VISL 10-K & 10-Q changes, risk factors and insider trading

We have incurred net losses since inception, including net losses of $9.1 million and $13.6 million for the years ended December 31, 2023, and 2022, respectively. As a result of ongoing losses, as of December 31, 2023, we had an accumulated deficit of $309.2 million, $8.5 million of cash, and $5.7 million of investments in governmental securities. We expect to continue to incur significant sales and marketing, product development, regulatory, and other expenses as we seek to expand existing relationships with our customers, obtain new customers, reach new markets, and develop new products or add new features to our existing products. Our net income (loss) may fluctuate significantly from fiscal period to period. We will need to generate significant additional revenues and/or cost-cutting to achieve and sustain profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period. Our failure to gain or maintain profitability could negatively impact the value of our common stock.

Our available cash balances, potential borrowing capacity, and anticipated cash flow from operations may need to be revised to satisfy our liquidity requirements, including because of lower demand for our products, whether as a result of the risks described in this Annual Report or otherwise. As such, we may seek to sell common or preferred equity or debt securities, other forms of third-party funding, or seek debt financing. Our current and future funding requirements will depend on many different factors, including:

Our business may be exposed to risks associated with public health crises, such as pandemics and epidemics. Widespread outbreaks of a pandemic, such as the COVID-19 pandemic, have created a significant global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant volatility in financial markets. A public health crisis or an outbreak of a pandemic in one or more of the geographic areas in which we operate could affect our ability to source product materials and components, labor, and otherwise to provide products and services to our customers and adversely affect our results of operations and financial condition.

The communications industry is highly competitive, rapidly evolving, and constantly changing. We expect that new competitors are likely to join existing competitors. Many of our competitors may be larger and have more excellent financial, technical, operational, marketing, and other resources and experience than we do. If a competitor expends significant resources, we may not compete successfully. Also, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide products. If our competitors were to offer better and more cost-effective products than our products, we might not be able to capture any significant market share.

Our products are inherently complex and may contain defects and errors that are only detectable when the products are in use. Because our products are used for personal and business purposes, such faults or errors could severely impact our end customers, damaging our reputation and customer relationships and exposing us to liability. Defects or impurities in our components, materials, or software, equipment failures, or other difficulties could adversely affect our customers’ ability to ship products on a timely basis and customer or licensee demand for our products. Any shipment delays or declines in demand could reduce our revenues and harm our ability to achieve or sustain desired levels of profitability. Our customers may also experience component or software failures or defects requiring significant product recalls, rework, and repairs not covered by warranty reserves.

While we attempt to offset increases in operating costs through various measures focused on increasing revenues, there is no assurance that we will do so. Therefore, operating expenses may rise faster than associated revenues, resulting in a material adverse impact on our cash flow and margins.

We are also impacted by inflationary increases in wages and benefits, whether driven by competition for talent or ordinary course pay increases and other rising costs. Increases in the inflation rate could also significantly impact our cost base. In all countries in which we operate, wage inflation, whether driven by competition for talent or ordinary course pay increases, may also increase our cost of providing services and reduce our profitability if we are not able to pass those costs on to our clients or charge premium prices when justified by market demand.

We sometimes rely on third-party components and technology to build and operate our products. Until full integration with IMT and VCS, we may rely on our contract manufacturers to obtain the parts, subassemblies, and products necessary to manufacture our products. Shortages in components we use in our products are possible, and our ability to predict such components’ availability is limited. While parts and supplies are generally available from various sources, our contract manufacturers currently depend on a single or limited number of suppliers for several of our products. If our suppliers of these components or technology were to enter into exclusive relationships with other providers of wireless networking equipment or were to discontinue providing such components and technology to us, and we could not replace them cost-effectively or at all, our ability to deliver our products would be impaired. Our contract manufacturers generally rely on purchase orders rather than long-term contracts with these suppliers.

Given the rapid pace of innovation and technological change within the wireless and broadband industries, our personnel, consultants, and contractors’ technical and creative skills and ability to develop, enhance, and market new products and upgrade existing products are critical to continued success. Our success and ability to compete effectively depend on the proprietary technology we have developed internally. We rely primarily on patent laws to protect our proprietary rights. As of December 31, 2023, in the United States, we have 11 patents granted, no patent applications pending, and no provisional applications pending. Internationally, we have two patents granted, no patent applications pending, and no Patent Cooperation Treaty (PCT) applications. There can be no assurance that patents are awaiting, that future patent applications will be issued, or that we will have the resources to protect any such issued patent from infringement if issued.

Further, we cannot patent critical technology for our business. To date, we have relied on copyright, trademark, and trade secret laws, as well as confidentiality procedures, non-compete and work-for-hire invention assignment agreements, and licensing arrangements with our employees, consultants, contractors, customers, and vendors, to establish and protect our rights to this technology and, to the best extent possible, control the access to and distribution of our technology, software, documentation, and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is challenging. We need to be confident that our steps will prevent the misappropriation of or prevent unauthorized third parties from obtaining or using the technology we rely on. Also, adequate protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in the future to enforce or protect our rights.

Competitors and others may infringe on our intellectual property rights or allege we have violated theirs. If we are found to infringe on others’ rights, we could be required to discontinue offering certain products or systems, pay damages, or purchase a license from its owner to use the intellectual property in question. Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may be unable to detect infringement or misappropriation of our proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property or defending our use of intellectual property, reducing our ability to fund product initiatives. These expenses could hurt our future cash flows and the results of operations. Litigation can also distract management from the day-to-day operations of the business.

Many companies have encountered substantial intellectual property infringement in countries where we sell, or intend to sell, products or have our products manufactured. Patent protection outside the United States is generally less comprehensive than in the United States. It may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement may not be available in those countries.

In particular, the legal regime relating to China’s intellectual property rights is limited, and it is often difficult to protect and enforce such rights. The regulatory scheme for implementing China’s intellectual property laws may not be as developed as other countries’ regulatory schemes. Any advancement of an intellectual property enforcement claim through China’s regulatory system may require extensive time, allowing intellectual property infringers to continue mostly unimpeded, to our commercial detriment in the Chinese and other export markets. Also, rules of evidence may be unclear, inconsistent, or difficult to comply with, making it difficult to prove infringement of our intellectual property rights. As a result, enforcement cases involving technology, such as copyright infringement of software code or unauthorized manufacture or sale of products containing patented inventions, may be difficult or impossible to sustain.

These factors may make it increasingly complicated for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products without our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting the pricing for our products, reducing our sales, and diluting our brand or product quality reputation.

The telecommunications industry is characterized by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets that may be created. Therefore, our success depends on adapting our products and systems, incorporating new technologies, and growing into markets that new technologies may design. If technologies are protected by others’ intellectual property rights, including our competitors, we may be prevented from introducing new products or expanding into new markets created by these technologies. If others’ intellectual property rights prevent us from using innovative technologies, our financial condition, operating results, or prospects may be harmed.

We may need to be made aware of filed patent applications and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology and cause us to pay substantial royalties, licensing fees, or damages. The defense of any lawsuit could divert management’s efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may (i) require us to stop selling products or using technology that contains the allegedly infringing intellectual property; (ii) need us to redesign those products that have the allegedly infringing intellectual property; (iii) require us to pay substantial damages to the party whose intellectual property rights we may be found to be infringing; (iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi) materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations as they become due; or (ix) lead to our bankruptcy or liquidation.

As our customer base increases, we expect to place orders based on customer demand forecasts with our contract manufacturers. Our projections will be based on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer relations, or we may incur additional costs to rush the manufacture and delivery of other products. If we underestimate customers’ demand, we may forego revenue opportunities, lose market share, and damage customer relationships. Conversely, if we overestimate customer demand, we may purchase more inventory than we can sell at any given time or at all. Also, we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including obsolete inventory. As a result of our failure to correctly estimate the demand for our products, we could have excess or obsolete inventory, resulting in a decline in our inventory value, which would increase our costs of revenues and reduce our liquidity. Our failure to accurately manage inventory relative to demand would adversely affect our operating results.

Military and Government (continued):

Ukraine/Russian Conflict

The Ukraine-Russia war increasingly affects economic and global financial markets and exacerbates ongoing economic challenges, including rising inflation and global supply-chain disruption. The degree to which entities are or will be mainly affected depends on the nature and duration of uncertain and unpredictable events, such as further military action, additional sanctions, and reactions to ongoing developments by global financial markets. Because of its broader impact on these macroeconomic conditions, many companies globally may need to consider the war’s effect on specific accounting and financial reporting matters.

We do not generate revenue from Russia or Ukraine or have a physical presence, employees, or contractors in these countries. The Russian government’s invasion of Ukraine and the resultant sanctions imposed by the U.S., EU, and other governments and international organizations—designed to inflict severe consequences on the Russian economy—are impacting business continuity, liquidity, and asset values in Ukraine and Russia. It is difficult to estimate the impact of the ongoing invasion on the global economy, including increased inflation and higher energy and transportation costs. As a result, the invasion of Ukraine could adversely impact our financial results. Although we do not presently foresee risks that may affect our Company’s liquidity, operating results, and financial reporting, we continue to monitor developments in Ukraine to assess material adverse effects on our business, financial condition, or results of operations.

Israel-Hamas Conflict

The conflict between Israel and Hamas affects regional stability and potentially influences global economic and financial markets. While our Company has no direct operations or revenue from the affected regions, the conflict’s implications, such as energy price fluctuations and supply chain disruptions, could indirectly impact our business.

The situation’s uncertainty, marked by potential military escalations and sanctions, poses risks to market conditions. We monitor these developments for indirect effects on our costs, operations, and financial health. We do not foresee material adverse impacts on our liquidity or financial results but remain alert to the conflict’s evolving nature and global economic implications.

Climate change is an important global issue that presents opportunities and challenges for us, our partners, and our communities. It matters to us and will likely be driven by changes in physical climate parameters, regulations, public policy, technology, and product demand.

The lack of empirical data surrounding the credit and other financial risks posed by climate change renders it impossible to predict how specifically climate change may impact our financial condition and results of operations; however, the physical effects of climate change may also directly affect us. The global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements to reduce global temperatures, such as reentering the Paris Climate Accords. Further, the U.S. Congress, state legislatures, and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.

Further, the effects of climate change may negatively impact regional and local economic activity, which could adversely affect our customers and the communities in which we operate. In addition, advocacy groups and the general public are growing concerned that greenhouse gas emissions and other human activities have caused or will cause significant changes in weather patterns and temperatures and the frequency and severity of natural disasters.

While we seek to mitigate the risks associated with climate change, we recognize inherent climate-related risks regardless of where we conduct our businesses. Any of our locations may be vulnerable to the adverse effects of climate change. Climate-related events can disrupt our business, including our customers, and cause us to experience higher attrition, losses, and additional costs to resume operations.

For the fiscal year ending December 31, 2023, revenue decreased to $27.5 million from $28.1 million in the prior year. This approximate 2% decrease is primarily due to market and operational influences, including shifting consumer preferences that led to diminished demand for specific products and global economic conditions that curtailed expenditures by our telecommunications customers, directly affecting the company’s revenue streams.

In 2023, our efforts concentrated on strengthening our key capabilities, focusing on the Military/Government (Mil/Gov) sector. Several operational changes and strategic integrations demonstrated our commitment to enhancing our product range and customer engagement methods. A significant move in this direction was relocating our UK manufacturing division from Colchester, UK, to the United States. We believe this move will help to boost our manufacturing efficiency, decrease operational expenses, and strengthen our position in the global marketplace.

In the fiscal year ending December 31, 2023, our cost of components and personnel decreased to $13.4 million from $15.2 million in the previous year, a reduction of $1.8 million or 12%. This reduction directly results from streamlining our product offerings by discontinuing several underperforming product lines.

The relocation of our Colchester, UK manufacturing division to the United States is also expected to decrease operational expenses by centralizing manufacturing operations within the United States.

The combined impact of these strategic decisions—streamlining product lines and relocating manufacturing operations—demonstrates our commitment to operational excellence and financial prudence. These measures are expected to contribute to a leaner cost structure and position us to capitalize on more profitable opportunities, thereby enhancing shareholder value in the long term.

In the fiscal year ending December 31, 2023, inventory valuation adjustments amounted to $0.5 million, a substantial decrease from $2.9 million in the prior year. This 83% was due to reduction initiatives to streamline our product portfolio and enhance operational efficiencies.

In the fiscal year ending on December 31, 2023, our general and administrative expenses increased to $19.4 million from $18.2 million in the prior year. This escalation of $1.2 million, equivalent to a 7% rise, reflects the Company’s strategic initiatives to promote future growth and expand its operational capacity. The increase includes a $0.4 million rise in rent and utilities, reflecting our expansion into more efficient and strategically located facilities to support our operations.

The expense increase also reflects an additional $0.4 million in professional fees and consulting and $0.3 million each in enhancing external services and warranty provisions. The period also reflects an increase of $0.3 million in stock-based compensation and an increase of $0.2 million in allowances for bad debts.

Offsetting these increases, we spent $0.4 million less on freight and postage and $0.2 million less on advertising, salaries, and benefits. These reductions were attributable to our ongoing efforts to realign our marketing strategies and optimize logistics and distribution channels to achieve greater operational efficiency and effectiveness.

For the fiscal year ending December 31, 2023, we reported research and development expenses of $3.5 million, a decrease from $4.1 million in the previous year. This reduction of $0.6 million, or 15%, primarily reflects a realignment of our research and development investments towards more targeted and potentially high-impact projects. The decrease includes a $0.3 million in compensation expenses due to lower staffing. These results include a $0.3 million decrease in miscellaneous research and consulting fees.

This report includes forward-looking statements that, although based on assumptions that the Company considers reasonable, are subject to risks and uncertainties, which could cause actual events or conditions to differ materially from those currently anticipated, expressed, or implied by such forward-looking statements. You should read this report and the documents the Company references in this report and have filed as exhibits to this report entirely and understand that our actual future results may materially differ from what the Company expects. You should also review the factors and risks the Company describes in reports the Company will file or submit from time to time with the SEC after this report’s date. The Company qualifies all of our forward-looking statements with these cautionary statements.

Outlook:

Vislink Technologies Inc. remains dedicated to navigating the complexities of the global geopolitical landscape and the evolving challenges of climate change. Our focus continues to be safeguarding operations, supporting customers, and delivering value to shareholders while upholding our commitment to corporate responsibility and environmental sustainability.

Vislink Technologies, Inc. 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 markets. We also provide 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.

The three-month increase of $1.1 million is predominantly due to $0.9 million in salaries and benefits, $0.3 million in commissions, and $0.2 million in computer expenses. The increase was offset by a decrease primarily attributed to $0.2 million each of taxes, licenses, and stock-based compensation.

The six-month increase of $1.4 million is primarily attributable to $1.0 million in salaries and benefits, $0.3 million in commissions, and $0.2 million in computer expenses, other external services, and director’s fees. The increase was offset by a decrease attributed to $0.6 million in stock-based compensation and $0.2 million in consulting fees.

Research and development expenses include salary and benefits, payroll taxes, prototype development, facility costs, and travel expenditures.

In the three months ending June 30, 2024, the Company had a net loss of $2.2 million compared to a net loss of $3.1 million in the three months ending June 30, 2023, or a decrease in a net loss of $0.8 million or 26%. The Company’s net loss for the six months ending June 30, 2024, was $3.4 million, compared to $4.9 million for the six months ending June 30, 2023, or a decrease in a net loss of $1.5 million or 31%.

Net cash used in operating activities of approximately $1.7 million during the six months ended June 30, 2024, was principally attributable to a net loss of $3.1 million; an increase in inventory of $1.0 million, accounts receivable of $.08 million, and operating lease liabilities of $0.3 million; and was principally offset by stock-based compensation and depreciation and amortization of $0.7 million each, inventory valuation adjustments of $0.4 million, an increase in accounts payable of $1.0 million, and deferred revenue and customer deposits of $0.8 million.