Vislink Technologies Inc

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Vislink Technologies, Inc., incorporated in Delaware in 2006, is a global technology business that collects, delivers, and manages high-quality, live video and associated data from the action scene to the viewing screen. We provide solutions for collecting live news, sports, entertainment, and news events for the broadcast, surveillance, and defense markets with real-time video intelligence solutions using various tailored transmission products. Our team also provides professional and technical services utilizing a staff of technology experts with decades of applied knowledge and real-world experience in terrestrial microwave, fiber optic, surveillance, and wireless communications systems, delivering a broad spectrum of customer solutions.

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements, along with the notes herein, are intended to be reviewed in conjunction with Vislink Technologies, Inc.’s audited consolidated financial statements and the accompanying notes as detailed in the 2023 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on April 3, 2024 (the “Annual Report on Form 10-K”). The condensed consolidated balance sheet, as of December 31, 2023, originates from these audited statements without complete footnote disclosures typically found in audited annual statements. These unaudited condensed consolidated financial statements have been prepared to include all necessary adjustments, solely of a routine recurring nature, deemed essential for a fair presentation of the Company’s financial standing as of September 30, 2024, along with our results of operations for the three and nine months ending on September 30 for both 2024 and 2023, and the cash flows for these periods. However, the results and position as of September 30, 2024, may not be indicative of our full-year 2024 financial condition and operating results.

Given the interim nature of this 10-Q report, the detail and scope of accounting policies outlined here are less comprehensive than those found in the Annual Report on Form 10-K. Investors are encouraged to refer to NOTE 3**—**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the audited consolidated financial statements within the Annual Report on Form 10-K.

Principles of Consolidation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America or (“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 SEC. The accompanying unaudited condensed consolidated financial statements include the Company’s accounts and wholly-owned subsidiaries. We have eliminated all intercompany accounts and transactions upon consolidating our subsidiaries.

Segment Reporting

In accordance with the Financial Accounting Standards Board’s (FASB) mandate, Vislink Technologies, Inc. adopted Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280), effective January 1, 2024. Initially issued by FASB in February 2023, this update revises the reporting requirements for operating segments of public entities to enhance the transparency and utility of segment reporting.

Prior to this date, as disclosed in our Annual Report on Form 10-K, we had not yet formally adopted ASU 2023-07, which became mandatory for public entities in reporting periods beginning after December 15, 2023. We have concluded that we operate as a single reporting segment, and due to this structure, we believe we are only required to report in a single segment by ASU 2023-07. Accordingly, we believe the adoption of ASU 2023-07 has not significantly impacted our financial statements.

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

Use of Estimates

Preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities in the unaudited condensed consolidated financial statements. 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. These estimates also affect the reported revenues and expenses during the reporting periods. Actual results could differ from estimates, and any such differences may be material to our financial statements.

Recently Issued Accounting Principles

Recent Accounting Pronouncements

On November 4, 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This amendment requires enhanced disclosures on expense disaggregation within the income statement. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company has not yet assessed the impact of this ASU on its financial statements.

Other recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 2 —LIQUIDITY AND FINANCIAL CONDITION

For the nine months ended September 30, 2024, the Company incurred an approximate $7.4 million loss from operations and $4.0 million of cash used in operating activities. As of September 30, 2024, the Company had $27.1 million in working capital, $315.5 million in accumulated deficits, and $3.2 million in cash and cash equivalents.

During the first quarter of 2024, the Company invested approximately $0.9 million of its cash reserves in federal bonds intended to be held to maturity. No additional investments were made during the second and third quarters of 2024. As of September 30, 2024, the Company held investments in federal bonds valued at $6.0 million, intended to be held to maturity, primarily seeking to generate investment income.

Various factors influence the Company’s liquidity needs, including economic conditions such as inflation and currency exchange rates, competitive dynamics within current and target markets, potential strategic acquisitions, and market strategy adjustments. Additionally, research and development activities, regulatory developments, and technological advancements could further impact liquidity requirements. Given these considerations, management believes that the Company has sufficient resources to continue operations for at least 12 months from the filing date of these financial statements.

Restructuring Initiatives:

On November 12, 2024, the Board approved a plan to restructure certain operations of the business. The Company has initiated a series of restructuring actions that include a reduction in workforce and the termination of the U.K. and Poway, California manufacturing operations, and the transfer of these manufacturing activities to Mount Olive, New Jersey. The initiatives aim to enhance the Company’s financial position by eliminating underperforming product lines, redundant manufacturing facilities, and associated headcount.

The Company expects associated one-time costs saving related to severance, lease termination, and other restructuring initiatives to total approximately $4.9 million. The majority of these savings will be realized in the fourth quarter of 2024 and the first quarter of 2025. The Company expects to realize additional expense savings of approximately $1.1 million throughout 2025. There is no assurance the Company will be able to achieve these objectives. The actual results may differ from these estimates.

NOTE 3 —LOSS PER SHARE

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

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

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

Amounts were converted from British Pounds to U.S. Dollars and Euros to British Pounds using the following exchange rates:

NOTE 5 —CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of nine months or less at the time of purchase to be cash equivalents. Cash equivalents consist of unrestricted funds invested in a money market mutual fund. The following table illustrates the Company’s cash and cash equivalents:

NOTE 6 —INVESTMENTS

The Company identified the following active debt security investment transactions:

NOTE 6 — INVESTMENTS (continued)

The Company’s investments held to maturity are as follows as of September 30, 2024:

The Company has determined the fair value of its investments held to maturity based on Level 2 input as of September 30, 2024:

The Company’s investments held to maturity are as follows as of September 30, 2024:

NOTE 7 —INTANGIBLE ASSETS

The Company continuously monitors operating results, events, and circumstances that may indicate potential impairment of intangible assets. Management concluded that no triggering events occurred during the nine months ending on September 30, 2024.

The following table illustrates finite intangible assets as of September 30, 2024:

The Company’s groups of intangible assets consist primarily of:

Proprietary Technology:

Generally, the Company amortizes proprietary technology over 3 to 5 years. Mobile Viewpoint (“MVP”) uses wireless multiplex transmitters and artificial intelligence 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 the 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. Integrated Microwave Technology (“IMT”), Vislink, MVP, and BMS assets acquisitions contributed to developing these intangible assets, including trade names, technology, and customer lists.

The Company has recognized net capitalized intangible costs as follows:

NOTE 7 — INTANGIBLE ASSETS (continued)

Trade Name, Technology, and Customer Relationships: (continued)

The Company has recognized the amortization of intangible assets as follows:

The weighted average remaining life of the amortization of the Company’s intangible assets is approximately 4.9 years as of September 30, 2024. The following table represents the estimated amortization expense for total intangible assets for the succeeding five years:

The Company continuously monitors intangible assets for potential impairments based on operating results, events, and circumstances. As of September 30, 2024, management identified no triggering events.

NOTE 8 —NOTES PAYABLE

The table below represents the Company’s notes payable as of September 30, 2024, and December 31, 2023:

NOTE 9 —LEASES

In addition to leasing office spaces, operational sites, and storage facilities, the Company also rents warehouse facilities internationally and within the country. As of September 30, 2024, these operating leases feature a variety of terms and conditions, with lease lengths ranging from one to four years. Certain leases contain clauses for rent increases and concessions, which result in higher rental payments during the final years of the lease term. These agreements are recognized using the straight-line method over the lease’s minimum duration.

NOTE 9 — LEASES (continued)

During those periods, there were no significant adjustments to the straight-line rental expenses. Most costs accounted for in each period were reflected in the cash spent on operating activities, mainly covering payments for the basic rent of offices and warehouses. Additionally, we can renew certain leases at various intervals, though we are not obligated to. Expenses associated with short-term leases, taxes, and variable service fees were minimal.

As of September 30, 2024, the Company reported Right-of-Use (ROU) assets totaling approximately $0.5 million on the balance sheet net of $1.9 million in accumulated amortization. In addition, the Company recognized operating lease liabilities of approximately $0.9 million, allocating $0.5 million as current and $0.4 million as non-current, as noted on the balance sheet. The weighted average lease term remaining as of September 30, 2024, was 1.8 years, with leases expiring between January 2025 and May 2027, and the weighted average discount rate was 9.4% as of September 30, 2024.

Poway, CA Lease Renewal and Classification Correction

On February 12, 2024, Vislink Poway, LLC signed a renewal agreement with CPI Apartment Fund 10 LLC for the premises at 13475 Danielson Street, Suite 100, 130, and 160, Poway, California. The renewal agreement was initially accounted for based on preliminary terms indicating a lease commencement on March 14, 2024, with an end date of January 31, 2026. Consequently, a Right-of-Use (ROU) asset of approximately $484,000 and a lease liability of approximately $473,000 were recognized in the first quarter of 2024.

The final signed lease agreement was obtained during the third quarter of 2024. It confirms a one-year lease term beginning on April 1, 2024, and ending on March 31, 2025. Since the finalized lease term is 12 months, it qualifies as a short-term lease under ASC 842, and no ROU asset or lease liability is required to be recorded.

The Company corrected this by removing the previously recognized ROU asset and lease liability. The Poway, California lease is now accurately accounted for as a short-term lease, with monthly payments of $22,926 expensed on a straight-line basis over the lease term.

Dubai Studio City, UAE Renewal

The Company renewed its lease for 646 square feet of administrative office space in Dubai Studio City, UAE, for approximately $1,333 monthly commencing on July 3, 2024, and terminating on July 2, 2025.

NOTE 9 — LEASES (continued)

Dubai Studio City, UAE Renewal(continued)

The following table illustrates operating lease data for the three and six months ending September 30, 2024, and 2023:

The following table illustrates the maturities of our operating lease liabilities as of September 30, 2024:

The following table outlines the locations and lease termination dates for the Company’s Right-of-Use Assets under operating leases for the years 2025 to 2027:

NOTE 10—STOCKHOLDERS’ EQUITY

Preferred stock

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

Upon the effective filing of the 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 the Company’s preferred stock. As of September 30, 2024, -0- shares are authorized, andno Series A Preferred Stock was issued or outstanding.

Common stock

Other common stock activity

During the nine months that ended September 30, 2024, the Company has:

Common stock warrants

As of September 30, 2024, warrants to purchase 1,534 shares of common stock expired. On September 30, 2024, warrants to purchase 454,546 shares of common stock were outstanding and exercisable; the weighted average exercise price of warrants outstanding is $65.00, with a weighted average remaining contractual life of 1.4 years. These outstanding warrants did not have an intrinsic value as of September 30, 2024.

NOTE 11 —STOCK-BASED COMPENSATION

Inducement Awards:

The Company grants time-vested and performance-based stock options under inducement awards, consistent with NASDAQ Listing Rule 5653(c)(4). These inducement awards, granted outside our existing equity compensation plans, are designed to reward employees for their commitment and performance toward achieving our strategic goals.

Time-based and Performance-based Inducement Stock Option Awards

The Company’s inducement stock option awards are generally granted with vesting terms based on time or performance-based criteria. Performance-based awards are tied to achieving specific financial metrics, aligning employee rewards with the Company’s success. The Company granted time-vested stock options and performance-based stock options to various employees in connection with their employment agreements. The ten-year, non-statutory time-vested, and performance-based option inducement awards were granted under the NASDAQ Listing Rule 5653(c)(4) outside of the Company’s existing equity compensation plans (all subject to continued employment).

NOTE 11 — STOCK-BASED COMPENSATION (continued)

Inducement Awards (continued):

Time-based and Performance-Based Inducement Restricted Stock Unit Awards

The Company’s inducement-restricted stock units (“RSUs”) are generally granted with vesting terms based on time or performance-based criteria. Performance-based RSUs are tied to achieving specific financial metrics, and aligning employee rewards with the Company’s success.

The Company granted awards under the amended plan for time-based RSUs to various employees subject to continued employment. The RSUs initially vest between 25% and 33% on their one-year anniversary dates and will vest between 24 and 36 equal monthly periods thereafter. Additionally, the Company granted awards under the amended plan for performance-based restricted stock units subject to performance vesting conditions and continued employment. The RSUs will vest in three equal tranches upon reaching performance conditions for each tranche.

2023 Omnibus Equity Incentive Plan

The Company received stockholder approval on August 23, 2023, to adopt the 2023 Omnibus Equity Incentive Plan (the “2023 Plan”), which will enable it to continue to grant equity-based compensation awards under a shareholder-approved plan to employees (including officers), non-employee consultants, non-employee directors, and affiliates. The 2023 Plan replaces the 2015 Incentive Compensation Plan, 2016 Incentive Compensation Plan, and 2017 Incentive Compensation Plan. The Company has ceased granting awards under the 2015 Incentive Compensation Plan, 2016 Incentive Compensation Plan, and 2017 Incentive Compensation Plan. The Company reserves 166,415 shares of its common stock for delivery under the 2023 Plan. The 2023 Plan rewards eligible participants for contributing to the Company’s success and encourages retaining and recruiting qualified personnel. The Company’s Board of Directors and Compensation Committee will administer the 2023 Plan.

The 2023 Plan generally grants awards without consideration other than prior and future service. The Company’s compensation committee may grant awards under the 2023 Plan either alone or in addition to, in tandem with, or as a substitute for any other award granted under the 2023 Plan or other Company plans. It is important to note, however, that if a SAR is granted in conjunction with an ISO, the grant date and term of the SAR and ISO must be the same, and the exercise price of the SAR cannot be lower than the exercise price of the ISO. A written award agreement between us and the grantee will outline the material terms of the award.

Summary of stock-based compensation for all equity award plans

The table below shows stock-based compensation expenses, included in general and administrative expenses, under the following plans.

NOTE 12 —COMMITMENTS AND CONTINGENCIES

Pension:

The Company may make a matching contribution to its employees’ 401(k) plan. Furthermore, Vislink operates a Group Personal Plan through its U.K. subsidiary, investing funds with Royal London. Employees of the Company in the United Kingdom are entitled to participate in the Company’s employee benefit plan, to which varying amounts are contributed according to their status. Additionally, the Company operates a stakeholder pension plan in the United Kingdom.

The table below represents the Company’s matching contributions as follows:

NOTE 13 —CONCENTRATIONS

Customer concentration risk

During the three months ended September 30, 2024, the Company had sales to two customers amounting to $1,310,000 (19%) and $892,000 (13%), each representing more than 10% of its consolidated sales. During the nine months ended September 30, 2024, no single customer sale represented more than 10% of the Company’s consolidated sales. For the three months ended September 30, 2023, one customer accounted for approximately $782,000, or 11%, of the Company’s consolidated sales. For the nine months ended September 30, 2023, no customer exceeded 10% of the Company’s consolidated sales.

As of September 30, 2024, four customers owed the Company approximately $1,235,000 (15%), $1,125,000 (14%), $1,011,000 (12%), and $981,000 (12%), each representing more than 10% of its consolidated net receivables. As of September 30, 2023, one customer owed the Company approximately $893,000, representing 12% of its consolidated net receivables.

Vendor concentration risk

During the three months ended September 30, 2024, two vendors accounted for more than 10% of the Company’s consolidated inventory purchases, with approximately $768,000 (20%) and $522,000 (14%), respectively. For the nine months ended September 30, 2024, two vendors exceeded 10% of the Company’s consolidated inventory purchases, with amounts of approximately of $2,560,000 (23%) and $1,263,000 (11%), respectively. For the three months ended September 30, 2023, two vendors accounted for more than 10% of the Company’s consolidated inventory purchases, with approximately $898,000 (26%) and $468,000 (13%). For the nine months ended September 30, 2023, two vendors accounted for more than 10% of the Company’s consolidated inventory purchases of approximately $1,458,000 (16%) and $1,055,000 (11%).

As of September 30, 2024, four vendors accounted for over 10% of the Company’s consolidated accounts payable, with balances of approximately $589,000 (18%), $351,000 (11%), $330,000 (10%), and $327,000 (10%), respectively. As of September 30, 2023, one vendor exceeded 10% of the Company’s consolidated accounts payable of approximately $378,000 (12%).

NOTE 14 –REVENUE

The Company has one operating segment, and the decision-making group is the senior executive management team. In the following table, the Company has disaggregated revenue by the Company’s primary geographical markets and revenue sources:

NOTE 15 —REBATES

The Company has been applying for tax rebates related to the research costs incurred by our U.K. subsidiary. During the nine months ended September 30, 2024, the Company recognized $378,000 in tax rebates as other income. For the same period in 2023, the recognized amount was $322,000.

While the Company plans to continue filing rebate forms for the 2024 fiscal year, it cannot guarantee that rebates will be available at a similar level or at all in future years.

**NOTE 16 —SUBSEQUENT EVENTS **

Under ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2024. It has determined that it does not have any other material subsequent events to disclose in these unaudited condensed consolidated financial statements.