, 2018, the Board appointed Roger G. Branton, the Company’s Chief Financial Officer, to the role of Chief Executive Officer. Because of his appointment as Chief Executive Officer, Mr. Branton is no longer an “independent director” within the meaning of Nasdaq Rule 5605(a)(2). As of the date of this Proxy Statement, we intend the seven (7) director nominees, if all elected, to constitute a majority independent board under Rule 5605(b)(1) of the Marketplace Rules of the Nasdaq Stock Market and as such, we will be in compliance with the Marketplace Rules of the Nasdaq Stock Market.

 

Item 14. Principal Accounting Fees and Services

 

Marcum LLP (“Marcum”) has served as our independent registered public accounting firm since September 11, 2015 and has been appointed by the Audit Committee of the Board to continue as our independent registered public accounting firm for the fiscal year ending December 31, 2019.

 

The following table presents aggregate fees for professional services rendered by Marcum for the audit of our annual consolidated financial statements for the fiscal years ended December 31, 2018 and 2017.

 

   For the Year Ended December 31, 
   2018   2017 
         
Audit fees(1)  $255,843   $278,768 
           
Audit-related fees        
           
Tax fees        
           
All other fees(2)  $   $102,205 
           
Total fees  $255,843   $380,973 

 

  (1) Audit fees consist of the aggregate fees billed for each of the last two fiscal years for professional services rendered by Marcum for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Qs, or services that are normally provided by Marcum in connection with the Company’s statutory and regulatory filings or engagements for those fiscal years.
     
  (2) Other fees were for professional services rendered related to the audit of IMT.

 

 45 
 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) The following documents are filed as part of this Report:

 

  (1) Financial Statements:

 

The audited consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the years then ended, the footnotes thereto, and the report of Marcum LLP, independent registered public accountants, are filed herewith.

 

  (2) Financial Schedules:

 

None.

 

Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto.

 

  (3) Exhibits:

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

 

(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

 

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
  may apply standards of materiality that differ from those of a reasonable investor; and
  were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

 

 46 
 

 

Exhibit
Number
  Description of Exhibit
3.1(i)   Amended & Restated Certificate of Incorporation (1)
3.1(i)(a)   Amendment to Certificate of Incorporation filed June 11, 2014 (2)
3.1 (i)(b)   Amendment to Certificate of Incorporation filed July 10, 2015 (25)
3.1(i)(c)   Amended and Restated Certificate of Designation of Series B Convertible Preferred Stock (16)
3.1(i)(d)   Certificate of Designation of Series C Convertible Preferred Stock (12)
3.1(i)(e)   Certificate of Designation of Series D Convertible Preferred Stock (17)
3.1(i)(f)   Certificate of Elimination for Series C Convertible Preferred Stock (16)
3.1(i)(g)   Certificate of Elimination for Series B Convertible Preferred Stock (23)
3.1(i)(h)   Amendment to Certificate of Incorporation filed June 10, 2016 (20)
3.1(i)(i)   Certificate of Designation of Series E Convertible Preferred Stock (24)
3.1(i)(j)   Certificate of Amendment to Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on February 11, 2019(39)
3.1(ii)   Amended & Restated Bylaws (3)
4.1   Form of Common Stock Certificate of the Registrant (4)
4.2   Form of Warrant Agreement by and between the Registrant and Continental Stock Transfer & Trust Company and Form of Warrant Certificate for the offering closed July 24, 2013 and August 19, 2013 (5)
4.3   Form of Underwriters’ Warrant for the offering closed July 24, 2013 (1)
4.4   Form of Underwriters’ Warrant for the offering closed November 18, 2013 (6)
4.5   Form of Warrant issued in December 30, 2014 Offering (10)
4.6   Form of Warrant issued in February 11, 2015 Offering (11)
4.7   Form of Warrant issued in February 24, 2015 Offering (12)
4.8   Form of 8% Convertible Note (13)
4.9   Form of Series A Warrant for the August 2015 Offering (14)
4.10   Form of Pre-funded Series B Warrant for the August 2015 Offering (14)
4.11   Form of Series C Warrant for the August 2015 Offering (14)
4.12   Form of Series D Warrant for the August 2015 Offering (14)
4.13   Form of 5% Convertible Note (15)
4.14   Form of Amendment, dated April 29, 2016, to Series A Warrant to Purchase Common Stock of xG Technology, Inc., dated August 19, 2015(18)
4.15   Form of Amendment, dated April 29, 2016, to Warrant to Purchase Common Stock of xG Technology, Inc., dated February 29, 2016 (18)
4.16   Form of Warrant (19)
4.17   Form of Vislink Promissory Note (27)
4.18   Form of Underwriters’ Warrant for February 2017 Offering (28)
4.19   Form of Warrant for August 2017 Offering (31)
4.20   Form of 6% Senior Secured Convertible Debenture(36)
4.21   Form of Common Stock Purchase Warrant(36)
4.22   Form of Amended and Restated 6% Senior Secured Debenture(37)
4.23   Form of Second Amended and Restated 6% Senior Secured Debenture(38)
4.24   Form of 10% Senior Secured Convertible Debenture(38)
10.1   2013 Long Term Incentive Plan (7)
10.2   Forms of Agreement Under 2013 Long Term Incentive Plan (7)
10.3   2004 Option Plan (7)
10.4   2005 Option Plan (7)
10.5   2006 Option Plan (7)
10.6   2007 Option Plan (7)
10.7   2009 Option Plan (7)
10.8   Forms of Award Documents under 2004, 2005, 2006, 2007, and 2009 Option Plans (7)
10.9   Sunrise Office Lease (7)
10.10   Care21 Agreement (7)
10.11   Purchase Agreement, dated as of September 22, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.12   Purchase Agreement, dated as of September 19, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.13   Registration Rights Agreement, dated as of September 19, 2014, by and between the Company and Lincoln Park Capital Fund, LLC. (8)
10.14   Purchase Agreement, dated as of November 25, 2014, by and between the Company, LPC, Affiliate Purchasers, and the Other Investors (9)
10.15   Purchase Agreement, dated as of December 30, 2014, by and between the Company and 31 Group, LLC. (10)
10.16   Purchase Agreement, dated as of February 11, 2015, by and between the Company and 31 Group, LLC. (11)
10.17   Purchase Agreement, dated as of February 24, 2014, by and between the Company and 31 Group, LLC. (12)
10.18   Form of Purchase Agreement dated as of June 11, 2015 (13)
10.19   Amendment to Purchase Agreement dated as of June 11, 2015 (25)
10.20   Asset Purchase Agreement, dated as of January 29, 2016, by and between the Company and Integrated Microwave Technologies, LLC (15)
10.21   Form of Securities Purchase Agreement (15)

 

 47 
 

 

10.22   $1,500,000 Initial Payment Note from the Company to IMT (15)
10.23   Form of Subscription Agreement, dated May 12, 2016, between the Company and the Purchasers thereto (19)
10.24   2015 Employee Stock Purchase Plan (21)
10.25   2015 Incentive Compensation Plan (21)
10.26   2016 Employee Stock Purchase Plan (22)
10.27   2016 Incentive Compensation Plan (22)
10.28   Deed of Variation to Business Purchase Agreement by and between the Company, Vislink PLC, Vislink International Limited and Vislink Inc., dated January 13, 2017 (26)
10.29   Settlement Agreement between the Company and the Holders thereto, dated January 13, 2017 (26)
10.30   Security Agreement, dated February 2, 2017, between the Company and the Vislink Sellers (27)
10.31   Service Agreement between James Walton and Vislink International Limited, dated October 19, 2015 (29)
10.32   Purchase Agreement, dated May 19, 2017, between the Company and Lincoln Park Capital Fund, LLC (30)
10.33   Registration Rights Agreement, dated May 19, 2017, between the Company and Lincoln Park Capital Fund, LLC (30)
10.34   Securities Purchase Agreement, dated August 15, 2017, between the Company and the Purchasers thereto (31)
10.35   Amendment to 2016 Employee Stock Purchase Plan(33)
10.36   Amendment to 2016 Incentive Compensation Plan(34)
10.37   2017 Incentive Compensation Plan(35)
10.38   Form of Securities Purchase Agreement, dated May 29, 2018, by and among the Company and the purchaser signatories thereto(36)
10.39   Form of Security Agreement, dated Mya 29, 2018, by and among the Company and each of the secured parties thereto(36)
10.40   Form of Subsidiary Guarantee, dated May 29, 2018, by and among the Company, the purchasers under the Securities Purchase Agreement, and each of the Company’s subsidiaries(36)
10.41   Form of Registration Rights Agreement, dated May 29, 2018, by and among the Company and the purchasers under the Securities Purchase Agreement(36)
10.43   Form of Voting Agreement, each dated May 29, 2018, between the Company and each purchaser under the Securities Purchase Agreement (36)
10.44   Form of Securities Purchase Agreement, dated December 3, 2018, by and among the Company and the purchaser signatories thereto(38)
10.45   Form of Security Agreement, dated December 3, 2018, by and among the Company and each of the secured parties thereto(38)
10.46   Form of Subsidiary Guarantee, dated December 3, 2018 executed by each of the Company’s subsidiaries(38)
10.47   Form of Registration Rights Agreement, dated December 3, 2018, by and among the Company and the purchasers under the Securities Purchase Agreement, dated December 3, 2018(38)
10.48   Form of Voting Agreement, each dated December 3, 2018, executed by each purchaser under the Securities Purchase Agreement , dated December 3, 2018(38)
14.1   Code of Ethics(32)
23.1   Consent of Marcum LLP
31.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Schema
101.CAL   XBRL Taxonomy Calculation Linkbase
101.DEF   XBRL Taxonomy Definition Linkbase
101.LAB   XBRL Taxonomy Label Linkbase
101.PRE   XBRL Taxonomy Presentation Linkbase

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 48 
 

 

*   Previously filed
(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 Quarterly Report on Form 10-Q with the SEC on August 30, 2013.
(4)   Filed as an Exhibit on Form S-1/A with the SEC on May 21, 2013.
(5)   Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 19, 2013.
(6)   Filed as an Exhibit on Form S-1/A with the SEC on November 6, 2013.
(7)   Filed as an Exhibit on Form S-1 with the SEC on March 7, 2013.
(8)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on September 24, 2014.
(9)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on November 26, 2014.
(10)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 31, 2014.
(11)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 13, 2015.
(12)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 26, 2015.
(13)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 12, 2015.
(14)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on August 20, 2015.
(15)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 3, 2016.
(16)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 10, 2016.
(17)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on April 27, 2016
(18)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 2, 2016
(19)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 13, 2016.
(20)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on June 20, 2016.
(21)   Filed as an Exhibit on Annual Report on Form 10-K with the SEC on April 14, 2016.
(22)   Filed as an Exhibit on Form S-1 with the SEC on June 27, 2016
(23)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 7, 2016.
(24)   Filed as an Exhibit on Current Report on From 8-K with the SEC on December 27, 2016.
(25)   Filed as an Exhibit on Current Report on From 8-K with the SEC on July 20, 2015.
(26)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on January 19, 2017.
(27)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 6, 2017.
(28)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 10, 2017.
(29)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on February 23, 2017.
(30)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 23, 2017.
(31)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on August 16, 2017.
(32)   Filed as an Exhibit on Annual Report on Form 10-K with the SEC on March 6, 2014.
(33)   Filed as Appendix D on Definitive Schedule 14A with the SEC on May 22, 2017
(34)   Filed as Appendix E on Definitive Schedule 14A with the SEC on May 22, 2017
(35)   Filed as Appendix F on Definitive Schedule 14A with the SEC on May 22, 2017
(36)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on May 29, 2018.
(37)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on October 11, 2018.
(38)   Filed as an Exhibit on Current Report on Form 8-K with the SEC on December 4, 2018.
(39)   Filed an Exhibit on Current Report on Form 8-K with the SEC on February 26, 2019.

 

 49 
 

 

SIGNATURES

 

Pursuant to the requirement of Section 13 or 15(d) 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: April 1, 2019 By: /s/ Roger Branton
    Roger G. Branton
   

Chief Executive Officer

(Duly Authorized Officer and Principal Executive

Officer)

     
Date: April 1, 2019 By: /s/ Roger Branton
    Roger G. Branton
   

Chief Financial Officer

(Duly Authorized Officer and Principal Financial

Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Roger G. Branton   Chief Executive Officer   April 1, 2019
Roger G. Branton   (Principal Executive Officer)    
         
/s/ Roger G. Branton   Chief Financial Officer   April 1, 2019
Roger G. Branton   (Principal Financial and Accounting Officer)    
         
/s/ Susan Swenson   Chairman of the Board of Directors   April 1, 2019
Susan Swenson        
         
/s/ Richard L. Mooers   Director   April 1, 2019
Richard L. Mooers        
         
/s/ George F. Schmitt   Director   April 1, 2019
George F. Schmitt        
         
/s/ Raymond M. Sidney   Director   April 1, 2019
Raymond M. Sidney        
         
/s/ John C. Coleman   Director   April 1, 2019
John C. Coleman        
         
/s/ James T. Conway   Director   April 1, 2019
James T. Conway        

 

 50 
 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

(f/k/a xG TECHNOLOGY, INC.)

December 31, 2018 and 2017

 

    Page
Consolidated Financial Statements    
Report of Independent Registered Public Accounting Firm   F-2
Consolidated Balance Sheets   F-3
Consolidated Statements of Operations and Comprehensive Loss   F-4
Consolidated Statements of Changes in Stockholders’ Equity   F-5
Consolidated Statements of Cash Flows   F-7
Notes to Consolidated Financial Statements   F-9

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Vislink Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Vislink Technologies, Inc. (f/k/a xG Technology, Inc.) and Subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum LLP  
   
We have served as the Company’s auditor since 2015.
 

Marcum LLP

 
New York, NY  
April 1, 2019  

 

F-2
 

 

VISLINK TECHNOLOGIES, INC. (f/k/a xG TECHNOLOGY, INC.)

AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

 

    December 31,  
    2018     2017  
ASSETS                
Current assets                
Cash   $ 2,005     $ 2,799  
Accounts receivable, net     6,191       8,337  
Inventories, net     13,050       14,753  
Prepaid expenses and other current assets     780       626  
 Total current assets     22,026       26,515  
Property and equipment, net     2,096       3,237  
Intangible assets, net     4,691       6,894  
Total assets   $ 28,813     $ 36,646  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable   $ 7,072     $ 10,918  
Accrued expenses     2,112       3,150  
Convertible notes payable           2,000  
Convertible promissory notes, net of discount of $16 and $-0-, respectively     400        
Due to related parties     361       998  
Customer deposits and deferred revenue     1,574       634  
Obligation under capital lease           18  
Derivative liabilities     1,118       2,399  
Total current liabilities     12,637       20,117  
Obligation under capital lease, net of current portion           30  
Convertible promissory notes, net of discount of $47 and $-0-, respectively     5,886        
Total liabilities     18,523       20,147  
Commitments and contingencies (See Note 16)                
Stockholders’ equity                
Preferred stock – $0.00001 par value per share:
10,000,000 shares authorized at December 31, 2018 and 2017; -0- shares issued and outstanding as of December 31, 2018 and 2017
           
Common stock, – $0.00001 par value per share, 100,000,000 shares authorized, 18,776,980 and 14,897,392 shares issued and 18,776,978 and 14,897,390 outstanding at December 31, 2018 and 2017, respectively            
Additional paid in capital     244,562       235,819  
Accumulated other comprehensive income     275       354  
Treasury stock, at cost – 2 shares as of December 31, 2018 and 2017, respectively     (22 )     (22 )
Accumulated deficit     (234,525 )     (219,652 )
Total stockholders’ equity     10,290       16,499  
Total liabilities and stockholders’ equity   $ 28,813     $ 36,646  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3
 

 

VISLINK TECHNOLOGIES, INC. (f/k/a xG TECHNOLOGY, INC.)

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

 

   For the Years Ended 
   December 31, 
   2018   2017 
Revenue, net  $38,294   $47,824 
Cost of Revenue and operating expenses          
Cost of components and personnel   19,192    28,220 
Inventory valuation adjustments   473    1,781 
General and administrative expenses   21,817    27,015 
Research and development   7,873    9,799 
Impairment charge   413     
Amortization and depreciation   2,953    4,398 
Total cost of revenue and operating expenses   52,721    71,213 
Loss from operations   (14,427)   (23,389)
Other (expenses) income          
Changes in fair value of derivative liabilities   3,186    105 
Gain on bargain purchase       10,911 
(Loss) gain on debt and payable extinguishment   (1,060)   2,900 
Other income (expenses)   146    (251)
Interest expense   (2,718)   (629)
Total other (expenses) income   (446)   13,036 
Net loss  $(14,873)  $(10,353)
           
Basic and diluted loss per share  $(0.90)  $(0.85)
           
Weighted average number of shares outstanding:          
           
Basic and Diluted   16,489    12,138 
           
Comprehensive loss:          
Net loss  $(14,873)  $(10,353)
Unrealized (loss) gain on currency translation adjustment   (79)   354 
           
Comprehensive loss  $(14,952)  $(9,999)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4
 

 

VISLINK TECHNOLOGIES, INC. (f/k/a xG TECHNOLOGY, INC.)

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2017

(IN THOUSANDS, EXCEPT SHARE DATA)

 

                           Accumulated         
   Series D           Additional       Other         
   Preferred Stock   Common Stock   Paid In   Treasury   Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Stock   Income   Deficit   Total 
Balance, January 1, 2017      $    7,606,518   $        $221,960   $     (22)  $           —   $(209,299)  $12,639 
Net loss                               (10,353)   (10,353)
Unrealized gain on currency translation adjustment                           354        354 
Issuance of common stock in connection with:                                             
Underwritten offering, net of offering costs           3,310,978        4,479                4,479 
Exercise of common stock warrants           1,062,113        2,124                2,124 
Payments made in stock (payroll and consultants)           1,772,152        3,042                3,042 
Compensation awards previously accrued           104,218        295                295 
Commitment agreement with Lincoln Park           192,431        302