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

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

(IN THOUSANDS, EXCEPT SHARE DATA)

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

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018

(IN THOUSANDS, EXCEPT SHARE DATA)

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

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

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

xG TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

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

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

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

xG TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)
(IN THOUSANDS)

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

xG TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The overarching strategy of xG Technology,Vislink Technologies, Inc. (“xG”,Vislink Technologies,” the “Company,” “we,” “our” or the “Company”“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. xG’sVislink Technologies’ business lines include the main brands of Integrated Microwave Technologies LLC (“IMT”), and Vislink CommunicationCommunications Systems (“Vislink” or “VCS”), and xMax.. There is considerable brand interaction, owingdue to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities. In addition to these brands, xG has a dedicated Federal Sector Group focused on providing next-generation spectrum sharing solutions to national defense, scientific research and other federal organizations.

IMT:

On January 29, 2016, xG completed the acquisition of the net assets that constituted the business of IMT pursuant to an Asset Purchase Agreement by and between xG and Skyview Capital, LLC. 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.

Vislink:

On February 2, 2017, the Company completed the acquisition of certain assets and liabilities related to the hardware segment of Vislink International Limited, an England and Wales registered limited company (the ‘‘UK Seller’’), and Vislink Inc., a Delaware corporation (the ‘‘US Seller’’, and together with the UK Seller, the ‘‘Sellers’’), pursuant to a Business Purchase Agreement, dated December 16, 2016, as amended on January 16, 2017, by and among the Company, the Sellers and Vislink PLC, an England and Wales registered limited company, as guarantor. The Company refers to the hardware segment acquired as Vislink Communications Systems (“Vislink” or ‘‘VCS’’). VislinkVCS specializes in the wireless capture, delivery and management of secure, high-quality, live video from the field to the point of usage. VislinkVCS designs and manufactures products encompassing microwave radio components, satellite communication, cellular and wireless camera systems, and associated amplifier items. VislinkVCS serves two core markets: broadcast and media and law enforcement, public safety and surveillance. In the broadcast and media market, VislinkVCS provides broadcast communication links for the collection of live news and sports and entertainment events. Vislink’sVCS’ customers in the broadcast and media 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, VislinkVCS provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. Vislink’sVCS’ customers in the law enforcement, public safety and surveillance market include metropolitan, regional and national law enforcement agencies as well as domestic and international defense agencies and organizations.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared using U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principlesGAAP for annual financial statements and should be read in conjunction with the consolidated financial statements as filed on the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended.2018, filed with the United States Securities and Exchange Commission (the “SEC”) on April 1, 2019. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company'sCompany’s consolidated financial position as of SeptemberJune 30, 2017,2019, the results of its operations for the three and nine months ended September 30, 2017 and 2016, the results of its cash flows for the ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Such adjustments are of a normal recurring nature. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172019 may not be indicative of results for the year ending December 31, 2017.

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)2019.

Principles of Consolidation

The condensedaccompanying consolidated financial statements which have beenand related notes thereto were prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“GAAP”)GAAP include the accounts of xGVislink Technologies and its wholly-owned subsidiaries, IMT and Vislink, since the date the acquisitionacquisitions of IMT and Vislink were completed. All material intercompany balances and transactions and balances have beenare 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.

Stock Options

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors, including employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis. The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock options on the date of grant based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on historical data, judgment regarding future trends and factors.

Use of Estimates

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the condensed 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 acquisitionsacquisition of IMT and Vislink.

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases

Change in accounting principle

In February 2016, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the balance sheet. We have adopted ASU 2016-02 on January 1, 2019 using a modified retrospective transition approach which applies the new standard to all leases existing at the date of initial application. We have also elected to adopt the transitional package of practical expedients as prescribed by Accounting Standards Codification (“ASC”) 842. Accordingly, we are continuing to account for our existing operating leases as operating leases under the new guidance, without reassessing whether the contracts contain a lease under ASC 842 or whether the classification of the operating leases would be different under ASC 842. All our rentals at the adoption date were operating leases for facilities and did not include any non-lease components.

As a result of the adoption of ASU 2016-02, on January 1, 2019, we recognized a lease liability of approximately $3.0 million, with corresponding right-of- use (“ROU”) assets of $2.9 million, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, less accrued rent of approximately $0.06 million. There are no changes to our previously reported results before January 1, 2019. Lease expense is not expected to change materially as a result of the adoption of ASU 2016-02.

Inventories

Inventory is recorded at the lower of cost, on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory valuation adjustments are included on the face of the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018.

Revenue Recognition

Change in accounting principle

We transitioned to the FASB ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) from ASC Topic 605, Revenue Recognition on January 1, 2019. Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled for the exchange of those goods or services. We adopted 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 adoption of ASC 606 did not have an impact on the recognition of revenue and no cumulative effect adjustment was recorded.

The Company generates all its revenue from contracts with customers. The Company recognizes revenuesrevenue when persuasive evidencewe satisfy a performance obligation by transferring control of the promised goods or services to a customer in an arrangement exists,amount that reflects the consideration that we expect to receive in exchange for those services.

The Company determines revenue recognition through the following steps:

At contract inception, the Company assesses the goods and services have been rendered,promised in our contracts with customers and identifies a performance obligation for each. To determine the priceperformance obligations, the Company considers all the products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is fixednot subject to significant judgment. We measure revenue as the amount of consideration we expect to receive in exchange for transferring goods and determinable, and collectability is reasonably assured. Revenuesservices. Excluded from management and consulting, time-and-materials service contracts, maintenance agreementsincome are the sales value added taxes, and other servicescharges we collect concurrent with revenue-producing activities.

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to non-employees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to non-employees under Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s condensed consolidated financial statements.

Convertible Debt Instruments

The Company records debt net of debt discounts 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 ASC. 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 services are providedstatement of operations over the life of the debt instrument using the effective interest method.

The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. If the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the time the goods are shippedconversion date and title has passed.then that fair value is reclassified to stockholders’ equity.

Earnings (Loss)Loss Per Share

The Company reports earningsloss per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earningsloss per share of common stock is computedcalculated by dividing net income availableloss allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.period, without consideration of common stock equivalents. Diluted earningsloss per share is computedcalculated by dividing net income available to common stockholders byadjusting the weighted-average number of shares of common stock andoutstanding for the dilutive effect of common stock equivalents, then outstanding.including stock options and warrants, outstanding for the period as determined using the treasury stock method. For purposes of the threediluted net loss per share calculation, common stock equivalents are excluded from the calculation because their effect would be anti-dilutive. Therefore, basic and nine month period ended September 30, 2017,diluted net loss per share applicable to common stockholders is the same for periods with a net loss.

The following table illustrates the anti-dilutive potential common stock equivalents consistexcluded from the calculation of 8,695,273 common stock warrants issuable upon their exercise and 6,270,500 common stock options. Under the treasury stock method, unexercised “in-the-money” stock options and warrants are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common stock at the average market price during the period and the excess number of options over the number of shares assumed to be repurchased is included in the total dilutive shares outstanding. There were 6,270,500 “in-the-money” stock options outstanding during the three and nine month period ended September 30, 2017 but were not exercisable and such shares were excluded for the three and nine months ended September 30, 2017 since they had an anti-dilutive effect. The common stock warrants were excluded as they were out of the money and had an anti-dilutive effect. There were no such participating securities outstanding during the nine month period ended September 30, 2017.loss per share (in thousands):

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including accounts receivable and accounts payable, the Company estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments(continued)

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputsconsist of items that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

Foreign Currency and Other Comprehensive (Loss)/Income (Loss)

The functional currency of our foreign subsidiariessubsidiary is typically the applicable local currency.currency which is British Pounds. The translation from the respective foreign currenciescurrency to United States Dollars (U.S. Dollars)(“US Dollars”) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weightedan average exchange rate during the period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive (loss)/income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.

Transaction gains and losses are recognized in the Company’sour results of operations based on the difference between the foreign exchange rates on the transaction date and on the reporting date. The Company recognized a net foreign exchange loss of approximately $7,000 and $245,000, respectively, for the three and nine months ended September 30, 2017. The foreign currency exchange gains and losses are included as a component of general and administrative expenses, in the accompanying Unaudited Condensed Consolidated Statements of Operations. For the three

The Company has recognized foreign exchanges gains and nine months ended September 30, 2017, the increaselosses and changes in accumulated comprehensive gain wasincome approximately $114,000 and $462,000, respectfully.as follows:

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)

The exchange rate adopted for the foreign exchange transactions are the rates of exchange as quoted on an OANDA, a Canadian-based foreign exchange company providing currency conversion, online retail foreign exchange trading, online foreign currency transfers, and forex information, andinternet website. Translation of amounts from British Pounds into U.S. DollarsUnited States dollars was made at the following exchange rates for the respective periods:

Subsequent Events

ManagementThe Company has evaluated subsequent events or transactions occurringin accordance with ASC 855, Subsequent Events, through the filing date of this Quarterly Report, and determined that no events have occurred that have not been disclosed elsewhere in the notes to the condensed consolidated financial statements were issued and determined(unaudited) that no events or transactions are requiredwould require adjustments to bedisclosures in the condensed consolidated financial statements (unaudited), except as disclosed herein except as disclosed.(see Note 13).

Recently Issued Accounting Standards

The Company has considered additional new relevant accounting standards that are in effect through the date of these financial statements. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting standards that have been issued that might have a material impact on our financial position or results of operations.

In September 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments” (“ASU 2017-13”). ASU 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU 2014-09 and ASU 2016-02. In preparation for the adoption of the new standard in the fiscal year beginning January 1, 2019, the Company continues to evaluate contract terms and potential impacts of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract, that is, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company anticipates adopting the standard using the modified retrospective approach at adoption. The Company is currently evaluating individual customer contracts and will document changes, as needed, to our accounting policies and controls as we continue to evaluate the impact of the adoption of this standard. The results of our procedures to date indicate that the adoption of this standard will not have a material impact on our net income; however, the Company continues to evaluate the impact of the adoption on related financial statement disclosures.

In August 2017, ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”), was issued amending hedge accounting recognition and presentation requirements, including elimination of the requirement to separately measure and report hedge ineffectiveness, and eases certain documentation and assessment requirements. This standard has an effective date of January 1, 2019. We do not expect adoption of this standard to have a material impact on our financial condition, results of operations or cash flows.

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Standards

In July 2017,June 2016, Financial Accounting Standards Board, or FASB, issued “ASU 2016-13, Financial Instruments: Credit Losses”, as clarified in ASU 2019-04 and ASU 2019-05 released in April and May 2019, respectively. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. The standard is effective for us beginning on January 1, 2020, with early adoption permitted. The Company will adopt ASU 2016-13, ASU 2019-04, and ASU 2019-05 collectively as of January 1, 2020 (the effective date) and does not believe its adoption will have a material impact to our consolidated financial statements.

In March 2019, the FASB issued ASU No. 2017-11, Earnings per Share2019-01 “Leases (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)842) Codification Improvements” (“ASU No. 2017-11”2019-01”). ASU No. 2017-11 consistsThis update amends the following items brought to the FASB’s attention through those interactions with stakeholders:

The effective date of two parts. Thethose amendments in Part I of ASU No. 2017-11e change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument2019-01 is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common stockholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of ASU No. 2017-11 re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of ASU No. 2017-11 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2018.for any of the following: (1) a public business entity, (2) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) an employee benefit plan that files financial statements with the SEC. For all other entities, the amendments in Part I of ASU No. 2017-11 are effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoptionapplication is permitted for all entities, includingpermitted. The adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of ASU No. 2017-11 do2019-01 is not require any transition guidance because those amendments do notexpected to have an accounting effect. Management is currently assessing the applicabilitya material impact on our results of ASU No. 2017-11 and has not determined the impact of the adoption, if any, as of September 30, 2017.operations, financial position or liquidity or our related financial statement disclosures.

On May 16, 2017,Other recent accounting standards issued by the FASB, issued ASU 2017-10,Determining the Customer of the Operation Services — a consensus of the FASBincluding its Emerging Issues Task Force,(“ASU 2017-10”). The ASU clarifies the “diversity in practice in how an operating entity determinesAmerican Institute of Certified Public Accountants, and the customer of the operation services for transactions within the scope of [ASC] 853, Service Concession Arrangements”SEC did not or are not believed by “clarifying that the grantor is the customer of the operation services in all cases for those arrangements.” The amendments also allow for a “more consistent application of other aspects of the revenue guidance, which are affected by this customer determination.” For most entities that have adopted ASC 606, the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect this standardmanagement to have a material impact on the Company’s reported results of operationspresent or future condensed consolidated financial position.statements.

On May 10, 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting(“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, ASU 2017-09 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. We do not expect this standard to have a material impact on the Company’s reported results of operations or financial position.

In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and related amendments. ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A modified retrospective adoption approach is required. The Company is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

NOTE 2 — LIQUIDITY AND FINANCIAL CONDITION

The Company’saccompanying unaudited condensed consolidated financial statements arehave been prepared assumingto assume the Company can continue as a going concern, which contemplates continuity of operations through the realization of assets, and the settling of liabilities in the normalordinary course of business. Previously,The Company had $0.4 million in cash on the balance sheet at June 30, 2019. The Company had working capital and an accumulated deficit of $4.1 million and $241.2 million, respectively, on June 30, 2019. Additionally, the Company had disclosed management’s conclusion that substantial doubt existed as it related to the Company’s ability to continue as a going concern. With the acquisition of Vislink, substantial doubt has been remediated by increased revenues and a reduction of expenses which improved the cash flow from operations for the period ended September 30, 2017. The Company believes it will have sufficient cash flow to fund operations for the next twelve months.

As reflected in the condensed consolidated financial statements, the Company had an accumulated deficit at September 30, 2017 of $208 million and a loss from operations in the amount of approximately $16.8$6.3 million and cash used in operating activities of $1.2 million for the ninesix months ended SeptemberJune 30, 2017.2019

In the fiscal year 2018, the Company implemented a cost reduction initiative, which resulted in approximately $8.2 million in annual savings. The Company historically had been funding itsaffected these reductions by phasing out a business principally through debtdivision which scaled-down payroll and equity financingsassociated benefits and advances fromother supporting expenses. The Company realized an additional $1.3 million of savings primarily related parties. Cash flows from operating activities forto facilities consolidation whereby our Billerica facility was subleased on May 8, 2019 with expected savings over the nine months ended September 30, 2017 were positively affected as a resultterm of the acquisitionlease of Vislink$0.6 million. In addition, our Sunrise lease expired in February 2017 (See Note 3), alongMay 13, 2019, with management’s continual cost containment.annual savings of $0.2 million. Lastly, the Company consolidated its Colchester facilities from two sites into one on May 31, 2019, with savings of $0.5 million through June 2020.

On July 11, 2019, the Company closed an equity financing for 1,550,000 shares of common stock, warrants to purchase 6,000,000 shares of common stock and, pre-funded warrants to purchase common stock in place of common stock. The Company received gross proceeds of $11,995,550 from the offering, before deducting underwriting-related fees and other offering expenses payable by the Company.

The Company intends to use the net proceeds from the equity financing to satisfy outstanding principal and accrued interest due on convertible promissory notes and, provide working capital for daily operating expenditures. We believe there are enough funds from this equity raise in conjunction with the above cost reduction initiative to mitigate the going concern uncertainty 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 isOur asset carrying value could be materially impacted if we are unable to close on some of its revenue producingrevenue-producing opportunities in the near term, the carrying value its assets may be materially impacted. The condensed consolidated financial statements do not include any adjustments related to the recovery and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.term.

NOTE 3 — ACQUISITION OF VISLINK

Acquisition of Vislink International Limited

On February 2, 2017, the Company completed the acquisition of certain assets and liabilities related to the hardware segment of Vislink International Limited, an England and Wales registered limited company (the ‘‘UK Seller’’), and Vislink Inc., a Delaware corporation (the ‘‘US Seller’’, and together with the UK Seller, the ‘‘Sellers’’), pursuant to a Business Purchase Agreement, dated December 16, 2016, as amended on January 16, 2017, by and among the Company, the Sellers and Vislink PLC, an England and Wales registered limited company, as guarantor. The purchase price paid for the transaction was an aggregate of $16 million consisting of (i) $6.5 million in cash consideration and (ii) promissory notes in the aggregate principal amount of $9.5 million (the ‘‘Notes’’). In connection with the Notes, the Company entered into a Security Agreement, dated February 2, 2017, with each of the Sellers (the ‘‘Security Agreements’’). The Notes were originally due to mature on March 20, 2017 (the ‘‘Maturity Date’’). Interest on the Notes was payable in cash on the Maturity Date at a rate per annum equal to LIBOR plus 1.9%. Pursuant to the Security Agreements, as collateral security for the Company’s obligations under the Notes, the Company granted the Sellers a security interest in certain assets purchased from the Sellers in connection with the transaction.

The fair value of the purchase consideration issued to the sellers of Vislink was allocated to the net tangible assets acquired. The Company accounted for the Vislink acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $31.5 million. The excess of the aggregate fair value of the net tangible assets has been treated as a gain on bargain purchase in accordance with ASC 805. The purchase price allocation was based, in part, on management’s knowledge of Vislink’s business and the results of a third party appraisal commissioned by management. The third party appraisal commissioned by management was finalized during the second quarter which resulted in the modification of the fair values estimated of certain assets acquired as compared to the preliminary amounts previously reported.

The Company utilized the services of an independent appraisal company to assist it in assessing the fair value of the 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.

NOTE 3 — ACQUISITION OF VISLINK (continued)

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. Further revisions to the estimates were not deemed necessary and after 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 bargain purchase and if it was reasonable for a bargain purchase to occur. Factors that contributed to the bargain purchase price were:

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

NOTE 4 — INTANGIBLE ASSETS

Intangible assets consist of the following:following finite assets:

Software Development CostsPatents and Licenses:

At SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company hashad net software capitalized costs of $0.7 million and $1.4 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized amortization of software development costs of $0.7 million and $2.5 million, respectively. During the three months ended September 30, 2017 and 2016, the Company recognized amortization of software development costs of $0.2 million and $0.7 million, respectively.

NOTE 4 — INTANGIBLE ASSETS (continued)

Patents and Licenses

At September 30, 2017 and December 31, 2016, the Company has net capitalized patents and licenses of $3.4$2.2 million and $3.9$2.5 million, respectively. The Company amortizes patents and licenses that have been filed over their useful lives which range between 18.5 to 20 years. The Company recognized $0.5 millioncosts of amortization expense related toprovisional patents and licenses forpending applications is not amortized until the nine months ended September 30, 2017patent is filed and 2016 and $0.2 million foris reviewed each reporting period to determine if it is likely that the three months ended September 30, 2017 and 2016.patent will be successfully filed.

Other Intangible AssetsAssets:

The Company’s remaining intangible assets include the trade names, technology and customer lists acquired in its acquisition of VislinkIMT and IMT.Vislink.

At June 30, 2019 and December 31, 2018, the Company had net capitalized costs of other intangible assets of $1.6 million and $2.1 million, respective. The Company amortizes trade names, technology and customer relationshipsthese other intangible assets over their estimated useful lives which range betweenof 3 to 15 years.

EstimatedThe amortization of intangible assets amounted to $0.5 million and $0.9 million for the three and six months ended June 30, 2019, respectively, and $0.6 million and $1.1 million for the three and six months ended June 30, 2018, respectively. There was an impairment of $0.2 million of software development costs for the six months ending June 30, 2018. The weighted average remaining life of the amortization of the Company’s intangible assets is approximately 3.7 years.

The following table represents the estimated amortization expense for total intangible assets for the succeeding five years isyears:

NOTE 4 — CONVERTIBLE NOTES PAYABLE

The Company has convertible promissory notes ranging from 6% to 10% per annum; with a maturity date of September 29, 2019 with a fixed range of conversion features. The table below summarizes the convertible promissory notes as of June 30, 2019.

The Company has listed a summary of the modified and non-modified debt as follows:

NOTE 5 — CONVERTIBLE NOTES PAYABLE

Treco

On October 6, 2011, the Company entered into a convertible promissory note (the “$2 Million Convertible Note”) in favor of Treco International, S.A. (“Treco”), as part of the settlement compensationItems recorded to Treco for terminating an infrastructure agreement. The $2 Million Convertible Note is payable on its maturity date, October 6, 2018 and is convertible, at Treco’s option, into shares of the Company’s common stock at a price of $35.00 per share. Interest at the rate of 9% per year is payable semi-annually in cash or shares of the Company’s common stock, at the Company’s option. The accrued interest at September 30, 2017 was $87,000. On January 10, 2017, the Company issued 24,397 shares of common stock as the semi-annual payment of interest of $90,000, which is also the fair value of the common stock on the issuance date. On July 7, 2017, the Company issued 60,403 shares of common stock as the semi-annual payment of interest of $90,000, which is also the fair value of the common stock on the issuance date. Interest expense, was $45,000 and $135,000, respectively,net for the threethree-month and nine months ended Septembersix-month periods ending June 30, 20172019 and 2016.

NOTE 6 — DEBT ASSIGNMENT2018 are:

On January 13, 2017, the Asset Purchase Modification Agreement dated April 16, 2016 (the “Modification Agreement”), with a total obligation of $1,038,000 was assigned to new holders of the debt (the “New Holders”) and in full settlement of that agreement the previous note holder was paid in full. Simultaneously, the New Holders executed a new agreement on the same terms and conditions available to the previous note holder plus $312,000 in issuance costs and $122,000 in guaranteed interest at 9% for a total obligation of $1,472,000. The Company recorded the $1,472,000 as a current liability on the condensed consolidated balance sheet, recognized the guaranteed interest of $122,000 in the condensed consolidated statement of operations, recorded the $312,000 as a contra liability account and amortized $312,000 as interest expense for the nine months ended September 30, 2017.

NOTE 6 — DEBT ASSIGNMENT (continued)

In determining the appropriate accounting for the foregoing debt exchange, the Company considered many elements of the transaction, including whether or not the exchange resulted in a debt modification or extinguishment; the resulting accounting for transaction costs; the derecognition of the extinguished debt; and the appropriate recording of the newly issued debt instrument. The Company referred to the guidance in ASC 470 which indicates that from the debtor's perspective, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least ten percent different from the present value of the remaining cash flows under the terms of the original instrument. It is also noted in the literature that transactions between or among creditors do not result in a modification or exchange of the original debt instrument between the debtor and creditor. Accordingly, those transactions do not affect the accounting by the debtor, the carrying amount of the new note is not adjusted and the effects of the changes are to be reflected in future periods.

Series D Convertible Preferred Stock Leak-Out Agreement

On February 2, 2017, the New Holders agreed that any sales of common stock underlying the Series D Convertible Preferred Stock, $0.00001 par value per share (the “Series D Preferred Stock”), would not, in the aggregate, exceed 2.75% of that day’s dollar volume of the Company’s common stock traded, provided that the New Holders shall be entitled to sell no less than an aggregate of $27,500 each trading day.

During the ninethree months ended Septemberending June 30, 2017,2019, the Company issued 5,000,000 shares of Series D Preferred Stock to the New Holders, which were simultaneously converted into 416,66785,624 shares of common stock valued at approximately $648,000. The value$228,779 in partial settlement of $181,274 of principal and interest resulting in a loss in settlement of debt in the amount of $47,525.

See Subsequent Events note 13 for transactions impacting these debentures.

NOTE 5 — LEASES

At lease inception, we determine if an arrangement is a lease and if it includes options to extend or terminate the lease if it is reasonably certain that the options will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are recognized as ROU assets included as operating lease ROU assets, net and operating lease liability obligations in other current liabilities and other liabilities in our unaudited condensed consolidated balance sheet as of the common stock issued wascommencement date and at June 30, 2019. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize operating lease ROU assets and liabilities on the commencement date based on the fairpresent value of lease payments over the stock upon executionlease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments.

As of June 30, 2019, ROU assets and lease liabilities were approximately $2.43 million, net and 2.48 million ($1.02 million of which is current), respectively. The weighted-average remaining term for lease contracts was 3.5 years at June 30, 2019, with maturity dates ranging from April 2020 to May 2025. The weighted-average discount rate was 9.2% at June 30, 2019.

For the six months ended June 30, 2019, the Company’s leasing arrangements include agreements for office space, deployment sites and storage warehouses, both domestically and internationally. The operating leases contain various lease terms and provisions with remaining lease commitments of approximately 2 months and 6 years as of June 30, 2019. During the six months ended June 30, 2019 and 2018, the Company sublet a portion of its space under operating leases at The Fairways, Hemel and Billerica locations

Certain individual leases contain rent escalation clauses and lease concessions that require additional rental payments in the later years of the New Holders selling their respective shares. Duringterm. We recognize rent expense for these types of contracts on a straight-line basis over the nineminimum lease term. For the three-months and six- months ended Septemberending June 30, 2017,2019, we incurred approximately $258,000 and $555,000 of rental fees net of $65,000 and $100,000 of rental income under operating leases, respectively. For the Company made cash paymentsthree-months and six-months ending June 30, 2018, we incurred approximately $319,000 and $678,000 of $824,000 as full satisfactionrental fees net of the remaining amount due. Interest$37,000 and $75,000 of rental income under operating leases, respectively. Adjustments for straight-line rental expense for the nine months ended September 30, 2017respective periods was not material, and 2016 was $434,000as such, the majority of costs recognized is reflected in cash used in operating activities for the respective periods. This expense consisted primarily of payments for base rent on office and $0, respectively.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Leaseswarehouse leases. Amounts related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. Besides, we have the right, but no obligation, to renew individual leases for various renewal terms.

The Company's office rental, deployment sitestable below lists location and warehouse facility expenses equaledlease expiration dates from 2020 through 2025: