UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.DC 20549

FORM 10-Q

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20172023

orOR

¨TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the transition period from ______________to____________to _______________.

Commission File Number:001-35988

Vislink Technologies, Inc.

xG Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware20-5856795

(State or other jurisdiction

of incorporation or
organization)

(I.R.S.IRS Employer

Identification No.)

240 S. Pineapple Avenue, 350 Clark Drive, Suite 701125,

Sarasota, FL 34236Mt. Olive, NJ07828

(Address of principal executive offices) (Zip Code)Principal Executive Offices)

(941) 953-9035(908)852-3700

(Registrant’s telephone number, including area code)

n/aSecurities registered pursuant to Section 12(b) of the Act:

(Former name, former address and former fiscal year, if changed since last report)

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock par value $0.00001 per shareVISLThe Nasdaq Capital Market

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 a shorter period thatthan the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx ☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such a shorter period thatthan the registrant was required to submit and post such files). Yesx ☒ No ¨☐

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

Large accelerated filer ¨☐Accelerated filer ¨☐
Non-accelerated filer¨ (Do not check if a smaller reporting company) ☒Smaller reporting company x☒
Emerging growth company x☐

If an emerging growth company, indicate by check marka checkmark 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 Exchange Act). Yes ¨☐ Nox ☒

The numberAs of shares ofAugust 11, 2023, the Registrant’sregistrant’s common stock outstanding as of November 14, 2017 is 14,690,121.shares are 2,377,362.

 

 

   

 

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the quartersix months ended SeptemberJune 30, 20172023

Page

Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations2523
Item 3. Quantitative and Qualitative Disclosures About Market Risk3329
Item 4. Controls and Procedures3329
PART II. OTHER INFORMATION
Item 1. Legal Proceedings3430
Item 1A. Risk Factors3430
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds3431
Item 3. Defaults Upon Senior Securities3431
Item 4. Mine Safety Disclosures3431
Item 5. Other Information3431
Item 6. Exhibits3531
SIGNATURES3632

   

 

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Index to Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172023 (unaudited) and December 31, 2016202223
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172023, and 201620224
3Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 20235
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 20226
Unaudited Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172023, and 2016202247
Notes to Unaudited Condensed Consolidated Financial Statements69

 1 

 

xG TECHNOLOGY,FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) (the “Report”) contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar words and phrases are intended to identify forward-looking statements. However, this is not an all-inclusive list of words or phrases identifying forward-looking statements in this Report. Also, all information concerning future matters is forward-looking statements.

Although forward-looking statements in this Report reflect our management’s good faith judgment, such information is based on facts and circumstances we currently know. Forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from those discussed in or anticipated by the forward-looking statements. Without limitation, factors that could cause or contribute to such differences in results and outcomes include those discussed 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 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 Public Reference Room’s operation by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (www.sec.gov) containing reports, proxies, 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.

REFERENCES TO VISLINK

In this Quarterly Report, unless otherwise stated or the context otherwise indicates, references to “VISL,” “Vislink,” “the Company,” “we,” “us,” “our,” and similar references refer to Vislink Technologies, Inc., a Delaware corporation.

2

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

 June 30,  December 31, 
 2023  2022 
 September 30, 
2017
(unaudited)		  December 31,
2016		   (unaudited)     
ASSETS                
Current assets                
Cash $4,713  $9,054 
Cash and cash equivalents $10,973  $25,627 
Accounts receivable, net  7,619   1,369   5,747   6,007 
Inventories, net  19,049   2,722   13,177   12,021 
Investments held to maturity  10,837   — 
Prepaid expenses and other current assets  2,077   111   2,376   1,232 
Total current assets  33,458   13,256   43,110   44,887 
Right of use assets, operating leases  940   1,075 
Property and equipment, net  3,746   771   1,744   1,434 
Intangible assets, net  7,566   5,872   3,910   4,400 
Total assets $44,770  $19,899  $49,704  $51,796 
LIABILITIES AND STOCKHOLDERS' EQUITY        
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities                
Accounts payable $9,092  $1,606  $3,333  $2,626 
Accrued expenses  2,566   1,813   1,436   1,568 
Accrued interest  87   269 
Due to related parties  1,368   96 
Deferred revenue and customer deposits  168   186 
Obligation under capital leases  30   58 
Derivative liabilities  1,365   1,183 
Notes payable  394   84 
Operating lease obligations, current  406   455 
Customer deposits and deferred revenue  1,921   1,540 
Total current liabilities  14,676   5,211   7,490   6,273 
Long-term obligation under capital leases, net of current portion  34   49 
Convertible note payable  2,000   2,000 
Operating lease obligations, net of current portion  934   1,107 
Deferred tax liabilities  655   764 
Total liabilities  16,710   7,260   9,079   8,144 
Commitments and contingencies        
        
Commitments and contingencies (See Note 12)  -   - 
Series A Preferred stock, $0.00001 par value per share: -0- shares authorized on June 30, 2023, and December 31, 2022, respectively; -0- and 47,419 shares issued and outstanding on June 30, 2023, and December 31, 2022, respectively.  —   — 
Stockholders’ equity                
Preferred stock – $0.00001 par value per share: 10,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016  —   — 
Common stock, – $0.00001 par value, 100,000,000 shares authorized, 14,202,822 and 7,606,518 shares issued and 14,202,820 and 7,606,516 shares outstanding as of September 30, 2017 and December 31, 2016, respectively  —   — 
Additional paid in capital  235,190   221,960 
Accumulated other comprehensive income  462   — 
Treasury stock, at cost – 2 shares at September 30, 2017 and December 31, 2016, respectively  (22)  (22)
Preferred stock, $0.00001 par value per share: 10,000,000 shares authorized on June 30, 2023, and December 31, 2022, respectively  —   — 
Common stock, $0.00001 par value per share, 100,000,000 shares authorized on June 30, 2023, and December 31, 2022, respectively: Common stock, 2,377,362 and 2,370,966 were issued, and 2,377,229 and 2,370,833 were outstanding on June 30, 2023, and December 31, 2022, respectively.  —   — 
Additional paid-in capital  346,822   345,365 
Accumulated other comprehensive loss  (1,037)  (1,337)
Treasury stock, at cost – 133 shares as of June 30, 2023, and December 31, 2022, respectively  (277)  (277)
Accumulated deficit  (207,570)  (209,299)  (304,883)  (300,099)
Total stockholders’ equity  28,060   12,639   40,625   43,652 
Total liabilities and stockholders' equity $44,770  $19,899 
Total liabilities and stockholders’ equity $49,704  $51,796 

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

 23 

 

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
LOSS
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Revenue $10,158  $1,913  $33,711  $4,497 
Cost of revenue and operating expenses                
Cost of components and personnel  5,050   970   20,316   2,210 
Inventory valuation adjustments  355   80   431   192 
General and administrative expenses  6,359   2,260   19,348   6,671 
Research and development expenses  2,758   1,424   7,143   4,627 
Amortization and depreciation  1,128   1,254   3,260   4,118 
Total cost of revenue and operating expenses  15,650   5,988   50,498   17,818 
Loss from operations  (5,492)  (4,075)  (16,787)  (13,321)
Other income (expense)                
Changes in fair value of derivative liabilities  8   2,566   (182)  1,305 
Offering expenses  —   (526)  —   (684)
Gain on bargain purchase  —   —   15,530   2,749 
Gain on debt and payables extinguishments  12   —   3,999   — 
Other expense  —   (924)  (250)  (981)
Interest expense, net  (50)  (147)  (581)  (818)
Total other income (expense)  (30)  969   18,516   1,571 
Net income (loss) $(5,522) $(3,106) $1,729  $(11,750)
Dividends and deemed dividends  —   —   —   (1,808)
Net income (loss) attributable to common stockholders $(5,522) $(3,106) $1,729  $(13,558)
                 
Basic earnings (loss) per share $(0.43) $(1.98) $0.15  $(16.91)
                 
Diluted earnings (loss) per share $(0.43) $(1.98) $0.15  $(16.91)
                 
Weighted average number of shares outstanding:                
                 
Basic  12,845   1,570   11,290   802 
                 
Diluted  12,845   1,570   11,290   802 
                 
Comprehensive income (loss):                
Net income (loss) $(5,522) $(3,106) $1,729  $(13,558)
Unrealized gain on currency translation adjustment  114   —   462   — 
                 
Comprehensive income (loss) $(5,408) $(3,106) $2,191  $(13,558)
  2023  2022  2023  2022 
  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
             
Revenue, net $5,043  $6,766  $12,231  $13,626 
Cost of revenue and operating expenses                
Cost of components and personnel  2,361   3,186   5,675   6,609 
Inventory valuation adjustments  175   101   304   197 
General and administrative expenses  4,679   4,439   9,707   9,349 
Research and development expenses  908   1,151   1,675   2,269 
Amortization and depreciation  304   465   602   922 
Total cost of revenue and operating expenses  8,427   9,342   17,963   19,346 
Loss from operations  (3,384)  (2,576)  (5,732)  (5,720)
Other income (expense)                
Unrealized loss on investments held to maturity  (35)  —   (63)  — 
Gain on settlement of debt  —   9   —   9 
Other income  (11)  (10)  330   316 
Dividend income  128   —   219   — 
Interest income, net  220   (5)  353   (5)
Total other income (expense)  302   (6)  839   320 
Net loss before income taxes  (3,082)  (2,582)  (4,893)  (5,400)
Income taxes                
Deferred tax benefits  54   56   109   107 
Net loss  (3,028)  (2,526)  (4,784)  (5,293)
                 
Basic and diluted loss per share $(1.27) $(1.10) $(2.02) $(2.30)
Basic loss per share $(1.27) $(1.10) $(2.02) $(2.30)
Weighted average number of shares outstanding:                
Basic and diluted  2,377   2,305   2,374   2,298 
Basic  2,377   2,305   2,374   2,298 
Comprehensive loss:                
Net loss $(3,028) $(2,526) $(4,784) $(5,293)
Unrealized gain (loss) on currency translation adjustment  145   (1,407)  300   (1,139)
Comprehensive loss $(2,883) $(3,933) $(4,484) $(6,432)

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

 34 

 

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

(IN THOUSANDS)THOUSANDS, EXCEPT SHARE DATA)

  Nine Months Ended
 September 30,		 
  2017  2016 
Cash flows from operating activities        
Net income (loss) $1,729  $(11,750)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities        
Gain on bargain purchase  (15,530)  (2,749)
Gain on debt and payables extinguishment  (3,999)  — 
Stock-based compensation  1,397   159 
Payment made in stock (payroll and consultants)  2,304   1,960 
Provision for bad debt  —   92 
Inventory valuation adjustments  431   192 
Depreciation and amortization  3,260   4,118 
Change in fair value of derivative liabilities  182   (1,305)
Guaranteed interest and debt issuance costs  434   — 
Line of credit commitment fee  302   — 
Amortization of debt discount  —   50 
Offering expenses  —   684 
Accrual of potential shortfall  —   924 
         
Changes in assets and liabilities        
Accounts receivable  1,141   (442)
Inventory  1,922   872 
Prepaid expenses and other current assets  (638)  (6)
Accounts payable  2,012   369 
Accrued expenses and interest expense  1,067   131 
Deferred revenue and customer deposits  (16)  (86)
Due to related parties  1,452   307 
Net cash used in operating activities  (2,550)  (6,480)
Cash flows used in investing activities        
Cash acquired with the acquisition of IMT  —   (23)
Cash disbursed for property and equipment  (417)  (12)
Cash used in Vislink acquisition  (6,500)  — 
Net cash used in investing activities  (6,917)  (35)
Cash flows provided by financing activities        
Principal repayments made on capital lease obligations  (43)  (39)
Proceeds from multiple issuances of convertible preferred stock, common stock and warrants  6,700   9,539 
Costs incurred in connection with multiple financings  (900)  (1,492)
Proceeds received from issuance of convertible notes payable  —   1,000 
Repayment of advances from related parties  —   (300)
Principal repayments of Vislink notes  (2,000)  — 
Principal repayments of convertible notes payable  —   (1,221)
Principal repayments of notes payable  (824)  — 
Proceeds from the exercise of warrants  2,124   492 
Net cash provided by financing activities  5,057   7,979 
Effect of exchange rate changes on cash  69   — 
Net increase (decrease) in cash  (4,341)  1,464 
Cash, beginning of period  9,054   368 
Cash, end of period $4,713  $1,832 

Three months ending June 30, 2023:

                            
                  Accumulated          
  Series A        Additional  Other          
 Preferred Stock  Common Stock  Paid In Comprehensive  Treasury  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Income (Loss)  Stock  Deficit  Total 
                            
Balance, March 31, 2023*  —  $—   2,377,362  $—  $346,486  $(1,182) $(277) $(301,855) $43,172 
Net loss  —   —   —   —   —   —   —   (3,028)  (3,028)
Unrealized gain on currency translation adjustment  —   —   —   —   —   145   —   —   145 
Stock-based compensation  —   —   —   —   336   —   —   —   336 
Balance, June 30, 2023  —  $—   2,377,362  $—  $346,822  $(1,037) $(277) $(304,883) $40,625 
                                     
Six months ending June 30, 2023:                        
                                     
Balance, January 1, 2023*  47,419  $—   2,367,362  $—  $345,365  $(1,337) $(277) $(300,099) $43,652 
Net loss  —   —   —   —   —   —   —   (4,784)  (4,784)
Unrealized gain on currency translation adjustment  —   —   —   —   —   300   —   —   300 
Elimination of Series A Preferred Stock  (47,419)  —   —   —   —   —   —   —   — 
Issuance of common stock in connection with:                                    
Compensation awards for services previously accrued  —   —   10,000   —   200   —   —   —   200 
Stock-based compensation  —   —   —   —   1,257   —   —   —   1,257 
Balance, June 30, 2023  —  $—   2,377,362  $—  $346,822  $(1,037) $(277) $(304,883) $40,625 

 

*In connection with the reverse stock split implemented by the Company on May 1, 2023, the company’s stock transfer agent calculated a de minimus adjustment to the opening quantity of shares issued.

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

 45 

 

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS – (continued)
CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

(IN THOUSANDS)THOUSANDS, EXCEPT SHARE DATA)

  Nine Months Ended
September 30,		 
  2017  2016 
Cash paid for interest $242  $626 
Cash paid for taxes $—  $— 
Supplemental cash flow disclosures of non-cash investing and financing activities        
Common stock issued in connection with:        
Conversion of convertible notes payable $—  $610 
Conversion of Series B Convertible Preferred Stock  —   4,530 
Conversion of Series D Convertible Preferred Stock  648   1,750 
Settlement of services previously accrued  295   — 
Settlement of amounts due to related parties  180   304 
Settlement of notes payable to sellers of Vislink with assumption of liabilities and debt extinguishment  7,500   — 
Stock issued as payment of interest on convertible note  180   90 
Reclassification of derivative liabilities to stockholders’ equity upon the exercise of warrants  —   2,379 
Dividends and deemed dividend on Series B Convertible Preferred Stock conversion  —   1,808 
         
Purchase Consideration        
  Vislink   IMT  
Amount of consideration: $16,000  $3,000 
         
Assets acquired and liabilities assumed at fair value        
Cash  —   477 
Accounts receivable  7,129   676 
Inventories  18,234   3,329 
Property and equipment  3,868   1,470 
Prepaid expenses  1,209   55 
Accounts payable  (2,079)  (423)
Deferred rent  —   (167)
Accrued expenses  (451)  (378)
Net tangible assets acquired $27,910  $5,039 
         
Identifiable intangible assets        
Trade names and technology $1,100  $350 
Customer relationships  2,520   360 
Total Identifiable Intangible Assets $3,620  $710 
         
Total net assets acquired $31,530  $5,749 
Consideration paid  16,000   3,000 
Preliminary gain on bargain purchase $15,530  $2,749 

Three months ending June 30, 2022:

                 Accumulated          
           Additional  Other          
  Preferred Stock  Common Stock  Paid In  Comprehensive  Treasury  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Loss  Stock  Deficit  Total 
Balance, March 31, 2022*  —  $—   2,287,669  $—  $344,493  $(565) $(277) $(289,306) $54,345 
Net loss  —   —   —   —   —   —   —   (2,526)  (2,526)
Unrealized gain on currency translation adjustment  —   —   —   —   —   (871)  —   —   (871)
Issuance of common stock in connection with:                                    
Satisfaction of accounts payable vendor balance  —   —   1,935   —   31   —   —   —   31 
Satisfaction of withholding tax upon conversion of restricted stock units  —   —   17,889   —   —   —   —   —   — 
Satisfaction with the conversion of restricted stock units  —   —   57,952   —   —   —   —   —   — 
Stock-based compensation  —   —   —   —   208   —   —   —   208 
Balance, June 30, 2022  —  $—   2,365,445  $—  $344,732  $(1,436) $(277) $(291,832) $51,187 
                                     
Six months ending June 30, 2022:                        
                                     
Balance, January 1, 2022*  —  $—   2,287,669  $—  $343,746  $(297) $(277) $(286,539) $56,633 
Balance  —  $—   2,287,669  $—  $343,746  $(297) $(277) $(286,539) $56,633 
Net loss  —   —   —   —   —   —   —   (5,293)  (5,293)
Unrealized gain on currency translation adjustment  —   —   —   —   —   (1,139)  —   —   (1,139)
Satisfaction of accounts payable vendor balance  —   —   1,935   —   31   —   —   —   31 
Satisfaction of withholding tax upon conversion of restricted stock units  —   —   17,889   —   —   —   —   —   — 
Satisfaction with the conversion of restricted stock units  —   —   57,952   —   —   —   —   —   — 
Stock-based compensation  —   —   —   —   955   —   —   —   955 
Balance, June 30, 2022  —  $—   2,365,445  $—  $344,732  $(1,436) $(277) $(291,832) $51,187 
Balance  —  $—   2,365,445  $—  $344,732  $(1,436) $(277) $(291,832) $51,187 

*In connection with the reverse stock split implemented by the Company on May 1, 2023, the company’s stock transfer agent calculated a de minimus adjustment to the opening quantity of shares issued.

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

5

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, Inc. (“xG”, or the “Company”) 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’s business lines include the brands of Integrated Microwave Technologies LLC (“IMT”), Vislink Communication Systems (“Vislink” or “VCS”), and xMax. There is considerable brand interaction, owing 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’’). 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: broadcast and media and public safety and surveillance. In the broadcast and media market, Vislink provides broadcast communication links for the collection of live news, sports and entertainment events. Vislink’s 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 public safety and surveillance market, Vislink provides secure video communications and mission-critical solutions for law enforcement, defense and homeland security applications. Vislink’s customers in the 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 generally accepted accounting principles for interim financial information and 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 principles for annual financial statements and should be read in conjunction with the consolidated financial statements as filed on the Company's Annual Report on Form 10-K for the year ended December 31, 2016, as amended. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2017, 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 nine months ended September 30, 2017 and 2016. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2017 may not be indicative of results for the year ending December 31, 2017.

 6 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

  2023  2022 
  

For the Six Months Ended

June 30,

 
  2023  2022 
       
Cash flows used in operating activities        
Net loss $(4,784) $(5,293)
Adjustments to reconcile net loss to net cash used in operating activities        
Gain on settlement of debt  —   (9)
Deferred tax benefits  (109)  (107)
Unrealized loss on the fair value of investments in bonds held to maturity  63   — 
Accretion of bond discount  (137)  — 
Stock-based compensation  1,257   955 
Stock issuance commitments  —   200
Provision for bad debt  38   15 
Recovery of bad debt  (6)  (38)
Inventory valuation adjustments  304   197 
Amortization of right-of-use assets, operating assets  135   104 
Depreciation and amortization  602   922 
Changes in assets and liabilities        
Accounts receivable  323   111 
Inventories  (1,196)  (3,934)
Prepaid expenses and other current assets  (619)  1,118 
Accounts payable  708   202 
Accrued expenses  68   (1,749)
Operating lease obligations  (222)  (286)
Customer deposits and deferred revenue  381   (646)
Net cash used in operating activities  (3,194)  (8,238)
Cash flows used in investing activities        
Cash used for investments held to maturity  (10,763)  — 
Cash used for property and equipment  (421)  (298)
Net cash used in investing activities  (11,184)  (298)
Cash flows used in financing activities        
Principal payments made on notes payable  (213)  (458)
Net cash used in financing activities  (213)  (458)
Effect of exchange rate changes on cash  (63)  (358)
Net decrease in cash and cash equivalents  (14,654)  (9,352)
Cash and cash equivalents, beginning of the period  25,627   36,231 
Cash and cash equivalents, end of the period $10,973  $26,879 

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

7

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(IN THOUSANDS)

  

For the Six Months Ended

June 30,

 
  2023  2022 
       
Supplemental disclosure of cash flow information:        
Cash paid during the period for interest $6  $6 
Supplemental disclosure of non-cash information:        
Notes payable $523  $943 
Common stock issued in connection with:        
Settlement of accounts payable $—  $31 
Compensation awards previously accrued $200  $— 
ROU assets and operating lease obligations recognized (Note 6):        
Operating lease assets recognized $—  $— 
Less: non-cash changes to operating lease assets amortization $(135) $(104)
ROU assets and operating lease obligations recognized  (135)  (104)
Operating lease liabilities recognized $—  $— 
Less: non-cash changes to operating lease liabilities accretion  (222)  (286)
Operating lease liabilities recognized $(222) $(286)

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

8

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

PrinciplesNature of ConsolidationOperations

Incorporated in Delaware in 2006, Vislink Technologies, Inc. (“Vislink”) is an innovative technology company that collects, delivers and manages real-time video from the action scene to the viewing screen. The Company designs, develops, and deploys innovative products and turnkey solutions that deliver reliable connectivity across real-time production, military, and government sectors worldwide in the most demanding environments. Vislink is a leader in designing and deploying wireless video solutions, providing customers with reliable and secure video and data transmission. The company is committed to delivering the latest technology and the highest quality products to meet its customers’ needs. Vislink provides solutions for collecting live news, sports, and entertainment events for the broadcast markets. Our Mobile Viewpoint product line offers live streaming solutions that use bonded cellular, 5G, and AI-driven technologies to automate the production of news and sports content. In addition to creating real-time video intelligence solutions, Vislink assists first responders, law enforcement agencies at all levels of government, and military organizations with increased situational awareness. Besides providing professional and technical services, Vislink employs a team of technology experts with decades of experience and applied knowledge of terrestrial microwaves, satellites, fiber optics, surveillance systems, and wireless communications systems to offer customers a wide range of services.

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements and these notes should be viewed in conjunction with Vislink Technologies, Inc.’s 2022 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2023, which contains the audited consolidated financial statements and notes thereto as of December 31, 2022. As of December 31, 2022, a condensed consolidated balance sheet was prepared based on audited annual financial statements but did not include all of the footnote disclosures from the annual financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements whichinclude all adjustments, consisting only of routine recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2023, as well as results of operations for the three months and six months ended June 30, 2023, and 2022, as well as cash flow for the six months ended June 30, 2023, and 2022. For the six months ended June 30, 2023, the results of operations are not necessarily indicative of the results for the entire year, any other interim period, or any future period. Effective May 1, 2023, the Company effected a one-for-20 reverse stock split of the common stock. All per-share numbers reflect the one-for-20 reverse stock split. We have retroactively applied the reverse split throughout this quarterly report to all periods presented. The accounting policies of Vislink have not materially changed since December 31, 2022. Note 3 of Vislink’s 2022 annual report on Form 10-K provides detailed information about these policies.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The accompanying unaudited condensed consolidated financial statements include the accounts of xGthe Company and its wholly-owned subsidiaries, IMTsubsidiaries. The Company has eliminated all intercompany accounts and Vislink, since the date the acquisition of IMT and Vislink were completed. All intercompany transactions and balances have been eliminated in the consolidation.upon consolidating our subsidiaries.

Segment Reporting

OperatingThe Company identifies operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the operating decision makers,decision-makers, or decision-making group, in making decisions ondeciding 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.segment with different product offerings. All long-lived assets of the Company reside in the U.S.United States, United Kingdom, and U.K.the Netherlands.

Stock OptionsUse of Estimates

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 periodpreparation of the award on a straight-line basis. The fair value of options is calculated using the Black-Scholes option pricing modelunaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management 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’smake estimates, of these assumptions are primarily based on historical data, judgment regarding future trends and factors.

Use of Estimates

Management makes estimatesjudgments, and assumptions that affect the reported amounts of assets and liabilities disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements, andstatements. These estimates also affect the reported amounts of revenues and expenses during the reporting period.periods. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of property, plant, and equipment, the useful lives of right-of-use assets, the useful lives of intangible assets, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for deferred tax assets, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. Actual results could differ from those estimates. Significant estimates, and assumptions include reserves and write-downs relatedany such differences may be material 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.

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 has passed.

Earnings (Loss) Per Share

The Company reports earnings per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock and dilutive common stock equivalents then outstanding. For the three and nine month period ended September 30, 2017, potential common stock equivalents consist 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.

7

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 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.

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 inputs 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:

Level 1 –  Quoted prices in active markets for identical assets or liabilities.
Level 2 –Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 –Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Foreign Currency and Other Comprehensive Income (Loss)

The functional currency of our foreign subsidiaries is typically the applicable local currency. The translation from the respective foreign currencies to United States Dollars (U.S. 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 weighted average exchange rate during the period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive 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’s 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 and nine months ended September 30, 2017, the increase in accumulated comprehensive gain was approximately $114,000 and $462,000, respectfully.

8

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 OANDA, a Canadian-based foreign exchange company providing currency conversion, online retail foreign exchange trading, online foreign currency transfers, forex information and website. Translation of amounts from British Pounds into U.S. Dollars was made at the following exchange rates for the respective periods:

·As of September 30, 2017 – British Pounds $1.3391 to US $1.00, and

·For the nine months ended September 30, 2017 – British Pounds $1.2578 to US $1.00

Subsequent Events

Management has evaluated subsequent events or transactions occurring through the date theunaudited condensed consolidated financial statements were issued and determined that no events or transactions are required to be disclosed herein, except as disclosed.statements.

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.

 9 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Allowance for credit losses

Change in accounting principles

In July 2017,June 2016, the FASB issued ASUestablished Topic 326, Financial Instruments—Credit Losses, Measurement of Credit Losses on Financial Instruments (ASU) No. 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives2016-13, which requires a methodology that reflects expected credit losses and Hedging (Topic 815)requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, including accounts receivable.

The standard replaces the existing incurred credit loss model with the Current Expected Credit Losses (“ASU No. 2017-11”CECL”). ASU No. 2017-11 consists model. It is required to measure credit losses based on the Company’s estimate of two parts.expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses. Under ASC 326, the Company evaluates specific criteria, including aging and historical write-offs, the current economic condition of customers, and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses. The amendments in Part ICompany completed its assessment of ASU No. 2017-11e change the classification analysisnew standard and did not adjust the opening balance 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 featureretained earnings relating to its trade receivables. The Company writes off receivables once it is determined that they are no longer precludes equity classification when assessing whether the instrument 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 forcollectible, 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 local laws allow.

Recently Issued Accounting Principles

Recent Accounting Pronouncements

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 anrecent accounting effect. For public business entities, the amendments in Part I of ASU No. 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other 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 fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including 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 do not require any transition guidance because those amendments do not have an accounting effect. Management is currently assessing the applicability of ASU No. 2017-11 and has not determined the impact of the adoption, if any, as of September 30, 2017.

On May 16, 2017,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 resultspresent or future consolidated financial statements.

NOTE 2 — LIQUIDITY AND FINANCIAL CONDITION

For the six months ended June 30, 2023, the Company incurred an approximate loss of $5.7 million from operations or financial position.and used $3.2 million of cash for operational purposes. On June 30, 2023, the Company had $35.6 million in working capital, $304.9 million in accumulated deficits, and $11.0 million in cash.

On May 10, 2017,During the FASB issued ASU 2017-09, Scopefirst quarter of Modification Accounting(“ASU 2017-09”), which amends2023, the scopeCompany invested approximately $10.8 million of modification accounting for share-based payment arrangements, provides guidance on the typesits cash reserves in Federal bonds and $11.3 million in Federally insured money market mutual funds, primarily to increase investment income.

The Company’s liquidity requirements may be affected by a variety of changes to the terms orfactors. These factors include inflation, foreign exchange fluctuations, market 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”)strategic acquisitions, market strategy, research and related amendments. ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assetsdevelopment activities, regulatory matters, and liabilities for most leasesproduct 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.technology innovations. The Company is currently assessing the impact that this standardbelieves it will have on itssufficient funds to continue operations for at least twelve months from the filing date of these unaudited condensed consolidated financial position, results of operations, cash flows and disclosures.statements.

 10 

 

NOTE 2 — LIQUIDITYVISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL CONDITIONSTATEMENTS

(Unaudited)

The Company’s condensed 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. Previously, 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 of approximately $16.8 million for the nine months ended September 30, 2017. The Company historically had been funding its business principally through debt and equity financings and advances from related parties. Cash flows from operating activities for the nine months ended September 30, 2017 were positively affected as a result of the acquisition of Vislink in February 2017 (See Note 3), along with management’s continual cost containment.

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 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.

NOTE 3 — ACQUISITIONLOSS PER SHARE

The following table illustrates the anti-dilutive potential common stock equivalents excluded from the calculation of loss per share (in thousands):

SCHEDULE OF VISLINKANTI-DILIUTIVE POTENTIAL COMMON STOCK EQUIVALENTS EXCLUDE FROM THE CALCULATION OF LOSS PER SHARE

  2023  2022 
  Six months Ended 
  June 30 
  2023  2022 
Anti-dilutive potential common stock equivalents excluded from the calculation of loss per share:        
Stock options  85   29 
Warrants  456   459 
Total  541   488 

NOTE 4 — FOREIGN CURRENCY AND OTHER COMPREHENSIVE (GAINS) LOSSES

Acquisition of Vislink International Limited

The Company has recognized foreign exchange gains and losses and changes in accumulated comprehensive income approximately as follows:

On February 2, 2017,SCHEDULE OF FOREIGN EXCHANGE AND CHANGE IN ACCUMULATED COMPREHENSIVE INCOME

  2023  2022  2023  2022 
  Three months ended  Six months ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
Net foreign exchange transactions:                
(Gains) Losses $41,000  $(21,000) $(3,000) $(5,000)
Net foreign exchange transactions: Losses $41,000  $(21,000) $(3,000) $(5,000)
Accumulated comprehensive income:                
Unrealized (gains) losses on currency translation adjustment $10,000  $(871,000) $(145,000) $(1,139,000)

The exchange rates adopted for foreign exchange transactions are quoted on OANDA, a Canadian-based foreign exchange company. This website offers currency conversion, online retail foreign exchange trading, foreign currency transfers, and currency information through its website. Based on the following exchange rates, the Company completed the acquisition of certain assetsconverted amounts between British Pounds and liabilities related to the hardware segment of Vislink International Limited, an EnglandUS Dollars 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 paidEuros into British Pounds for the transaction wasrespective periods:

●As of June 30, 2023 – £1.266150 to $1.00; €1.088440 to $1.00
●The average exchange rate for the six months ended June 30, 2023 – £1.233240 to $1.00; €1.080655 to $1.00
●As of June 30, 2022 – £ 1.080655 to $1.00; €1.044949 to $1.00
●The average exchange rate for the six months ended June 30, 2022 – £1.298904 to $1.00; €1.091890 to $1.00

NOTE 5 — CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an aggregateoriginal maturity of $16 million consistingthree months or less at the time of (i) $6.5 millionpurchase to be cash equivalents. Cash equivalents consist of unrestricted funds invested 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’’).money market mutual fund. 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 forfollowing table illustrates 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.cash and cash equivalents:

SCHEDULE OF CASH AND CASH EQUIVALENTS

  June 30,  December 31, 
  2023  2022 
       
Cash on hand $1,542,000  $25,627,000 
Federally insured money market mutual funds  9,431,000   — 
Total cash and cash equivalents $10,973,000  $25,627,000 

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.

 11 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 36 — ACQUISITION OF VISLINK (continued)INVESTMENTS

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 reviewused cash 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:following debt instruments:

·●On January 23, 2023, the Company purchased a bond, “HSBC USA INC CP,” with a face value of $5,065,789, a par value of $5,000,000, maturing October 24, 2023, a 5.1948% interest rate, at a discount of $253,289 totaling $4,812,500. The Vislink acquisitionvalue on June 30, 2023, was completed$4,910,000.
●On February 1, 2023, the Company purchased a bond, “Federal Home Loan Banks,” with motivated sellers who had a public strategy to concentrateface value of $4,999,750 and accrued interest of $25,729, a par value of $5,000,000, maturing December 22, 2023, at an interest rate of 4.750%, totaling $5,025,479. The value on growing their software business as opposed to their technologyJune 30, 2023, was $4,981,000.
●On February 28, 2023, the Company purchased a bond, “Federal National Mortgage Association,” with a face and hardware businesses. As a strategic decision, the sellers intended to sell off the assetspar value of the hardware business.$950,000, maturing February 28, 2024, at an interest rate of 5.07%, totaling $950,000. The value on June 30, 2023, was $946,000.

·The announcement of Brexit 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 Brexit, 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 uponThe Company identified these factors,transactions as investments in debt security and will apply the guidance under ASC Topic 320, “Investments in debt securities,” and for interest income guidance under ASC Topic 310-20, “Receivables.” As of June 30, 2023, the abovementioned investments have a stated maturity of one year or less. Management intends to treat these investments as held to maturity.

The Company concluded thathas determined the occurrencefair value of a bargain purchase was reasonable.its investments held to maturity based on Level 1 input as of June 30, 2023:

SCHEDULE OF FAIR VALUE OF ITS INVESTMENTS

Purchase Consideration   
    
Amount of consideration: $16,000,000 
     
Tangible assets acquired and liabilities assumed at fair value    
Accounts receivable $7,129,000 
Inventories  18,234,000 
Property and equipment  3,868,000 
Prepaid expenses  1,209,000 
Accounts payable  (2,079,000)
Accrued expenses  (451,000)
Net tangible assets acquired $27,910,000 
     
Identifiable intangible assets    
Trade names and technology $1,100,000 
Customer relationships  2,520,000 
Total Identifiable Intangible Assets $3,620,000 
     
Total net assets acquired $31,530,000 
Consideration paid  16,000,000 
Gain on bargain purchase $15,530,000 
  Level 1  Level 2  Level 3  Total 
             
Federal Bonds $—  $10,837,000  $—  $10,837,000 
                 
  $—  $10,837,000  $—  $10,837,000 

The Company’s investments held to maturity are as follows as of June 30, 2023:

SCHEDULE OF INVESTMENTS HELD TO MATURITY

  Amortized Cost  Unrealized Gains  Unrealized Losses  Fair Value 
             
Federal Bonds $10,900,000   —  $63,000  $10,837,000 
                 
  $10,900,000  $—  $63,000  $10,837,000 

NOTE 7 — INTANGIBLE ASSETS

The following table illustrates finite intangible assets as of June 30, 2023:

SCHEDULE OF INTANGIBLE ASSETS

  Proprietary Technology  Patents and Licenses  Trade Names & Technology  Customer Relationships    
                            
     Accumulated     Accumulated     Accumulated     Accumulated    
  Cost  Amortization  Cost  Amortization  Cost  Amortization  Cost  Amortization  Net 
Balance, December 31, 2022 $2,132,000  $(815,000) $12,378,000  $(12,378,000) $2,251,000  $(1,189,000) $5,095,000  $(3,074,000) $4,400,000 
                                     
Amortization  —   (294,000)  —   —   —   (69,000)  —   (127,000)  (490,000)
Balance, June 30, 2023 $2,132,000  $(1,109,000) $12,378,000  $(12,378,000) $2,251,000  $(1,258,000) $5,095,000  $(3,201,000) $3,910,000 

The Company continuously monitors intangible assets for potential impairments based on operating results, events, and circumstances. As of June 30, 2023, management identified no triggering events.

 12 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 37 — ACQUISITION OF VISLINKINTANGIBLE ASSETS (continued)

The following presentsCompany’s groups of intangible assets consist primarily of:

Proprietary Technology:

Generally, the unaudited pro-forma combined resultsCompany amortizes proprietary technology over 3 to 5 years. Wireless multiplex transmitters and artificial intelligence are the proprietary technologies that MVP uses internally to produce and sell products and services to customers.

Patents and Licenses:

Patents and licenses filed by the Company are amortized for 18.5 to 20 years. The amortization of operations of xGthe costs associated with provisional patents and pending applications begins after successful review and filing.

Trade Name, Technology, and Customer Relationships:

Other intangible assets are amortized for 3 to 15 years. Prior IMT, Vislink, and IMTMVP acquisitions contributed to developing these intangible assets, including trade names, technology, and customer lists.

The Company has recognized net capitalized intangible costs as iffollows:

SCHEDULE OF CAPITALIZED INTANGIBLE COSTS

  June 30,  December 31, 
  2023  2022 
Proprietary Technology $1,025,000  $1,319,000 
Trade Names and Technology  991,000   1,060,000 
Customer Relationships  1,894,000   2,021,000 
  $3,910,000  $4,400,000 

The Company has recognized the entities were combined on January 1, 2016.amortization of intangible assets as follows:

SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2017  2016 
Revenues, net $10,735  $34,973  $38,907 
Net (loss) allocable to common stockholders $(7,415) $(18,118) $(19,752)
Net (loss) per share $(4.72) $(1.60) $(24.63)
Weighted average number of shares outstanding  1,570   11,290  $802 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
Proprietary Technology $148,000  $148,000  $294,000  $293,000 
Patents and Licenses  —   167,000   —   331,000 
Trade Names and Technology  34,000   34,000   69,000   69,000 
Customer Relationships  64,000   64,000   127,000   127,000 
  $246,000  $413,000  $490,000  $820,000 

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of January 1, 2016 or to project potential operating results as of any future date or for any future periods.

Since the closingweighted average remaining life of the transaction,amortization of the Company assumed $4.6 million of additional Vislink liabilities, thus reducing the principal amount due to the Sellers by $4.9 million. On March 17, 2017, the Company came to an agreement with the Sellers as the Company paid $2 million in cash and the Sellers extinguished the remaining $2.9 million principal owed. In the nine months ended September 30, 2017, the Company recorded $1.1 million as a gain on payable extinguishment. This was the result of receiving a $1.1 million credit for inventory that a customer consumed prior to the acquisition of Vislink, which the Company is now receiving as a credit against outstanding invoices owed to that customer.

The estimated useful life remaining on the property and equipment acquired is 1 to 10 years and on theCompany’s intangible assets is 3 to 10 years.approximately 5.2 years as of June 30, 2023. The following table represents the estimated amortization expense for total intangible assets for the succeeding five years:

NOTE 4 —SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE FOR INTANGIBLE ASSETS

Period ending June 30,   
2024 $636,000 
2025  635,000 
2026  595,000 
2027  533,000 
2028  349,000 
Thereafter  1,162,000 
Finite-Lived Intangible Assets, Net, Total $3,910,000 

Intangible assets consist of the following:

  Software Development
Costs		  Patents and Licenses  Trade Names and 
Technology		  Customer Relationships    
     Accumulated     Accumulated     Accumulated     Accumulated    
  Costs  Amortization  Costs  Amortization  Costs  Amortization  Costs  Amortization  Net 
Balance as of December 31, 2016 $18,647,000  $(17,288,000) $12,378,000  $(8,507,000) $350,000  $(35,000) $360,000  $(33,000) $5,872,000 
Additions  -   -   -   -   1,100,000   -   2,520,000   -   3,620,000 
Impairments  -   -   -   -   -   -   -   -   - 
Amortization  -   (691,000)  -   (497,000)  -   (152,000)  -   (586,000)  (1,926,000)
Balance as of September 30, 2017 $18,647,000  $(17,979,000) $12,378,000  $(9,004,000) $1,450,000  $(187,000) $2,880,000  $(619,000) $7,566,000 

Software Development Costs

At September 30, 2017 and December 31, 2016, the Company has 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.

 13 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 48 — INTANGIBLE ASSETS (continued)NOTES PAYABLE

Patents and Licenses

At SeptemberThe table below represents the Company’s notes payable as of June 30, 20172023, and December 31, 2016,2022:

SCHEDULE OF NOTES PAYABLE

  Principal 
  June 30,
2023		  December 31,
2022		 
The Company renewed its D&O insurance policy on April 5, 2022, reducing the premium to approximately $1,037,000, less a down payment of $194,000, with the remaining balance financed. The loan’s terms are for nine months at a 2.09% annual interest rate and a monthly principal and interest payment of approximately $84,000. Accordingly, the Company recorded interest expenses of $-0- and $150 for the three and six months ended June 30, 2023, and $-0- and $2,000 for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the note has been fully repaid. $—  $84,000 
         
The Company renewed its D & O insurance policy on April 5, 2023, reducing the premium to approximately $811,000, less a down payment of $288,000, financing the remaining balance of approximately $523,000. The loan’s terms are for nine months at a 6.14% annual interest rate and a monthly principal and interest payment of approximately $67,000. Accordingly, the Company recorded interest expenses of $5,000 for the three and six months ended June 30, 2023, and $-0- for the three and six months ended June 30, 2022.  394,000     
  $394,000  $84,000 

NOTE 9 — LEASES

In addition to leasing office space, deployment sites, and storage warehouses, the Company also leases warehouse space internationally and domestically. Operating leases have various terms and provisions as of June 30, 2023, with lease terms remaining between one and four years. In certain individual leases, rent escalation clauses and lease concessions require additional rental payments in the later years of the lease term. These types of contracts are recognized on a straight-line basis over the minimum lease term.

The Company recorded $0.9 million in Right-Of-Use (“ROU”) assets on June 30, 2023, net of $1.3 million in accumulated amortization. Moreover, the Company recorded an operating lease liability of approximately $1.3 million, of which $0.4 million was current and $0.9 million was non-current. The weighted average remaining term of lease contracts on June 30, 2023, was 3.1 years, with maturity dates ranging between July 2023 and May 2027, in addition to a weighted-average discount rate of 9.5%.

There were no material adjustments to straight-line rental expenses for those periods. Most of the costs recognized for each period were reflected in cash used in operating activities. This expense primarily consisted of payments for office and warehouse base rent. In addition, the Company has net capitalized patents and licenses of $3.4 million and $3.9 million, respectively. The Company amortizes patents and licenses that have been filed over their useful lives which range between 18.5the right to 20 years. The Company recognized $0.5 million of amortization expense related to patents and licenses for the nine months ended September 30, 2017 and 2016 and $0.2 million for the three months ended September 30, 2017 and 2016.

Other Intangible Assets

The Company’s remaining intangible assets include the trade names, technology and customer lists acquired in its acquisition of Vislink and IMT. The Company amortizes trade names, technology and customer relationships over their useful lives which range between 3 to 15 years.

Estimated amortization expense for total intangible assets for the succeeding five years is as follows:

Balance 2017 $672,000 
2018  2,298,000 
2019  1,763,000 
2020  993,000 
2021  817,000 
Thereafter  1,023,000 
  $7,566,000 

NOTE 5 — CONVERTIBLE NOTES PAYABLE

Treco

On October 6, 2011,renew individual leases at various renewal terms, although the Company entered into a convertible promissory note (the “$2 Million Convertible Note”)is not obligated to do so. Short-term lease costs, taxes, and variable service charges were immaterial.

A one-year lease for 600 square feet of administrative office space in favor of Treco International, S.A. (“Treco”)Luton, UK, was signed on June 1, 2023, and will run through May 31, 2024, as part of the settlement compensation 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 $35.00approximately $2,100 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, for the three and nine months ended September 30, 2017 and 2016.month.

NOTE 6 — DEBT ASSIGNMENT

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.

 14 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 69 — DEBT ASSIGNMENTLEASES (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 nine months ended September 30, 2017, the Company issued 5,000,000 shares of Series D Preferred Stock to the New Holders, which were simultaneously converted into 416,667 shares of common stock valued at approximately $648,000. The value of the common stock issued was based on the fair value of the stock upon execution of the New Holders selling their respective shares. During the nine months ended September 30, 2017, the Company made cash payments of $824,000 as full satisfaction of the remaining amount due. Interest expense for the nine months ended September 30, 2017 and 2016 was $434,000 and $0, respectively.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Leases

The Company's office rental, deployment sites and warehouse facility expenses equaled in aggregate approximately $180,000 and $163,000following table illustrates operating lease data for the three months ended Septemberending June 30, 20172023, and 2016, respectively,2022:

SCHEDULE OF OPERATING LEASE DATA

  2023  2022  2023  2022 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
Lease cost:                
Operating lease cost $103,000  $114,000  $206,000  $233,000 
Short-term lease cost  10,000   10,000   20,000   159,000 
Total lease cost $113,000  $124,000  $226,000  $392,000 
Cash paid for lease liabilities:                
Cash flows from operating leases         $325,000  $253,000 
Weighted-average remaining lease term—operating leases          3.1 years   3.8 years 
Weighted-average discount rate—operating leases          9.5%  9.4%

Maturities of operating lease liabilities were as follows as of June 30, 2023:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES

    
  Amount 
2024 $507,000 
2025  468,000 
2026  341,000 
2027  186,000 
2028  — 
Thereafter  — 
Total lease payments  1,502,000 
Less: imputed interest  162,000 
Present value of lease liabilities  1,340,000 
Less: Current lease liabilities  406,000 
Non-current lease liabilities $934,000 

The table below lists the location and $733,000 and $493,000 for the nine months ended September 30, 2017 and 2016. The leases in connection with these facilities will expire on different dateslease expiration date from 20172023 through 2025.2027:

SCHEDULE OF LEASE OBLIGATION ASSUMED

Location Square Footage  Lease-End
Date		 Approximate
Future Payments		 
Colchester, UK  16,000  Dec2025  $554,000 
Singapore  950  July2023  $3,000 
Billerica, MA  2,000  Dec2026  $43,000 
Hemel, UK  12,870  Oct2023  $367,000 
Mount Olive, NJ  7,979  Jan2027  $535,000 

In connection with the acquisition of IMT, the Company assumed the lease obligations relating to IMT’s warehouse and office space in Mt. Olive, New Jersey. Payments under the Mt. Olive, New Jersey lease are $35,000 for the year ending December 31, 2017 as the lease expired in February 2017. In January 2017, IMT signed a new lease for warehouse and office space in Hackettstown, New Jersey which runs through April 29, 2020. Future payments under such lease will amount to $232,000, of which $22,000 is the balance due for the remainder of 2017.

In connection with the acquisition of Vislink, the Company assumed the lease obligations relating to Vislink office space in Colchester, U.K. which runs through March 2025. Future payments under such lease will amount to approximately $3,728,000, of which $173,000 is the balance due for the remainder of 2017.

In connection with the acquisition of Vislink, the Company assumed the lease obligations relating to Vislink office space in Dubai, United Arab Emirates. which runs through July 2018. Future payments under such lease will amount to approximately $40,000, of which $12,000 is the balance due for the remainder of 2017.

In connection with the acquisition of Vislink, the Company assumed the lease obligations relating to Vislink office space in Singapore which runs through August 2018. Future payments under such lease will amount to approximately $99,000, of which $9,000 is the balance due for the remainder of 2017.

The Company signed a new lease for office space in Hemel, U.K. in May 2017 which runs through April 2023. Future payments under such lease will amount to approximately $1,237,000, of which $58,000 is the balance due for the remainder of 2017.

 15 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 710 — COMMITMENTS AND CONTINGENCIES (continued)STOCKHOLDERS’ EQUITY

The total obligationPreferred stock

On March 22, 2023, the Board of Directors of the Corporation approved a resolution to eliminate the Corporation’s Certificate of Designation, Preferences, and Rights (the “Certificate of Elimination”) of the Series A Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”), that was filed with the Secretary of State of the State of Delaware on November 9, 2022.

Upon the effective filing of this Certificate of Elimination, the shares previously designated under the certificate of designation as Series A Preferred Stock shall resume the status of authorized but unissued shares of preferred stock of the Corporation. As of March 31, 2023, 47,500 shares are authorized, and no Series A Preferred Stock was issued or outstanding.

Common stock

Nasdaq compliance and reverse stock split

On May 20, 2022, we received notice from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company of its noncompliance with Bid Price Rule by failing to maintain a minimum future annual rentals, exclusive of real estate taxes and related costs, are approximately as follows:

  Amount 
Balance 2017 $367,000 
2018  1,266,000 
2019  1,117,000 
2020  822,000 
2021  615,000 
Thereafter  1,496,000 
  $5,683,000 

Legal

The Company is subject, from time to time, to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effectbid price for its common Stock on the Company’s liquidity, financial condition and cash flows. For the nine months ended SeptemberNasdaq Capital Market of at least $1.00 per share for 30 2017, the Company did not have any material legal actions pending.

NOTE 8 — STOCKHOLDERS’ EQUITY

August 2017 Financing

On August 18, 2017, the Company closed a financing for 1,560,978 shares of common stock and warrants to purchase 780,489 shares of common stock (the “August 2017 Warrants”).consecutive business days. The Company received gross proceedsa grace period of $3,200,000180 days, or until November 16, 2022, to regain compliance with the minimum bid price requirement.

On November 10, 2022, the Company submitted a request to Nasdaq for an additional 180-day grace period to regain compliance with the minimum bid price requirement. On November 17, 2022, the Company received a letter from Nasdaq advising that the Company had been granted an additional 180-day grace period extension until May 15, 2023, to regain compliance with the minimum bid price requirement and all other applicable requirements for initial listing on the Nasdaq Capital Market except for the minimum bid price requirement. On May 15, 2023, the Company received a letter from the offering,Nasdaq informing it of its return to compliance with the Bid Price Rule. Therefore, the Common Stock continues to be traded on the Nasdaq Capital Market. If the Company fails to comply with the continued listing requirements of Nasdaq, such as its corporate governance requirements or the Bid Price Rule, Nasdaq may delist the Common Stock.

On January 11, 2023, the Company held a special meeting of stockholders (the “Special Meeting”) whereby stockholders approved a proposal to authorize the Board of Directors of the Company (the “Board”), in its discretion but before deducting placement agent fees and other offering expenses payable by the Company.  Aegis Capital Corp. acted as the sole placement agent for the offering.   The common stock was sold in a registered direct offering by meansone-year anniversary of a prospectus supplement to our then-existing shelf registration statement, while the August 2017 Warrants were sold privately to the same investors by means of an exemption from registration.  The August 2017 Warrants are exercisable immediately on the date of issuancethe Special Meeting, to implement an amendment to the Company’s certificate of incorporation to effect a reverse stock split (the “Reverse Stock Split”) of all of the outstanding shares of Common Stock, of the Company, at an exercise pricea ratio in the range of $2.50 per share and will expire five (5) years after the initial date of issuance.1-for-2 to 1-for-50.

Lincoln Park Purchase Agreement

On May 19, 2017,1, 2023, the Company entered intoeffected a purchase agreement (the “Lincoln Park Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“Lincoln Park”). Under the terms and subject to the conditions1-for-20 reverse stock split. Upon effectiveness of the Lincoln Park Purchase Agreement, the Company has the right to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15,000,000 inreverse stock split, every twenty shares of an outstanding common stock subjectdecreased to certain limitations, from time to time over the 30-month period commencing on the date that a registration statement covering the resale of sharesone share of common stock. We have retroactively applied the reverse split throughout this quarterly report to all periods presented.

Other common stock issuable underactivity

During the Lincoln Park Purchase Agreement is declared effective bysix months that ended June 30, 2023, the Securities and Exchange Commission (the “SEC”) and a final prospectus in connection therewith is filed. Pursuant to the Registration Rights Agreement, the Company agreed to file such registration statement with the SEC within sixty (60) business days of the execution of the Lincoln Park Purchase Agreement.Company:

●has issued 10,000 shares of common stock to specific board members as part of a commitment agreement valued at $200,000. The common stock’s value was determined on the agreement’s original date.
●recognized approximately $1,257,000 of stock-based compensation costs associated with outstanding stock options in general and administrative expenses offsetting additional capital investments.

 16 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 810 — STOCKHOLDERS’ EQUITY (continued)

Common stock warrants

Pursuant to

In the Lincoln Park Purchase Agreement, the Company may, at its sole discretion and subject to certain conditions, direct Lincoln Park to purchase up to 125,000 shares of common stock on any business day (such purchases, “Regular Purchases”), provided that at least one (1) business day has passed since the most recent Regular Purchase was completed, and in no event will the amount of a single Regular Purchase exceed $1.0 million. The purchase price of Regular Purchases will be based on the prevailing market prices of the common stock, which shall be equal to the lesser of the lowest sale price of the common stock during the purchase date and the average of the three (3) lowest closing sale prices of the common stock during the ten (10) business days prior to the purchase date. The Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or additional purchases if the closing sale price of the common stock is not below the threshold prices as set forth in the Lincoln Park Purchase Agreement. There is no upper limit on the price per share that Lincoln Park must pay for common stock under a Regular Purchase or an accelerated purchase.

In connection with its 2017 Annual Meeting of Stockholders held onsix months ending June 15, 2017, the Company30, 2023, 2,667 warrants expired. These outstanding warrants did not receive stockholder approval,have an intrinsic value as required pursuant to Nasdaq Marketplace Rule 5635(d), to issue shares of common stock underJune 30, 2023. On June 30, 2023, the Lincoln Park Purchase Agreement in an amount equal to 20% or more of the Company’s outstanding shares of common stock. As such, the Company will not be permitted to draw down the full $15,000,000 in shares of common stock under the Lincoln Park Purchase Agreement unless and until the Company receives such stockholder approval.

Under the Lincoln Park Purchase Agreement, the Company is required to issue to Lincoln Park 192,431 shares of common stock as commitment shares in consideration for entering into the Lincoln Park Purchase Agreement. The 192,431 shares of common stock were issued on September 11, 2017 with a fair market value of $302,000, which was included in general and administrative expenses for the three and nine months ended September 30, 2017.

As of September 30, 2017, the Company has not sold any shares of common stock under the Lincoln Park Purchase Agreement. 

February 2017 Financing

On February 14, 2017, the Company completed a public underwritten offering of 1,750,000 shares of its common stock and five year warrants to purchase up to an aggregate of 1,312,500 shares of its common stock at anweighted average exercise price of $2.00 per share. warrants outstanding is $66.00, with a weighted average remaining contractual life of 2.61 years.

The Company received $3,500,000 in gross proceeds from the offering, before deducting the associated underwriting discount and estimated offering expenses payable by the Company. Aegis Capital Corp. actedfollowing table sets forth common stock purchase warrants outstanding as sole book-running manager for the offering.of June 30, 2023:

SCHEDULE OF WARRANT OUTSTANDING

  

Number of Warrants

(in shares)

  

Weighted

Average

Exercise

Price

 
       
Outstanding, December 31, 2022  458,747  $72.00 
Warrants granted, exercised, canceled, or expired  (2,667)  — 
Outstanding and exercisable, June 30, 2023  456,080  $66.00 

Exercises of Warrants

From January 1, 2017 to September 30, 2017, warrants issued in connection with the December 2016 financing were exercised into 1,062,113 shares of common stock. The Company received $2,124,000 in gross proceeds from the exercise of such warrants.

 17 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 811 — STOCKHOLDERS’ EQUITY (continued)STOCK-BASED COMPENSATION

Other Common Stock IssuancesLong-term stock incentive plan awards:

During the nine months ended September 30, 2017, the Company issued:

·1,321,873 shares of common stock to employees, directors, consultants and other professionals for a total value of $2,304,000. The value of the common stock issued was based on the fair value of the stock at the time of issuance.

·416,667 shares of common stock valued at $648,000 upon conversion of 5,000,000 shares of Series D Preferred Stock. The value of the common stock issued was based on the fair value of the stock at the time of issuance.

·104,218 shares of common stock for amounts previously deferred at a total value of $295,000.

·84,800 shares of common stock in satisfaction of $180,000 interest accrued on the $2 Million Convertible Note. The number of shares of common stock issued was based upon the stated interest rate of the convertible promissory note and was determined by using the fair value of the common stock on the issuance date.

·103,224 shares of common stock in satisfaction of related party obligations valued at $180,000. The value of the common stock issued was based on the fair value of the stock at the time of issuance.

Warrants and Options

During the three and nine months ended September 30, 2017, the Company recorded approximately $795,000 and $1,397,000, respectively, as stock compensation expense from the amortization of stock options issued in prior periods. During the three and nine months ended September 30, 2016, the Company recorded $39,000 and $264,000, respectively, as stock compensation expense from the amortization of stock options issued in prior periods.

On February 16, 2017, the Board of Directors of the Company (the “Board”) approved a motion to cancel all outstanding stock options as the options were all out of the money in all previousThe Company’s stock option plans thereby cancelling the 1,844 options that were outstanding on December 31, 2016.

On March 16, 2017, the Board passed a motion to grantprovide options to certainpurchase shares of common stock to officers, directors, other key employees, and advisorsconsultants. The purchase price may be paid in cash or “net settled” in the Company’s common stock shares. In a net settlement of an option, the Company does not require payment of the Company, and the Company issued 3,555,500 ten (10)-year options with an exercise price from the holder but reduces the number of $1.55 per share on March 24, 2017. The fair valueshares of common stock issued upon the exercise of the stock option by the smallest amount of whole shares that have an aggregate fair market value equal to or over the aggregate exercise price for the option shares covered by the option exercised. Options generally vest over three years from the grant date and expire ten years from the grant date.

Inducement Awards:

Time-vested options

The Company grants time-vested stock options grantedto various employees in connection with their employment agreements. The equity awards are ten-year, non-statutory time-vested option inducement awards under the NASDAQ Listing Rule 5653(c)(4) outside of the Company’s existing equity compensation plans (all subject to continued employment).

Performance-based stock options

The Company grants performance-based stock options to various employees in connection with their employment agreements. The equity awards are ten-year, non-statutory performance-based stock option inducement awards under the NASDAQ Listing Rule 5653(c)(4) outside of the Company’s existing equity compensation plans that will vest in three equal tranches upon achievement of applicable performance conditions for each tranche (all subject to continued employment).

Restricted Stock Units (“RSUs”):

Time-based awards

The Company grants employees time-based restricted stock units (“RSUs”) subject to continued employment. The equity awards have an initial vesting between 25% and 33% on Marchtheir one-year anniversary dates and will vest between 24 2017 was $1.549 per share and was estimated on the date of grant using the Black-Scholes option pricing model with36 equal monthly periods thereafter.

Performance-based awards

The Company grants employees performance-based restricted stock unit awards subject to performance vesting conditions and continued employment. The equity awards will vest in three equal tranches upon reaching performance conditions for each tranche.

As shown in the following assumptions: risk free interest rate of 1.90%, dividend yield of -0-%, volatility factor of 286.51%table, stock-based compensation expense is included in general and the expected life of options of 6.00 years. The options vest at one third on March 24, 2018, one third on March 24, 2019 and one third on March 24, 2020.

On July 1, 2017, the Company issued 2,810,000 ten (10)-year options to employees with an exercise price of $1.62 per share. The fair value of the options granted on July 1, 2017 was $1.629 per share and was estimated on the date of grant using the Black-Scholes option pricing model withadministrative expenses under the following assumptions: risk free interest rate of 1.84%, dividend yield of -0-%, volatility factor of 283.93% and the expected life of options is 6.00 years. The options vest at one third on July 1, 2018, one third on July 1, 2019 and one third on July 1, 2020.plans:

SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE

             
  Three months ended  Six months ended 
  June 30,  June 30, 
Equity-based plans: 2023  2022  2023  2022 
Long-term stock incentive plan awards $—  $—  $—  $1,000 
Time-vested option inducement awards  37,000   28,000   107,000   56,000 
Performance-based stock option inducement award  -   -   —   - 
Time-based restricted stock awards
  299,000   180,000   1,150,000   898,000 
Performance-based restricted stock awards  —   —   —   — 
Stock-based compensation expense $336,000  $208,000  $1,257,000  $955,000 

 18 

 

NOTE 8 — STOCKHOLDERS’ EQUITY (continued)

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

As of September 30, 2017, the weighted average remaining contractual life was 9.6 years for options outstanding and -0- years for options exercisable. The intrinsic value of options exercisable at September 30, 2017 and 2016 was $0.04 per share and $0, respectively. As of September 30, 2017, the remaining expense is approximately $8.0 million over the remaining amortization period which is 2.75 years. The Company estimates forfeiture and volatility using historical information.  The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues over the equivalent lives of the options. The expected life of the options represents the estimated period of time using the simplified method. The Company has not paid dividends on common stock and no assumption of dividend payment is made in the model.NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of the Company’s warrant and option activity is as follows:

Warrants

  Number of Warrants
(in Shares)		  Weighted Average
Exercise Price		 
Outstanding January 1, 2017  7,611,904  $5.98 
Granted  2,145,489   2.19 
Exercised  (1,062,113)  2.06 
Forfeited or Expired  (7)  42,000.00 
Outstanding, September 30, 2017  8,695,273  $5.50 
Exercisable, September 30, 2017  8,545,273  $5.55 

 

OptionsNOTE 11 — STOCK-BASED COMPENSATION (continued) 

  Number of Options
(in Shares)		  Weighted Average
Exercise Price		 
Outstanding January 1, 2017  1,844  $1,544.37 
Granted  6,365,500   1.58 
Exercised  —   — 
Cancelled  (96,844)  30.95 
Outstanding, September 30, 2017  6,270,500  $1.58 
Exercisable, September 30, 2017  —  $— 

The following table illustrates supplementary data under various equity compensation plans:

SCHEDULE OF EQUITY COMPENSATION PLANS

  Six months ended  Six months ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
  Quantity  Weighted Average  Quantity  Weighted Average  Quantity  Weighted Average  Quantity  Weighted Average 
  Long-term stock incentive plan awards  Time-vested option inducement awards 
Balance-January 1st, outstanding  2,250  $1,756   2,496  $1,795.80   24,721  $13.00   24,721  $20.20 
Granted, canceled, expired  —   —   —   —   —   —   —   — 
Forfeited  (58)  (1,166.00)  (171)  (1,931.60)  —   —   —   — 
Balance-June 30th, outstanding  2,192  $1,771.40   2,325  $1,754.00   24,721  $10.00   24,721  $17.80 
Balance-June 30th, exercisable  2,192  $1,771.40   2,463  $1,802.00   24,721  $18.00   14,936  $29.60 
Remaining compensation expense  $—   $—   $212,000   $442,000 
Remaining amortization period  0.0 years   0.0 years   0.6 years   1.6 years 
Weighted average remaining contractual life – options outstanding and exercisable  4.0 years and 4.0 years   5.1 years and 5.0 years   6.6 years and 6.6 years   7.6 years and 7.6 years 
Intrinsic value per share  $—   $—   $—   $— 
Range of exercise prices  $139.20 to $1,944.00   $139.20 to $23,472.00   $19.20 to $34.20   $19.20 to $34.20 
                                 
   Performance-based stock option inducement awards   Time-based restricted stock awards 
Balance-January 1st, outstanding  12,500  $33.00   12,500  $33.00   140,736  $23.00   39,933  $63.40 
Granted, canceled, expired  —   —   —   —   41,250   9.00   107,053   20.80 
Forfeited  —   —   —   —   (19,415)  (21.40)   —   — 
Balance-June 30th, outstanding  12,500   $33.00   12,500   $33.00   162,571   $12.60   146,986   26.20 
Balance-June 30th, exercisable  —  $—   —  $—   63,098  $40.20   12,472  $100.80 
Remaining compensation expense  $414,000   $414,000   $2,049,000   $3,857,000 
Remaining amortization period  1.6 years   2.6 years   1.7 years   3.0 years 
Weighted average remaining contractual life – options outstanding and exercisable  6.6 years and 0.0 years   7.6 years and 7.6 years   2.1 years and 1.8 years   3.0 years and 4.0 years 
Intrinsic value per share  $—   $—   $—   $— 
Range of exercise prices  $34.20   $34.20   $8.00 to $72.00   $19.60 to $72.00 
                
                   Performance-based restricted stock awards 
Balance-January 1st, outstanding                  71,303  $58.00   63,369  $58.80 
Granted, canceled, expired                  —   —   71,303   21.00 
Forfeited                  (19,649)  (21.00)  —   — 
Balance-June 30th, outstanding                  51,654  $22.00   134,762  $38.80 
Balance-June 30th, exercisable                  —  $—   63,369  $82.40 
Remaining compensation expense                  $1,085,000   $1,498,000 
Remaining amortization period                  2.5 years   7.7 years 
Weighted average remaining contractual life – options outstanding and exercisable                  2.5 years and 0.0 years   4.3 years and 3.8 years 
Intrinsic value per share                  $—   $— 
Range of exercise prices                  $21.00 to $72.00   $21.00 to $72.00 

 19 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 912 — DERIVATIVE LIABILITIESCOMMITMENTS AND CONTINGENCIES

EachPension:

The Company may make a matching contribution to its employees’ 401(k) plan. Furthermore, Vislink operates a Group Personal Plan through its UK subsidiary, investing funds with Royal London. Employees of the warrants issuedCompany in connection with our August 2015, May 2016 and July 2016 underwritten offerings and the February 2016 Series B Preferred Stock offering have been accounted for as derivative liabilities, as each ofUnited Kingdom are entitled to participate in the warrants contain a net cash settlement provision whereby, upon certain fundamental events, the holders could put the warrants backCompany’s employee benefit plan, to which varying amounts are contributed according to their status. Additionally, the Company for cash. operates a stakeholder pension plan in the United Kingdom.

The following are the key assumptions used in connection with the valuation of the warrants exercisable into common stock on September 30, 2017:

Number of shares underlying the warrants on September 30, 2017  968,080 
Fair market value of stock $1.62 
Exercise price $2.00 to 2,400.00 
Volatility  141% to 177%
Risk-free interest rate  1.13% to 1.92%
Expected dividend yield  — 
Warrant life (years)  1.1 to 3.8 

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy,table below represents the Company’s accountingmatching contributions as follows:

SCHEDULE OF MATCHING CONTRIBUTIONS

  Three months ended  Six months ended 
  June 30,  June 30, 
  2022  2022  2022  2022 
Company matching contributions - Group Personal Pension Plan $35,000  $48,000  $68,000  $97,000 

NOTE 13 — CONCENTRATIONS

Customer concentration risk

In the three and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibilitysix months ended June 30, 2023, no customers exceeded 10 percent of the Company’s accountingconsolidated sales. In the three and finance departmentsix months ending June 30, 2022, the Company derived revenue from two customers representing more than 10% of its total consolidated sales for approximately $788,000 (12%) and are approved by$1,467,000 (11%), respectively.

Two customers owed the Chief Financial Officer.

Level 3 Valuation Techniques:

Level 3 financial liabilities consistCompany approximately $925,000 and 688,000, respectively, representing 16% and 12% of its consolidated net receivables on June 30, 2023. One customer owed the Company approximately $4,204,000, representing 48% of the derivative liabilities for which there is no current market for these securities such thatCompany’s consolidated net accounts receivable on June 30, 2022.

Vendor concentration risk

In the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3three months ending June 30, 2023, two vendors exceeded 10% of the fair value hierarchy are analyzed each period based on changes in estimates or assumptionsCompany’s consolidated purchases with approximately $465,000 and recorded as appropriate. The Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments. In accordance with ASC Topic 480,Distinguishing Liabilities from Equity$323,000, the fair valuerepresenting 15% and 10% of these warrants is classified as a liability on the Company’s Condensed Consolidated Balance Sheets because, according toconsolidated inventory purchases, respectively. In the termssix months ending June 30, 2023, two vendors met the criteria beyond 10% of the warrants, a fundamental transaction could give rise to an obligationCompany’s consolidated purchases of approximately $595,000 and $587,000, representing 10% of the Company to pay cash to its warrant holders. Such instruments do not have fixed settlement provisionsCompany’s consolidated inventory purchases, respectively. During the three and have also been recorded as derivative liabilities. Corresponding changes in the fair valuesix months ended June 30, 2022, no vendor made purchases exceeding 10% of the derivative liabilities are recognized in earnings onCompany’s total consolidated purchases.

As of June 30, 2023, one vendor exceeded 10% of the Company’s Condensed Consolidated Statementsconsolidated accounts payable of Operations in each subsequent period.

The Company’s derivative liabilities are carried at fair value and are classified as Level 3 in the fair value hierarchy due to the useapproximately $610,000 (18%). As of significant unobservable inputs. In order to calculate fair value, the Company uses a binomial model style simulation, as the value of certain featuresJune 30, 2022, no vendor represented more than 10% of the warrant derivative liabilities would not be captured by the standard Black-Scholes model.Company’s accounts payable.

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
Beginning balance $1,374,000  $1,222,000  $1,183,000  $1,284,000 
Recognition of warrant liabilities on issuance dates  —   3,766,000   —   4,823,000 
Reclassification to stockholders’ equity upon exercise  —   —   —   (2,379,000)
Change in fair value of derivative liabilities  (9,000)  (2,565,000)  182,000   (1,305,000)
Ending balance $1,365,000  $2,423,000  $1,365,000  $2,423,000 

 20 

 

VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 — RELATED PARTY TRANSACTIONS14 – REVENUE

MB Technology Holdings, LLC

On April 29, 2014,The Company has one operating segment, with the senior executive management team as the decision-making group. In the following table, the Company entered into a management agreement (the “Management Agreement”) with MB Technology Holdings, LLC (“MBTH”), pursuant to which MBTH agreed to provide certain managementhas disaggregated revenue by the Company’s primary geographical markets and financial services to the Company for a monthly fee of $25,000. revenue sources:

SCHEDULE OF DISAGGREGATION OF REVENUE

  Three months Ended  Six months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
Primary geographical markets:            
North America $1,721,000  $3,472,000  $4,888,000  $5,900,000 
South America  38,000   49,000   227,000   99,000 
Europe  1,593,000   2,105,000   3,436,000   4,294,000 
Asia  1,305,000   830,000   2,024,000   1,372,000 
Rest of World  386,000   310,000   1,656,000   1,961,000 
  $5,043,000  $6,766,000  $12,231,000  $13,626,000 
Primary revenue source:                
Equipment sales $4,279,000  $6,194,000  $10,673,000  $12,472,000 
Installation, integration, and repairs  263,000   330,000   749,000   573,000 
Warranties  501,000   242,000   809,000   581,000 
  $5,043,000  $6,766,000  $12,231,000  $13,626,000 
Long-Lived Assets:                
United States         $2,174,000  $2,227,000 
Netherlands          23,000   28,000 
United Kingdom          4,397,000   5,471,000 
          $6,594,000  $7,726,000 

NOTE 15 — OTHER INCOME (REBATES)

The Management Agreement was effective January 1, 2014. For the three and nine months ended September 30, 2017, the Company incurred feesfollowing table represents tax rebates related to the Management Agreement of $75,000 and $225,000, respectively. For the three and nine months ended September 30, 2016,research costs incurred by our U.K. subsidiary.

SCHEDULE OF TAX REBATES

  Three months Ended  Six months Ended 
  June 30,   June 30, 
   2023   2022   2023   2022 
Total tax rebates $**5,000 $*(10,000) $329,000  $284,000 

**An increase of $5,000 represents a strengthening in the exchange rate from British Pounds to U.S. dollars, resulting in a gain from initial recognition of $324,000 in the first quarter of fiscal 2023.
*As a result of a weakening in the translation rate from British pounds to U.S. dollars, this $10,000 decrease represents a loss compared to the initially recognized $294,000 in fiscal 2022.

While the Company also incurred fees relatedplans to the Management Agreement of $75,000 and $225,000, respectively. In addition, during the nine months ended September 30, 2017, the Board approved an additional $54,000 in fees to be paid to MBTH as consideration for additional efforts provided by MBTH in connection with the Company’s financing and acquisition efforts. The Company recorded these fees in general and administrative expenses on the accompanying Condensed Consolidated Statement of Operations. Roger Branton, the Company’s Chief Financial Officer, and George Schmitt, the Company’s Chief Executive Officer and Executive Chairman, are directors of MBTH, and Richard Mooers, a director of the Company, is the Chief Executive Officer and a director of MBTH.

The Company has agreed to award MBTH a 3% Success Fee (as defined below) if MBTH arranges financingcontinue filing rebate forms for the Company, arranges a merger, consolidation or sale by the Company of substantially all of the assets. The Company accrued approximately $436,000 for equity financings between August 1, 2015 and July 31, 2016 in connection with the 3% Success Fee. No additional fees in connection with the 3% Success Fee have been accrued since.

The balance outstanding to MBTH at September 30, 2017 and December 31, 2016 was $1,368,000 and $96,000, respectively, and has been included in due to related parties on the Condensed Consolidated Balance Sheet.

On March 3, 2016, our Board approved the issuance of up to $300,000 in shares of common stock to MBTH as compensation for financial services in connection with the IMT acquisition. Such shares of common stock were to be issued to MBTH in an initial tranche in the amount of up to $150,000 on March 15, 2016, and a second tranche to MBTH of up to $150,000 in shares of common stock if IMT achieved certain performance goals by December 31, 2016. On August 10, 2016, the disinterested members of the Board, believing2023 fiscal year, it to be in the best interest of the Company, resolved to pay the award in cash instead of common stock. The Company accrued $150,000 in the due to related party balance owed to MBTH for the initial tranche and paid this cash fee in 2016. During the nine months ended September 30, 2017, the Company accrued the second tranche of $150,000 in the due to related party owed to MBTH.

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 incorporates 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 (the ‘‘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 has the following additional terms:

(1) The Company will pay MBTH an acquisition fee equal to the greater of $250,000 or 8% of the total acquisition price (the ‘‘Acquisition Fee’’). Where possible, the Company will pay MBTH 50% of the Acquisition Fee at closing of a transaction, and in any case, not later than thirty (30) days following such closing, 25% of the Acquisition Fee three (3) months following such closing and 25% of the Acquisition Fee six (6) months following such closing.

(2) In addition to any other fees, the Company will pay MBTH a due diligence fee of $250,000 only on successfully closed transactions. This due diligence fee shall be paid to MBTH as warrants to purchase shares of common stock of the Company in an amount equal to $250,000 divided by the lower of the market price of the common stock on the day of closing of the transaction or the price of equity offered to finance such acquisition. The exercise price of such warrantscannot guarantee that rebates will be $0.01.available at a similar level or at all in future years.

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VISLINK TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1016 — RELATED PARTY TRANSACTIONS (continued)RECLASSIFICATION OF PRIOR YEAR PRESENTATION

(3) We reclassified other income amounts from the prior year to ensure consistency with the presentation of the current year’s condensed consolidated statement of operations. For the three and six months ended June 30, 2022, adjustments have been made to the condensed consolidated statements of operations and comprehensive loss. Tax rebates related to research costs incurred by our UK subsidiary were separated from other revenue to other income. The reclassification did not affect the reported operating results.

NOTE 17 — SUBSEQUENT EVENTS

Office lease

The Company renewed its lease for 976 square feet of administrative office space commencing on July 3, 2023, and MBTH agreed to waive the 3% Success Feeterminating on July 2, 2024, in connection with the Company’s proposed acquisitionDubai Studio City, UAE, for approximately $1,632 monthly.

Relocation of Vislink. The Company and MBTH also agreed to waive, on a case by case basis, the 3% Success Fee whenever any future Acquisition Fee is more than $1 million.United Kingdom manufacturing division

(4) In the eventFollowing an ever-changing global business landscape, in July 2023, the Company engages an independent, external advisorstrategically decided to value an acquisitionconsolidate its UK division and relocate its activities to the valuation is higher than the price negotiated by MBTH on behalfUnited States in September 2023. As a result of the Company, then MBTH will receive an additional fee of 5% of such gain (the “Bargain Purchase Gain”).

(5) MBTH has the option to convert up to 50% of its fees into shares of common stock of the Company, so long as the receivable remains outstanding. The conversion pricemove, management believes that operational efficiency will be the lower of 110% of the price of the common stock on the day of closing of a transaction or the price of equity securities offered in connection with any acquisition financing. If MBTH converts at least 25% of its fees, then the Company agrees to register all shares of common stock of the Company held by MBTH.

(6) If MBTH’s services assist the Company in achieving forward sales of at least $50 million via acquisitions, then the Company agrees to offer MBTH a three (3) year option to acquire up to 25% of the Company’s shares of common stock outstanding after such issuance (the “Block Purchase Option”). The price per share of common stockoptimized, productivity will be 125% of the price of the Company’s common stock on the day the option is exercised.

On February 16, 2017, the Board amended the terms of the Block Purchase Optionenhanced, and our position in the M&A Services Agreementglobal market will be strengthened. Additionally, the move will:

●enhance our ability to meet future working capital requirements,
●eliminate obsolete inventory items,
●reduce the usage of our UK Colchester facility, and
●simultaneously reduce miscellaneous operating costs.

Our commitment to allow MBTHcontinuous improvement and growth has driven our decision to relocate our manufacturing division. The relocation of our manufacturing division to the optionUnited States will cost us approximately $0.2 million in severance costs over the next six months. Our relocation process will be designed to acquire 25% of the fully diluted outstanding shares of common stockensure minimal disruption to our operations and warrants of the Company at a price of $2.10 per share and for a five-year term. There has been no impact on the results from operations since the certainty of the performance condition is not known.employees.

The M&A Services Agreement is effective as of November 1, 2016 and will automatically renew annually, unless earlier terminated by the Company or MBTH upon thirty (30) days’ written notice.

The Company accrued an additional $1,480,000 in acquisition fees during the nine months ended September 30, 2017, in connection with the acquisition of Vislink as per the M&A Services Agreement. The $1,480,000 represents 8% of the acquisition price. The Company recorded these fees in general and administrative expenses on the accompanying Condensed Consolidated Statement of Operations and included such fees in due to related parties on the Condensed Consolidated Balance Sheet.

The Company accrued an additional $777,000 in fees as 5% of the Bargain Purchase Gain during the nine months ended September 30, 2017 in connection with the acquisition of Vislink as per the M&A Services Agreement. The $777,000 represents 5% of the Bargain Purchase Gain of $15,530,000 after an independent, external advisor valued the acquisition. The Company recorded these fees in general and administrative expenses on the accompanying Condensed Consolidated Statement of Operations and included such fees in due to related parties on the Condensed Consolidated Balance Sheet.

The Company recorded $265,000 as the fair market value of the warrant paid to MBTH in connection with the closing of the Vislink acquisition as per the M&A Services Agreement. The Company recorded these fees in general and administrative expenses on the accompanying Condensed Consolidated Statement of Operations and accrued expenses on the accompanying Condensed Consolidated Balance Sheet as the warrant has not yet been issued.

From January 1, 2017 to September 30, 2017, the Company issued 103,224 shares of common stock to MBTH in settlement of amounts due of $180,000.

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NOTE 11 — CONCENTRATIONS

During the nine months ended September 30, 2017, the Company recorded revenue from individual sales or services rendered of $3,668,000 (11%) in excess of 10% from one customer of the Company’s total consolidated sales. During the three months ended September 30, 2017, the Company did not record revenue from individual sales or services rendered in excess of 10% of the Company’s total consolidated sales.

During the nine months ended September 30, 2016, the Company did not record revenue from individual sales or services rendered in excess of 10% of the Company’s total consolidated sales. During the three months ended September 30, 2016, the Company recorded revenue from individual sales or services rendered from two customers of $272,000 (14%) and $261,000 (14%), both in excess of 10% of the Company’s total consolidated sales.

At September 30, 2017, the Company did not have any net accounts receivable due from one customer totaling over 10% of accounts receivable.

At September 30, 2016, approximately 42% of net accounts receivable was due from three customers, respectively, as follows: $272,000 (16%), $232,000 (14%) and $189,000 (11%) due from unrelated parties.

During the nine months ended September 30, 2017, approximately 32% of the Company’s inventory purchases were derived from two vendors. During the three months ended September 30, 2017, approximately 28% of the Company’s inventory purchases were derived from one vendor.

During the nine months ended September 30, 2016, approximately 44% of the Company’s inventory purchases were derived from three vendors. During the three months ended September 30, 2016, approximately 40% of the Company’s inventory purchases were derived from two vendors.

NOTE 12 – GEOGRAPHICAL INFORMATION

The Company has one operating segment and the decision-making group is the senior executive management team.

  Nine Months Ended  Three Months Ended 
  September 30, 2017  September 30, 2017 
Revenue:        
   North America $13,084,000  $5,411,000 
   South America  4,274,000   1,163,000 
   Europe  8,973,000   1,940,000 
   Asia/Rest of World  7,380,000   1,644,000 
  $33,711,000  $10,158,000 

  Nine Months Ended    
  September 30, 2017    
Long-Lived Assets:        
   United States $6,681,000     
   United Kingdom  4,628,000     
  $11,309,000     

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NOTE 13 — SUBSEQUENT EVENTS

Treco Issuance

From October 1, 2017 to November 14, 2017, the Company issued a total of 52,942 shares of common stock in repayment of $90,000 in interest relating to its $2 million long-term convertible note payable.

Other Common Stock Issuances

From October 1, 2017 to November 14, 2017, the Company issued a total of 266,964 shares of common stock at fair value to employees, directors, consultants and general counsel in lieu of paying approximately $434,000 worth of services.

From October 1, 2017 to November 14, 2017, the Company issued a total of 167,393 shares of common stock to MBTH in settlement of amounts due of $270,000.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations

Cautionary Notice Regarding Forward Looking Statements

The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, the audited consolidated financial statements and the notes thereto, and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Item 2 containsour Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission on March 31, 2023.

Effective May 1, 2023, the Company effected a one-for-20 reverse stock split of the common stock. All per-share numbers reflect the one-for-20 reverse stock split. We have retroactively applied the reverse split throughout this quarterly report to all periods presented.

Cautionary Note About Forward-Looking Statements

This report includes forward-looking statements withinthat, although based on assumptions that we consider reasonable, are subject to risks and uncertainties, which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. You should read this report and the meaning of Section 27A of the Securities Act of 1933,documents we reference in this report and have filed as amended, (the “Securities Act”)exhibits to this report entirely and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Actualunderstand that our actual future results may materially differ from those projectedwhat we expect. You should also review the factors and risks we describe in reports we will file or submit from time to time with the SEC after this report’s date. We qualify all of our forward-looking statements by these cautionary statements.

Overview of COVID-19 Effects

The COVID-19 pandemic has caused and may continue to cause changes in our business practices (including employee travel and work locations). We may take further actions as government agencies require efforts that we determine are in the forward-looking statements asbest interests of our employees, customers, and business partners. The effectiveness of such measures cannot be guaranteed.

As a result of certain risksthe COVID-19 pandemic and uncertainties set forth in this report. Although management believes that the assumptions mademitigation measures, global supply chains and expectations reflectedeconomic conditions have been adversely impacted and may continue to be adversely impacted in the forward-looking statements are reasonable, there is no assurance thatfuture. We may be affected by these impacts regarding development, deployment, maintenance, and demand for our products and services.

The extent to which the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect toCOVID-19 pandemic impacts our business, strategies, products, future results and events,operations, cash flows, and financial performance. All statements made in this filingcondition will depend on future highly uncertain developments that cannot be predicted. The Company will continue closely monitoring COVID-19’s effect on all aspects of our business and geographies. It includes updated information concerning other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, and also including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements,virus strains and their absence does not mean thatimpact.

Ukraine/Russian Conflict

The war increasingly affects global financial markets and escalates ongoing economic challenges, such as inflation and disruption of global supply chains. The degree to which entities are or will be affected depends on the statement is not forward-looking. These forward-looking statementsnature and duration of uncertain and unpredictable events. Among these events are subjectfurther military actions, additional sanctions, and reactions to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressedthe ongoing developments in anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue relianceinternational financial markets. The impact of the war on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subjectmacroeconomic conditions may necessitate many companies worldwide to risks, uncertainties and assumptions (including those described below), and apply only asconsider the effects of the datewar on their specific accounting and financial reporting practices.

Neither the Company nor its employees or contractors have a physical presence in Russia, Russian-controlled territories, or Ukraine. Due to Russia’s invasion of this filing. Our actual results, performance or achievements could differ materially fromUkraine and sanctions imposed by the results expressedU.S. and other governments—designed to exacerbate the Russian economy—business continuity, liquidity, and asset values are being affected in or implied by, these forward-looking statements.

Overview

The overarching strategy of xG Technology, Inc. (“xG Technology”, “xG”, the “Company”, “we”, “our”, “us”) is to design, developUkraine 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’s business lines include the brands of Integrated Microwave Technologies LLC (“IMT”), Vislink Communication Systems (“Vislink” or “VCS”), and xMax. There is considerable brand interaction, owing to complementary market focus, compatible product and technology development roadmaps, and solution integration opportunities.Russia, agitating global markets. In addition to these brands, xGincreased inflation and higher energy and transportation costs, it is difficult to estimate the impact of the ongoing invasion on the global economy; the invasion of Ukraine could negatively affect our financial results. The Company does not anticipate any risks affecting its liquidity, operating results, or financial reporting, but we monitor developments in Ukraine to determine whether they will harm our business, financial condition, or results of operations.

Relocation of United Kingdom manufacturing division

The Company will begin moving its United Kingdom manufacturing division to the United States in September 2023. The relocation to the United States is anticipated to result in approximately $1.0 million in annual savings. The relocation of our manufacturing division to the United States will cost us approximately $0.2 million in severance costs over the next six months.

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Climate Change-Related Effects

Our Company, partners, and communities face both opportunities and challenges related to climate change. Physical climate parameters, regulations, public policy, technology, and product demand changes will likely influence our Company’s climate change strategy. We are responsible for responding to climate change and will continue to focus on reducing our environmental impact. We will also focus on developing innovative solutions to mitigate climate change risks. We are committed to working collaboratively with our partners to achieve a sustainable future.

Despite our efforts to mitigate climate change risks, we recognize that climate-related risks are inherent wherever we conduct our business. There is a possibility that any of our locations will be affected by climate change. Climate-related events can disrupt our industry and our customers, increasing attrition, losses, and extra costs. It is important to us that our company’s communities have access to clean water and reliable energy. For this reason, we are committed to developing and implementing strategies to reduce our carbon footprint and ensure sustainability. We partner with organizations and governments to promote renewable energy sources and create resilient communities.

The increase in temperature causes natural disasters to become more frequent and severe, disrupting the operation of our business. Wildfires, floods, droughts, hurricanes, and hurricanes are natural disasters. We can also become less productive, lose customers, and incur additional costs if we have limited access to clean water and reliable energy. We must take proactive steps to mitigate the effects of climate change. We need to develop strategies to reduce our carbon footprint and find ways to make our operations more resilient to climate-related disruptions. Additionally, we must invest in technology that can help us better prepare for and respond to extreme weather events.

Overview

The Vislink Corporation was incorporated in Delaware in 2006, and it is a global technology company dedicated to collecting, delivering, and managing high-quality, live video and related data from the action scene to the viewing screen. Vislink provides solutions for collecting live news, sports, entertainment, and news events for broadcast markets. The company offers real-time video intelligence solutions through customized transmission products to the surveillance and defense markets. We also provide professional and technical services through our technology experts. These experts have decades of practical experience and applied knowledge in the terrestrial microwave, satellite, fiber optic, and surveillance systems, delivering a broad range of solutions to our customers.

Live Broadcast:

Vislink offers a broad portfolio of products and services for the live news, sports, and entertainment industries. The solutions include video collection, transmission, management, and distribution via microwave, satellite, cellular, IP (Internet Protocol), MESH, and bonded cellular/5G networks. Furthermore, we provide solutions utilizing artificial intelligence technologies to automate news and sporting events coverage. The expertise and technology portfolio of Vislink, which has a dedicated Federal Sector Group focusedbeen in operation for more than 50 years, enable it to deliver integrated, seamless, end-to-end solutions. Vislink’s solutions are designed to provide high-quality content and maximize operational efficiency. The Company is committed to providing its clients with the best possible service and technology. Vislink’s solutions are tailored to meet the specific needs of each customer.

Several industry contributors acknowledge the value of Vislink’s live broadcast solutions. With over 200,000 systems installed worldwide, most outside wireless broadcast video content is transmitted using our equipment. It is our pleasure to work closely with the majority of broadcasters around the world. Many of the world’s most prestigious sporting and entertainment events are broadcast live using Vislink wireless cameras and ultra-compact encoders. Recent examples include international sporting contests, award shows, racing events, and cultural and music festivals. Our equipment is reliable and easy to use, making it the ideal choice for broadcast professionals. We pride ourselves on providing next-generation spectrum sharingquality products and excellent customer service. We are dedicated to helping our customers produce the best broadcast content possible.

Military And Government:

Using our expertise in live video delivery, Vislink has developed high-quality solutions to nationalmeet the operational and industry challenges of surveillance and defense scientific researchmarkets. The Vislink solutions are designed to facilitate interagency collaboration, utilizing an internationally recognized IP platform and other federal organizations.

IMT:

On January 29, 2016, xG completeda web-based video delivery interface. As a provider of comprehensive video, audio, and data communications solutions to the acquisition oflaw enforcement community and the net assets that constituted the business of IMT, pursuant to an Asset Purchase Agreement bypublic safety community, Vislink can provide airborne, unmanned systems, maritime, 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) modulationtactical mobile command posts. Vislink solutions are designed to provide reliable and secure communications in extreme conditions, with the low latencyability to adapt quickly to changing environments. They also offer a range of cost-effective products and high image clarity required for real-time live broadcasting video transmissions. IMT has extensive experienceservices tailored to customers’ needs.

24

Military And Government (continued):

These solutions may include:

●integrated suites of airborne downlink transmitters, receivers, and antenna systems
●data and video connectivity for airborne, marine, and ground assets
●UAV video distribution
●flexible support for COFDM and bonded cellular/5G Networks
●terrestrial point-to-point
●tactical mobile command
●IP-based, high-end encryption, full-duplex, real-time connectivity at extended operating ranges
●high-throughput air/marine/ground-to-anywhere uplink and downlink systems
●secure live streaming platforms for use in mobile and fixed assets
●personal portable products

Vislink public safety and surveillance solutions are deployed worldwide, including 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 aerialUnited States, Europe, and ground-based sources to fixedthe Middle East, at local, regional, and federal level operations, criminal investigation, crisis management, and mobile receiver locations.command posts. These solutions are designed to meet the needs of field operations, command centers, and central receiving centers. Short- and long-range solutions are available in established infrastructure areas and highly remote regions, making valuable video intelligence accessible regardless of location. Solutions can be tailored to meet specific customer requirements and are backed by knowledgeable and responsive support teams. Additionally, these solutions are flexible and scalable, so they can be adapted to meet changing business needs.

Satellite Communications:

Vislink’s satellite solutions are supported by over 30 years of technical expertise. These solutions ensure robust, secure communications while offering low transmission costs for organizations that require high-quality, reliable satellite transmission. In addition to providing turnkey solutions, we offer state-of-the-art coding, compression, engine modulation, and robust, lightweight antenna systems. To ensure the best possible customer experience, Vislink Satellite Solutions focus heavily on being the smallest, lightest, and most efficient in their category. Vislink lets customers choose from a wide range of satellite designs optimized for bit rate, size, weight, and total cost. Over 2,000 satellite systems have been deployed by governments, militaries, and broadcasters worldwide. Although we continue offering satellite solutions, we no longer invest in the engineering and product development necessary to remain competitive. Although we will continue to market and sell our current satellite products, we do not anticipate introducing any further upgrades or enhancements. Instead, we focus our resources on other technologies and solutions to better serve our customers. We are confident that our new strategies will provide the best solutions and products for our customers in the future.

Connected Edge Solutions:

The Mobile Viewpoint acquisition provides Vislink with the hardware and software solutions necessary for acquiring, producing, contributing, and delivering video over private or public networks. The use of connected edge solutions facilitates the video transport concept of ubiquitous IP networks and cloud-scale computing across 5G, WiFi6, Mesh, and COFDM-enabled networks. These solutions include:

●Live video encoding, stream adaptation, decoding, and production solutions
●Remote production workflows
●Wireless cameras
●AI-driven automated production
●Ability to contribute video over:
○ Bonded cellular (3G and 4G)
○ Satellite
○ Fiber
○ Emerging networks, including 5G and Starlink

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IMT provides

Results of Operations

Comparison for the three and six months ended June 30, 2023, and 2022

Revenues

In the three months ended June 30, 2023, the revenue was $5.0 million compared to $6.7 million for the three months ended June 30, 2022, representing a decrease of $1.7 million or 25%. In the six months ended June 30, 2023, the revenue was $12.2 million compared to $13.6 million for the six months ended June 30, 2022, representing a decrease of $1.4 million or 10%.

The Company discontinued several product lines in the third and service solutions marketed underfourth quarters of 2022 due to the well-established brand names Nucomm, RF Centrallack of performance expectations and IMT. Its video transmissionappeal to our customers. The Company altered its product marketing for its customer base in the last quarter of 2022 by providing a simplified approach to accessing products and solutions. We are now focusing on the products that have been successful and will invest in their further development. We are also exploring new avenues to expand our product portfolio. Additionally, we continue evaluating the market and customer feedback to ensure we make the best decisions for our long-term success.

Cost of Revenue and Operating Expenses

Cost of Components and Personnel

In the three months ended June 30, 2023, the cost of components and personnel was $2.4 million compared to $ 3.2 million for the three months ended June 30, 2022, representing a decrease of $0.8 million or 25%. In the six months ended June 30, 2023, the cost of components and personnel was $5.7 million compared to $6.6 million for the six months ended June 30, 2022, representing a decrease of $0.9 million or 14%.

Management’s decision to discontinue several product lines in the third and fourth quarters of 2022 can be attributed to reduced components and personnel costs. This cost-cutting measure will enable the Company to focus on the more profitable product lines and increase the efficiency and productivity of its operations. The move will also help the Company remain competitive and position itself for future growth.

General and Administrative Expenses

General and administrative expenses are costs incurred during the day-to-day operation of the business, including salaries, benefits, stock-based compensation, payroll taxes, trade shows, marketing programs, promotional materials, professional services, facility upkeep, general liability insurance, travel, and other operating expenses associated with an established public entity.

In the three months ended June 30, 2023, the general and administrative expenses were $4.7 million compared to $4.4 million for the three months ended June 30, 2022, representing an increase of $0.3 million or 7%. In the six months ended June 30, 2023, the general and administrative expenses were $9.7 million compared to $9.3 million for the six months ended June 30, 2022, representing an increase of $0.4 million or 4%.

The three-month increase of $0.3 million is predominantly due to warranty costs, salaries, and benefits of $0.2 million each and multiple de minimus expenses of $0.1 million each. The decrease was primarily address three major market areas: broadcasting, sportsattributed to reductions attributable to directors’ fees, computer expenses, and travel and entertainment costs of $0.2 million each.

The six-month increase of $0.4 million is primarily attributable to $0.3 million in stock-based compensation, $0.2 million each for dues and surveillance (for militarysubscriptions, rent and government).utilities, legal fees, and multiple de minimus expenses of $0.1 million each. The increase was offset by decreases of $0.2 million each for insurance and directors’ fees. In addition, there were multiple de minimus expenses of $0.1 million each.

Research and Development Expenses

Research and development expenses are primarily associated with salaries and benefits, including payroll taxes, prototypes, facilities, and travel expenses.

In the three months ended June 30, 2023, research and development expenses were $0.9 million compared to $1.2 million for the three months ended June 30, 2022, representing a decrease of $0.3 million or 25%. In the six months ended June 30, 2023, research and development expenses were $1.7 million compared to $2.3 million for the six months ended June 30, 2022, representing a decrease of $0.6 million or 26%.

The broadcasting market consiststhree-month decrease 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$0.3 million is recognized as a premium brand of digital broadcast microwave video systems. 

The sports and entertainment market consists of key segments that include sports production, sports venue entertainment systems, movie director video assist, 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 the government/surveillance market include recognizable state police forces, sheriff’s departments, fire departments, first responders, the Department of Justice and the Department of Home Land 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.

Vislink:

xG originally announced the acquisition of Vislink on October 20, 2016 in a $16 million binding asset purchase agreement. On February 2, 2017, xG completed the acquisition and assumed full legal ownership of Vislink.

Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video from the fieldprimarily attributable to the pointreduction of usage. Vislink designs$ 0.2 million in salaries and manufactures products encompassing microwave radio components, satellite communication, cellularbenefits and wireless camera systems,$0.1 million in consulting. The six-month decline of $0.6 million is mainly attributable to $0.3 in research costs, $0.2 million in salaries and associated amplifier items.benefits, and $0.1 million in consulting.

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, 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.

While our intent is to merge Vislink’s operations with those of IMT, the Vislink brand and its legacy brands, including Gigawave, Link, Advent and MRC, will be preserved. IMT has assumed all the Vislink product warranties and will continue to support all the Vislink and IMT product offerings. Vislink’s business in the Americas will become part of IMT, and their business in the rest of the world will be handled by Vislink’s existing U.K. operation. IMT is maintaining all the existing physical facilities around the world, including offices in Colchester in the U.K., Billerica (Massachusetts), Anaheim (California), Singapore, Dubai, and IMT’s newest factory in Hackettstown (New Jersey).

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xMax:

Amortization and Depreciation

xMax is a secure, rapid-deploy mobile broadband system that delivers mission-assured wireless connectivity in demanding operating environments. xMax was specifically designed to serve as an expeditionary and critical communications network for use in unpredictable scenarios and during fluid situations. We believe xMax represents a compelling solution for disaster response, emergency communications, and defense applications, among other sectors. xMax has already been deployed at U.S. Army bases and by the U.S. State Department in Mexico.

The equipment that we develop, manufacture and market under the xMax brand includes a suite of products and services that includes access points, fixed and mobile dual-band WiFi hotspots, mobile switching centers, as well as network management and deployment tools. These products embody our broad portfolio of innovative intellectual property including spectrum sharing, interference mitigation, multiple-input multiple-output (MIMO) and cognitive and software defined radio (SDR). xMax utilizes an end-to-end Internet Protocol (IP) architecture that allows it to serve as a turnkey network system ranging from a last-mile solution to a full network backbone.

xG Federal Sector Group:

The xG Federal Sector Group leverages xG’s extensive portfolio of patented RF communications technologies to engage in collaborative research and development projects.

Plan of Operations

We are executing on our sales and marketing strategy, through both direct sales to end-customers and indirect sales to channel network partners, and we have entered into a number of equipment purchase, reseller and teaming agreements as a result. These customer engagements span our target markets in rural telecommunications and defense.

Results of Operations

Comparison forIn the three and nine months ended SeptemberJune 30, 20172023, amortization and 2016

Revenues

Revenues for the three and nine months ended September 30, 2017depreciation expenses were $10.2$0.3 million and $33.7 million, respectively, compared to $1.9$0.5 million and $4.5 million for the three and nine months ended September 30, 2016, representing an increase of $8.3 million, or 437%, and $29.2 million, or 649%, respectively. The increases can be attributed to the acquisition of Vislink during the first quarter of 2017.

Cost of Revenue and Operating Expenses

Cost of Components and Personnel

Cost of Components for the three and nine months ended September 30, 2017 were $5.1 million and $20.3 million, respectively, compared to $1.0 million and $2.2 million for the three and nine months ended September 30, 2016, representing an increase of $4.1 million, or 410%, and $18.1 million, or 823%, respectively. The increases can be attributed to the acquisition of Vislink during the first quarter of 2017. Gross margins were lower than normal due to the Inventory Step-Up associated with the acquisition of Vislink being included in cost of components for the three months ended SeptemberJune 30, 2017.2022, representing a decrease of $0.2 million or 40%. In the six months ended June 30, 2023, amortization and depreciation expenses were $0.6 million compared to $0.9 million for the six months ended June 30, 2022, representing a decrease of $0.3 million or 33%.

We experienced a significantA decrease in the net book value of intangible assets is attributed to the decreased amortization of intangible asset costs.

Other

Dividend and Interest Income

In the three months ended June 30, 2023, dividend and interest income was $0.4 million, compared to $0.0 million for the three months ended June 30, 2022, representing an increase in revenueof $0.4 million or 100%. In the six months ended June 30, 2023, dividend and interest income were $0.6 million compared to $0.0 million for the related costs in fiscal year 2017six months ended June 30, 2022, representing an increase of $0.6 million or 100%. The increase is due to the acquisitionCompany’s investment in government-backed bonds held to maturity and money market funds.

Net Loss

In the three months ended June 30, 2023, the Company had a net loss of Vislink. We also experienced lower gross margins than normal$3.1 million compared to a net loss of $2.6 million in the three months ended June 30, 2022, or an increase in net loss of $0.6 million or 23%. The Company’s net loss for the six months ending June 30, 2023, was $5.0 million, compared to $5.4 million for the six months ending June 30, 2022, or a decrease of $0.4 million or 7%.

The increase of the net loss of $0.6 million for the three months ended June 30, 2023, was primarily the result of a decrease in revenue of $1.8 million, as well as an increase in general and administrative expenses of $0.3 million, which was offset by a decline in component and personnel costs of $0.8 million, a reduction in research and development expenses of $0.3 million, and an increase in interest and dividend income of $0.3 million.

The decrease in the net loss of $0.4 million was primarily due to a reduction of revenue of $1.4 million, an increase in general and administrative expenses of $0.4 million, offset by a decrease in component costs of $0.9 million, a reduction in research and development expenses of $0.6 million, and an increase in interest income and dividend income of $0.6 million.

Liquidity and Capital Resources

For the Inventory Step-Up associatedsix months ended June 30, 2023, the Company incurred an approximate loss of $5.7 million from operations and used $3.2 million of cash for operational purposes. On June 30, 2023, the Company had $35.6 million in working capital, $304.9 million in accumulated deficits, and $11.0 million in cash.

During the first quarter of 2023, the Company invested approximately $10.8 million of its cash reserves in Federal bonds and $11.3 million in Federally insured money market mutual funds, primarily to increase investment income. The Company’s investments in Federal bonds and money market mutual funds are intended to provide a steady source of income and liquidity. The Company believes the investment strategy carefully balances risk and return while protecting capital.

The Company’s liquidity requirements may be affected by a variety of factors. These factors include inflation, foreign exchange fluctuations, market conditions, strategic acquisitions, market strategy, research and development activities, regulatory matters, and product and technology innovations. The Company believes it will have sufficient funds to continue operations for at least twelve months from the filing date of these unaudited condensed consolidated financial statements.

Critical Accounting Policies

As of the date of the filing of this quarterly report, we believe there have been no material changes to our critical accounting policies during the three months ended June 30, 2023, compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the acquisitionSEC on March 31, 2023. The location of Vislink beingadditional information about these critical accounting policies is in the “Management’s Discussion & Analysis of Financial Condition and Results of Operations” section included in cost of componentsour Annual Report on Form 10-K for the fiscal year ending December 31, 2017.2022.

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General

Cash Flows

The following table sets forth the significant components of our cash flow data statements for the periods presented.

For the Six Months Ended

(In Thousands)

  June 30, 
  2023  2022 
Net cash used in operating activities $(3,194) $(8,238)
Net cash used in investing activities  (11,184)  (298)
Net cash used in financing activities  (213)  (458)
Effect of exchange rate changes on cash  (63)  (358)
Net decrease in cash $(14,654) $(9,352)

Operating Activities

Net cash used in operating activities of approximately $3.2 million during the six months ended June 30, 2023, was principally attributable to a net loss of $4.8 million, $1.3 million of stock-based compensation, $0.6 million of depreciation and Administrative Expenses

General and administrative expenses are the expensesamortization, an increase in $1.2 million of operating the business on a daily basis. This includes salary and benefitinventory, $0.7 million of accounts payable, $0.6 million of prepaid expenses and payroll taxes, as well as the costs of trade shows, marketing programs, promotional materials, professional services, facilities, general liability insurance, and travel. For the three and nine months ended September 30, 2017, the Company incurred aggregate expense of $6.4 million and $19.3 million, respectively, compared to $2.3 million and $6.7 million for the three and nine months ended September 30, 2016, representing an increase of $4.1 million, or 178%, for the three months ended September 30, 2017 and $12.6 million, or 188%, for the nine months ended September 30, 2017.

The three-month increase of $4.1 million is due to the inclusion of $3.6other current assets, offset by $0.4 million of general and administrative expenses as a result of the Vislink acquisition on February 2, 2017. The other increases during the three months were $0.4 million due to stock based compensation associated with the expensing of stock options; $0.3 million as the fair market value of the commitment shares issued to Lincoln Park as consideration for entering into the Lincoln Park Purchase Agreement; and $0.1 million in consulting expenses. The increases were offset by a decrease of $0.3 million in consulting fees associated with the Company’s listing on the NASDAQ Capital Market.

The nine-month increase of $12.6 million is due to the inclusion of $9.1 million of general and administrative expenses as a result of the Vislink acquisition on February 2, 2017. The Company also incurred a one-time fee of $2.5 million to MBTH in fees related to the Vislink acquisition and a one-time fee of $0.1 million for the acquisition of IMT. Other increases during the nine months were $0.6 million due to in stock based compensation associated with the expensing of stock options; and $0.3 million as the fair market value of the commitment shares issued to Lincoln Park as consideration for entering into the Lincoln Park Purchase Agreement.

We expect general and administrative costs to increase going forward due to the acquisition of Vislink and IMT and the operations of such companies being included for a full year in the Company’s financial statements.

Research and Development Expenses

Research and development expenses consist primarily of salaries, benefit expenses and payroll taxes, as well as costs for prototypes, facilities and travel. For the three and nine months ended September 30, 2017, the Company incurred aggregate expenses of $2.8 million and $7.1 million, respectively, compared to $1.4 million and $4.6 million, respectively, for the three and nine months ended September 30, 2016, representing an increase of $1.4 million, or 100%, for the three months ended September 30, 2017 and $2.5 million, or 54%, for the nine months ended September 30, 2017.

The three-month increase of $1.4 million is due to the inclusion of $1.1 million of research and development expenses as a result of the acquisition of Vislink on February 2, 2017. The other increase during the three months was $0.4 million due to in stock based compensation associated with the expensing of stock options. The increases were partially offset by a decrease of $0.1 million with regards to payroll and insurance due to a reduction in legacy personnel.

The nine-month increase of $2.5 million is due to the inclusion of $2.7 million of research and development expenses as a result of the acquisition of Vislink on February 2, 2017. The other increase during the nine months was $0.6 million due to in stock based compensation associated with the expensing of stock options. The increases were partially offset bybad debt recovery, decreases of $0.3 million with regardof accounts receivable and operating lease liabilities each.

Net cash used in operating activities of approximately $8.2 million during the six months ended June 30, 2022, was principally attributable to payroll and $0.4an increase in a net loss of $5.3 million, $3.9 million in insurance due toinventory, $1.0 million in stock-based compensation, a reductiondecrease in legacy personnel.$0.6 million in deferred revenue and customer deposits, $1.1 million in prepaid expenses and other current assets, and $1.7 million of accrued expenses and interest expense.

We expect researchInvesting Activities

Net cash used by investing activities for the six months ended June 30, 2023, and development costs to increase going forward due2022 were $11.2 million and $0.3 million, respectively, and principally related to the acquisitionCompany’s investment in government-backed securities and money market funds and capital expenditures for furniture and computer equipment.

Financing Activities

Net cash used in financing activities of Vislink and IMT andapproximately $0.2 million during the operations of such companies being included for a full year in the Company’s financial statements.

Inventory Valuation Adjustments

Inventory valuation adjustments consist primarily of items that are written off due to obsolescence or reserved for slow moving or excess inventory. Inventory valuation adjustments for the three and ninesix months ended SeptemberJune 30, 2017 were $0.32023, was principally attributable to principal payments made towards D & O policy premiums.

Net cash used in financing activities of approximately $0.5 million and $0.4 million, respectively, compared to $0.1 million and $0.2 million forduring the three and ninesix months ended SeptemberJune 30, 2016.2022, was principally attributable to principal payments made towards D & O policy premiums.

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Amortization and Depreciation

Amortization and depreciation expenses for the three and nine months ended September 30, 2017 were $1.1 and $3.3 million, respectively, compared to $1.3 million and $4.1 million, respectively, for the three and nine months ended September 30, 2016 representing a decrease of $0.2 million, or 15%, in the three months ended September 30, 2017 and a decrease of $0.8 million, or 20%, in the nine months ended September 30, 2017. The decreases are due to less amortization of intangible assets as the Company took further impairment charges in the fourth quarter of 2016 leaving a smaller balance to amortize than for the comparative period in 2016.

Other

The changes in fair value of derivative liabilities for the three and nine months ended September 30, 2017 was $0.01 million and $(0.2) million, respectively. This is due to the changes in our stock price subsequent to these warrant issuances that resulted in an unrealized loss in the fair value of the derivative liabilities. 

The gain on bargain purchase for the three and nine months ended September 30, 2017 was $0.0 million and $15.5 million, respectively, compared to $0.0 million and $2.7 million for the three and nine months ended September 30, 2016. The nine month gain on bargain purchase of $15.5 million is due to the Company’s acquisition of Vislink on February 2, 2017 compared to the gain on bargain purchase of $2.7 million which was due to the Company acquiring IMT on January 29, 2016. The excess of the aggregate fair value of the net tangible assets and identified intangible assets over the consideration paid has been treated as a gain on bargain purchase in accordance with ASC 805.

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 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:

·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 Brexit 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.

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·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 Brexit, 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.

The gain on debt and payables extinguishment for the three and nine months ended September 30, 2017 was $0.01 million and $4.0 million, respectively. Of the $4.0 million, $2.9 million was a result of the Company coming to an agreement with the Sellers of Vislink, whereby the Company paid $2 million in cash and the Sellers extinguished the remaining $2.9 million principal amount owed. The $1.1 million was the result of receiving a credit for inventory that a customer consumed prior to the acquisition of Vislink, which the Company is now receiving a credit against outstanding invoices owed to that customer.

Other expense for the three and nine months ended September 30, 2017 was $0.00 million and $0.25 million, respectively, compared to $0.9 million and $1.0 million, respectively, for the three and nine months ended September 30, 2016. The $0.25 million represents the recording of a payment to the Sellers of Vislink, whereby if the Company received a payment on the sale to a specific customer, the Company would owe the Sellers 25% of such payment.

Interest expense for the three and nine months ended September 30, 2017 was $0.05 million and $0.6 million, respectively, compared to $0.1 million and $0.8 million, respectively, for the three and nine months ended September 30, 2016. The decreases were primarily due to the prior period recording of the 35% prepayment penalty recorded as interest on the conversion of the 8% Convertible Notes issued in June 2015 and July 2015 (the “8% Convertible Notes”) into the February 2016 financing; interest on the 5% Convertible Notes issued in January 2016 and 8% Convertible Notes; and interest on promissory notes with IMT and our Chief Executive Officer, George Schmitt.

Net Income (Loss)

For the three and nine months ended September 30, 2017, the Company had a net loss of $5.5 million and a net gain of $1.7 million, respectively, compared to a net loss of $3.1 million and $11.8 million for the three and nine months ended September 30, 2016, which is a decrease of $2.4 million and an increase of $13.5 million in net gain for the three and nine months ended September 30, 2017, respectively.

The increase in net gain is due mainly to the gain on bargain purchase associated with the acquisition of Vislink that closed on February 2, 2017.

Liquidity and Capital Resources

As of September 30, 2017, the Company had working capital of approximately $18.8 million, including $4.7 million of cash and cash equivalents. The Company incurred net income of $1.7 million for the nine months ended September 30, 2017.

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Cash Flows

The following table sets forth the major components of our statements of cash flows data for the periods presented.

For the Nine Month Periods Ended

(In Thousands)

  September 30,
2017		  September 30,
2016		 
Cash flows used in Operating Activities $(2,550) $(6,480)
Cash flows used in Investing Activities $(6,917) $(35)
Cash flows provided by Financing Activities $5,057  $7,979 
Cash at end of period $4,713  $1,832 

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2017 totaled $2.6 million as compared to net cash used in operations of $6.5 million for the nine months ended September 30, 2016. Of the $2.6 million from operations in the nine months ended September 30, 2017, approximately $15.5 million was related to the gain on bargain purchase, $4.0 million related to the extinguishment of debt, $1.9 million was related to the increase of our inventory, $1.1 million was related to the increase in accounts receivable, $2.0 million was related to the increase in accounts payable, $1.1 million was related to the increase in accrued expenses and interest expense and the remaining balance consisted principally of the net loss from operations. Of the $6.5 million used in the nine months ended September 30, 2017, approximately $2.7 million was related to the gain on bargain purchase, $0.9 million was related to the increase of our inventory, $0.4 million was related to the increase in accounts payable, $0.1 million was related to the increase in accrued expenses and interest expense and the remaining balance consisted principally of the net loss from operations.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2017 was $6.9 million as compared to $0.04 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the Company paid $6.5 million in cash consideration in connection with the acquisition of Vislink. Cash paid for the IMT acquisition was $0.2 million in the nine months ended September 30, 2016.

Financing Activities

Our net cash provided by financing activities for the nine months ended September 30, 2017 was $5.1 million as compared to cash provided by financing activities of $8.0 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, there were net proceeds from the issuance of common stock in February 2017, August 2017 and the exercise of warrants totaling $8.0 million; the Company repaid $2.0 million of the Vislink Notes; and the Company repaid $0.8 million of convertible notes. During the nine months ended September 30, 2016, there were net proceeds from the issuance of Series B Preferred Stock in February 2016 and the issuance of common stock in May and July 2016 totaling $8.0 million; $1.0 million from short-term convertible notes; and $0.5 million from the exercise of warrants.

Nasdaq Compliance

On January 9, 2017, the Company received a letter from the staff of The Nasdaq Stock Market LLC (‘‘Nasdaq’’) stating that the Nasdaq staff determined that the Company regained compliance with the Nasdaq Capital Market minimum bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2).

Financing Events

August 2017 Financing

On August 18, 2017, the Company closed a financing for 1,560,978 shares of common stock and warrants to purchase 780,489 shares of common stock (the “August 2017 Warrants”).  The Company received gross proceeds of $3,200,000 from the offering, before deducting placement agent fees and other offering expenses payable by the Company.  Aegis Capital Corp. acted as the sole placement agent for the offering.   The common stock was sold in a registered direct offering by means of a prospectus supplement to our then-existing shelf registration statement, while the August 2017 Warrants were sold privately to the same investors by means of an exemption from registration.  The August 2017 Warrants are exercisable immediately on the date of issuance at an exercise price of $2.50 per share and will expire five (5) years after the initial date of issuance.

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Lincoln Park Purchase Agreement

On May 19, 2017, the Company entered into a purchase agreement (the “Lincoln Park Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“Lincoln Park”). Under the terms and subject to the conditions of the Lincoln Park Purchase Agreement, the Company has the right to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15,000,000 in shares of common stock, subject to certain limitations, from time to time over the 30-month period commencing on the date that a registration statement covering the resale of shares of common stock issuable under the Lincoln Park Purchase Agreement is declared effective by the SEC and a final prospectus in connection therewith is filed. Pursuant to the Registration Rights Agreement, the Company agreed to file such registration statement with the SEC within sixty (60) business days of the execution of the Lincoln Park Purchase Agreement.

Pursuant to the Lincoln Park Purchase Agreement, the Company may, at its sole discretion and subject to certain conditions, direct Lincoln Park to purchase up to 125,000 shares of common stock on any business day (such purchases, “Regular Purchases”), provided that at least one (1) business day has passed since the most recent Regular Purchase was completed, and in no event shall the amount of a single Regular Purchase exceed $1,000,000. The purchase price of Regular Purchases will be based on the prevailing market prices of the common stock, which shall be equal to the lesser of the lowest sale price of the common stock during the purchase date and the average of the three (3) lowest closing sale prices of the Common Stock during the ten (10) business days prior to the purchase date. The Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or additional purchases if the closing sale price of the common stock is not below the threshold prices as set forth in the Lincoln Park Purchase Agreement. There is no upper limit on the price per share that Lincoln Park must pay for common stock under a Regular Purchase or an accelerated purchase.

In connection with its 2017 Annual Meeting of Stockholders held on June 15, 2017, the Company did not receive stockholder approval, as required pursuant to Nasdaq Marketplace Rule 5635(d), to issue shares of common stock under the Lincoln Park Purchase Agreement in an amount equal to 20% or more of the Company’s outstanding shares of common stock. As such, the Company will not be permitted to draw down the full $15,000,000 in shares of common stock under the Lincoln Park Purchase Agreement unless and until the Company receives such stockholder approval.

Under the Lincoln Park Purchase Agreement, the Company is required to issue to Lincoln Park 192,431 shares of common stock as commitment shares in consideration for entering into the Lincoln Park Purchase Agreement. The 192,431 shares of common stock were issued on September 11, 2017 with a fair market value of $302,000, which was included in general and administrative expenses for the three and nine months ended September 30, 2017.

As of September 30, 2017, the Company has not sold any shares of common stock under the Lincoln Park Purchase Agreement.

February 2017 Financing

On February 14, 2017, the Company completed a public underwritten offering of 1,750,000 shares of its common stock and warrants to purchase up to an aggregate of 1,312,500 shares of its common stock. The Company received $3,500,000 in gross proceeds from the offering, before deducting the associated underwriting discount and estimated offering expenses payable by the Company. Aegis Capital Corp. acted as sole book-running manager for the offering.

Our condensed consolidated financial statements are prepared assuming we 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. Previously, we disclosed management’s conclusion that substantial doubt existed as it related to our 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. We believe we will have sufficient cash flow to fund operations for the next twelve months.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not requiredJune 30, 2023, there have been no material changes to provide the information required by this Item.related to quantitative and qualitative disclosures about the market risk provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosureDisclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that material information required to be disclosed by us in our periodic reports filed under the Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, our management concluded that asthe effectiveness of September 30, 2017, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by usas of the end of the fiscal quarter ended June 30, 2023, as such term is defined in reports we file or submitRules 13a-15I and 15d-15I under the Exchange Act is recorded, processed, summarizedAct. In their assessment of the effectiveness of internal control over financial reporting as of June 30, 2023, management concluded that such control was ineffective and reported withinthat there were control deficiencies that constituted material weaknesses because (i) we currently do not employ the time periods specifiedappropriate number of accounting personnel to ensure (a) we maintain proper segregation of duties, (b) conduct a tolerable risk assessment, and (ii) we have not adequately documented a complete assessment of the effectiveness of the design and operation of our internal control over financial reporting. Considering these material weaknesses, we performed additional procedures and analyses as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles.

Management has engaged a third-party consultant to identify and document our internal control deficiencies and assess current controls and recommendations regarding remediation efforts to eliminate or mitigate the SEC’s rules and forms, and is accumulated and communicated to ourcontrol deficiencies.

Notwithstanding the material weakness as of June 30, 2023, management, including the Certifying Officers, believes that the condensed consolidated financial statements contained in this Annual Report filing fairly present, in all material respect, our Chief Executive Officerfinancial condition, results of operations, and Chiefcash flows for the fiscal period presented in conformity with GAAP.

Changes to Internal Control Over Financial Officer,Reporting

Although we have continued our remediation efforts in connection with identified material weaknesses, the material weakness, as appropriate to allow timely decisions regarding required disclosures. Specifically,discussed in our Annual Report on Form 10-K for the yearperiod ended December 31, 2016,2022, has not been fully remediated. As we identifiedcontinue to remediate the material weaknessesweakness in our internal control over financial reporting as a result of the lack of corporate accounting personnel necessarycontrols, we have made changes during our most recently completed fiscal quarter to maintain adequate segregation of duties, insufficient resources to hire additional accounting personnel with the requisite knowledge of U.S. GAAP, and not properly performing an effective risk assessment or monitoring of our internal controls, over financial reporting. Asincluding changes to enhance the supervisory review of September 30, 2017, we concluded that certain of these material weaknesses continued to exist.

In 2016our accounting procedures. Notwithstanding the continuing and 2017, the Company has made substantial progress to eliminate theun-remediated material weakness, as it relates to segregationmanagement, including the Certifying Officers, believes that the condensed consolidated financial statements contained in this Quarterly Report fairly present, in all material respects, our financial condition, results of duties throughoperations, and cash flows for the hiring of an SEC reporting consultant to support the Vice President of Finance, the acquisition of accounting personnelfiscal periods presented in the IMT acquisitionthis Quarterly Report in January 2016 and the Vislink acquisition in February 2017 and the recent hiring of additional accounting personnel who are able to assist in supporting the Company’s accounting department. With the addition of these added resources, the Company believes it has eliminated the material weakness as it relates to its segregation of duties. The Company is continuing to further remediate its remaining material weaknesses as its resources permit.conformity with GAAP.

Changes in Internal Controls

During the three months ended September 30, 2017, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting except as disclosed above.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings.Proceedings.

From time to time, we are a party to litigation and subject to claims incident toIn the ordinary course of business, we may become involved in various lawsuits and legal proceedings. We cannot predict the impact or outcome of litigation, if any, and we may experience a negative outcome from time to time that may harm our business. Future litigation may be necessaryWe are currently not a party to, defend ourselves and our customers by determiningproperties are not currently the scope, enforceability and validitysubject of third party proprietary rights or to establish our proprietary rights.

As of September 30, 2017, we do not have any material litigation matters pending.pending legal proceedings, which, individually or in the aggregate, would adversely affect our financial position or results of operations.

Item 1A.Risk Factors.

AsThe risks described in “Risk Factors” within our 2022 Annual Report and this Quarterly Report on Form 10-Q, including the risk factor outlined in this Item 1A below, could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. The Risk Factors section in the 2022 Annual Report, as updated in this Quarterly Report on Form 10-Q, remains current in all material respects. These risk factors do not identify all risks that we face. Our operations could also be affected by factors not presently known to us or that we currently consider immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a smaller reporting company, as definedreliable indicator of future performance, and historical trends should not be used to anticipate results or trends in Rule 12b-2future periods. Refer also to the other information outlined in this Form 10-Q, including the Forward-Looking Statements, MD&A, and Unaudited Condensed Consolidated Financial Statements sections.

Relocating a division from the United Kingdom (U.K.) to the United States (U.S.) can be complex and challenging. Some of the Exchange Act, wekey risks involved in our relocation process are not requiredas follows:

1. Economic Factors:

Relocating a division from the U.K. to provide the information required by this Item.U.S. entails significant economic risks including:

a) Currency Fluctuations: Changes in exchange rates between the British pound and the U.S. dollar can impact the financial stability of the relocated division. Fluctuations can affect costs, revenue, and profitability, potentially leading to financial losses.

b) Tax Implications: Differences in tax laws, regulations, and incentives between the U.K. and the U.S. may result in unexpected financial burdens, compliance requirements, or penalties.

2. Operational Factors:

Relocating a division involves various operational risks including:

a) Workforce Disruption: The relocation process may cause significant disruption to the existing workforce. Issues such as employee attrition, loss of key talent, and difficulties in hiring and training new staff can impact productivity and overall operational efficiency.

b) Supply Chain Disruptions: Relocating a division can disrupt established supply chains, leading to delays, increased costs, and potential customer dissatisfaction.

3. Legal and Regulatory Factors:

Relocating a division across international borders requires compliance with legal and regulatory frameworks. Key legal and regulatory risk factors include employment law matters. We will need to navigate the differences between U.K. and U.S. employment laws, including hiring, firing, and employee benefits regulations. Failure to comply with these laws can result in legal disputes, reputational damage, and financial liabilities.

Further, our inability to manage the relocation of our U.K. operations to the U.S. effectively may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees, any of which could have a material adverse effect on our business and financial performance.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In connection with the Lincoln Park Purchase Agreement, on September 11, 2017, the Company issued to Lincoln Park 192,431 shares of common stock as commitment shares (the “Commitment Shares”) in consideration for entering into the Lincoln Park Purchase Agreement.None.

On August 18, 2017, in addition to closing a registered direct offering of 1,560,978 shares of common stock for which the Company received gross proceeds of $3,200,000 before deducting placement agent fees and other offering expenses payable by the Company, the Company closed a concurrent private placement, for no additional consideration, of warrants to purchase 780,489 shares of common stock (the “August 2017 Warrants”). The August 2017 Warrants are exercisable immediately on the date of issuance at an exercise price of $2.50 per share and will expire five (5) years after the initial date of issuance.

The Commitment Shares and the August 2017 Warrants were, and the common stock issuable upon exercise of the August 2017 Warrants will be, offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D under the Securities Act. The Company made this determination based on the representations of the investors which included, in pertinent part, that each investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act and upon such further representations from each investor that (i) each investor is acquiring the securities for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (ii) each investor agrees not to sell or otherwise transfer the purchased shares of common stock unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) each investor has knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks of an investment in the Company, (iv) each investor had access to all of the Company’s documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which the Company possessed or was able to acquire without unreasonable effort and expense, and (v) each investor is able to bear the economic risk of an investment in the Company and can afford the complete loss of such investment. In addition, there was no general solicitation or advertising for the securities issued in reliance upon Regulation D under the Securities Act.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

There have been(a) Not applicable.

(b) Not applicable.

(c) Trading Plans

During the quarter that ended June 30, 2023, no material changes to the procedures by which security holders may recommend nominees to our Boarddirector or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Directors.Regulation S-K).

34

 

Item 6. ExhibitsExhibits.

Exhibit

Number

Description of Exhibit
31.131.1*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 2002.2002
31.231.2*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 2002.2002
32.132.1*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 2002.2002
32.232.2*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 2002.2002
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Schema
101.CALInline XBRL Taxonomy Calculation Linkbase
101.DEFInline XBRL Taxonomy Definition Linkbase
101.LABInline XBRL Taxonomy Label Linkbase
101.PREInline XBRL Taxonomy Presentation Linkbase
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

In accordance with SEC Release 33-8238, Exhibits 31.1, 31.2, 32.1 and 32.2 are being furnished and not filed.

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

xG TECHNOLOGY,VISLINK TECHNOLOGIES, INC.
Date: November 14, 2017August 11, 2023By:/s/ George SchmittCarleton Miller
George SchmittCarleton Miller
Chief Executive Officer and Chairman of the Board
(Duly Authorized Officer and Principal Executive Officer)
Date: November 14, 2017August 11, 2023By:/s/ Roger BrantonPaul Norridge
Roger G. BrantonPaul Norridge
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

 36

EXHIBIT INDEX

Exhibit
Number		Description
31.1Certification 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.
31.2Certification 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.
32.1Certification 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.
32.2Certification 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.INSXBRL Instance Document
101.SCHXBRL Taxonomy Schema
101.CALXBRL Taxonomy Calculation Linkbase
101.DEFXBRL Taxonomy Definition Linkbase
101.LABXBRL Taxonomy Label Linkbase
101.PREXBRL Taxonomy Presentation Linkbase

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

3732