UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 6, 2017 (February 2, 2017)

 

xG Technology, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 001-35988 20-585-6795
(State or other jurisdiction of incorporation) (Commission File No.) (IRS Employer Identification No.)

 

  240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236
  (Address of principal executive offices) (ZipCode)

 

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

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

   

Item 1.01 Entry into a Material Definitive Agreement.

 

The information set forth in Item 2.01 hereof is incorporated herein by reference.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

On February 2, 2017, xG Technology, Inc. (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 “ Transaction ”). The purchase price paid for the Transaction was an aggregate of $16 million consisting of (i) $6.5 million in cash consideration and (ii) promissory notes in the aggregate principal amount of $9.5 million (the “ Notes ”). In connection with the Notes, the Company entered into a Security Agreement, dated February 2, 2017, with each of the Sellers (the “ Security Agreements ”).

 

Notes

 

The Notes mature on March 20, 2017 (the “ Maturity Date ”). Interest on the Notes shall be payable in cash on the Maturity Date at a rate per annum equal to LIBOR plus 1.9%.

 

Security Agreements

 

Pursuant to the Security Agreements, as collateral security for the Company’s obligations under the Notes, the Company granted the Sellers a security interest in certain assets purchased from the Sellers in connection with the Transaction.

 

The foregoing descriptions of the terms of the Notes and the Security Agreements are qualified in their entirety by reference to the provisions of the documents filed as Exhibits 10.1 and 10.2, respectively, to this Current Report on Form 8-K (this “ Report ”), which are incorporated by reference herein.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 2.01 hereof is incorporated herein by reference.

 

Item 8.01 Other Events.

 

On February 2, 2017, the Company issued a press release announcing the closing of the Transaction, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements.

 

The (i) unaudited, consolidated financial statements for the nine months ended September 30, 2015 and 2016 and (ii) audited, consolidated financial statements for the years ended December 31, 2014 and 2015 of Vislink PLC are attached hereto as Exhibit 99.2 and incorporated by reference herein.

 

(b) Pro Forma Financial Information.

 

The (i) unaudited, pro forma condensed balance sheet as of September 30, 2016 and (ii) unaudited pro forma condensed statements of operations for the nine months ended September 30, 2016 and year ended December 31, 2015 of the Company are attached hereto as Exhibit 99.3 and incorporated by reference herein.

 

(d) Exhibits.

 

 

 

 

Exhibit No.   Description
Exhibit 10.1   Form of Promissory Note
     
Exhibit 10.2   Form of Security Agreement
     
Exhibit 23.1   Consent of Pricewaterhouse Coopers LLP
     
Exhibit 99.1   Press Release of xG Technology, Inc., dated February 2, 2017
     
Exhibit 99.2   Consolidated Financial Statements for Vislink PLC and its Subsidiaries
     
Exhibit 99.3   Pro Forma Financial Statements of the Company

 

 

 

 

SIGNATURES

 

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

 

Date: February 6, 2017   xG TECHNOLOGY, INC.
     
  By:    /s/ Roger Branton
    Name: Roger Branton
    Title: Chief Financial Officer

 

 

 

 

INDEX TO EXHIBITS

  

Exhibit No. Description
     
Exhibit 10.1   Form of Promissory Note
     
Exhibit 10.2   Form of Security Agreement
     
Exhibit 23.1   Consent of Pricewaterhouse Coopers LLP
     
Exhibit 99.1  

Press Release of xG Technology, Inc., dated February 2, 2017

     
Exhibit 99.2   Consolidated Financial Statements for Vislink PLC and its Subsidiaries
     
Exhibit 99.3   Pro Forma Financial Statements of the Company

 

 

 

 

Exhibit 10.1

 

PROMISSORY NOTE

 

$_______________ _____________ _____, 2017

 

FOR VALUE RECEIVED , the undersigned XG TECHNOLOGY, INC. (“ Borrower ”), a corporation organized under the laws of the State of Delaware having an address of 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236, hereby unconditionally promises to pay to ___________ , a _________company having an address at ________________(“ Lender ”), or order, pursuant to the wiring instructions set forth on Exhibit A , or such other address as Lender may designate, in lawful money of the United States of America and in immediately available funds the principal amount of _________on March _____, 2017 (or such earlier date on which all amounts outstanding hereunder shall have become due, whether as a result of acceleration or otherwise, the “ Maturity Date ”), or such lesser amount as may be outstanding on such date, together with interest from and after the date herein on the unpaid principal balance from time to time outstanding hereunder payable on the same day as principal is due hereunder, at a rate per annum equal to LIBOR plus 1.9%.

 

For purposes of this Note, “LIBOR” means the applicable Screen Rate or (if no Screen Rate is available) the rate quoted by leading banks in the London interbank market as of 11.00 am on the first day of the loan evidenced by this Note for US Dollars and a three month interest period (and if any such rate is below zero, LIBOR will be deemed to be zero). “Screen Rate” means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) for the relevant currency and period displayed on pages LIBOR01 or LIBOR02 of the Reuters screen (or any replacement Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Reuters. If such page or service ceases to be available, the Lender may specify another page or service displaying the relevant rate after consultation with the Borrower.

 

Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed and shall accrue on holidays and other non-business days.

 

Overdue principal and, to the extent permitted by law, overdue interest, fees, expenses, and other charges (whether at maturity or by acceleration, or otherwise) shall bear interest payable on demand and compounded daily at the rate per annum equal to four percent (4%) above the rate of interest otherwise due under this Note.

 

This Note is secured by the collateral described in the Security Agreement dated of even date herewith executed by the Borrower in favor of Lender, as may be amended, restated or otherwise modified from time to time (the “ Security Agreement ”). The proceeds of the loan evidenced by this Note are to be used by Borrower to purchase the collateral described in the Security Agreement for use in Borrower’s business and not for personal, family or household purposes of any individual guarantor of Borrower’s obligations under this Note. Neither this reference to the Security Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the undersigned maker of this Note to pay the principal of and interest on this Note, or any other amount owing hereunder, as herein provided.

 

All amounts received by Lender for application to Borrower’s obligations under this Note prior to the occurrence of an Event of Default (as defined below) will be applied first to fees, expenses and other amounts due hereunder, if any (excluding principal and interest); second, to accrued interest; and third to outstanding principal; after the occurrence of an Event of Default all such payments will be applied to Borrower’s obligations under this Note as Lender determines in its sole discretion.

 

Funds advanced hereunder may be prepaid without premium but may not be re-borrowed.

 

 

-2-

 

The occurrence of any of the following events or conditions shall constitute an “ Event of Default ” hereunder: (a) (i) default in the payment when due of any principal or interest under this Note; or (ii) any other default in the payment or performance of this Note or a default under the Security Agreement or of any other obligation by Borrower to Lender; (b) merger, consolidation, sale of all or substantially all of the assets of, or change in control of Borrower; or (c) Borrower generally not paying its debts as they become due; the dissolution, termination of existence or insolvency of Borrower; the appointment of a trustee, receiver, custodian, liquidator or other similar official for Borrower or any substantial part of its property, or the assignment for the benefit of creditors by Borrower, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against Borrower.

 

Immediately and automatically, upon the occurrence of an Event of Default described in clauses (b) or (c) above, and, upon the occurrence of any other Event of Default, or at any time thereafter while such Event of Default is continuing, at Lender’s option and upon Lender’s declaration, all obligations of Borrower to Lender shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrower, and Lender may exercise any and all rights it has under this Note, the Security Agreement, or at law or in equity, and proceed to protect and enforce Lender’s rights by any action at law, in equity or other appropriate proceeding. No delay or failure on the part of Lender to exercise any of Lender’s rights, powers or privileges hereunder, the Security Agreement, or under any of the other document executed in connection herewith, shall be deemed a waiver of any such rights, powers or privileges, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege, or be construed as an election of remedies. The rights and remedies of Lender hereunder are cumulative and not exclusive of any rights or remedies which Lender would otherwise have. No waiver of any right or any amendment hereto shall be effective unless in writing and signed by Lender nor shall a waiver on one occasion bar or waive the exercise of any such right on any future occasion.

 

This Note shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflicts of law rules. Borrower agrees that any suit for the enforcement of this Note may be brought in the courts of such state or any Federal Court sitting in such state and consents to the non-exclusive jurisdiction of each such court and to service of process in any such suit being made upon Borrower by mail at the address specified below. Borrower hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court.

 

If any provision of this Note shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Note and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

IN WITNESS WHEREOF, Borrower has by its duly authorized officer executed this Note as an instrument under seal as of the date first written above.

 

WITNESSED:   XG TECHNOLOGY, INC., a Delaware corporation
       
       
    By:  
    Name:   
Print Name   Title:  

 

 

 

  

EXHIBIT A

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.2

 

SECURITY AGREEMENT

 

XG TECHNOLOGY, INC. , a corporation organized under the laws of the State of Delaware having an address at 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236 (“ Debtor ”), hereby grants to ________, a corporation organized under the laws of ______________ having an address at ______________ (“ Secured Party ”), to secure the payment and performance of all obligations of Debtor to Secured Party under that certain Promissory Note dated _____________ _____, 2017 in the original stated principal amount of $_________ as may be amended, restated, replaced or otherwise supplemented or modified (the “ Note ”), and this Agreement, whether now existing or hereafter arising or acquired, together with all interest that accrues after the commencement of any case, proceeding or other action under any bankruptcy or other insolvency law, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such case, proceeding or other action (collectively, the “ Secured Obligations ”), a security interest in the following property (the “ Collateral ”) to the extent the Collateral was purchased by the Debtor pursuant to that certain agreement for sale and purchase of the business of the Sellers operating under the name Vislink Communication Systems dated as of December 16, 2016 among Debtor, Secured Party, Vislink PLC and Vislink International Limited, as affected by that certain Deed of Variation dated as of January 13, 2017 (as amended from time to time, the “ Purchase Agreement ”):

 

(a) all equipment, wherever located, including machinery, motor vehicles, furniture and fixtures and all software embedded in such equipment; (b) all inventory (whether held for sale or lease or to be furnished under contracts of service), raw materials, work in process, and materials used or consumed in the conduct of Debtor’s business, and all software embedded in such inventory, and all books, records, invoices or other documents which describe or evidence the same; (c) all accounts, contract rights, general intangibles, chattel paper, choses in action, instruments, documents (including all documents of title and warehouse receipts), supporting obligations and all rights to the payment of money, however evidenced or arising; and (d) all securities and all cash, stock or other dividends or distributions paid upon or made in respect of such securities in any form, all securities received in addition to or in exchange for such securities, and all subscription rights incident to such securities,

 

TOGETHER WITH all accessions, parts, accessories, attachments and appurtenances in any way used with, attached or related to, or installed in, or intended to be so used, attached, related or installed in, any equipment or inventory; all substitutions for, renewals of, improvements, replacements and additions to, and the products and proceeds of all the foregoing property and any insurance policies relating thereto.

 

Except as otherwise defined herein, terms defined in the Uniform Commercial Code, as in effect from time to time in The State of Delaware (the “ UCC ”), including but not limited to, “account,” “chattel paper,” “contract right,” “document,” “equipment,” “farm products,” “fixtures,” “general intangibles,” “instrument,” and “inventory,” shall have the meanings set forth therein. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9 of the UCC.

 

Debtor hereby represents, warrants, covenants and agrees that:

 

1.                  Absence of Liens .  Except for the security interest granted hereby, Debtor has good and marketable title to, and is, and will continue to be, the sole owner of, the Collateral free from all liens and encumbrances and will defend the same against the claims and demands of all persons. Debtor will not further pledge, mortgage or create, or suffer to exist, a security interest, lien or other encumbrance on or in the Collateral, and other than inventory sold in the ordinary course of Debtor’s business, will not sell, consign, license, lease or otherwise transfer the Collateral or any interest therein, without the prior written consent of Secured Party.

 

 

 

 

2.                  Change in Organizational Structure; Address; Inspection; Accounts; Further Assurances .

 

2.1              Change in Organizational Structure; Address; Inspection . Debtor will immediately notify Secured Party in writing of any change in its organizational structure or address from that shown in the introductory paragraph of this Agreement. Debtor shall at all reasonable times and from time to time allow Secured Party, by or through any of its officers, agents, attorneys or accountants, to inspect the Collateral, wherever located, and to examine, inspect or make extracts from Debtor’s books and records relating to the Collateral.

 

2.2              Accounts .

 

2.2.1        Debtor shall: (a) immediately notify Secured Party in writing in the event that any of the following occurs: (i) any account is or becomes entitled or eligible for discount for prompt payment; (ii) any account debtor has or may have any defense to payment of, or right of setoff, counterclaim, or recoupment against, any account; (iii) any account represents an amount which is disputed by the account debtor or the payment of which is in any way contingent or conditional; or (iv) the desirability, usefulness, or marketability of any of the inventory has been in any way reduced or impaired by reason of physical deterioration, technical obsolescence, or otherwise; (b) keep accurate and complete books and records in accordance with generally accepted accounting principles and, at Debtor’s expense, promptly furnish Secured Party such information and documents relating to the Collateral at such times, and in such form and detail, as Secured Party may request, including without limitation: (i) copies of invoices or other evidence of Debtor’s accounts and schedules showing the aging, identification, reconciliation, and collection thereof; (ii) evidence of shipment and receipts of goods and the performance of services or obligations covered by accounts; and (iii) reports as to Debtor’s inventory and purchases, sales, damage, or loss thereof; all of the foregoing to be certified by authorized officers or other employees of Debtor; and (c) diligently collect the accounts until such time as Secured Party exercises its right to directly collect the accounts, and upon notice from Secured Party, deliver all proceeds of account to Secured Party forthwith upon receipt, in the original form in which received.

 

2.2.2        Debtor hereby appoints Secured Party and its officers, employees and agents as its irrevocable, true and lawful attorney-in-fact with all necessary power and authority to: (a) following an Event of Default, notify Debtor’s account debtors of the assignment of their accounts and direct them to make all payments thereon to Secured Party; (b) following an Event of Default, in Secured Party’s name or in the name of Debtor, demand, sue for, collect, compromise, settle, and give release from any account; and (c) take such other action as Secured Party may deem appropriate for any such purpose.

 

2.3              Further Assurances . Debtor shall do, make, execute and deliver all such additional and further acts, things, deeds, assurances and instruments, at Debtor’s sole expense, as Secured Party may require more completely to vest in and assure to Secured Party its rights hereunder or in any of the Collateral.

 

3.                  Insurance .  Debtor has the risk of loss of the Collateral. Debtor will keep the Collateral at all times insured by such insurance and in such amounts (with any deductibles as approved by Secured Party) as Secured Party may from time to time require, and in any event and without specific request by Secured Party, will insure the Collateral against fire, including so-called extended coverage, collision, and theft, all insurance to be with such insurance companies as Secured Party shall approve.

 

 

 

 

4.                  Use and Maintenance of Collateral; Taxes .  Debtor will keep the Collateral in good order and repair, and will not use the same in violation of law or any policy of insurance thereon or permit any Collateral to be attached or otherwise affixed to any real estate so as to become a fixture under the law of the jurisdiction in which such real estate is located or to any goods not owned by Debtor. Debtor will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation or upon this agreement.

 

5.                  Secured Party Reimbursement Rights .  At its option, Secured Party may discharge taxes and other liens at any time levied or placed on the Collateral, and place and pay for insurance thereon. Debtor agrees to reimburse Secured Party on demand for any and all expenditures so made, and until paid the amount thereof shall be a debt secured by the Collateral. Secured Party shall have no obligation to Debtor to make any such expenditures nor shall the making thereof relieve Debtor of any default.

 

6.                  Defaults; Remedies .  Upon the happening of any of the following events or conditions (each, a “default”), namely: (a) breach of any payment obligation, or other covenant or liability contained or referred to herein or in any contract, instrument, document or agreement evidencing any Secured Obligation, including, without limitation, an Event of Default under the Note; (b) any representation or warranty of Debtor in this Agreement proving false, misleading or erroneous in any material respect; (c) loss, theft, material damage, destruction, or encumbrance of or to the Collateral, or the making of any levy thereon or seizure or attachment thereof by legal process; (d) an attachment or execution or similar lien shall be levied against any Collateral; (e) merger, consolidation, sale of all or substantially all of the assets of Debtor; or (f) death, dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Debtor, or any indorser, guarantor or surety of or for any Secured Obligation; thereupon , and as long as such default continues, Secured Party shall then have in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the UCC or other applicable law, including without limitation, the right to take immediate possession of the Collateral without legal process, and for that purpose Secured Party may, so far as Debtor can give authority therefor, enter upon any premises on which the Collateral, or any part thereof, may be situated, and remove the same therefrom. Debtor will upon demand assemble the Collateral and make the Collateral available to Secured Party at a place and time designated by Secured Party which is reasonably convenient to both parties. No failure to exercise and no delay in exercising, on the part of Secured Party, any right or remedy accruing upon any default shall: (i) impair any right or remedy, (ii) waive or operate as an acquiescence to any default, or (iii) affect any subsequent default of the same or of a different nature. In the event the proceeds of any sale, collection or realization of the Collateral are insufficient to satisfy the Secured Obligations in full, Debtor shall remain liable for the deficiency, including any interest thereon, together with any costs incurred by Secured Party in collecting such deficiency.

 

7.                  Foreclosure Procedures . Secured Party has no obligation to clean up or otherwise prepare the Collateral for sale. Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. Secured Party may sell the Collateral without giving any warranties as to the Collateral. Secured Party may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Secured Party sells any of the Collateral upon credit, Debtor will be credited only with payments actually made by the purchaser, received by Secured Party and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Debtor shall be credited with the proceeds of the sale. In the event Secured Party purchases any of the Collateral being sold, Secured Party may pay for the Collateral by crediting some or all of the Secured Obligations of Debtor.

 

 

 

 

8.                  Waivers .  Debtor waives demand, notice, protest, notice of acceptance of this Agreement or other action taken in reliance hereon and all other demands and notices of any description. Secured Party may exercise its rights with respect to the Collateral without resorting or regard to other collateral or sources of reimbursement for liability. Secured Party shall not be deemed to have waived any of its rights upon or under the Secured Obligations or the Collateral unless such waiver is in writing and signed by Secured Party. No delay or omission on the part of Secured Party in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of Secured Party on the Secured Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised separately or concurrently.

 

9.                  Notices .  Except as otherwise provided herein, all notices and other communications in connection herewith, shall be in writing, and shall have been duly given and be effective (i) when delivered, (ii) the third business day following the day on which the same is sent by certified or registered mail, postage prepaid, return receipt requested, or (iii) sent by facsimile transmission (provided a copy of such facsimile transmission is also sent by first-class mail concurrently with such transmission), in each case addressed to the respective parties at the address set forth above, or at such other address as such party may specify by written notice to the other party hereto.

 

10.              Governing Law; Consent To Jurisdiction .  This Agreement is intended to take effect as a sealed instrument and shall be governed by, and construed in accordance with, the laws of The State of Delaware, without regard to its conflicts of law rules. Debtor agrees that any suit for the enforcement of this Agreement may be brought in the courts of Delaware or any federal court sitting in such state and consents to the non-exclusive jurisdiction of each such court and to service of process in any such suit being made upon Debtor by mail at the address specified below. Debtor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court.

 

11.              Severability; Section Headings .  If any provision of this Agreement shall be invalid, illegal or unenforceable, such provisions shall be severable from the remainder of this Agreement and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section headings are for the convenience of reference only and are not a part of this Agreement and shall not affect its interpretation.

  

 

[Signature Page Follows]

 

 

 

 

 

IN WITNESS WHEREOF, Debtor, by its duly authorized representative, has executed this Agreement as an instrument under seal on this _____ day of ______________, 2017

 

WITNESSED:   XG TECHNOLOGY, INC., a Delaware corporation
       
       
    By:   
     
Print Name   Print Name
  Title:   

 

 

 

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT ACCOUNTANTS

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-197820), Form S-8 (No. 333-214658) and Form S-8 (No. 333-215461) of xG Technology Inc of our report dated December 1, 2016 relating to the financial statements of Vislink PLC, which appears in this Current Report on Form 8-K of xG Technology Inc.

 

 

/s/ PricewaterhouseCoopers LLP
Bristol, United Kingdom
February 6, 2017

 

 

 

 

 

 

 

 

 

 Exhibit 99.1

 

 


xG Technology, Inc. Completes Acquisition of Vislink Communication Systems, Assuming Full
Legal Ownership of the Business


Sarasota, Florida—February 2, 2017— xG Technology, Inc. (“xG” or the “Company”) (Nasdaq: XGTI, XGTIW), a leading provider of wireless video solutions to broadcast, law enforcement and defense markets, and private mobile broadband networks for critical communications, announced that, effective today, it has completed the acquisition of Vislink Communication Systems (“Vislink”) and has now assumed full ownership of the business. This follows a vote by Vislink shareholders today which approved, as expected, amendments to the existing agreements executed on December 16, 2016, allowing for the formal transition of Vislink to xG to take place on today’s date.

 

The acquisition, as originally announced on October 20, 2016 was a $16 million binding asset purchase agreement. The acquisition was paid for with $6.5 million in cash and a $9.5 million promissory note. xG presently plans to pay the promissory note off with a combination of new debt and internal funding.

 

About xG Technology, Inc.


xG Technology is a provider of market-leading wireless video solutions to broadcast, law enforcement and defense markets, and private mobile broadband networks for use in challenging environments. The company is focused in delivering communications technologies that provide its customers enhanced levels of reliability, mobility, performance and efficiency in their business operations and missions. xG markets its technology solutions across three business units: Integrated Microwave Technologies (IMT), Vislink Communication Systems and xMax.

 

IMT is a pioneer in the design, development and distribution of advanced digital microwave systems and has been a trusted supplier to broadcast, sports and entertainment, and MAG (Military, Aerospace & Government) markets. The company’s product lines are recognized for their high level of performance, reliability, build quality, extended operating ranges and compact form factors. More information about IMT can be found at www.imt-solutions.com .

 

Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video from the field to the point of usage, serving broadcast & media and public safety & surveillance markets. More information about Vislink can be found at http://www.vislink.com/ .

 

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. This makes it a compelling solution for disaster response, emergency communications, and defense applications. More information about xMax can be found
at http://www.xgtechnology.com/products .

 

Based in Sarasota, Florida, xG Technology has over 100 patents and pending patent applications. xG is a publicly traded company listed on the NASDAQ Capital Market (symbol: XGTI) For more information, please visit www.xgtechnology.com

 

 

 

 

 

 

Cautionary Statement Regarding Forward Looking Statements


Statements contained herein that are not based upon current or historical fact are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements reflect the Company’s expectations about its future operating results, performance and opportunities that involve substantial risks and uncertainties.  These statements include but are not limited to statements regarding the intended terms of the offering, closing of the offering and use of any proceeds from the offering. When used herein, the words “anticipate,” “believe,” “estimate,” “upcoming,” “plan,” “target”, “intend” and “expect” and similar expressions, as they relate to xG Technology, Inc., its subsidiaries, or its management, are intended to identify such forward-looking statements. These forward-looking statements are based on information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company’s actual results, performance, prospects, and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

 

For More Information:

 

Daniel Carpini
xG Technology
daniel.carpini@xgtechnology.com
(941) 953-9035

 

 

 

 

Exhibit 99.2

 

FINANCIAL STATEMENTS
 
Index to Financial Statements

 

Financial Statements (unaudited) for the period ended September 30, 2016 — Vislink Communications Systems F-2
   
Financial Statements for the years ended December 31, 2015 and 2014 — Vislink Communications Systems F-15

 

  F- 1  

 

 

Vislink plc
(the “Company” or the “Group”)
 
Results for the nine months ended 30 September 2016 and 30 September 2015

 

CONSOLIDATED GROUP INCOME STATEMENT
For the nine months ended 30 September 2016 and 30 September 2015

 

    Notes   Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Continuing operations                    
Revenue   4     31,819       36,650  
Cost of sales         (19,018 )     (20,482 )
Gross profit         12,801       16,168  
Sales and marketing expenses         (7,098 )     (6,681 )
Research and development costs         (4,842 )     (4,007 )
Administrative costs         (5,092 )     (4,272 )
Other expenses         (36,847 )     (3,864 )
Operating loss   4     (41,078 )     (2,656 )
Finance costs – net         (243 )     (162 )
Loss before taxation         (41,321 )     (2,818 )
Taxation   6     (42 )     34  
Loss for the period attributable to equity shareholders         (41,363 )     (2,784 )
Basic loss per share   7     (33.9 )p     (2.3 )p
Diluted loss per share   7     (33.9 )p     (2.3 )p

 

  F- 2  

 

 

Vislink plc

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended 30 September 2016 and 30 September 2015

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Loss for the period     (41,363 )     (2,784 )
Items that may subsequently be reclassified to profit or loss:                
Exchange difference on translation of foreign currency net investments     2,293       260  
Total comprehensive expense for the period     (39,070 )     (2,524 )

 

  F- 3  

 

 

Vislink plc

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the nine months ended 30 September 2016 and 30 September 2015

 

    Share
Capital
£000
    Share
premium
account
£000
    Capital
redemption
reserve
£000
    Merger
reserve
£000
    Translation
reserve
£000
    Retained
earnings
£000
    Total
£000
 
Balance at 1 January 2016     3,066       6,800       617       32,448       4,843       6,678       54,452  
Share based payments: value of employee services                                   399       399  
Dividends payable                                   (1,839 )     (1,839 )
Transactions with owners                                   (1,440 )     (1,440 )
Retained loss for the period                                   (41,363 )     (41,363 )
Exchange difference on translation of foreign currency net investments                             2,293             2,293  
Total comprehensive income/(expense) for the period                             2,293       (41,363 )     (39,070 )
Balance at 30 September 2016     3,066       6,800       617       32,448       7,136       (36,125 )     13,942  
Balance at 1 January 2015     3,066       6,800       617       32,448       4,437       9,459       56,827  
Adjustment in respect of Employee Share Ownership Plan                                   (5 )     (5 )
Share based payments: value of employee services                                   249       249  
Dividends payable                                   (1,830 )     (1,830 )
Transactions with owners                                   (1,586 )     (1,586 )
Retained loss for the period                                   (2,784 )     (2,784 )
Exchange differences on translation of foreign currency net investments                             260             260  
Total comprehensive income/(expense) for the period                             260       (2,784 )     (2,524 )
Balance at 30 September 2015     3,066       6,800       617       32,448       4,697       5,089       52,717  

 

  F- 4  

 

 

Vislink plc

 

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 September 2016 and 30 September 2015

 

    Notes   30 September
2016
(Unaudited)
£000
    31 December
2015
(Audited)
£000
 
Assets                    
Non-current assets                    
Intangible assets   8     12,298       42,291  
Property, plant and equipment   8     1,986       2,201  
Deferred tax assets         43       4,461  
          14,327       48,953  
Current assets                    
Inventories         8,685       12,696  
Trade and other receivables         17,087       18,751  
Cash and cash equivalents   9     489       3,251  
          26,261       34,698  
Liabilities                    
Current liabilities                    
Financial liabilities-borrowings   9     15,000       9,000  
Trade and other payables         9,718       13,554  
Current tax liabilities         241       239  
Provisions for other liabilities and charges   10     537       272  
          25,496       23,065  
Net current assets         765       11,633  
Non-current liabilities                    
Deferred tax liabilities         1,092       5,714  
Provisions for other liabilities and charges   10     58       420  
          1,150       6,134  
Net assets         13,942       54,452  
Shareholders’ equity                    
Ordinary shares         3,066       3,066  
Share premium account         6,800       6,800  
Capital redemption reserve         617       617  
Merger reserve         32,448       32,448  
Translation reserve         7,136       4,843  
Retained earnings         (36,125 )     6,678  
Total shareholders’ equity         13,942       54,452  

 

  F- 5  

 

 

Vislink plc

 

CONSOLIDATED GROUP CASH FLOW STATEMENT
For the nine months ended 30 September 2016 and 30 September 2015

 

    Notes   Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Cash flows from operating activities                    
Cash (used in)/generated from operations   11     (3,578 )     (2,178 )
Interest paid         (246 )     (164 )
Taxation paid         (173 )     (771 )
Net cash outflow from operating activities         (3,997 )     (3,113 )
Cash flows from investing activities                    
Interest received         3       2  
Proceeds from sale of property, plant and equipment               337  
Proceeds from sale of intangibles               61  
Purchase of property, plant and equipment   8     (254 )     (408 )
Expenditure on capitalised development costs   8     (2,813 )     (2,676 )
Net cash used in investing activities         (3,064 )     (2,684 )
Cash flows from financing activities                    
Net proceeds from new bank loans   9     6,000       1,000  
Dividend paid to shareholders         (1,839 )     (1,830 )
Purchase of shares               (5 )
Net cash generated from/(used in) financing activities         4,161       (835 )
Net decrease in cash and cash equivalents         (2,900 )     (6,632 )
Cash and cash equivalents at beginning of period         3,251       8,380  
Effect of foreign exchange rate changes   9     138       28  
Cash and cash equivalents at end of period   9     489       1,776  

 

  F- 6  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

1. GENERAL INFORMATION

 

Vislink plc (“the Company”) and its subsidiaries (together “the Group”) is a global software and technology business specialising in solutions for the live collection, delivery and playout automation of high quality video ‘from scene to screen’.

 

For the broadcast markets, Vislink provides wireless communication solutions for the collection of live news, sport and entertainment as well as software solutions for channel playout automation, channel-in-a-box and video content management. Vislink also provides secure video communications for surveillance and public safety applications such as law enforcement and homeland security.

 

Vislink employs over 250 people worldwide with offices in the UK, USA, UAE and Singapore and manufacturing operations in the UK and the USA. Vislink has net assets of over £13.0 million and continues to invest in innovation.

 

The Company is listed on the AIM market of the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. The registered number of the Company is 4082188.

 

This condensed consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors on 6 April 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, contained an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. These financial statements have been prepared in accordance with US GAAS.

 

Going Concern

 

In the half year results for the six months ended 30 June 2016, the Group reported a reduction in spend from broadcasters resulting in a fall in profitability and the implementation of a business improvement plan for Vislink Communication Systems. Trading for Vislink Communication Systems remains challenging, with the downturn in performance continuing into Q3. The Group continues to be in conversation with its bankers, who having waived the 30 June 2016 covenant test, have recently deferred the 30 September 2016 covenant test until 30 November 2016.

 

As at 30 September 2016 net debt was £14.5m (cash £0.5m and bank debt £(15.0)m). The Group is fully utilising its RCF facility and forecasts that it will be in breach of its deferred banking covenants at 30 November 2016, meaning that it is reliant on the ongoing support of its bankers.

 

In order to assess the appropriateness of preparing the consolidated interim financial information on the going concern basis, management have prepared detailed projections of expected future cash flows out to 31 January 2016 and a higher level review to December 2017, and these have been reviewed by the Board.

 

Whilst challenging, Management are implementing an improvement plan directed at enabling the business to remain within its borrowing facilities through a combination of actively managing cash, cutting unnecessary expenditure and looking at other sources of finance or disposal opportunities within the Group. As part of this process, a binding agreement was entered into on 20 October 2016 for the sale of Vislink Communications Systems to xG Technology Inc for $16m.

 

In reaching their decision that the consolidated interim results should be prepared on the going concern basis, the Board has considered the forecast covenant breach. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment of the loan, and the Group has insufficient cash to repay the secured loan in full without securing additional funding. However, the Group is in constructive discussions with its bankers.

 

  F- 7  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

1. GENERAL INFORMATION  – (continued)

 

The condition identified above, regarding the ongoing support of the Group’s bankers, indicates the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. The consolidated interim financial information does not include the adjustments that would result if the Group was unable to continue as a going concern.

 

Principal risks and uncertainties

 

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on page 37 of the 2015 Annual Report, a copy of which is available on the Group website at www.vislinkplc.com , together with the banking uncertainties as referred to above. The Board considers that these are a current reflection of the main risks and uncertainties facing the business for the remaining six months of the financial year. The Group notes that this is not an exhaustive list. The Group’s risk management process remains unchanged from 31 December 2015 and is described in detail in the 2015 Annual Report. The principal risks considered by the Board relate to global economic conditions and those associated with the Group’s markets, reputation, overseas operations, customer defaults, senior management and foreign exchange, and the banking uncertainties. The principal exchange rates used in the preparation of this condensed consolidated half year financial information are provided in note 12.

 

2. BASIS OF PREPARATION

 

This condensed consolidated financial information for the nine months ended 30 September 2016 and nine months ended 30 September 2015 has been prepared in accordance with IAS 34, ‘Half year financial reporting’. The condensed consolidated nine months financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs as issued by the IASB.

 

The Directors believe that the basis of preparation applied is appropriate for the intended use of the condensed consolidated financial information, which is to provide historical financial information to xG Technology Inc to assist xG Technology Inc in satisfying its reporting responsibilities under Regulation S-X, Rule 3-05, Financial statements of businesses acquired or to be acquired.

 

This financial information is not the statutory financial information of the Company prepared in accordance with section 394 of the Companies Act 2006. Accordingly, this financial information does not present information on Vislink PLC as a separate legal entity.

 

The preparation of the financial information requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.

 

3. ACCOUNTING POLICIES

 

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2015, as described in those annual financial statements.

 

Non-recurring items are included under other expenses in the financial statements and is disclosed and described separately in note 5 where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

 

Taxes on income in the nine month periods are accrued using the tax rate that would be applicable to expected total annual earnings on a country by country basis.

 

  F- 8  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

4. SEGMENTAL ANALYSIS

 

The two markets in each of the divisions are Broadcast and Surveillance and public safety. As the divisions manage and control the markets directly, costs are shared across markets in certain divisions which means that any allocation of costs to markets would be arbitrary. The focus of management is to ensure that the appropriate material margins are being achieved in each market as a sub analysis of the divisional performance.

 

The segment information provided to the Executive Management Board for the reportable continuing segments for the periods ended 30 September 2016 and 30 September 2015 is as follows:

 

    Vislink Communication
Systems
    Pebble Beach Systems     TOTAL  
    9 months to
30 September
2016
£000
    9 months to
30 September
2015
£000
    9 months to
30 September
2016
£000
    9 months to
30 September
2015
£000
    9 months to
30 September
2016
£000
    9 months to
30 September
2015
£000
 
Revenue     23,542       29,510       8,277       7,140       31,819       36,650  
Operating (loss)/profit:                                                
Adjusted operating (loss)/profit     (3,875 )     1,302       1,880       1,784       (1,995 )     3,086  
Central costs                                     (2,236 )     (1,878 )
Group adjusted operating profit                                     (4,231 )     1,208  
Amortisation and impairment of goodwill and acquired intangibles     (24,035 )     (742 )     (1,064 )     (1,061 )     (25,099 )     (1,803 )
Non-recurring items     (11,603 )     (2,045 )                 (11,603 )     (2,045 )
Central non-recurring items                             (145 )     (16 )
Group total operating (loss)/profit     (39,513 )     (1,485 )     816       723       (41,078 )     (2,656 )
Finance (costs)/income – net     (5 )     (152 )     2             (3 )     (152 )
Central finance (costs)/income – net                             (240 )     (10 )
(Loss)/profit before tax     (39,518 )     (1,637 )     818       723       (41,321 )     (2,818 )

 

GEOGRAPHIC REVENUE ANALYSIS BY DESTINATION   Nine months to
30 September
2016
(Unaudited) £’000
    Nine months to
30 September
2015
(Unaudited)
£’000
 
UK & Europe     11,858       13,254  
Americas     12,488       15,341  
Middle East and Africa     4,585       4,702  
Asia/Pacific     2,888       3,353  
      31,819       36,650  

 

The amounts reported to the Executive Chairman with respect to total net assets are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and the physical location of the asset.

 

NET ASSETS   Nine months to
30 September
2016
(Unaudited)
£’000
    Year ended
31 December
2015
(Audited)
£’000
 
Vislink Communication Systems     19,615       52,509  
Pebble Beach Systems     9,227       8,810  
Segment net assets     28,842       61,319  
Central net liabilities     (14,900 )     (6,867 )
Total Group net assets     13,942       54,452  

 

  F- 9  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

5. NON-RECURRING ITEMS

 

The following items of unusual nature, size or incidence have been charged to operating profit during the period and are described as non-recurring and included within other expenses in the income statement.

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Rationalisation and redundancy costs     90       2,045  
Inventory write down     5,561        
Capitalised development costs write down     6,092        
Onerous property commitments     (141 )      
Acquisition related costs     146       16  
Total non-recurring items     11,748       2,061  

 

It was announced on 6 July 2016 that the Board had initiated a business improvement plan triggered by market conditions and a detailed review was carried out of inventory and capitalised development costs to identify increasingly inappropriate legacy technology and products. As a consequence a significant inventory write-down of £5.5 million has been recorded, along with a £0.8 million impairment of capitalised development costs, totalling £6.3 million.

 

These adjustments will ensure that the VCS product portfolio is focussed on key, leading-edge technologies. This, combined with the continuing development of new IP products, will ensure the business is well positioned to capitalise on the ever-evolving technology shift.

 

In addition, as a result of H1 performance and expected outturn for the year, management considered that there had been an impairment trigger requiring an impairment review of intangible assets. This led to a write down of goodwill and acquired intangibles of £23.3 million at the half year, as a result of a downgrading of the forecasts for the business.

 

6. TAX ON PROFIT ON ORDINARY ACTIVITIES

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Current tax:                
UK corporation tax            
Foreign tax     59        
Adjustments in respect of prior years     215       8  
Total current tax     274       8  
Deferred tax:                
UK corporation tax     290       (42 )
Impact of change in tax rate            
Foreign tax     (522 )      
Adjustments in respect of prior years            
Total deferred tax     (232 )     (42 )
Total taxation charge     42       (34 )

 

The tax charge for the nine months ended 30 September 2016 is based on the full year estimated effective tax rate of 0 per cent for the UK which is significantly lower than the standard rate principally due

 

  F- 10  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

6. TAX ON PROFIT ON ORDINARY ACTIVITIES  – (continued)

 

to the utilisation of tax losses and enhanced Research and Development claims. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as recoverable against future profits.

 

7. EARNINGS PER ORDINARY SHARE

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled. Earnings per share is calculated by reference to a weighted average of 121,977,000 ordinary shares in issue during the period (30 September 2015: 121,870,000 and 31 December 2015: 121,910,000).

 

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the company’s ordinary shares during the period.

 

Adjusted earnings

 

The directors believe that the adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term “adjusted” is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related tax effects.

 

The reconciliation between reported and adjusted earnings and basic earnings per share for the continuing business is shown below:

 

    Nine months to 30 September
2016
    Nine months to 30 September
2015
 
    £000     Pence per share     £000     Pence per share  
Reported loss per share     (41,363 )     (33.9 )p     (2,784 )     (2.3 )p
Amortisation of acquired intangibles after tax     24,616       19.7 p     1,624       1.3 p
Non-recurring costs after tax     9,398       8.3 p     1,649       1.4 p
Adjusted (loss)/earnings per share     (7,349 )     (5.9 )p     489       0.4 p

 

  F- 11  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

8. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Property, plant and equipment                
Opening net book value as at 1 January     2,201       2,665  
Additions     254       408  
Disposals           (337 )
Depreciation     (525 )     (556 )
Exchange adjustment     56       20  
Closing net book value     1,986       2,200  
Intangible assets                
Capitalised development costs                
Opening net book value as at 1 January     10,091       9,441  
Additions     2,813       2,676  
Amortisation     (2,304 )     (2,177 )
Impairment     (6,092 )      
Exchange adjustment     369       170  
Capitalised development costs closing net book value     4,877       10,110  
Goodwill and acquired intangible assets                
Opening net book value as at 1 January     32,200       34,242  
Disposals     (99 )     (61 )
Amortisation and impairment     (25,100 )     (1,808 )
Exchange adjustment     420       185  
Goodwill and acquired intangible assets closing net book value     7,421       32,558  
Total closing net book value of intangible assets     12,298       42,668  

 

Historical goodwill acquired in business combinations was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefit from those business combinations, being the markets that the Group serves, namely Broadcast, Surveillance and Public Safety, Amplifier Technology Limited and Pebble Beach Systems Limited.

 

In accordance with the requirements of IAS 36 “Impairment of assets”, goodwill is required to be tested for impairment on an annual basis or when there is a triggering event, with reference to the value of the cash-generating units in question. The downturn in trading performance is considered to be a trigger and an impairment review has been performed. The goodwill relating to the Surveillance and Public Safety market was fully written down in 2010. The Group acquired Amplifier Technology in 2013 which is a separate CGU and Pebble Beach Systems in 2014 which is also a separate CGU, therefore impairment reviews have been undertaken in respect of the Broadcast market and Amplifier Technology. No impairment trigger is considered to exist for Pebble Beach Systems. The carrying value of goodwill at 30 September 2016 is £3.2 million (2015: £24.8 million) consisting of £nil for the Broadcast market (2015: £20.5 million), £nil for Amplifier Technology (2015: £1.1 million) and £3.2 million for Pebble Beach Systems (2015: £3.2 million).

 

The carrying value of all CGUs (including goodwill) have been assessed with reference to value in use over a projected period of four and a half years, along with a terminal value. This reflects projected cash flows based on management projections.

 

  F- 12  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

8. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS  – (continued)

 

The key assumptions on which the value in use calculations are based relate to business performance over the next four and a half years, long term growth rates beyond 2016 and the discount rate applied. It has been assumed there will be no long term growth of either Amplifier Technology or Broadcast and growth of 3% for Pebble Beach Systems. In accordance with accounting standards, it has also been assumed that there will be no savings resulting from future restructuring which is yet to occur.

 

A pre-tax discount rate of 8.9 per cent has been used. In respect of the Broadcast market and Amplifier Technology the value in use was found to be lower than the carrying value resulting in the impairment of goodwill of £20.6m for Broadcast and £1.1m for Amplifier Technology.

 

9. CASH, BORROWINGS AND LOANS

 

The movements in cash and cash equivalents (net of overdrafts), borrowings and loans in the period were as follows:

 

    Net cash
and cash
equivalents
£000
    Other
borrowings
£000
    Total
net cash
£000
 
Nine months ended 30 September 2016                        
At 1 January 2016     3,251       (9,000 )     (5,749 )
Cash flow for the period before financing     (8,900 )           (8,900 )
Movement in borrowings in the period     6,000       (6,000 )      
Exchange rate adjustments     138             138  
At 30 September 2016     489       (15,000 )     (14,511 )
Nine months ended 30 September 2015                        
At 1 January 2015     8,380       (8,000 )     380  
Cash flow for the period before financing     (7,632 )           (7,632 )
Movement in borrowings in the period     1,000       (1,000 )      
Exchange rate adjustments     28             28  
At 30 September 2015     1,776       (9,000 )     (7,224 )

 

The Group held cash of £0.5 million at the period-end and taken together with the outstanding debt of £15.0 million, there was a net debt position of £14.5 million.

 

In the period the Group has drawn down an additional £6.0 million of funds from the existing Revolving Credit Facility (RCF), the facility is therefore fully utilised.

 

10. PROVISIONS FOR OTHER LIABILITIES AND CHARGES

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Year ended
31 December
2015
(Audited)
£000
 
Warranty provision     202       188  
Property provision     393       504  
      595       692  
Amounts due within one year     537       272  
Amounts due after one year     58       420  
      595       692  

 

  F- 13  

 

 

Vislink plc
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the nine months ended 30 September 2016 and 30 September 2015

 

10. PROVISIONS FOR OTHER LIABILITIES AND CHARGES  – (continued)

 

Warranty provisions are made in respect of the expected future warranty costs in certain businesses based on historic actual costs. Warranty periods on products are generally between one and two years.

 

The property provision consists of a provision for vacated leasehold properties acquired as part of the Gigawave acquisition and a vacated property provision for the Vislink International Hemel Hempstead site, created as a result of the restructuring that was conducted in 2015.

 

The current period property provision movement relates to the release of some of the vacant property provision for the Vislink International Hemel Hempstead site.

 

The property provision represents the estimated future liabilities associated with the properties.

 

11. NOTES TO THE CASH FLOW STATEMENT

 

Net cash flow from operating activities comprises:

 

    Nine months to
30 September
2016
(Unaudited)
£000
    Nine months to
30 September
2015
(Unaudited)
£000
 
Loss before tax     (41,321 )     (2,818 )
Depreciation     525       556  
Amortisation and impairment of development costs     8,396       2,177  
Amortisation and impairment of goodwill and acquired intangibles     25,100       1,808  
Share based payment expenses     399       249  
Finance income from continuing operations     (3 )     (2 )
Finance costs from continuing operations     246       164  
Decrease/(Increase) in inventories     3,797       (2,825 )
Decrease/(increase) in trade and other receivables     2,583       3,900  
Decrease in payables     (3,188 )     (5,271 )
(Decrease)/increase in provisions     (112 )     (116 )
Net cash (outflow)/inflow from operating activities     (3,578 )     (2,178 )

 

12. FOREIGN EXCHANGE RATES

 

The principal exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below.

 

    Nine months to
30 September
2016
(Unaudited)
    Nine months to
30 September
2015
(Unaudited)
    Year ended
31 December
2015
(Audited)
 
Average rate for the period                        
US dollar     1.3915       1.5324       1.5286  
Period end rate                        
US dollar     1.2991       1.5147       1.4819  

 

13. POST BALANCE SHEET EVENTS

The Company announced on 20 October 2016 that it had entered into a Business Purchase Agreement to sell the assets of Vislink Communication Systems, the hardware division of the Company, for the consideration of $16m to xG Technology, Inc ("xG Technology"). The disposal was conditional on approval of shareholders of the Company under Rule 15 of the AIM Rules which was received 9 January 2017. Subsequently on 16 January 2017 it was announced that it had been agreed to revise the specific terms of the transaction subject to shareholder approval. The headline consideration remained at $16m but was now to be satisfied by an amount of initial consideration and an amount of deferred consideration, it was also agreed that the Company would retain the right to any sums received in future in respect of an outstanding debtor subject to a maximum sum of $2.0m. The shareholders' approval was received on 2 February 2017 and the transaction completed.

Post balance sheet date there was a renegotiation of a major contract, which has led to a change in estimate in the long term contract accounting in quarter four, and which will result in the write off to the income statement of approximately £0.5m of the debtor held in the balance sheet as at 30 September 2016. This is considered to be a non-adjusting post balance sheet event. The $2.0m debtor referred to above is in respect of this contract and represents a proportion of a total $3.3m debtor at the balance sheet date.

 

  F- 14  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

  F- 15  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

Report of Independent Auditors

 

To the Directors

 

We have audited the accompanying consolidated financial statements of Vislink plc and its subsidiaries, which comprise the consolidated balance sheetsas of 31 December 2015 and 31 December 2014, and the related consolidated statements of income and comprehensive income, of shareholders’ equity and of cash flows for the periods then ended.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vislink plc and its subsidiaries as of 31 December 2015 and 31 December 2014, and the results of their operations and their cash flows for the years then ended in accordance with IFRS as issued by IASB.

 

Emphasis of Matter

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital and cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

 

/s/ PricewaterhouseCoopers LLP
Bristol, UK
1 December 2016

 

  F- 16  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2015

 

    Note   2015
£000
    2014
£000
 
Revenue   5     57,811       61,931  
Cost of sales         (31,800 )     (33,519 )
Gross profit         26,011       28,412  
Sales and marketing expenses         (9,423 )     (8,817 )
Research and development expenses         (5,757 )     (5,558 )
Administrative expenses         (6,110 )     (6,833 )
Other expenses   6     (5,475 )     (1,692 )
Operating (loss)/profit   6     (754 )     5,512  
Finance costs   8     (248 )     (169 )
Finance income   8     8       24  
(Loss)/profit before tax         (994 )     5,367  
Tax   9     91       (1,623 )
(Loss)/profit for the year being profit attributable to owners of the parent         (903 )     3,744  
Basic (loss)/earnings per share   11     (0.7 )p     3.2 p
Diluted (loss)/earnings per share   11     (0.7 )p     3.1 p

 

  F- 1  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

    2015
£000
    2014
£000
 
(Loss)/profit for the financial year     (903 )     3,744  
Other comprehensive income – items that may be reclassified subsequently to profit or loss:                
Exchange difference on translation of overseas operations     406       483  
Total comprehensive (expense)/income for the year attributable to owners of the parent     (497 )     4,227  

 

  F- 2  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 

AS AT 31 DECEMBER 2015

 

    Note   2015
£000
    2014
£000
 
Assets                    
Non-current assets                    
Intangible assets   12     42,291       43,683  
Property, plant and equipment   13     2,201       2,665  
Deferred tax assets   22     4,461       3,712  
Total non-current assets         48,953       50,060  
Current assets                    
Inventories   14     12,696       12,884  
Trade and other receivables   15     18,751       15,956  
Cash and cash equivalents   16     3,251       8,380  
Total current assets         34,698       37,220  
Liabilities                    
Current liabilities                    
Financial liabilities – borrowings   19     9,000       5,600  
Trade and other payables   17     13,554       15,810  
Current tax liabilities   18     239       747  
Provisions for other liabilities and charges   21     272       280  
Total current liabilities         23,065       22,437  
Net current assets         11,633       14,783  
Non-current liabilities                    
Financial liabilities – borrowings   19           2,400  
Deferred tax liabilities   22     5,714       5,338  
Provisions for other liabilities and charges   21     420       278  
Total non-current liabilities         6,134       8,016  
Net assets         54,452       56,827  
Equity attributable to owners of the parent                    
Ordinary shares   23     3,066       3,066  
Share premium         6,800       6,800  
Capital redemption reserve         617       617  
Merger reserve         32,448       32,448  
Translation reserve         4,843       4,437  
Retained earnings         6,678       9,459  
Total equity         54,452       56,827  

 

These financial statements were approved by the Board of Directors on December 1, 2016 and were signed on its behalf by:

 

John Hawkins
Director

 

  F- 3  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

    Called up
share capital
£000
    Share
premium
£000
    Capital
redemption
reserve
£000
    Merger
reserve
£000
    Translation
reserve
£000
    Retained
earnings
£000
    Total
equity
£000
 
At 1 January 2014     2,848       4,900       617       30,565       3,954       6,718       49,602  
Comprehensive income                                                        
Profit for the financial year                                   3,744       3,744  
Exchange differences on translation of overseas operations                             483             483  
Total comprehensive income for the year                             483       3,744       4,227  
Transactions with owners                                                        
Share based payments: Value of employee services                                   500       500  
Issue of share capital     218       1,900             1,883                   4,001  
Adjustment in respect of Employee Share Ownership Plan                                   (30 )     (30 )
Dividends paid (note 10)                                   (1,473 )     (1,473 )
Total transactions with owners     218       1,900             1,883             (1,003 )     2,998  
Balance at 1 January 2015     3,066       6,800       617       32,448       4,437       9,459       56,827  
Comprehensive income                                                        
Loss for the financial year                                   (903 )     (903 )
Exchange differences on translation of overseas operations                             406             406  
Total comprehensive income/(expense) for the year                             406       (903 )     (497 )
Transactions with owners                                                        
Share based payments: Value of employee services                                   (43 )     (43 )
Adjustment in respect of Employee Share Ownership Plan                                   (5 )     (5 )
Dividends paid (note 10)                                   (1,830 )     (1,830 )
Total transactions with owners                                   (1,878 )     (1,878 )
Balance at 31 December 2015     3,066       6,800       617       32,448       4,843       6,678       54,452  

 

  F- 4  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2015

 

    Note   2015
£000
    2014
£000
 
Cash flow from operating activities                    
Cash generated from operations   24     605       7,999  
Interest paid         (248 )     (169 )
Taxation paid         (918 )     (102 )
Net cash (outflow)/inflow from operating activities         (561 )     7,728  
Cash flow from investing activities                    
Interest received         8       24  
Acquisition of subsidiary (net of cash acquired)               (7,003 )
Proceeds from sale of property, plant and equipment         338       1  
Proceeds from sale of intangibles         61        
Purchase of property, plant and equipment   13     (605 )     (919 )
Expenditure on capitalised development costs   12     (3,582 )     (3,647 )
Net cash used in investing activities         (3,780 )     (11,544 )
Cash flow from financing activities                    
New bank loans         1,000       8,000  
Dividend paid   10     (1,830 )     (1,473 )
(Purchase)/issue of shares         (5 )     2,000  
Net cash (used in)/generated from financing activities         (835 )     8,527  
Net (decrease)/increase in cash and cash equivalents         (5,176 )     4,711  
Effect of foreign exchange rate changes         47       (36 )
Cash and cash equivalents at 1 January         8,380       3,705  
Cash and cash equivalents at 31 December   16     3,251       8,380  

 

  F- 5  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

1. GENERAL INFORMATION

 

Vislink plc (“the Company”) and its subsidiaries (together “the Group”) is a leading global software and technology business specialising in solutions for the live collection, delivery and playout automation of high quality live video ‘from scene to screen’. For the broadcast markets, the Group provides wireless communication solutions for the collection of live news, sport and entertainment as well as software solutions for channel playout automation, Channel in a Box and video content management. The Group also provides secure video communications for surveillance and public safety applications such as law enforcement and homeland security. The Group employs over 250 people worldwide with offices in the UK, USA, UAE, and Singapore and manufacturing operations in the UK and the USA. The Group has net assets of £54.4 million and continuously invests in innovation.

 

The Company is listed on the AIM market of the London Stock Exchange (AIM:VLK). For further information, visit www.vislinkplc.com.

 

The Company is incorporated and domiciled in the UK. The address of its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY.

 

The registered number of the Company is 04082188.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

BASIS OF ACCOUNTING

 

The Group financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee (IFRS IC).

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumption and estimates are significant to the Group financial statements, are disclosed in note 4.

 

During the current reporting year there were no new standards or amendments which had a material impact on the net assets of the Group. The impact of standards or amendments issued but not yet effective is yet to be ascertained.

 

The Directors believe that the basis of preparation applied is appropriate for the intended use of these financial statements, which is to provide historical financial information to xG Technology Inc to assist xG Technology Inc in satisfying its reporting responsibilities under Regulation S-X, Rule 3-05, Financial statements of businesses acquired or to be acquired.

 

These financial statements are not the statutory financial statements of the Company prepared in accordance with section 394 of the Companies Act 2006. Accordingly, these financial statements do not present information on Vislink PLC as a separate legal entity. The Group financial statements have been prepared on a going concern basis under the historical cost basis of accounting, except where fair value measurement is required under IFRS as described below.

 

  F- 6  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

BASIS OF CONSOLIDATION

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December 2015. Control is achieved when the Company:

 

  has the power over the investee;

 

  is exposed, or has rights, to vary from its involvement with the investee; and

 

  has the ability to use its power to affect its returns

 

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

 

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from the inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

BUSINESS COMBINATIONS

 

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of assets transferred, the liabilities assumed and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

 

Any contingent consideration to be transferred by the Group is recognised at the fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

 

Costs directly attributable to an acquisition are charged directly to the income statement as incurred.

 

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of the non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement.

 

SEGMENTAL REPORTING

 

The Group’s internal organisational and management structure and its system of internal financial reporting to the Board of directors are based on the product offerings of each of its businesses. These comprise of two divisions, Vislink Communication Systems and Pebble Beach Systems. Each division has its own managing director and finance director who work with the Group Finance Director, under the

 

  F- 7  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

chairmanship of the Executive Chairman to oversee the running of the Group. The chief operating decision-maker has been identified as the Board.

 

The Board reviews the Group’s internal financial reporting in order to assess performance and allocate resources. Management have therefore determined that the operating segments for the Group will be based on these reports.

 

The Vislink Communication Systems business is responsible for the sales and marketing of all Group hardware products and services. It is also the product centre for the Advent satcom communication products, Link and Gigawave wireless camera systems and the associated Microwave and Amplifier products.

 

The Pebble Beach Systems business is responsible for the sales and marketing of all Group software products and services.

 

Group management are focused on developing global revenue growth from the two main markets that the Group serves, Broadcast and Surveillance and Public Safety. Segmental reporting is therefore also provided by reference to revenue by market by geographic region.

 

FOREIGN CURRENCY TRANSLATION

 

(a) Functional and presentation currency

 

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Group financial statements are presented in pounds sterling (GBP), which is the Company’s functional and presentation currency.

 

(b) Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

 

(c) Group companies

 

Trading results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

  assets and liabilities for each statement of financial position presented are translated at the closing rate of exchange prevailing at the reporting date;

 

  income and expenditure for each income statement are translated at the average rates of exchange prevailing during the year; and

 

  all resulting exchange differences arising from restatement of the opening statements of financial position and trading results of overseas subsidiaries are recognised as a separate component of shareholders’ equity

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

  F- 8  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

INTANGIBLE ASSETS

 

(a) Goodwill

 

Goodwill represents the excess of the fair value of the purchase consideration for the interest in subsidiary undertakings over the fair value to the Group of the net assets acquired, including acquired intangible assets and any contingent liabilities.

 

Goodwill is tested annually or more frequently if events or circumstances indicate potential impairment. Impairment losses are recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount; that recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use. Impairments of goodwill are not reversed. Gains and losses on the disposal of an entity will be net of the carrying amount of goodwill relating to the entity sold.

 

Goodwill is allocated to cash-generating units for the purposes of impairment testing. The allocation is made to cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

 

(b) Acquired intangibles

 

Intangible assets acquired as part of business combinations are capitalised at fair value at the date of acquisition. Following the initial recognition, the carrying amount of an intangible asset is its cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged on the basis of the estimated useful life on a straight-line basis and the expense is taken to the income statement (note 12).

 

The Group has recognised customer relationships, intellectual property and brands as separately identifiable acquired intangible assets. The useful economic life attributed to each intangible asset is determined at the time of acquisition and ranges from five to ten years.

 

Impairment reviews are undertaken when the directors consider that there has been a potential indication of impairment.

 

(c) Research and development costs

 

Research expenditure is written off as incurred.

 

Where development expenditure meets the criteria for capitalisation as set out in IAS 38 “Intangible Assets” the costs are capitalised. The key eligibility criteria for capitalisation relate to:

 

  the identification of development costs. In general the Group’s research and development activities are closely interrelated and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are separately identifiable; and

 

  the generation of future economic benefit. Intangible assets are not recognised unless the resultant product is expected to generate future economic benefit in excess of the amount capitalised

 

Development costs are amortised over the estimated useful life of the products with which they are associated. Amortisation commences when a new product is in commercial production. The amortisation period ranges from one to five years. If a product becomes unviable the deferred development costs are written off.

 

  F- 9  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

 

Depreciation is calculated in order to write off the cost of property, plant and equipment, other than land, over their estimated useful lives by equal annual instalments using the following rates:

 

Freehold land and buildings   2 per cent for buildings
No depreciation on land
     
Leasehold improvements   The remaining term of the lease
     
Fixtures and fittings   10 per cent
     
Plant, tools, test and computer equipment   10 per cent – 33 per cent

 

LEASES

 

Operating leases are leases where the risks and rewards of ownership are retained by the lessor. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

 

INVENTORIES

 

Inventories are stated at the lower of cost and net realisable value. Cost represents direct costs incurred and, where applicable, production or conversion costs and other costs to bring the inventory to its existing condition and location. Inventory is accounted for on a standard cost basis. Net realisable value comprises the actual or estimated selling price less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution. Provisions for inventories are recognised when the book value exceeds its net realisable value. The Group makes provision for slow-moving, obsolete and defective inventory as appropriate.

 

TRADE RECEIVABLES

 

Trade receivables are initially recognised at fair value, being the original invoice amount, and subsequently measured at amortised cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Trade receivables that are less than three months past due are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that the customer will default. Older debts are considered to be impaired unless there is sufficient evidence to the contrary that they will be settled. The amount of the provision is the difference between the assets’ carrying value and the present value of the estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement.

 

When a trade receivable is uncollectable it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the income statement.

 

CASH AND CASH EQUIVALENTS

 

Cash and short term deposits in the statement of financial position comprise cash at bank and in hand and short term deposits with an original maturity of less than three months.

 

  F- 10  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and short term deposits as defined above, together with bank overdrafts where applicable.

 

SHARE CAPITAL

 

Ordinary shares are classified as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium account and are also classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are deducted from the share premium account.

 

Where shares are issued in part or full consideration for the acquisition of more than 90 per cent of the issued share capital of another company, the excess of value attributed to the shares over the nominal value of shares issued is allocated to the merger reserve. The merger reserve is also classified as equity.

 

TRADE PAYABLES

 

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

 

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 

CURRENT AND DEFERRED TAXATION

 

The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business combinations.

 

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profits against which the future reversal of the underlying temporary differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the reporting date.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

  F- 11  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

EMPLOYEE BENEFITS

 

(a) Pension obligations

 

The Group employees are members of defined contribution money purchase schemes where the obligations of Group companies are charged to the income statement as they are incurred. The Group has no further obligations once the contributions have been paid.

 

(b) Share based compensation

 

The Group operates a number of equity-settled, share based compensation plans, under which the Group receives services from employees as consideration for equity instruments (options) in the Company. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

 

  including any market performance conditions (for example, the Group’s share price);

 

  excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

 

  including the impact of any non-vesting conditions (for example, the requirement for employees to save)

 

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

 

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

 

(c) Employee Share Ownership Plan

 

The Group’s Employee Share Ownership Plan (ESOP) is a separately administered trust. The Company guarantees liabilities of the ESOP, and the assets of the ESOP mainly comprise shares in the Company. The assets, liabilities, income and costs of the ESOP have been included in the Group financial statements.

 

PROVISIONS

 

Provisions are made in respect of residual onerous long leasehold properties where expected future rental costs are in excess of expected income from subletting.

 

Provision is made for product warranty claims to the extent that the Group has a current obligation under warranties given. Warranty accruals are based on historic warranty claims experience. Provisions are discounted to their present value where the impact is significant.

 

  F- 12  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

REVENUE RECOGNITION

 

(a) Sale of goods

 

Revenue represents amounts receivable from external customers for goods sold by Group companies in the ordinary course of business and excluding value added tax. Sales are recognised in accordance with IAS 18 “Revenue”, when the significant risks and rewards of ownership of the goods are transferred to the customer, the sales price agreed and the receipt of payment can be assured.

 

(b) Construction contracts

 

From time to time the Group enters into construction contracts that will take a number of months to complete. Customer contracts that are expected to span more than one period end are recognised in revenue in accordance with IAS 11.

 

Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the reporting date. This is measured by the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.

 

Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable such costs will be recoverable.

 

Contract costs are recognised as expenses in the period in which they are incurred.

 

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

 

(c) Sales of services

 

Revenue from service contracts that are not accounted for as construction contracts under IAS 11 is recognised in line with the delivery of service to the customer. Related costs are deferred on the statement of financial position and then recorded as a cost of sale when the revenue is recognised.

 

INTEREST INCOME

 

Interest income is recognised on a time apportionment basis.

 

DIVIDEND DISTRIBUTION

 

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

 

NON-RECURRING ITEMS

 

These are material items excluded from management’s assessment of profit because by their nature they could distort the Group’s underlying quality of earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis.

 

IMPAIRMENT OF NON-FINANCIAL ASSETS

 

Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or

 

  F- 13  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

 

depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

3. FINANCIAL RISK MANAGEMENT

 

FINANCIAL RISK FACTORS

 

The Group’s activities expose it to a variety of financial risks: market risk (foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of the financial markets and seeks to minimise the potential adverse effects on the Group’s financial performance.

 

Risk management policy is carried out through a central treasury function within the executive management team at the Group’s head office. The treasury function identifies, evaluates and manages financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management whilst the central treasury function provides specific policy guidance for the operating units in terms of managing market risk, credit risk and cash and liquidity management.

 

(A) MARKET RISK

 

(i) Foreign exchange risk

 

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily between the US dollar and GBP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

 

At a transactional level the UK business has a broadly neutral exposure to foreign currency transactions, in that their revenues in euros and US dollars match their purchases. Foreign currency bank accounts are maintained to minimise exchange risk by trading currencies into sterling only when forecast surpluses or deficits are expected to arise. Approximately 30 per cent of the US business’ cost of goods sold comes from its fellow subsidiaries in the UK and is priced in US dollars. The flow of cash from the USA to the UK businesses is managed by central treasury in order to minimise the risk to the Group.

 

The exchange risk to the Group in terms of its reported results lies in the translation of the results of the US business from US dollars to GBP. The Group’s accounting policy is to translate the profits and losses of overseas operations using the average exchange rate for the financial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues to be the Group’s policy not to hedge the foreign currency exposures on the translation of overseas profits or losses and net assets or liabilities to sterling as they are considered to be accounting rather than cash exposures.

 

  F- 14  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

3. FINANCIAL RISK MANAGEMENT  – (continued)

 

The principal exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below:

 

Rate compared to £ sterling   Average rate
2015
    Average rate
2014
    Year end rate
2015
    Year end rate
2014
 
US dollar     1.529       1.648       1.482       1.561  
                                 

 

Where overseas acquisitions are made, it is the Group’s policy to arrange any borrowings required in local currency.

 

It is the Group’s policy not to trade in financial instruments. The Group does not use interest rate swaps. The Group does not speculate in foreign currencies and no operating company is permitted to take unmatched positions in any foreign currency. The Group will use borrowings in currencies other than GBP where appropriate to specific transactions, such as overseas acquisitions. This policy has been in force throughout the financial year and remains so.

 

If the results for the year to 31 December 2014 had been translated at the 2015 average rate then the translation impact would be to increase prior year revenue by £1.6 million and decrease the profit before tax by £0.1 million.

 

(ii) Cash flow interest rate risk

 

Cash flow interest rate risk comprises the interest rate price risk that results from borrowing at both fixed and variable rates of interest.

 

(B) CREDIT RISK

 

Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances.

 

Credit risk arises with cash balances and accounts receivables. The Group’s cash deposits are held at banks that have been carefully selected, taking into consideration their individual external credit ratings (note 16).

 

Each local subsidiary is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. It is the Group’s policy to obtain deposits from customers where possible, particularly overseas customers. In addition, the Group will seek confirmed letters of credit for the balances due. The nature of the customer base (for example, national TV stations, government procurement agencies) makes the use of credit insurance inappropriate. Credit risk is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there is no independent rating, the finance function assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored.

 

(C) LIQUIDITY RISK

 

A material portion of the Group’s net assets are represented by its cash balances. Any material loss of cash through ineffective investment of this resource would undermine our ability to generate growth in shareholder value. Similarly, an inability to access these funds would undermine the Group’s ability to meet its financial obligations. We have assessed the likelihood of loss to be low but with a high potential impact.

 

Therefore, in mitigation the Group’s liquidity risk management policy is to maintain sufficient cash and available funding through an adequate amount of committed credit facilities from its bankers, Santander. Due

 

  F- 15  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

3. FINANCIAL RISK MANAGEMENT  – (continued)

 

to the dynamic nature of the underlying businesses, central treasury aims to maintain flexibility in funding by keeping committed credit lines available, as disclosed in note 19.

 

The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

    Less than
one year
£000
    Between
one and
two years
£000
    Between
two and
five years
£000
    Total
£000
 
At 31 December 2015:                                
Bank loans (secured)     9,000                   9,000  
Trade and other payables     13,251                   13,251  
At 31 December 2014:                                
Bank loans (secured)     5,600       600       1,800       8,000  
Trade and other payables     14,983                   14,983  

 

CAPITAL RISK MANAGEMENT

 

The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

 

Consistent with other businesses, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown in the statement of financial position) less cash and cash equivalents.

 

Total capital is the sum of equity plus net debt (or less net cash) being £60.2 million at 31 December 2015 (2014: £56.4 million).

 

It is the stated strategy of the Group to grow both organically and through acquisition. Acquisitions would be funded through an appropriate combination of equity and borrowings. Future gearing would not be expected to exceed 50 per cent.

 

FAIR VALUE ESTIMATION

 

The carrying value of trade receivables (less impairment provision) and payables are assumed to approximate to their fair value.

 

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

In the process of applying the Group’s accounting policies, management has made accounting judgements in the determination of the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates, actual outcomes will differ from those assumptions and estimates. The following judgements have the most significant effect on the amounts recognised in the financial statements.

 

ACCOUNTING FOR LONG TERM CONTRACTS

 

Amounts recognised in the income statement on long term contracts are a function of both the state of progress on contracts and the margins that are expected to be recognised for the completed contract.

 

  F- 16  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS  – (continued)

 

Accordingly, recognition of work in progress and margins on contracts that have not yet been completed requires management to make a careful estimate of the final costs, any expected increases as well as delays, extra costs and penalties that could reduce the expected margin.

 

The amounts recognised in the financial statements represent management’s best estimate of these key considerations at the reporting date.

 

ACQUIRED INTANGIBLES

 

Intangible assets (intellectual property, brands and customer relationships) have been acquired as part of the net assets of certain subsidiaries. These intangible assets were capitalised at their fair value at the date of acquisition. Determining the value of acquired intangibles required the calculation of estimated future cash flows expected to arise from the intangible assets at a suitable discount rate in order to calculate their present value. In addition, an estimate of the useful life of the intangible asset has to be made, over which period the cash flows were expected to be generated. The carrying amount of acquired intangibles at the reporting date was £7.2 million (note 12) (2014: £9.6 million).

 

IMPAIRMENT OF GOODWILL

 

Determining whether goodwill is impaired requires the estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate future cash flows expected to arise from the cash-generating unit at a suitable discount rate in order to calculate the present value. Details of the impairment review and the sensitivities considered thereon are provided in note 12.

 

DEFERRED TAX ASSETS

 

The carrying value of deferred tax assets is dependent on sufficient taxable profits being generated in certain territories in future periods. The carrying amount of net deferred tax liabilities at the reporting date was £1.3 million (note 22) (2014: deferred tax liabilities £1.6 million). In addition, there were £8.0 million of deferred tax assets not recognised (2014: £4.8 million).

 

PROVISIONS FOR OTHER LIABILITIES AND CHARGES

 

Included within the statement of financial position are warranty provisions amounting to £0.2 million (2014: £0.3 million) and onerous property lease provisions of £0.5 million (2014: £0.3 million) (note 21). Management believe that the warranty provisions are adequate to cover the future risk of product warranty claims based on historic claims history applied to the current revenue levels.

 

The movement in the onerous property lease provision in the year relates to the creation of vacant property at the Vislink International Hemel Hempstead site arising from the restructure. This was offset by the release of a provision on the Gigawave acquired site which had its sublet agreement renewed in 2015. Property provisions have been made in respect of the vacated lease premises and represent the future liabilities associated with the property to the end of the lease, net of anticipated income from subletting. In the current economic environment we cannot be certain that this provision will be sufficient to cover the total future liabilities associated with the property and the requirement for provision will be reassessed annually. The total liability for future rent and rates on the vacated lease properties, excluding any potential benefit from subletting are £1.2 million over an aggregate period of six years for the Gigawave property and £1.0 million over an aggregate period of four years for the partially vacant Hemel Hempstead property.

 

  F- 17  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS  – (continued)

 

IMPAIRMENT OF TRADE RECEIVABLES

 

The carrying amount of trade receivables at the year end was £16.7 million (2014: £11.8 million), against which there was an impairment provision of £0.6 million (2014: £1.0 million) (note 15). Trade receivables that are less than three months past due are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that the customer will default. Older debts are considered to be impaired unless there is sufficient evidence to the contrary that they will be settled. Management believe that the provision is adequate to cover the risk of bad debts.

 

INVENTORY PROVISIONS

 

The carrying amount of inventory at the year end was £12.7 million (2014: £12.9 million) after a provision for excess and obsolete inventory of £5.5 million (2014: £4.8 million) (note 14). During the year £0.5 million of the provision was utilised following the scrapping and sale of obsolete inventory. Inventory write-downs of £nil were written back to the income statement on the sale of products against which provisions had previously been made. Such products have an estimated net realisable value that was below their cost hence the requirement for the provision.

 

SHARE BASED PAYMENTS

 

A number of accounting estimates and judgements are incorporated within the calculation of the charge to the income statement in respect of share based payments. These are described in more detail in note 23.

 

  F- 18  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

5. SEGMENTAL REPORTING

 

The two markets in each of the divisions are Broadcast and Surveillance and Public Safety. As the divisions manage and control the markets directly, costs are shared across markets in certain divisions which means that any allocation of costs to markets would be arbitrary. The focus of management is to ensure that the appropriate material margins are being achieved in each market as a sub analysis of the divisional performance (note 2).

 

The segment information provided to the Board for the reportable continuing segments for the year ended 31 December 2015 is as follows:

 

Segmental reporting by division   Vislink
Communication
Systems
£000
    Pebble Beach
Systems
£000
    Central
£000
    Total
£000
 
Year ended 31 December 2015                                
Income statement:                                
Broadcast     39,265       10,949             50,214  
Surveillance and Public Safety     7,597                   7,597  
Total revenue     46,862       10,949             57,811  
Adjusted operating profit/(loss)     2,820       3,255       (1,354 )     4,721  
Amortisation and impairment of acquired intangibles     (985 )     (1,419 )           (2,404 )
Non-recurring items     (2,872 )           (199 )     (3,071 )
Finance costs     (489 )           241       (248 )
Finance income     2       78       (72 )     8  
(Loss)/profit before taxation     (1,524 )     1,914       (1,384 )     (994 )
Taxation     289       (476 )     278       91  
(Loss)/profit for the year being (loss)/profit attributable to owners of the parent     (1,235 )     1,438       (1,106 )     (903 )
Segment assets                                
Non-current assets     38,307       9,318       1,328       48,953  
Current assets     29,064       5,050       584       34,698  
Total assets     67,371       14,368       1,912       83,651  
Total liabilities     14,862       5,558       8,779       29,199  
Total net assets/(liabilities)     52,509       8,810       (6,867 )     54,452  
Other segment items                                
Capital expenditure     377       121       107       605  
Capitalised development expenditure     3,217       365             3,582  
Depreciation     640       99       22       761  
Amortisation of intangibles     4,092       1,536             5,628  

 

Central costs represent corporate expenses.

 

Segment assets include property, plant and equipment, goodwill, other intangibles, inventories, trade receivables and operating cash. Segment assets exclude inter-segment investments. Segment liabilities comprise operating liabilities, taxation and segmental provisions for liabilities and charges. Segmental liabilities also include amounts owed to other segments and Central.

 

  F- 19  

 

 

VISLINK PLC
  
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED 31 DECEMBER 2015

 

5. SEGMENTAL REPORTING  – (continued)

 

Segmental capital expenditure comprises additions to property, plant and equipment. It excludes segmental additions resulting from acquisitions through business combinations.

 

Segmental reporting by division   Vislink
Communication
Systems
£000
    Pebble Beach
Systems
£000
    Central
£000
    Total
£000
 
Year ended 31 December 2014                                
Income statement – continuing business:                                
Broadcast     37,754       8,292             46,046  
Surveillance and Public Safety     15,885                   15,885  
Total revenue     53,639       8,292             61,931  
Adjusted operating profit/(loss)     5,938       3,298       (2,032 )     7,204  
Amortisation and impairment of acquired intangibles     (1,510 )     (1,120 )           (2,630 )
Non-recurring items     (889 )           1,827       938  
Finance costs     (798 )           629       (169 )
Finance income     3       19       2       24  
Profit before taxation     2,744       2,197       426       5,367  
Taxation     (1,214 )     (917 )     508       (1,623 )
Profit for the year being profit attributable to owners of the parent     1,530       1,280       934       3,744  
Segment assets                                
Non-current assets (net of deferred tax liabilities)     36,058       10,331       (1,666 )     44,723  
Current assets     27,699       7,445       2,076       37,220  
Total assets     63,757       17,776       410       81,943  
Total liabilities     13,628       4,050       7,438       25,116  
Total net assets/(liabilities)     50,129       13,726       (7,028 )     56,827  
Other segment items:                                
Capital expenditure     713       206             919  
Capitalised development expenditure     3,499       148             3,647  
Depreciation     731       70       85       886  
Amortisation of intangibles     4,203       19             4,222  

 

  F- 20  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

5. SEGMENTAL REPORTING  – (continued)

 

GEOGRAPHIC EXTERNAL REVENUE ANALYSIS

 

The revenue analysis in the table below is based on the geographical location of the customer for each business unit.

 

    2015     2014  
    Broadcast
£000
    Surveillance &
Public
Safety
£000
    Total
£000
    Broadcast
£000
    Surveillance &
Public
Safety
£000
    Total
£000
 
By market:                                                
UK     5,140       2,377       7,517       6,214       10,098       16,312  
Rest of Europe     9,964       2,129       12,093       9,321       1,835       11,156  
North America     15,579       2,892       18,471       15,027       3,555       18,582  
Latin America     5,967       47       6,014       2,893       43       2,936  
Middle East and Africa     7,370       28       7,398       5,432       68       5,500  
Asia/Pacific     6,194       124       6,318       7,159       286       7,445  
      50,214       7,597       57,811       46,046       15,885       61,931  

 

Non-current assets, other than financial instruments and deferred tax, located in the UK are £31.9 million (2014: £33.6 million) and rest of world £12.6 million (2014: £12.7 million).

 

6. OPERATING (LOSS)/PROFIT

 

The following items have been included in arriving at the operating (loss)/profit for the continuing business:

 

    2015
£000
    2014
£000
 
Depreciation of property, plant and equipment (note 13)     761       886  
Amortisation and impairment of acquired intangibles (note 12)     2,404       2,130  
Impairment of intangible assets           500  
Operating lease rentals     247       205  
Repairs and maintenance expenditure on property, plant and equipment     110       112  
Exchange gains credited to profit and loss     (561 )     (534 )
Research and development expenditure expensed in the year which includes:     5,757       5,558  
 – Capitalisation of research and development expenditure (note 12)     (3,582 )     (3,647 )
 – Amortisation of capitalised development costs (note 12)     3,224       2,092  

 

  F- 21  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

6. OPERATING (LOSS)/PROFIT  – (continued)

 

OTHER EXPENSES

 

Other expenses comprise:

 

    2015
£000
    2014
£000
 
Amortisation and impairment of acquired intangibles     2,404       2,630  
Non-recurring items     3,071       (938 )
      5,475       1,692  

 

NON-RECURRING ITEMS

 

The following items are excluded from management’s assessment of profit because by their nature they could distort the Group’s underlying quality of earnings. They are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis:

 

    2015
£000
    2014
£000
 
Rationalisation and redundancy costs     2,531       722  
Onerous property commitments     341        
Reduction in disputed creditor balance           (169 )
Contractual disputes           167  
Write back of deferred consideration un-earned           (2,000 )
Acquisition related costs     199       270  
Costs associated with the transfer to the Alternative Investment Market (AIM)           72  
      3,071       (938 )

 

The Group has incurred rationalisation and redundancy costs of £2,531,000 in the year (2014: £722,000) in relation to the restructuring within Vislink Communication Systems.

 

In 2015 the Group incurred £341,000 of costs in relation to onerous property commitments as part of the restructuring of Vislink Communication Systems.

 

The Group incurred £199,000 of acquisition related costs during 2015 (2014: £224,000 acquisition costs in relation to the acquisition of Pebble Beach Systems Limited and also incurred £46,000 of costs associated with an aborted acquisition).

 

An on-going creditor dispute was resolved during 2014, resulting in a £169,000 reduction in the payable amount. The agreed revised settlement figure was paid in 2015.

 

In 2014 there was a £2,000,000 release of deferred consideration owing to the vendors of Amplifier Technology Limited as a result of the failure to meet target revenues.

 

In 2014 an ongoing contractual dispute was resolved and a final settlement figure of £167,000 was agreed and paid. During 2014 the Group incurred costs of £72,000 in relation to the move to AIM.

 

  F- 22  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

7. DIRECTORS AND EMPLOYEES

 

Staff costs during the year for the continuing business were as follows:

 

    2015
£000
    2014
£000
 
Wages and salaries     14,837       15,362  
Social security costs     1,906       1,992  
Other pension costs – defined contribution plans (note 26)     562       545  
Share based payments (note 23)     403       500  
      17,708       18,399  

 

The monthly average number of employees employed by the Group during the year was as follows:

  

    2015
Number
    2014
Number
 
Average monthly number of employees                
Broadcast sales and marketing     60       53  
Surveillance and Public Safety sales and marketing     2       5  
Services     2       4  
Technology     88       85  
Logistics     66       91  
Projects and support     23       20  
General and Admin     39       43  
      280       301  

 

The average number of employees has been calculated on a pro rata basis from the date of disposal or acquisition of subsidiaries and businesses. The average number of employees includes directors with service contracts. The total number of employees at 31 December 2015 was 268 (2014: 296).

 

Key management compensation for the continuing business:

 

    2015
Number
    2014
Number
 
Short term employee benefits – including salaries, social security costs and non-monetary benefits     2,236       2,568  
Post-employment benefits – defined contribution pension plans     204       159  
Share-based payments (note 23)     399       500  
      2,839       3,227  

 

The analysis of key management compensation above includes Executive Directors. Key management is defined as the senior management teams in each of the business units of the Group.

 

  F- 23  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

8. FINANCE COSTS — NET

 

    2015
£000
    2014
£000
 
Finance costs     248       169  
Finance income     (8 )     (24 )
Finance costs – net     240       145  

 

Finance costs represent interest payable on bank borrowings.

 

Finance income is derived from cash held on deposit.

 

9. INCOME TAX (CREDIT)/EXPENSE

 

A) ANALYSIS OF THE TAX (CREDIT)/CHARGE IN YEAR

 

    2015
£000
    2014
£000
 
Current tax                
UK corporation tax     160       585  
Foreign tax – current year     182       74  
Adjustments in respect of prior years     (34 )      
Total current tax     308       659  
Deferred tax                
UK corporation tax     188       112  
Impact of change in tax rate     (117 )      
Foreign tax     (613 )     837  
Adjustments in respect of prior years     143       15  
Total deferred tax     (399 )     964  
Total taxation     (91 )     1,623  

 

  F- 24  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

9. INCOME TAX (CREDIT)/EXPENSE  – (continued)

 

B) FACTORS AFFECTING TAX (CREDIT)/CHARGE FOR YEAR

 

The (credit)/charge for the year can be reconciled to the (loss)/profit in the income statement as follows:

 

    2015
£000
    2014
£000
 
(Loss)/profit before tax on continuing operations     (994 )     5,367  
Tax at the UK corporation tax rate of 20.25% (2014: 21.5%)     (201 )     1,154  
Adjustments in respect of prior years     109       15  
Permanent differences     523       347  
Enhanced R&D tax relief     (485 )     (390 )
Deferred consideration not taxable           (430 )
Underwater share options     108        
Current year losses not recognised     428       1,117  
Brought forward losses used in the year     (12 )      
Additional losses now recognised     (200 )     (36 )
Effect of changes in UK tax rate     (117 )     (40 )
Effects of different tax rates of subsidiaries operating in other jurisdictions     (244 )     (114 )
Total taxation     (91 )     1,623  

 

The standard rate of corporation tax in the UK changed from 21 per cent to 20 per cent with effect from 1 April 2015. Accordingly, the Company’s profits for this accounting year are taxed at an effective rate of 20.25 per cent.

 

10. DIVIDENDS AND RETURNS TO SHAREHOLDERS

 

      2015
£000
    2014
£000
 
  Final dividend paid of 1.50 pence per share (2014: 1.25 pence per share)       1,830       1,473  

 

The directors are proposing a final dividend in respect of the financial year ending 31 December 2015 of 1.50 pence per share which will absorb an estimated £1.8 million of shareholders’ funds. It will be paid on 18 July 2016 to shareholders who are on the register of members on 24 June 2016.

 

11. EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year.

 

  F- 25  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

11. EARNINGS PER SHARE  – (continued)

 

Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below.

 

    2015     2014  
    Earnings
£000
    Weighted
average
number of
shares
000s
    Earnings
per share
pence
    Earnings
£000
    Weighted
average
number of
shares
000s
    Earnings
per share
pence
 
Basic (loss)/earnings per share                                                
(Loss)/profit attributable to ordinary shareholders     (903 )     121,910       (0.7 )     3,744       117,797       3.2  
Basic (loss)/earnings per share     (903 )     121,910       (0.7 )     3,744       117,797       3.2  
Diluted (loss)/earnings per share                                                
(Loss)/profit attributable to ordinary shareholders     (903 )     124,694       (0.7 )     3,744       120,250       3.1  
Diluted (loss)/earnings per share     (903 )     124,694       (0.7 )     3,744       120,250       3.1  

 

 

ADJUSTED EARNINGS

 

The directors believe that adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term “adjusted” is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles and non-recurring items and their related tax effects.

 

The reconciliation between reported and underlying earnings and basic earnings per share is shown below:

 

    £000     2015
Pence
  £000     2014
Pence
 
Reported (loss)/earnings per share     (903 )   (0.7 )   3,744     3.2  
Amortisation of acquired intangibles after tax     2,188     1.7     2,209     1.9  
Non-recurring items after tax     2,449     2.0     (1,093 )   (1.0 )
Adjusted earnings per share     3,734     3.0     4,860     4.1  

 

  F- 26  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

12. INTANGIBLE ASSETS

 

    Goodwill
£000
    Acquired
customer
relationships
£000
    Acquired
intellectual
property
£000
    Acquired
brands
£000
    Capitalised
development
costs
£000
    Total
£000
 
Cost                                                
At 1 January 2014     37,027       12,504       5,089       1,687       17,970       74,277  
Additions                             3,647       3,647  
Additions from acquisition of business     3,218       4,494       3,350                   11,062  
Exchange adjustment   588     402       39     653     1,682  
At 1 January 2015     40,833       17,400       8,439       1,726       22,270       90,668  
Additions     99                         3,582       3,681  
Disposals                 (61 )                 (61 )
Exchange adjustment     560       93             38       676       1,367  
At 31 December 2015     41,492       17,493       8,378       1,764       26,528       95,655  
Accumulated amortisation                                                
At 1 January 2014     15,443       10,908       3,872       620       10,401       41,244  
Charge for the year –  continuing business           976       985       169       2,092       4,222  
Impairment charge     500                               500  
Exchange adjustment     258       402             23       336       1,019  
At 1 January 2015     16,201       12,286       4,857       812       12,829       46,985  
Charge for the year –  continuing business           1,134       1,096       174       3,224       5,628  
Exchange adjustment     244       95             28       384       751  
At 31 December 2015     16,445       13,515       5,953       1,014       16,437       53,364  
Net book value                                                
At 31 December 2015     25,047       3,978       2,425       750       10,091       42,291  
At 31 December 2014     24,632       5,114       3,582       914       9,441       43,683  
At 1 January 2014     21,584       1,596       1,217       1,067       7,569       33,033  

 

The estimated useful life for the intellectual property and customer relationships acquired with the business of Pebble Beach Systems has been determined to be five years and six years respectively based on the expected future cash flows that they would generate in arriving at their fair value. The fair value of the intellectual property acquired on the acquisition of Pebble Beach Systems was £3.4 million and the fair value of the customer relationships acquired was £4.5 million.

 

The remaining net book value of IP, brands and customer relationships were acquired with the businesses of Gigawave, Amplifier Technology and PMR and are associated with the Broadcast and Surveillance and Public Safety markets. The estimated useful lives had been determined to be between five and ten years based on the expected future cash flows that they would generate in arriving at their fair value.

 

  F- 27  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

12. INTANGIBLE ASSETS  – (continued)

 

The amortisation of development costs is included in research and development expenses in the Consolidated Income Statement. Within development costs there are £11.8 million (2014: £9.8 million) of fully written down assets that are still in use.

 

The amortisation of customer relationships, brands and intellectual property are all charged to other expenses in the Consolidated Income Statement and are referred to as the amortisation of acquired intangibles.

 

IMPAIRMENT TEST FOR CASH GENERATING UNITS CONTAINING GOODWILL

 

Historical goodwill acquired in business combinations was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefit from those business combinations, being the markets that the Group serves, namely Broadcast, Surveillance and Public Safety, Amplifier Technology Limited and Pebble Beach Systems Limited.

 

In accordance with the requirements of IAS 36 “Impairment of assets”, goodwill is required to be tested for impairment on an annual basis, with reference to the value of the cash-generating units in question. The goodwill relating to the Surveillance and Public Safety market was fully written down in 2010. The Group acquired Amplifier Technology in 2013 which is a separate CGU and Pebble Beach Systems in 2014 which is also a separate CGU, therefore impairment reviews have been undertaken in respect of the Broadcast market, Amplifier Technology and Pebble Beach Systems. The carrying value of goodwill at 31 December 2015 is £25.0 million (2014: £24.6 million) consisting of £20.6 million for the Broadcast market (2014: £20.3 million), £1.1 million for Amplifier Technology (2014: £1.1 million) and £3.3 million for Pebble Beach Systems (2014: £3.2 million).

 

The carrying value of all CGUs (including goodwill) have been assessed with reference to value in use over a projected period of four years with a terminal value. This reflects projected cash flows based on actual operating results and approved budget, strategic plans and management projections.

 

The key assumptions on which the value in use calculations are based relate to business performance over the next four years, long term growth rates beyond 2015 and the discount rate applied.

 

The cash flow projections have been discounted to present value using the Group’s pre-tax weighted average cost of capital, which has been calculated on a consistent basis using the capital asset pricing model to determine cost of equity and debt. This has resulted in a pre-tax discount rate of 14.6 per cent (2014: 13.0 per cent), which has been used for the purpose of the impairment test. In respect of the Broadcast market, Amplifier Technology and Pebble Beach Systems the value in use was found to be higher than the carrying value, hence no impairment is necessary.

 

Our impairment test for Amplifier Technology CGU indicated headroom of £0.4m. A reduction of 16.1 per cent in overall cash flows, or an increase in the discount rate by 2.3 per cent would cause the carrying value to equal the recoverable amount.

 

Our impairment test for the Broadcast CGU indicated headroom of £17.0 million. A reduction of 36.4 per cent in overall cash flows, or an increase in the discount rate by 5.1 per cent would cause the carrying value to equal the recoverable amount.

 

For Pebble Beach Systems Limited, any reasonable movement in the assumptions used in the impairment tests would not result in any impairment.

 

  F- 28  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

13. PROPERTY, PLANT AND EQUIPMENT

 

    Freehold
land and
buildings
£000
    Leasehold
improvements,
fixtures and
fittings
£000
    Plant, tools,
test and
computer
equipment
£000
    Total
£000
 
Cost                                
At 1 January 2014     907       1,441       8,501       10,849  
Additions     73       287       559       919  
Additions from acquisition of business     32       144       281       457  
Disposals                 (102 )     (102 )
Exchange adjustment   27     48     1,693     1,768  
At 1 January 2015     1,039       1,920       10,932       13,891  
Additions     7       24       574       605  
Disposals     (508 )           (366 )     (874 )
Exchange adjustment     11       48       550       609  
At 31 December 2015     549       1,992       11,690       14,231  
Accumulated depreciation                                
At 1 January 2014     245       1,135       7,039       8,419  
Charge for the year – continuing business     37       115       734       886  
Additions from acquisition of business     14       102       179       295  
Disposals                 (101 )     (101 )
Exchange adjustment     9       33       1,685       1,727  
At 1 January 2015     305       1,385       9,536       11,226  
Charge for the year – continuing business     22       124       615       761  
Disposals     (169 )           (366 )     (535 )
Exchange adjustment     2       35       541       578  
At 31 December 2015     160       1,544       10,326       12,030  
Net book value                                
At 31 December 2015     389       448       1,364       2,201  
At 31 December 2014     734       535       1,396       2,665  
At 1 January 2014     662       306       1,462       2,430  

 

14. INVENTORIES

 

    2015
£000
    2014
£000
 
Raw materials and consumables     7,678       4,410  
Work in progress     414       880  
Finished goods and goods for resale     4,604       7,594  
      12,696       12,884  

 

During the year the Group consumed £25.8 million (2014: £31.9 million) of inventories and credited £nil (2014: £nil) to the income statement in respect of inventory write downs. Inventory write downs are written

 

  F- 29  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

14. INVENTORIES  – (continued)

 

back on the sale of products against which provisions have previously been made. Such products have a net realisable value that is below their cost hence the requirement for the provision.

 

15. TRADE AND OTHER RECEIVABLES

 

    2015
£000
    2014
£000
 
Current:                
Trade receivables     16,749       11,802  
Less: provision for impairment     (643 )     (962 )
Trade receivables – net     16,106       10,840  
Amounts recoverable on contracts           3,867  
Other receivables     43       169  
Prepayments and accrued income     2,602       1,080  
      18,751       15,956  

 

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated to each other.

 

Trade receivables that are less than three months past due are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that the customer will default. At 31 December 2015 trade receivables of £4.2 million (2014: £6.1 million) were past due but not impaired. The credit quality of the Group’s customers is good, being a combination of large broadcast stations (public and private), government agencies and departments. Controls within Group companies are in place to ensure that appropriate credit limits are in place. The overdue amounts relate to customers with no history of default. The ageing of these receivables is as follows:

 

    2015
£000
    2014
£000
 
Up to three months     2,197       4,559  
Three to six months     803       866  
Over six months     1,228       635  
      4,228       6,060  

 

At 31 December 2015 trade receivables of £0.6 million (2014: £1.0 million) were impaired and provided for in whole or in part. The provision of £0.6 million (2014: £1.0 million) is set against specific customer debts. In general, customer debts that are considered impaired are as a result of contractual disputes rather than as a result of customer cash flow difficulties, although some specific customers in the US, for which the debts have been provided in full, have filed for relief from their creditors under Chapter 11 in the United States. The ageing of these receivables is as follows:

 

    2015
£000
    2014
£000
 
Over six months     643       1,026  
      643       1,026  

 

  F- 30  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

15. TRADE AND OTHER RECEIVABLES  – (continued)

 

The gross amounts of the Group’s trade receivables are denominated in the following currencies:

 

    2015
£000
    2014
£000
 
Pounds sterling     7,857       5,760  
US dollars     8,299       6,004  
Euros     593       38  
      16,749       11,802  

 

Movements on the Group provision for impairment of trade receivables are as follows:

 

    2015
£000
    2014
£000
 
At 1 January     962       752  
Provision for receivable impairment     16       411  
Receivables written off during the year as uncollectable     (349 )     (134 )
Receivables previously provided that were recovered in full or part           (184 )
Transfer on acquisition of business           115  
Exchange adjustment     14       2  
At 31 December     643       962  

 

Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

 

The other classes within trade and other receivables do not contain impaired assets.

 

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security.

 

16. CASH AND CASH EQUIVALENTS

 

    2015
£000
    2014
£000
 
Cash and bank balances     3,251       8,380  
Cash and cash equivalents at 31 December     3,251       8,380  

 

The credit quality of the cash and cash equivalents that are not impaired can be assessed by reference to the external credit ratings of the banks where the deposits are held.

 

Credit rating (S&P)   2015
£000
    2014
£000
 
A-1+     1,183       1,107  
A-1     1,943       6,113  
A-2     120       1,129  
A-3           31  
B     5        
Total     3,251       8,380  

 

  F- 31  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

16. CASH AND CASH EQUIVALENTS  – (continued)

 

Reconciliation of (decrease)/increase in cash and cash equivalents to movement in net cash:

 

    2015     2014  
    Cash and
cash
equivalents
£000
    Other
borrowings
£000
    Total net
cash
£000
    Cash and
cash
equivalents
£000
    Other
borrowings
£000
    Total net
cash
£000
 
At 1 January     8,380       (8,000 )     380       3,705             3,705  
Cash flow for the year before financing and acquisition of subsidiary     (4,346 )           (4,346 )     3,187             3,187  
Proceeds on issue of shares                       2,000             2,000  
Purchase of subsidiary                       (13,092 )           (13,092 )
Cash acquired from subsidiary                       6,089             6,089  
Movement in borrowings in the year     1,000       (1,000 )           8,000       (8,000 )      
Dividend paid     (1,830 )           (1,830 )     (1,473 )           (1,473 )
Exchange rate adjustments     47             47       (36 )           (36 )
Cash and cash equivalents at 31 December     3,251       (9,000 )     (5,749 )     8,380       (8,000 )     380  

 

17. TRADE AND OTHER PAYABLES

 

    2015
£000
    2014
£000
 
Payments received on account     1,778       1,033  
Trade payables     7,984       8,589  
Accruals and deferred income     3,489       5,361  
Other taxes and social security costs     303       827  
      13,554       15,810  

 

18. CURRENT TAX LIABILITIES

 

    2015
£000
    2014
£000
 
UK corporation tax     45       691  
Foreign corporation tax     194       56  
Current tax liabilities     239       747  

 

  F- 32  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

19. FINANCIAL LIABILITIES — BORROWINGS

 

    2015
£000
    2014
£000
 
Non-current:                
Bank loans (secured)           2,400  
Current:                
Bank loans (secured)     9,000       5,600  

 

BANK BORROWING FACILITIES

 

On 30 June 2015 the Group restructured its existing debt facilities and replaced the original £7.0 million Revolving Credit Facility (RCF) and £3.0 million term loan with a £10.0 million RCF. On 26 November 2015 the Group extended its RCF to £15.0 million to provide greater flexibility. As at 31 December 2015 £9.0 million of the facility had been utilised. The RCF is committed until November 2018.

 

The Group overdraft facility expires within one year and is therefore subject to review during 2016 in the normal course of business. At 31 December 2015 the Group had a gross bank overdraft facility of £2.0 million, and a net limit of £1.0 million. Interest on the overdraft facility is charged at 2.75 per cent over base rate.

 

All bank facilities are secured by fixed and floating charges over the Group’s assets and by cross-guarantees between the Company and certain UK and US subsidiaries.

 

Prudent liquidity risk management implies maintaining sufficient cash and available funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group treasury aims to maintain flexibility in funding by keeping committed credit lines available.

 

The Group does not use interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. The effective interest rates at the balance sheet dates were as follows:

 

    2015     2014  
Bank overdraft     3.25 %     3.25 %
Bank borrowings     2.40 %     2.40 %

 

The Group held net debt at 31 December 2015 of £5.7 million (2014: net cash of £0.4 million) and the Group was not utilising the available net overdraft facility.

 

  F- 33  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

20. FINANCIAL INSTRUMENTS

 

Numerical financial instrument disclosures are set out below. Additional disclosures are set out in the accounting policies (note 2).

 

FINANCIAL INSTRUMENTS BY CATEGORY

 

    2015
Loans and
receivables
£000
    2014
Loans and
receivables
£000
 
Assets as per statement of financial position at 31 December                
Trade and other receivables excluding prepayments and accrued income     16,149       14,876  
Cash and cash equivalents     3,251       8,380  
Total     19,400       23,256  

 

There are no financial assets that are pledged as collateral for liabilities or contingent liabilities.

 

    2015
Other
financial
liabilities at
amortised
cost
£000
    2014
Other
financial
liabilities at
amortised
cost
£000
 
Liabilities as per statement of financial position at 31 December                
Trade and other payables excluding payments received on account and social security liabilities     11,473       13,950  
Borrowings     9,000       8,000  
Total     20,473       21,950  

 

21. PROVISIONS FOR OTHER LIABILITIES AND CHARGES

 

    Warranty
provisions
£000
    Property
provisions
£000
    Total
£000
 
At 1 January 2015     270       288       558  
Additional provision in the year           216       216  
Utilisation of provision     (87 )           (87 )
Foreign exchange     5             5  
At 31 December 2015     188       504       692  

 

Provisions have been analysed between current and non current as follows:

 

    2015
£000
    2014
£000
 
Current     272       280  
Non-current     420       278  
At 31 December     692       558  

 

Warranty provisions are made in respect of the expected future warranty costs in certain businesses based on historical actual costs. Warranty periods on products are generally between one and two years. Other than a warranty provision of £0.1 million (2014: £0.1 million) all provisions are denominated in sterling. The

 

  F- 34  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

21. PROVISIONS FOR OTHER LIABILITIES AND CHARGES  – (continued)

 

warranty provision is reassessed annually based on the warranty claim experience of the previous 12 months relative to the aggregate outstanding warranty period at the year end.

 

The onerous property provision movement in the year relates to the creation of a vacant property provision at the Vislink International Hemel Hempstead site, arising following the restructure. This was offset by a release of a provision on the Gigawave acquired site which had its sublet agreement renewed in 2015. This movement is not discounted.

 

22. DEFERRED TAXATION

 

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as more likely than not to be recoverable against future profits.

 

No deferred tax is recognised on unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future.

 

From 1 April 2015 the corporation tax rate was 20 per cent, from 1 April 2017 will be 19 per cent and from 1 April 2020 was expected to be 18 per cent, the 2017 and 2020 rates were substantively enacted on 26 October 2015. The corporation tax rate is now expected to fall to 17% from 1 April 2020 but this has not yet been substantively enacted, hence deferred tax assets and liabilities are calculated at 18%, in so far as they relate to the UK.

 

    Accelerated
tax
depreciation
£000
    Intangible
assets
£000
    Losses
£000
    Other
£000
    Total
£000
 
Deferred tax liabilities                                        
At 1 January 2015     2,283       3,055                   5,338  
Charge to profit or loss     131       50                   181  
Exchange adjustment     111       84                   195  
At 31 December 2015     2,525       3,189                   5,714  

 

    Accelerated
tax
depreciation
£000
    Intangible
assets
£000
    Losses
£000
    Other
£000
    Total
£000
 
Deferred tax assets                                        
At 1 January 2015                 2,371       1,341       3,712  
(Credit)/charge to profit or loss                 (163 )     743       580  
Exchange adjustment                 79       90       169  
At 31 December 2015                 2,287       2,174       4,461  

 

  F- 35  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

22. DEFERRED TAXATION  – (continued)

 

    Accelerated
tax
depreciation
£000
    Intangible
assets
£000
    Losses
£000
    Other
£000
    Total
£000
 
Deferred tax liabilities                                        
At 1 January 2014     1,632       1,521                   3,153  
Acquired during the year     16       1,591                   1,607  
Charge/(credit) to profit or loss     538       (136 )                 402  
Reclassification to deferred tax
assets
    (27 )                       (27 )
Exchange adjustment     124       79                   203  
At 31 December 2014     2,283       3,055                   5,338  

 

    Accelerated
tax
depreciation
£000
    Intangible
assets
£000
    Losses
£000
    Other
£000
    Total
£000
 
Deferred tax assets                                        
At 1 January 2014     27             2,740       1,383       4,150  
Charge to profit or loss                 (451 )     (111 )     (562 )
Reclassification from deferred tax liabilities     (27 )                       (27 )
Exchange adjustment                 82       69       151  
At 31 December 2014                 2,371       1,341       3,712  

 

The movement on net deferred tax (liability)/asset in the year was:

 

    2015
£000
    2014
£000
 
Net deferred tax (liability)/asset at 1 January     (1,626 )     997  
Credited/(charged) in the year – continuing business     399       (964 )
Acquisition of a business           (1,607 )
Exchange adjustment     (26 )     (52 )
Net deferred tax liability at 31 December     (1,253 )     (1,626 )

 

Certain deferred tax assets have not been recognised where they are not probable of recovery:

 

    2015
£000
    2014
£000
 
Losses     8,021       4,172  
Unutilised ACT           584  
      8,021       4,756  

 

  F- 36  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

23. ORDINARY SHARES

 

    Number
’000s
    2015
£000
    Number
’000s
    2014
£000
 
Ordinary shares of 2.5 pence each at 31 December                                
Authorised     200,000       5,000       200,000       5,000  
Allotted and fully paid                                
At 1 January     122,603       3,066       113,902       2,848  
Share issues                 8,701       218  
At 31 December     122,603       3,066       122,603       3,066  

 

POTENTIAL ISSUE OF SHARES

 

The Group has the following share based payment schemes:

 

A) EXECUTIVE SHARE OPTION SCHEMES

 

Executive share options are granted at a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is ten years. Awards are at the discretion of the Remuneration Committee. Options will become exercisable on the third anniversary of the date of grant. Exercise of an option is subject to continued employment. There are no performance criteria attached to the options granted in 2006, 2007 and 2012.

 

2,896,000 executive options were granted during 2015 (2014: nil). These options all have performance criteria attached.

 

Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 29.0 pence to 86.3 pence under the share option schemes approved by shareholders.

 

The number of shares subject to options and the exercise prices are:

 

Date of grant   Exercise
price
    Exercise period   2015
Number
’000s
    2014
Number
’000s
 
13 April 2006     53.5 p   13/04/09 – 12/04/16     54       120  
27 April 2007     86.3 p   27/04/10 – 26/04/17     50       50  
29 March 2012     29.0 p   29/03/15 – 28/03/22     100       450  
14 May 2015     54.0 p   01/04/18 – 13/05/25     2,090        
25 June 2015     59.5 p   25/06/18 – 24/06/25     726        
30 September 2015     40.9 p   30/09/18 – 29/09/25     80        
                  3,100       620  

 

  F- 37  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

23. ORDINARY SHARES  – (continued)

 

A reconciliation of executive option movements over the year is shown below:

 

    Number
’000s
    2015
Weighted
average
exercise
price
    Number
’000s
    2014
Weighted
average
exercise
price
 
Outstanding at beginning of year     620       38.4 p     1,124       31.8 p
Forfeited during the year     (66 )     53.5 p     (124 )     30.1 p
Lapsed during the year                 (34 )     34.5 p
Exercised during the year     (350 )     29.0 p     (346 )     20.4 p
Issued during the year     2,896       55.0 p            
Outstanding at the end of the year     3,100       54.7 p     620       38.4 p
Exercisable at the end of the year     204       49.5 p     170       63.1 p

 

350,000 options were exercised in 2015 (2014: 345,580), some of these options were cash settled and the cash cost has been debited to reserves. The options outstanding at 31 December 2015 had a weighted average exercise price of 54.7 pence (2014: 38.4 pence) and a weighted average remaining contractual life of 9.0 years (2014: 5.7 years).

 

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The risk-free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.

 

B) LONG TERM INCENTIVE PLAN (LTIP)

 

Options have been granted as nil cost options under this scheme. The options granted under this scheme are generally exercisable at the end of the performance period and for seven years thereafter. Awards under this scheme are reserved for employees at senior management level and above. If an employee leaves the employment of the Group, a proportion of his award may be deemed to have vested, subject to satisfying any performance conditions and at the discretion of the Remuneration Committee.

 

Awards under the LTIP scheme are subject to performance criteria, the scales relating to which will be determined annually by the Remuneration Committee. Details of the performance criteria are disclosed in the Remuneration Report.

 

No new LTIP options were granted during the year.

 

The number of shares subject to LTIP options and the exercise prices are:

 

Date of grant   Share price
at award
date
    Vesting date   2015
Number
’000s
    2014
Number
’000s
 
28 March 2012     29.5 p   28 March 2015     2,200       2,200  
15 December 2012     26.0 p   15 December 2015     404       404  
12 November 2013     48.5 p   12 November 2016     3,481       3,550  
03 June 2014     45.1 p   03 June 2017     600       600  
                  6,685       6,754  

 

  F- 38  

 

 

VISLINK PLC

 

FINANCIAL STATEMENTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2015

 

23. ORDINARY SHARES  – (continued)

 

A reconciliation of LTIP option movements over the year is shown below:

 

  Number
’000s
    2015
Weighted
average
exercise
price
    Number
’000s
    2014
Weighted
average
exercise
price
 
Outstanding at beginning of year     6,754