UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file numbernumber: 1-11916
1-11916
WIRELESS TELECOM GROUP, INC.
(Exact name of registrantRegistrant as specified in its charter)
New Jersey | 22-2582295 | |
(State or | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
25 Eastmans Road , Parsippany, New Jersey | 07054 | |
(Address of | (Zip Code) |
(973)386-9696
(Registrant’s Telephone Number, Including Area Code)telephone number, including area code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | WTT | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo
Yes ☒ | No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNoo
Yes☒ | No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox
Yes☐ | No ☒ |
Number of shares of Common Stock outstanding as of October 22, 2017: 22,790,667May 2, 2022:
WIRELESS TELECOM GROUP, INC.
Form 10-Q
Table of Contents
2 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value)
PART I – FINANCIAL INFORMATION
Item 1 –1. Financial Statements
September 30 2017 | December 31 2016 | (Unaudited) | ||||||||||||||
(unaudited) | March 31 2022 | December 31 2021 | ||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash & cash equivalents | $ | 2,266,532 | $ | 9,350,803 | $ | 19,072 | $ | 4,472 | ||||||||
Accounts receivable - net of reserves of $23,026 and $10,740, respectively | 8,107,931 | 5,183,869 | ||||||||||||||
Inventories - net of reserves of $2,067,103 and $1,549,089, respectively | 6,485,796 | 8,452,751 | ||||||||||||||
Accounts receivable - net of reserves of $180 and $196, respectively | 3,875 | 2,407 | ||||||||||||||
Inventories - net of reserves of $695 and $681, respectively | 4,976 | 5,088 | ||||||||||||||
Prepaid expenses and other current assets | 4,789,567 | 866,036 | 2,233 | 1,689 | ||||||||||||
Current assets of discontinued operations | - | 6,869 | ||||||||||||||
TOTAL CURRENT ASSETS | 21,649,826 | 23,853,459 | 30,156 | 20,525 | ||||||||||||
PROPERTY PLANT AND EQUIPMENT – NET | 2,428,245 | 2,166,566 | ||||||||||||||
PROPERTY PLANT AND EQUIPMENT - NET | 1,300 | 1,110 | ||||||||||||||
OTHER ASSETS | ||||||||||||||||
Goodwill | 10,113,158 | 1,351,392 | 10,012 | 10,108 | ||||||||||||
Acquired Intangible Assets, net | 4,756,386 | - | ||||||||||||||
Acquired intangible assets, net | 3,418 | 3,661 | ||||||||||||||
Deferred income taxes | 8,822,687 | 7,403,600 | 2,314 | 5,580 | ||||||||||||
Other | 794,058 | 660,118 | ||||||||||||||
Right of use assets | 1,007 | 1,146 | ||||||||||||||
Other assets | 290 | 284 | ||||||||||||||
Non current assets of discontinued operations | - | 1,937 | ||||||||||||||
TOTAL OTHER ASSETS | 24,486,289 | 9,415,110 | 17,041 | 22,716 | ||||||||||||
TOTAL ASSETS | $ | 48,564,360 | $ | 35,435,135 | $ | 48,497 | $ | 44,351 | ||||||||
CURRENT LIABILITIES | ||||||||||||||||
Short term debt | 1,423,927 | - | $ | 62 | $ | 126 | ||||||||||
Accounts payable | 2,416,202 | 2,986,797 | 1,470 | 1,481 | ||||||||||||
Short term leases | 599 | 585 | ||||||||||||||
Accrued expenses and other current liabilities | 3,290,598 | 673,067 | 6,259 | 6,676 | ||||||||||||
Deferred Revenue | 573,477 | - | ||||||||||||||
Deferred revenue | 89 | 408 | ||||||||||||||
Current liabilities of discontinued operations | - | 1,965 | ||||||||||||||
TOTAL CURRENT LIABILITIES | 7,704,204 | 3,659,864 | 8,479 | 11,241 | ||||||||||||
LONG TERM LIABILITIES | ||||||||||||||||
Long term debt | 532,000 | - | 267 | 3,595 | ||||||||||||
Long term leases | 462 | 615 | ||||||||||||||
Other long term liabilities | 1,810,990 | 69,058 | 52 | 52 | ||||||||||||
Deferred Tax Liability | 789,263 | - | ||||||||||||||
Deferred tax liability | 222 | 228 | ||||||||||||||
TOTAL LONG TERM LIABILITIES | 3,132,253 | 69,058 | 1,003 | 4,490 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued | - | - | ||||||||||||||
Common stock, $.01 par value, 75,000,000 shares authorized, 33,886,752 and 29,786,224 shares issued, 22,790,667 and 18,751,346 shares outstanding | 338,867 | 297,862 | ||||||||||||||
Preferred stock, $ par value, shares authorized, issued | - | - | ||||||||||||||
Common stock, $ and shares issued, and shares outstanding par value, shares authorized | 362 | 359 | ||||||||||||||
Additional paid in capital | 47,453,286 | 40,563,002 | 51,906 | 51,555 | ||||||||||||
Retained earnings | 9,722,650 | 11,668,829 | 10,751 | 554 | ||||||||||||
Treasury stock at cost, - 11,096,085 and 11,034,878 shares, respectively | (20,910,394 | ) | (20,823,480 | ) | ||||||||||||
Accumulated Other Comprehensive Income | 1,123,494 | - | ||||||||||||||
Treasury stock at cost, and shares | (24,638 | ) | (24,619 | ) | ||||||||||||
Accumulated other comprehensive income | 634 | 771 | ||||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 37,727,903 | 31,706,213 | 39,015 | 28,620 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 48,564,360 | $ | 35,435,135 | $ | 48,497 | $ | 44,351 |
TheSee accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
3 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(unaudited) (UNAUDITED)
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
NET SALES | $ | 12,560,298 | $ | 8,344,301 | $ | 34,042,230 | $ | 22,322,820 | ||||||||
COST OF SALES | 6,446,992 | 4,521,302 | 20,252,254 | 12,440,817 | ||||||||||||
GROSS PROFIT | 6,113,306 | 3,822,999 | 13,789,976 | 9,882,003 | ||||||||||||
Operating Expenses | ||||||||||||||||
Research and Development | 1,051,233 | 948,654 | 3,267,955 | 3,042,916 | ||||||||||||
Sales and Marketing | 1,946,443 | 1,216,265 | 5,161,181 | 3,703,522 | ||||||||||||
General and Administrative | 2,333,795 | 1,389,996 | 8,567,102 | 4,141,520 | ||||||||||||
Total Operating Expenses | 5,331,471 | 3,554,915 | 16,996,238 | 10,887,958 | ||||||||||||
Other income/(expense) | (1,033 | ) | (27,090 | ) | (4,253 | ) | (78,675 | ) | ||||||||
Interest Expense | (70,607 | ) | (178 | ) | (229,453 | ) | (463 | ) | ||||||||
Income/(loss) before taxes | 710,195 | 240,816 | (3,439,968 | ) | (1,085,093 | ) | ||||||||||
Tax Provision/(Benefit) | 56,799 | 118,980 | (1,493,789 | ) | (412,409 | ) | ||||||||||
Net Income/(Loss) | 653,396 | 121,836 | (1,946,179 | ) | (672,684 | ) | ||||||||||
Other Comprehensive Income/(Loss): | ||||||||||||||||
Foreign currency translation adjustments | 547,160 | - | 1,123,494 | - | ||||||||||||
Comprehensive Income/(Loss) | $ | 1,200,556 | $ | 121,836 | $ | (822,685 | ) | $ | (672,684 | ) | ||||||
Net Income/(Loss) per common share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.01 | $ | (0.10 | ) | $ | (0.04 | ) | ||||||
Diluted | $ | 0.03 | $ | 0.01 | $ | (0.10 | ) | $ | (0.04 | ) | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 20,235,876 | 18,721,346 | 19,799,219 | 18,650,274 | ||||||||||||
Diluted | 22,938,188 | 19,358,968 | 19,799,219 | 18,650,274 |
(In thousands, except per share amounts)
The
For the Three Months Ended | ||||||||
March 31 | ||||||||
2022 | 2021 | |||||||
Net revenues | $ | 7,596 | $ | 8,184 | ||||
Cost of revenues | 3,241 | 3,330 | ||||||
Gross profit | 4,355 | 4,854 | ||||||
Operating expenses | ||||||||
Research and development | 1,159 | 1,156 | ||||||
Sales and marketing | 1,260 | 1,195 | ||||||
General and administrative | 3,392 | 2,853 | ||||||
Total operating expenses | 5,811 | 5,204 | ||||||
Operating loss | (1,456 | ) | (350 | ) | ||||
Loss on extinguishment of debt | (792 | ) | - | |||||
Other income/(expense) | 101 | 27 | ||||||
Interest expense | (177 | ) | (297 | ) | ||||
Loss before taxes | (2,324 | ) | (620 | ) | ||||
Tax benefit | (851 | ) | (145 | ) | ||||
Net loss from continuing operations | $ | (1,473 | ) | $ | (475 | ) | ||
Net income from discontinued operations, net of taxes | 11,670 | 242 | ||||||
Net income/(loss) | $ | 10,197 | $ | (233 | ) | |||
Other comprehensive income/(loss): | ||||||||
Foreign currency translation adjustments | (137 | ) | 75 | |||||
Comprehensive income/(loss) | $ | 10,060 | $ | (158 | ) | |||
Loss per share from continuing operations: | ||||||||
Basic | $ | (0.07 | ) | $ | (0.02 | ) | ||
Diluted | $ | (0.07 | ) | $ | (0.02 | ) | ||
Income per share from discontinued operations: | ||||||||
Basic | $ | 0.52 | $ | 0.01 | ||||
Diluted | $ | 0.47 | $ | 0.01 | ||||
Income/(loss) per share: | ||||||||
Basic | $ | 0.45 | $ | (0.01 | ) | |||
Diluted | $ | 0.40 | $ | (0.01 | ) | |||
Weighted average shares outstanding: | ||||||||
Basic | 22,603 | 21,742 | ||||||
Diluted | 25,070 | 24,050 |
In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
4 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
(unaudited) (UNAUDITED)
For the Nine Months Ended September 30 | ||||||||
2017 | 2016 | |||||||
CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | (1,946,179 | ) | $ | (672,684 | ) | ||
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: | ||||||||
Depreciation and amortization | 1,345,806 | 363,634 | ||||||
Amortization of debt issuance fees | 48,503 | - | ||||||
Share-based compensation expense | 507,791 | 432,612 | ||||||
Deferred rent | 18,277 | 27,454 | ||||||
Deferred income taxes | (1,419,087 | ) | (434,333 | ) | ||||
Provision for doubtful accounts | 12,286 | (8,788 | ) | |||||
Inventory reserves | 1,314,528 | 221,369 | ||||||
Changes in assets and liabilities, net of acquisition: | ||||||||
Accounts receivable | (529,198 | ) | (176,019 | ) | ||||
Inventories | 1,820,249 | (1,603,381 | ) | |||||
Prepaid expenses and other assets | 238,351 | (14,162 | ) | |||||
Accounts payable | (1,776,291 | ) | 1,091,071 | |||||
Accrued expenses and other liabilities | 814,989 | 30,818 | ||||||
Net cash provided/(used) by operating activities | 450,025 | (742,409 | ) | |||||
CASH FLOWS (USED) BY INVESTING ACTIVITIES | ||||||||
Capital expenditures | (588,180 | ) | (715,128 | ) | ||||
Proceeds from asset disposal | 7,397 | - | ||||||
Acquisition of business net of cash acquired | (9,137,534 | ) | - | |||||
Net cash (used by) investing activities | (9,718,317 | ) | (715,128 | ) | ||||
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES | ||||||||
Revolver borrowings | 25,281,935 | - | ||||||
Revolver repayments | (24,010,007 | ) | - | |||||
Term loan borrowings | 760,000 | - | ||||||
Term loan repayments | (76,000 | ) | - | |||||
Debt issuance fees | (215,358 | ) | - | |||||
Proceeds from exercise of stock options | 424,950 | - | ||||||
Repayments of equipment lease payable | - | (101,296 | ) | |||||
Repurchase of stock | (86,914 | ) | (65,468 | ) | ||||
Net cash provided/(used by) financing activities | 2,078,606 | (166,764 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 105,415 | - | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (7,084,271 | ) | (1,624,301 | ) | ||||
Cash and cash equivalents, at beginning of period | 9,350,803 | 9,726,007 | ||||||
CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 2,266,532 | $ | 8,101,706 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 90,084 | $ | - | ||||
Cash paid during the period for income taxes | $ | 58,454 | $ | 67,438 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Capital expenditures | $ | - | $ | (41,904 | ) | |||
Equipment lease payable | $ | - | $ | 41,904 |
(In thousands)
The
For the Three Months | ||||||||
Ended March 31 | ||||||||
2022 | 2021 | |||||||
CASH FLOWS USED BY OPERATING ACTIVITIES | ||||||||
Net income/(loss) | $ | 10,197 | $ | (233 | ) | |||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation and amortization | 433 | 530 | ||||||
Loss on extinguishment of term debt | 792 | - | ||||||
Gain on sale of Microlab | (16,403 | ) | - | |||||
Amortization of debt issuance fees | 55 | 83 | ||||||
Share-based compensation expense | 330 | 114 | ||||||
Deferred rent | (7 | ) | (7 | ) | ||||
Deferred income taxes | 3,265 | - | ||||||
Provision for doubtful accounts | (16 | ) | 3 | |||||
Inventory reserves | 24 | 61 | ||||||
Changes in assets and liabilities, net of divestiture: | ||||||||
Accounts receivable | (1,411 | ) | (853 | ) | ||||
Inventories | (132 | ) | (517 | ) | ||||
Prepaid expenses and other assets | (184 | ) | (254 | ) | ||||
Accounts payable | 304 | 606 | ||||||
Deferred revenue | (317 | ) | - | |||||
Accrued expenses and other liabilities | (505 | ) | 235 | |||||
Net cash used by operating activities | (3,575 | ) | (232 | ) | ||||
CASH FLOWS PROVIDED/(USED) BY INVESTING ACTIVITIES | ||||||||
Capital expenditures | (151 | ) | (144 | ) | ||||
Deferred purchase price payment | (250 | ) | (200 | ) | ||||
Divestiture of Microlab, net | 22,753 | - | ||||||
Net cash provided/(used) by investing activities | 22,352 | (344 | ) | |||||
CASH FLOWS USED BY FINANCING ACTIVITIES | ||||||||
Term loan repayments | (4,104 | ) | (449 | ) | ||||
Proceeds from exercise of stock options | 24 | - | ||||||
Shares withheld for employee taxes | (19 | ) | (17 | ) | ||||
Net cash provided/(used) by financing activities | (4,099 | ) | (466 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (78 | ) | 12 | |||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 14,600 | (1,030 | ) | |||||
Cash and Cash Equivalents, at Beginning of Period | 4,472 | 4,910 | ||||||
CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 19,072 | $ | 3,880 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 122 | $ | 213 | ||||
Cash paid during the period for income taxes | $ | 12 | $ | 13 |
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
5 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)(UNAUDITED)
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||||||
Balances at December 31, 2016 | 29,786,224 | $ | 297,862 | $ | 40,563,002 | $ | 11,668,829 | - | $ | (20,823,480 | ) | $ | 31,706,213 | |||||||||||||||
Net Income (loss) | - | - | - | (1,946,179 | ) | - | - | (1,946,179 | ) | |||||||||||||||||||
Issuance of shares in connection with stock options exercised | 550,000 | 5,500 | 419,450 | - | - | - | 424,950 | |||||||||||||||||||||
Share-based compensation expense | - | - | 507,791 | - | - | - | 507,791 | |||||||||||||||||||||
Issuance of shares in connection with CommAgility acquisition | 3,487,528 | 34,875 | 5,963,673 | - | - | - | 5,998,548 | |||||||||||||||||||||
Issuance of restricted stock | 150,000 | 1,500 | (1,500 | ) | - | - | - | - | ||||||||||||||||||||
Forfeiture of Restricted Stock | (87,000 | ) | (870 | ) | 870 | - | - | - | - | |||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | 1,123,494 | - | 1,123,494 | |||||||||||||||||||||
Repurchase of Stock | - | - | - | - | - | (86,914 | ) | (86,914 | ) | |||||||||||||||||||
Balances at September 30, 2017 | 33,886,752 | $ | 338,867 | $ | 47,453,286 | $ | 9,722,650 | $ | 1,123,494 | $ | (20,910,394 | ) | $ | 37,727,903 |
(In thousands, except share amounts)
The
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||
Balances at January 1, 2021 | 34,888,904 | $ | 349 | $ | 50,163 | $ | (946 | ) | $ | (24,556 | ) | $ | 841 | $ | 25,851 | |||||||||||||
Net income/(loss) | - | - | - | (233 | ) | - | - | (233 | ) | |||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (17 | ) | - | (17 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 114 | - | - | - | 114 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 75 | 75 | |||||||||||||||||||||
Balances at March 31, 2021 | 34,888,904 | $ | 349 | $ | 50,277 | $ | (1,179 | ) | $ | (24,573 | ) | $ | 916 | $ | 25,790 |
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||
Balances at January 1, 2022 | 35,915,636 | $ | 359 | $ | 51,555 | $ | 554 | $ | (24,619 | ) | $ | 771 | $ | 28,620 | ||||||||||||||
Net income/(loss) | - | - | - | 10,197 | - | - | 10,197 | |||||||||||||||||||||
Issuance of shares in connection with stock options exercised | 15,000 | - | 24 | - | - | - | 24 | |||||||||||||||||||||
Issuance of restricted stock | 300,000 | 3 | (3 | ) | - | - | - | - | ||||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (19 | ) | - | (19 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 330 | - | - | - | 330 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (137 | ) | (137 | ) | |||||||||||||||||||
Balances at March 31, 2022 | 36,230,636 | $ | 362 | $ | 51,906 | $ | 10,751 | $ | (24,638 | ) | $ | 634 | $ | 39,015 |
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
6 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIESSummary of Significant Accounting Principles and Policies
Basis of Presentation and Preparation
Wireless Telecom Group, Inc., a New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”), specializes in the design and manufacture of advanced radio frequency and microwave devices which enable the development, testing and deployment of wireless technology. The condensed consolidated balance sheet asCompany provides unique, highly customized and configured solutions which drive innovation across a wide range of September 30, 2017, the condensed consolidated statements of operationstraditional and comprehensive income/loss for the three and nine months ended September 30, 2017 and 2016, the condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 and the condensed consolidated statement of shareholder’s equity for the nine months ended September 30, 2017 have been prepared by the Company (as defined below) without audit. emerging wireless technologies.
The condensed consolidated financial statements includefor the 2021 fiscal year included the accounts of Wireless Telecom Group, Inc., doing business as, and operating under the trade name NoiseCom,Noise Com, Inc., and its wholly owned subsidiaries including Boonton Electronics Corporation, (“Boonton”), Microlab/FXR, (“Microlab”), Wireless Telecommunications Ltd., CommAgility Limited and Holzworth Instrumentation, Inc. Noise Com, Inc., Boonton Electronics Corporation, Microlab/FXR, CommAgility Limited Ltd., and Holzworth Instrumentation, Inc. are hereinafter referred to as “Noisecom”, “Boonton”, “Microlab”, “CommAgility” and “Holzworth”, respectively.
As more fully described in Note 3, on March 1, 2022, the Company completed the sale of Microlab to RF Industries, Ltd. In accordance with applicable accounting guidance, the results of Microlab are presented as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income/(Loss) and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of Microlab as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of December 31, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
Our consolidated financial statements from continuing operations include the accounts of Noisecom, Boonton, Holzworth, and CommAgility Limitedand have been prepared using accounting principles generally accepted in the United States (“CommAgility”U.S. GAAP”), which are collectively referred to herein as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.
It is suggested that these condensedinterim consolidated financial statements be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the company’sCompany’s latest shareholders’ annual report (Form 10-K).
InterimThe Company’s fiscal periods are based on the calendar year. Except as otherwise specified, references to “first quarter(s)” or “three months” indicate the Company’s fiscal periods ended March 31, 2022 and March 31, 2021, and references to “year-end” indicate the fiscal year ended December 31, 2021.
Consolidated Financial Statements
In the opinion of management, the accompanying condensed consolidated financial statements referred to above contain all necessary adjustments, consisting of normal accruals and recurring entries, which are necessary to fairly present the Company’s results for the interim periods being presented.
The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2016.2021. Specific reference is made to that report since certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP)US GAAP have been condensed or omitted from this report.reduced for interim periods in accordance with SEC rules.
The results of operations for the three and nine month periodsmonths ended September 30, 2017March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.2022.
Use ofCritical Accounting Estimates
The preparation of our consolidated financial statements in conformity with US GAAP requires managementthe Company to make estimates and assumptionsjudgments that affect the reported amountsamount of assets and liabilities (including inventory valuation, accounts receivable valuation, valuation of deferred tax assets, intangible assets, estimated fair values of stock options and vesting periods of performance-based stock options and restricted stock and estimated fair values of acquired assets and liabilities in business combinations) and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amountsamount of net revenues and expenses duringfor each period. We base our assumptions, judgements and estimates on historical experience and various other factors that we believe to be reasonable under the reporting period. Actualcircumstances. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
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The COVID-19 pandemic and the conflict between Russia and Ukraine have negatively impacted regional and global economies, disrupted global supply chains and created significant volatility and disruption of financial markets. Although these disruptions did not impact our estimates and judgements as of the date of this report, it is reasonably possible that our accounting estimates and judgements may change as new events occur and additional information becomes available or is obtained. Furthermore, actual results could differ materially from those estimates.our estimates as of the date of issuance of this Quarterly Report on Form 10-Q under different assumptions or conditions.
For further information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Concentration Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
The Company generally has limited concentration of credit risk in accounts receivable due to the large number of entities comprising the Company’s customer base and their dispersion across many different industries and geographies. Credit evaluations are performed on customers requiring credit over a certain amount. Credit risk is mitigated to a lesser extent through collateral such as letters of credit, bank guarantees or payment terms like cash in advance. Credit evaluation is performed independent
One customer accounted for 11.2% of the Company’s sales team to ensure segregation of duties.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Forconsolidated revenue for the three months ended September 30, 2017,March 31, 2022. A different customer accounted for 17.4% of consolidated revenue for the three months ended March 31, 2021.
One customer accounted for 19.3% of consolidated accounts receivable as of March 31, 2022. At December 31, 2021, no one customer accounted for approximately 13%greater than 10% of the Company’s consolidated revenues and for the nine months ended September 30, 2017 one customer accounted for approximately 10% of the Company’s consolidated revenue. For the three and nine months ended September 30, 2016, one customer accounted for approximately 11% and 10%, respectively, of the Company’s consolidated revenues. At September 30, 2017 two customers represented 19% and 17% of the Company’s gross accounts receivable, respectively. At December 31, 2016, one customer represented 16% of the Company’s gross accounts receivable balance.receivable.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—1 - Quoted prices in active markets for identical assets or liabilities.
Level 2—2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The Company’s term loan and revolving credit facility bear interest at a variable interest rate plus an applicable margin and, therefore, carrying amount approximates fair value.
Contingent Consideration
Under the terms of the CommAgilityHolzworth Share Purchase Agreement, the Company may bewas required to pay additional purchase price if certainin the form of an earnout based on Holzworth’s financial targets are achievedresults for the years endingended December 31, 20172020 and December 31, 2018 (“CommAgility Earn-Out”). 2021.
As of March 31, 2022, the acquisition date, the Company estimated the fair value of the contingent consideration to be $754,500 (see Note 3) and the Company is required to reassess the fair value of the contingent consideration at each reporting period.
The significant inputs used in this fair value estimate include gross revenues and Adjusted EBITDA, as defined, scenariosamount due for the earn-out periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome (Level 3). The estimated outcome is then discounted based on the individual risk analysis of the liability. Although the Company believes its estimatesHolzworth earnout was $2.9 million and assumptions are reasonable, different assumptions, including those regarding the operating results of CommAgility or changes in the future, may result in different estimated amounts.
The contingent consideration is included in accrued expenses and other long termcurrent liabilities in the accompanying condensed consolidated balance sheets. The Company will satisfy this obligation with a cash payment to the sellers of CommAgility upon the achievement of the respective milestone discussed above.Consolidated Balance Sheet.
8 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Revenue Recognition
Segments
Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenues from international distributors are recognized in the same manner. If title does not pass until the product reaches the customer’s delivery site, then revenue recognition is deferred until that time. There are no formal sales incentives offered to any of the Company’s customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis.
Standalone sales of software or software-related items are recognizedThe Company evaluates its financial reporting in accordance with the software revenue recognition guidance. For multiple deliverable arrangements that only include software items,ASC 280 Segment Reporting. As of March 1,2022, the Company generally usesdetermined that the residual method to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered items equals the total arrangement consideration, less the fair value of the undelivered items. Where vendor-specific objective evidence of fair valuechief operating decision maker makes financial decisions and allocates resources based on segment profit information for the undelivered items cannot be determined, the Company generally defers revenue until all items are delivered and servicestwo segments. See Note 12.
NOTE 2 – Accounting Pronouncements
Recently Adopted Accounting Standards
There have been performed, or until such evidence of fair value can be determined for the undelivered items.
Software arrangements that requireno changes to our significant customization or modification of software are accounted for under percentage of completion accounting. The Company uses the input method to measure progress for arrangements accounted for under percentage of completion accounting.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated at the weighted average spot rate for the periods presented. Translation gains or losses related to net assets located outside the U.S. are shownaccounting policies as a component of accumulated other comprehensive incomedescribed in the Condensed Consolidated Statements of Shareholders’ Equity. Gains and losses resulting from foreign currency transactions, which are denominated in currencies other than the Company’s functional currency, are included in the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is recorded directly to2021 Form 10-K that had a separate section of shareholders’ equity in accumulated other comprehensive income and primarily includes unrealized gains and losses excluded from the Consolidated Statements of Operations and Comprehensive Income/(Loss). These unrealized gains and losses consist of changes in foreign currency translation.
Intangible and Long-lived Assets
Intangible assets include patents, non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is basedmaterial impact on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and our historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments,
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
economic conditions and competition. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if event occur or circumstances change that indicate an asset may be impaired.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of any impairment.
Subsequent Events
Management has evaluated subsequent events and determined that there were no subsequent events or transactions requiring recognition or disclosure in the condensed consolidated financial statements through the date the financial statements were issued.and related notes.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements Not Yet Adopted
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of January 1, 2017.
In MarchJune 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation2016-13, Financial Instruments – Credit Losses (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the amount of taxes owed using the maximum statutory rate in the employee’s applicable jurisdiction(s)326). ASU 2016- 09 requires a company to classify2016-13 changes the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity onimpairment model for most financial assets and will require the statementuse of cash flows. Under current U.S. GAAP, itan “expected loss” model for instruments measured at amortized cost. This pronouncement is not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for small reporting companies for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted but all of2022. The Company plans to adopt the guidance must be adopted instandard effective January 1, 2023. We do not expect the same period. The adopted standard has not had any impact on the Company’s financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those annual periods beginning
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
after December 15, 2017, and early adoption is permitted. The adoption of this ASU is not expectedstandard to have a material impact on our consolidated financial statements.
NOTE 3 – Discontinued Operations
On March 1, 2022, the Company completed the sale of Microlab to RF Industries, Ltd (the “Transaction”). At closing, the Company received approximately $22.8 million in proceeds net of indemnification and purchase price adjustment holdbacks of $150,000 and $100,000, respectively, and direct expenses. The indemnification holdback expires one year from close and the final purchase price adjustment, which is primarily comprised of a working capital adjustment, is to be settled 90 days after close. $4.1 million of the net proceeds were used to repay our outstanding Term Loan Facility (as defined in Note 4) with Muzinich BDC, approximately $600,000 of the net proceeds were used to repay our outstanding revolver balance related to the Bank of America Credit Facility (as defined in Note 4) and approximately $486,000 were used to pay our advisors.
The Company terminated its Term Loan Facility with Muzinich BDC and Credit Facility with Bank of America N.A. as of the Transaction close date (see Note 4 below). Additionally, concurrent with the closing, the Company entered into a sublease with RF Industries, Ltd for approximately one-half of the square footage of our corporate headquarters in Parsippany, NJ (see Note 5 below).
The Transaction will be treated as a sale of the assets and liabilities of Microlab to RF Industries, Ltd. for U.S. federal and applicable state income tax purposes. The Company has approximately $14.9 million of U.S. federal net operating loss carryforwards and approximately $41.2 million of New Jersey state net operating loss carryforwards as of December 31, 2021. We expect to utilize all of our federal net operating loss carryforwards and approximately 50% of our state net operating loss carryforwards to offset the taxable gain generated from the Microlab divestiture.
In accordance with Accounting Standards Codfication (“ASC”) 205-20 Discontinued Operations, the results of Microlab are presented as discontinued operations in the Consolidated Statements of Operations and, as such, have been excluded from continuing operations. Further, the Company reclassified the assets and liabilities of Microlab as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of December 31, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
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In August 2016,
The following table summarizes the FASB issued ASU 2016-15,Classificationsignificant items included in income from discontinued operations, net of Certain Cash Receiptstax in the Consolidated Statement of Operations for the three months ended March 31, 2022 and Cash Payments,2021 (in thousands):
Schedule of Discontinued Operation, Net of Tax
Three months ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Net revenues | $ | 2,477 | $ | 3,137 | ||||
Cost of revenues | 1,626 | 2,046 | ||||||
Gross profit | 851 | 1,091 | ||||||
Operating expenses | 693 | 756 | ||||||
Gain on divestiture, net of expenses | 16,403 | - | ||||||
Income from Discontinued Operations before income taxes | 16,561 | 335 | ||||||
Income tax expense | 4,891 | 93 | ||||||
Income from Discontinued Operations, net of income taxes | $ | 11,670 | $ | 242 |
The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2021:
Schedule of Assets and Liabilities
Current Assets | ||||
Accounts receivable, net | $ | 2,883 | ||
Inventories, net | 3,986 | |||
Total current assets | 6,869 | |||
Property, plant and equipment, net | 421 | |||
Goodwill | 1,351 | |||
Other non current assets | 165 | |||
Total non current assets | 1,937 | |||
Total assets | $ | 8,806 | ||
Current liabilities | ||||
Accounts payable | $ | 783 | ||
Accrued expenses and other current liabilities | 1,182 | |||
Total current liabilities | $ | 1,965 |
The cash flows related to address some questions aboutdiscontinued operations have not been segregated and are included in the presentationconsolidated statements of cash flows for all periods presented. Microlab depreciation expense for the three months ended March 31, 2021 and classification of certain cash receipts and paymentsincluded in the consolidated statement of cash flows.flow was $61,000. Depreciation expense recorded in the three months ended March 31, 2022 for Microlab was not material. There were no material Microlab capital expenditures in the three months ended March 31, 2022 or 2021.
NOTE 4 – Debt
Termination of Muzinich Term Loan Facility and Bank of America N.A. Credit Facility
On March 1, 2022, the Company repaid in full and terminated that certain Credit Agreement dated February 7, 2020, among the Company, its subsidiaries and Muzinich BDC, Inc., as amended on May 4, 2020, February 25, 2021, May 27, 2021 and September 28, 2021 (the “Term Loan Facility”). The update addresses eight specific issues, including contingent considerationCompany repaid the outstanding principal balance of $4.1 million and accrued interest thereon. Additionally, on March 1, 2022, the Company terminated that certain Loan and Security Agreement dated as of February 16, 2017 among the Company, its subsidiaries and Bank of America, as amended on June 30, 2017, January 23, 2019, February 27, 2019, November 8, 2019, February 7, 2020, May 1, 2020, February 25, 2021 and September 28, 2021 (the “Credit Facility”), which included an asset based revolving loan (“revolver”) which was subject to a borrowing base calculation. The outstanding balance of the revolver at March 1, 2022 was approximately $600,000. The repayment of the Term Loan Facility and Revolver were funded by the proceeds of the Microlab divestiture.
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The Company accounted for the termination of the Term Loan Facility and Credit Facility as an extinguishment of debt in accordance with ASC 470 Debt. The Company recognized a loss on extinguishment of debt of $792,000 which was primarily comprised of unamortized debt issuance costs.
CIBLS Loan
On May 27, 2021, CommAgility entered into the Coronavirus Business Interruption Loan Agreement (“CIBLS Loan”) with Lloyds Bank PLC (“Lloyds”). Under the terms of the CIBLS Loan CommAgility can draw up to a maximum of £250,000 for purposes of supporting daily business cash flow. The CIBLS Loan is repayable in 48 consecutive equal monthly installments beginning in month 13 after the initial loan drawdown (12 month principal repayment holiday). Interest is payable monthly at the official bank rate of the Bank of England plus an interest margin of 2.35% per annum. Interest payments madebegin in month 13 after the initial loan drawdown. The first twelve months of interest payments are paid by the U.K. government. The CIBLS Loan is secured by the assets of CommAgility.
On July 1, 2021, CommAgility executed a business combination, distribution receiveddraw down of the maximum amount of £250,000. As of March 31, 2022, $62,000 is included in short term debt and $267,000 is included long term debt on the Consolidated Balance Sheet.
NOTE 5 – Leases
The Company’s lease agreements consist of building leases for its operating locations and office equipment leases for printers and copiers with lease terms that range from equity method investeesless than 12 months to 8 years. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of cash receipts and payments that have aspects of more than one class of cash flows. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,Leases, which creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requiresCompany’s leases for office equipment such as printers and copiers contain lease and non-lease components (i.e. maintenance). The Company accounts for lease and non-lease components of office equipment as a single lease component.
All of the Company’s leases are operating leases and are presented as right of use lease asset, short term lease liability and long term lease liability on the consolidated balance sheets as of March 31, 2022 and December 31, 2021. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
Lease expense is recognized on a straight-line basis over the lease term and is included in cost of revenues and general and administrative expenses on the Consolidated Statement of Operations and Comprehensive Income/(Loss).
An initial right-of-use asset of $1.9 million was recognized as a non-cash asset addition with the adoption of the new disclosures to help financial statement users better understandlease accounting standard on January 1, 2019. With our acquisition of Holzworth on February 7, 2020, we acquired a right-of-use asset of $789,000. There have been no other right-of-use assets recognized since the date of adoption of the new lease standard. Cash paid for amounts included in the present value of operating lease liabilities was $156,000 and $151,000 during the three months ended March 31, 2022 and 2021, respectively, and was included in operating cash flows.
Operating lease costs for the three months ended March 31, 2022 and March 31, 2021 were $247,000 and $276,000, respectively.
The following table presents information about the amount timing, and uncertaintytiming of cash flows arising from leases.the Company’s leases as of March 31, 2022:
Schedule of Maturity of Operating Lease Liabilities
(in thousands) | March 31, 2022 | |||
Maturity of Lease Liabilities | ||||
Remainder of 2022 | $ | 481 | ||
2023 | 276 | |||
2024 | 158 | |||
2025 | 163 | |||
2026 | 69 | |||
Total undiscounted operating lease payments | 1,147 | |||
Less: imputed interest | (86 | ) | ||
Present value of operating lease liabilities | $ | 1,061 | ||
Balance sheet classification | ||||
Current lease liabilities | $ | 599 | ||
Long-term lease liabilities | 462 | |||
Total operating lease liabilities | $ | 1,061 | ||
Other information | ||||
Weighted-average remaining term (months) for operating leases | 34 | |||
Weighted-average discount rate for operating leases | 5.88 | % |
On March 1, 2022, the Company entered into a sublease for approximately one-half of the corporate headquarters in Parsippany N.J. with RF Industries, Ltd. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period,sublease co-terminates with early application permitted. The new standard is to be applied using a modified retrospective approach.the master lease on March 31, 2023. The Company evaluated the sublease in accordance with ASC 842 Leases and determined that the sublease is in the process of evaluating the impact of ASU 2016-02 on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606). ASU 2014-09an operating lease. Accordingly, sublease income is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date by one year, with early adoptionrecognized on the original effective date permitted. As a result, ASU 2014-09 will be effective for annual and interim periods beginning after December 15, 2017. During the third quarter the Company began an implementation project regarding adoptionConsolidated Statement of Topic 606. The Company believes that adoption of Topic 606 will not have a material impact on the Company’s results of operations, however, the implementation project is on-going.Operations as other income.
The Company does not believe there are any other recently issued, but not yet effective accounting pronouncements, that if adopted would have a material effect on the accompanying consolidated financial statements.
NOTE 3 – ACQUISITION
On February 17, 2017, Wireless Telecommunications, Ltd. (the “Acquisition Subsidiary”), a company incorporated in England and Wales which is a wholly owned subsidiary of Wireless Telecom Group, Inc., completed the acquisition of all of the issued shares in CommAgility Limited, (“CommAgility”) a company incorporated in England and Wales (the “Acquisition”) from CommAgility’s founders. The Acquisition was completed pursuant to the terms of a Share Purchase Agreement, dated February 17, 2017, and entered into by and among the Company, the Acquisition Subsidiary and the founders. The Company paid $11,317,500 in cash on acquisition date and issued 3,487,528 shares of newly issued common stock (“Consideration Shares”) with an acquisition date fair value of $5,998,548. The Company financed the cash portion of the transaction with proceeds from a term loan totaling $760,000, proceedsfrom an asset based revolver totaling $1,098,000 and cash on hand of $9,459,500. Refer to Note 8 for additional details regarding the financing arrangement entered into in connection with this transaction. In addition to the acquisition date cash purchase price the sellers are to be paid an additional £2,000,000 (approximately $2,500,000 at acquisition date) in the form of deferred purchase price payable beginning in March 2017 through January 2019 and are due an additional purchase price adjustment based on working capital and cash levels delivered to the buyer as of February 17, 2017 (“Completion Cash Adjustment”). Lastly, the sellers may earn up to an
11 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 6 – Revenue
(unaudited)
additional £10,000,000 (approximately $12,500,000Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at the acquisition date) payment if certain financial targets are achieved by CommAgility during calendar years 2017a point in time. Revenue from performance obligations that transferred at a point in time accounted for approximately 91% and 2018.
Pursuant to the Share Purchase Agreement, 2,092,51697% of the Consideration Shares are subject to forfeitureCompany’s consolidated revenue for the three months ended March 31, 2022 and return to2021, respectively.
Nature of Products and Services
Hardware
The Company generally has one performance obligation in its arrangements involving the Company if (a) 2017 EBITDA, as defined, generated by CommAgility is less than £2,400,000; or (b) 2018 EBITDA, as defined, generated by CommAgility is less than £2,400,000 (in each case as determined by an auditsales of CommAgility conducted by the accountants of the Acquisition Subsidiary in accordance withdigital signal processing hardware, power meters, analyzers, noise/signal generators, phase noise analyzers and other components. When the terms of a contract include the Share Purchase Agreement). Astransfer of acquisition datemultiple products, each distinct product is identified as a separate performance obligation. Generally, satisfaction occurs when control of the promised goods is transferred to the customer in exchange for consideration in an amount for which we expect to be entitled. Generally, control is transferred when legal title of the asset moves from the Company estimates thatto the 2017 Adjusted EBITDA target will not be met thus we believe all 2,092,516 Consideration shares will be forfeited. Accordingly,customer. We sell our products to a customer based on a purchase order, and the shipping terms per each individual order are primarily used to satisfy the single performance obligation. However, in order to determine when control has transferred to the customer, the Company recorded a contingentalso considers:
● | when the Company has a present right to payment for the asset; | |
● | when the Company has transferred physical possession of the asset to the customer; | |
● | when the customer has the significant risks and rewards of ownership of the asset; and | |
● | when the customer has accepted the asset. |
Software
Arrangements involving licenses of $3,599,128 which representssoftware in the fair valueCommAgility brand may involve multiple performance obligations, most notably subsequent releases of the consideration sharessoftware. The Company has concluded that each software release in a multiple deliverable arrangement involving CommAgility software licenses is a distinct performance obligation and, accordingly, transaction price is allocated to each release when the customer obtains control of the software.
Performance obligations that are not distinct at contract inception are combined. Specifically, with the Company’s sales of software, contracts that include customization may result in the combination of the customization services with the license as one distinct performance obligation and recognized over time. The duration of these performance obligations are typically one year or less.
Services
Arrangements involving calibration and repair services of the Company’s products are generally considered a single performance obligation and are recognized as the services are rendered.
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Shipping and Handling
Shipping and handling activities performed after the customer obtains control are accounted for as fulfillment activities and recognized as cost of revenues.
Significant Judgments
For the Company’s more complex software and services arrangements, significant judgment is required in determining whether licenses and services are distinct performance obligations that should be accounted for separately or are not distinct and thus accounted for together. Further, in cases where we determine that performance obligations should be accounted for separately, judgment is required to determine the standalone selling price for each distinct performance obligation.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract assets (unbilled revenue) or contract liabilities (deferred revenue) on the Company’s Consolidated Balance Sheet. The Company records unbilled revenue when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Unbilled revenue was $297,000 and $292,000 as of acquisition date. This contingent asset is includedMarch 31, 2022 and December 31, 2021, respectively, and recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheetassets. Deferred revenue was $89,000 and $408,000 as of September 30, 2017.March 31, 2022 and December 31, 2021, respectively. The decrease in deferred revenue from December 31, 2021 is primarily due to recognition of revenue for certain CommAgility projects involving multiple performance obligations.
The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. During the three months ended September 30, 2017 the Company recorded measurement period adjustments related to the completion of the valuation of intangible assets, contingent consideration and contingent asset associated with the equity claw back and deferred taxes. The Company incurred $0 and $1,289,517 of acquisition-related costs during the three and nine months ended September 30, 2017, respectively, which is included as part of general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Since the acquisition date of February 17, 2017, CommAgility contributed $2,231,166 and $6,228,157 of net sales to the Company for the three and nine months ended September 30, 2017, respectively.
Various valuation techniques were used to estimate the fair value of assets acquired and the liabilities assumed which use significant unobservable inputs, or Level 3 inputs as defined by the fair value hierarchy. Using these valuation approaches requires the Company to make significant estimates and assumptions. Thefollowing table summarizes the allocation of the purchase consideration to the fair value of assets acquired and liabilities assumed at the date of acquisition:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As Reported 3/31/2017 | Measurement Period Adjustments | Revised 9/30/2017 | |||||||
Cash at close | $11,317,500 | $11,317,500 | |||||||
Equity issued at close | 5,998,548 | 5,998,548 | |||||||
Completion Cash Adjustment | 1,382,288 | 1,382,288 | |||||||
Deferred Purchase Price | 2,515,000 | 2,515,000 | |||||||
Contingent Consideration | 2,700,353 | (1,945,853 | ) | 754,500 | |||||
Total Purchase Price | 23,913,689 | (1,945,853 | ) | 21,967,836 | |||||
Cash | 4,566,510 | 4,566,510 | |||||||
Accounts Receivable | 2,267,124 | 2,267,124 | |||||||
Inventory | 1,125,532 | 1,125,532 | |||||||
Intangible Assets | 9,657,600 | (4,540,833 | ) | 5,116,768 | |||||
Contingent Asset | 3,599,128 | 3,599,128 | |||||||
Other Assets | 167,650 | 167,650 | |||||||
Fixed Assets | 303,904 | 303,904 | |||||||
Accounts Payable | (1,171,846 | ) | (1,171,846 | ) | |||||
Accrued Expenses | (417,213 | ) | (417,213 | ) | |||||
Deferred Revenue | (638,671 | ) | (638,671 | ) | |||||
Deferred Tax Liability | (1,701,586 | ) | 867,308 | (834,279 | ) | ||||
Other Long Term Liabilities | (339,096 | ) | (339,096 | ) | |||||
Net Assets Acquired | 13,819,908 | 13,745,511 | |||||||
Goodwill | $10,093,781 | $8,222,325 |
13 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Goodwill is calculated
Disaggregated Revenue
We disaggregate our revenue from contracts with customers by product family and geographic location as we believe it best depicts how the excessnature, timing and uncertainty of consideration paid over the net assets acquiredour revenue and represents synergies, organic growth and other benefits thatcash flows are expected to arise from integrating CommAgility into our operations. None of the goodwill recorded in this transaction is expected to be tax deductible.
The following table summarizes the activity related to Contingent Consideration and Deferred Purchase Price for the nine months ended September 30, 2017:
Contingent Consideration | Deferred Purchase Price | |||||||
Balance at Beginning of Period | $ | - | $ | - | ||||
Fair Value At Acquisition Date | 2,700,353 | 2,515,000 | ||||||
Accretion of Interest | 68,204 | |||||||
Payment | (1,071,666 | ) | ||||||
Measurement Period Adjustment | (1,945,853 | ) | ||||||
Foreign Currency Translation | 52,571 | 120,000 | ||||||
Balance as of September 30, 2017 | $ | 875,275 | $ | 1,563,334 |
As of September 30, 2017, $1,116,666 of deferred purchase price is included in accrued expenses and other current liabilities on the condensed consolidated balance sheet. As of September 30, 2017, $875,275 of contingent consideration and $446,668 of deferred purchase price is included in other long term liabilities on the condensed consolidated balance sheet.
Pro Forma Information(Unaudited)
The following unaudited pro forma information presents the Company’s operations as if the CommAgility acquisition and related financing activities had occurred on January 1, 2016. The pro forma information includes the following adjustments (i) amortization of acquired definite-lived intangible assets; (ii) interest expense incurred in connection with the New Credit Facility (described in further detail in Note 8) used to finance the acquisition of CommAgility; and (iii) inclusion of acquisition-related expensesaffected by economic factors. See details in the earliest period presented.The pro forma combined statementstables below (in thousands). Revenues from signal generators, components, analyzers and power meters are attributable to the T&M segment in 2022 and 2021. Approximately $494,000 and $440,000 of operationsservices revenue are not necessarily indicativeattributable to the T&M segment in 2022 and 2021, respectively.
Schedule of the results of operations as they would have been had the transaction been effected on the assumed date and are not intended to be a projection of future results.Disaggregated Revenue
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
Total net revenues by revenue type | ||||||||
Signal generators and components | $ | 3,471 | $ | 3,329 | ||||
Signal analyzers and power meters | 2,094 | 1,558 | ||||||
Signal processing hardware | 411 | 1,483 | ||||||
Software licenses | 417 | 990 | ||||||
Services | 1,203 | 824 | ||||||
Total net revenue | $ | 7,596 | $ | 8,184 | ||||
Total net revenues by geographic areas | ||||||||
Americas | $ | 5,192 | $ | 5,011 | ||||
EMEA | 979 | 2,260 | ||||||
APAC | 1,425 | 913 | ||||||
Total net revenue | $ | 7,596 | $ | 8,184 |
NOTE 7 – Income Taxes
Pro-forma results for the three months ended September 30, 2016 are presented below:
(Unaudited) | 2016 | |||
Net Revenues | $ | 11,613,576 | ||
Net (loss) | $ | (125,515 | ) | |
Basic net (loss) per share | $ | (0.01 | ) | |
Diluted net (loss) per share | $ | (0.01 | ) |
Pro-forma results for the nine months ended September 30, 2016 and 2017 are presented below:
(Unaudited) | 2017 | 2016 | ||||||
Net Revenues | $ | 35,416,074 | $ | 31,066,037 | ||||
Net (loss) | $ | (1,441,141 | ) | $ | (1,602,277 | ) | ||
Basic net (loss) per share | $ | (0.07 | ) | $ | (0.08 | ) | ||
Diluted net (loss) per share | $ | (0.07 | ) | $ | (0.08 | ) |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4 – INCOME TAXES
The Company records deferred taxes in accordance with Accounting Standards Codification (“ASC”)ASC 740, “Accounting for Income Taxes.” ASC 740 requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax assets and determines the necessity for a valuation allowance.
Realization of the Company’s deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating losses. The Company’s major tax jurisdictions are New Jersey, Colorado and the United Kingdom (“U.K.”). The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.
As of March 31, 2022, the Company’s net deferred tax asset of $2.3 million is net of a valuation allowance of approximately $7.1 million which is associated with the Company’s foreign net operating loss carryforward from an inactive foreign entity, state net operating loss carryforward and a state research and development credit. The effective ratenet deferred tax asset decreased approximately $3.3 million from December 31, 2021 due to the taxable gain to be recognized on the Microlab divestiture. The Company expects to utilize in 2022 all of its federal net operating loss carryforwards and approximately one-half of its New Jersey state net operating loss carryforwards to offset the taxable gain recognized on the Microlab divestiture. The reduction in the net deferred tax asset from December 31, 2021 is due to the reduction in Federal and New Jersey state net operating loss carryforwards.
In accordance with Accounting Standards Update (“ASU”) 2019-12 the Company recorded a tax provision of approximately $4.9 million related to income from discontinued operations and a tax benefit of 44%approximately $851,000 related to loss from continuing operations for the ninethree months ended September 30, 2017 was higher than the statutory rates in the United StatesMarch 31, 2022 and United Kingdom primarily due to research and development deductions, statea tax benefitsprovision of approximately $93,000 related to net operating losses, non-qualified stock option deductions offset by nondeductible expensesincome from discontinued operations and a lower rate intax benefit of approximately $145,000 related to loss from continuing operations for the United Kingdom.three months ended March 31, 2021.
14 |
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted averageweighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share areis calculated by usingdividing net income (loss) available to common shareholders by the weighted averageweighted-average number of common shares of common stock outstanding for the period and, when dilutive, potential shares from stock options contingent shares and restricted shares, using the treasury stock method.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Weighted average common shares outstanding | 20,235,876 | 18,721,346 | 19,799,219 | 18,650,274 | ||||||||||||
Potentially dilutive shares | 2,702,312 | 637,622 | - | - | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 22,938,188 | 19,358,968 | 19,799,219 | 18,650,274 |
Commonmethod, the weighted average number of unvested restricted shares, the weighted-average number of restricted stock units, the number of shares issuable under the terms of the Holzworth earnout and the weighted average number of warrants to purchase common stock outstanding for the period. Shares from stock options are included in the diluted earnings (loss) per share calculation only when the various optionoptions exercise prices are lesslower than their relativethe average market price duringvalue of the common shares for the period presented. In periods presented in this quarterly report. Thewith a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
2022 | 2021 | |||||||
For the Three Months | ||||||||
Ended March 31, | ||||||||
2022 | 2021 | |||||||
Weighted average common shares outstanding | 22,603,330 | 21,741,550 | ||||||
Potentially dilutive equity awards | 2,467,056 | 2,308,144 | ||||||
Weighted average common shares outstanding, assuming dilution | 25,070,386 | 24,049,694 |
For the three months ended March 31, 2022, the weighted average number of sharesoptions to purchase common stock not included in diluted earnings (loss) per share,potentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was 2,810,143not met was . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and 2,781,844foris included in potentially dilutive equity awards in the three-months ended September 30, 2017 and 2016, respectively. chart above.
For the ninethree months ended September 30, 2017 and 2016,March 31, 2021, the weighted average number of sharesoptions to purchase common stock not included in diluted earnings (loss) per sharepotentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was 5,755,490not met was . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and 3,980,229, respectively.
WIRELESS TELECOM GROUP, INC.is included in potentially dilutive equity awards in the chart above.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)NOTE 9 – Inventories
NOTE 6 – INVENTORIES
Inventory carrying value is net of inventory reserves of $2,067,103$695,000 at March 31, 2022 and $1,549,089$681,000 at September 30, 2017 and December 31, 2016, respectively.2021.
Schedule of Inventory
September 30, 2017 | December 31, 2016 | March 31, 2022 | December 31, 2021 | |||||||||||||
Inventories consist of: | ||||||||||||||||
Inventories consist of (in thousands): | ||||||||||||||||
March 31, 2022 | December 31, 2021 | |||||||||||||||
Raw materials | $3,214,276 | $3,558,430 | $ | 3,462 | $ | 3,213 | ||||||||||
Work-in-process | 641,449 | 531,210 | 384 | 542 | ||||||||||||
Finished goods | 2,630,071 | 4,363,111 | 1,130 | 1,333 | ||||||||||||
$6,485,796 | $8,452,751 | |||||||||||||||
Total Inventory | $ | 4,976 | $ | 5,088 |
During the nine month period ended September 30, 2017 the Company recorded inventory adjustments totaling $1,930,000 comprised of an increase to the Company’s excess and obsolescence reserve of $1,121,000 and the write off of gross inventory of $809,000.The charge was effected as a result of a review of inventory balances and net realizable value of the inventory following the launch of the Company’s lean manufacturing initiative and the adoption of a strategic product plan focused on product lifecycle acceleration.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill balance of $10,113,158 at September 30, 2017 relates to two of the Company’s reporting units, Microlab ($1,351,392) and Embedded Solutions ($8,761,766). Management’s qualitative assessment performed in the fourth quarter of 2016 did not indicate any impairment of Microlab’s goodwill as its fair value was estimated to be in excess of its carrying value. Furthermore, no events have occurred since then that would change this assessment. The Embedded Solutions reporting unit was acquired on February 17, 2017 (see Note 3). No events have occurred since the acquisition date that would indicate any impairment of Embedded Solutions goodwill.
Goodwill consists of the following:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 10 – Accrued Expenses and Other Current Liabilities
(unaudited)
Intangible assets consistAs of March 31, 2022, and December 31, 2021 accrued expenses and other current liabilities consisted of the following:following (in thousands):
Schedule of Accrued Expenses and Other Current Liabilities
Gross Carrying Amount | Accumulated Amortization | Foreign Exchange Translation | Net Carrying Amount | |||||||||||||
Customer Relationships | $2,766,500 | ($346,437 | ) | $159,437 | $2,579,500 | |||||||||||
Patents | 614,918 | (76,593 | ) | 35,028 | 573,353 | |||||||||||
Non Compete Agreements | 1,106,600 | (236,133 | ) | 63,069 | 933,535 | |||||||||||
Tradename | 628,750 | - | 41,250 | 670,000 | ||||||||||||
Total | $5,116,768 | (659,163 | ) | $298,784 | $4,756,388 |
March 31, 2022 | December 31 2021 | |||||||
Holzworth earnout (Year 1 and Year 2) | $ | 2,942 | $ | 2,942 | ||||
Payroll and related benefits | 911 | 718 | ||||||
Accrued income taxes | 827 | - | ||||||
Accrued bonus | 41 | 590 | ||||||
Goods received not invoiced | 352 | 277 | ||||||
Accrued commissions | 314 | 465 | ||||||
Accrued professional fees | 216 | 524 | ||||||
Sales and use and VAT tax | 166 | 276 | ||||||
Holzworth deferred purchase price | - | 250 | ||||||
Warranty reserve | 61 | 61 | ||||||
Other | 429 | 573 | ||||||
Total | $ | 6,259 | $ | 6,676 |
The estimated future amortization expense related to intangible assets is as follows as of September 30, 2017:
Remainder of 2017 | $278,430 | ||||
2018 | 1,113,719 | ||||
2019 | 1,113,719 | ||||
2020 | 769,786 | ||||
2021 | 720,652 | ||||
Thereafter | 90,082 | ||||
Total | $4,086,388 |
NOTE 8 – DEBT
Debt consists of the following:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In connection with the acquisition of CommAgility, the Company entered into a Credit Agreement with Bank of America, N.A. (the “Lender”) on February 16, 2017 (the “New Credit Facility”), which provided for a term loan in the aggregate principal amount of $760,000 (the “Term Loan”) and an asset based revolving loan (the “Revolver”), which is subject to a Borrowing Base Calculation (as defined in the New Credit Facility) of up to a maximum availability of $9,000,000 (“Revolver Commitment Amount”). The borrowing base is calculated as 85% of Eligible accounts receivable and inventory, as defined, subject to certain caps and limits. The borrowing base is calculated on a monthly basis. The proceeds of the term loan and revolver were used to finance the acquisition of CommAgility.
In connection with the issuance of the New Credit Facility, the Companypaid lender and legal fees of $215,358 which were primarily related to the Revolver and are capitalized and presented as other current and non-current assets in the condensed consolidated balance sheets. These costs are recognized as additional interest expense over the term of the related debt instrument using the straight line method.
The Company must repay the Term Loan in installments of $38,000 per quarter due on the first day of each fiscal quarterbeginning April 1, 2017 and continuing until the term loan maturity date, on which the remaining balance is due in a final installment. The future principal payments under the term loan are $38,000 for the remainder of 2017, $152,000 in 2018 and $494,000 in 2019. The Term Loan and Revolver are both scheduled to mature onNovember 16, 2019.
The Term and Revolving Loans bear interest at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loans and Revolving Loans is3.50% and 3.00%per annum, respectively, at June 30, 2017 and will continue at these rates until September 30, 2017. Thereafter, the margins shall be subject to increase or decrease by Lender on the first day of each of the Borrowers’ fiscal quarters based upon the Fixed Charge Coverage Ratio as of the most recently ended fiscal quarter falling into three levels. If the Company’s Fixed Coverage Leverage Ratio (as defined in the New Credit Facility) is greater than or equal to ratio 1.25 to 1.00, a margin of 3.25% and 2.75%, respectively, is added to LIBOR rate with a step up to 3.50% and 3.00%, respectively, if the ratio is greater than or equal 1.00 to 1.00 but less than 1.25 to 1.00 and another step up to 3.75% and 3.25%, respectively, if the ratio is less than 1.00 to 1.00. The Company is also required to pay a commitment fee on the unused commitments under the Revolver at a rate equal to 0.50% per annum and early termination fee of (a) 2% of the Revolver Commitment Amount and Term Loan if termination occurs before the first anniversary of the New Credit Facility or (b) 1% of the Revolver Commitment Amount and Term Loan if termination occurs after the first anniversary of the New Credit Facility but before the second anniversary of the New Credit Facility.
The New Credit Facility is secured by liens on substantially all of the Company’s and its domestic subsidiaries’ assets including a pledge of 66 2/3% of the equity interests in the Company’s Foreign Subsidiaries (as defined in the New Credit Facility). The New Credit Facility contains customary affirmative and negative covenants for a transaction of this type, including, among others, the provision of annual, quarterly and monthly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters, restrictions on incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, entering into affiliate transactions and asset sales. Events of default under the New Credit Facility include but are not limited to: failure to pay obligations when due, breach or failure of any covenant, insolvency or bankruptcy, materially misleading representations or warranties, occurrence of a Change in Control (as defined) or occurrence of conditions that have a Material Adverse Effect (as defined).
On August 3, 2017 the Company entered into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which amended the definition of EBITDA to exclude the non-cash inventory adjustment of $1,930,000 recorded during the three months ended June 30, 2017 and the reduce the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of September 30, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 9 - ACCOUNTING FOR SHARE BASED COMPENSATION
The Company follows the provisions of ASC 718, “Share-Based Payment.” The Company’s results for the three and nine months ended September 30, 2017March 31, 2022 and 2021 include share-based$ and $ , respectively, related to stock based compensation expense totaling $223,919 and $507,791, respectively. Results for the three and nine month period ended September 30, 2016 include share-based compensation expense totaling $235,374 and $432,612, respectively.expense. Such amounts have been included in the Condensed Consolidated StatementsStatement of Operations and Comprehensive Income/(Loss) within general and administrative expenses in operating expenses.
During the nine months ended September 30, 2017 the Company reversed $324,922 and $92,017 in stock compensation expense for unvested stock options and restricted shares, respectively, that were forfeited as a result of employees exiting the Company. The total amounts forfeited were 87,000 restricted shares and 655,000 stock options. The Company had assumed a zero forfeiture rate in prior periods.accounts for forfeitures when they occur.
Incentive Compensation Plan:Plan
In 2012,the second quarter of 2021, the Company’s Board of Directors and shareholders approved the 20122021 Long Term Incentive Compensation Plan (the “Initial 2012“2021 Incentive Plan”), which provides for the grant of equity-based and cash incentives, including restricted stock awards, restricted stock unit awards, performance unit awards, non-qualified stock options, and incentive stock options in compliance with the Internal Revenue Code of 1986, as amended,and cash awards, including dividend equivalent rights to employees, officers, directors consultants and advisorsor other service providers of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial 2012The 2021 Incentive Plan providedprovides for the grant of awards relating to 2,000,000 million shares of common stock, plus thosestock. As of March 31, 2022, there are shares still available for grant under the Company’s prior incentive compensation plan. In June 2014, the Company’s shareholders approved the Amended and Restated 20122021 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional 1,658,045 shares of the Company’s common stock to be available for future grants under the 2012 Plan. As of September 30, 2017, there were 26,000shares available for issuance under the 2012 Plan, including those shares available under the Company’s prior incentive compensation plan as of such date.
All service-based (time vesting) options granted have ten-year terms from the date of grant and typically vest annually and become fully exercisable after a maximum of five years. However, vesting conditions are determined on a grant by grant basis. Performance-based options granted have ten-year terms and vest and become fully exercisable when determinable performance targets are achieved. Performance targets are agreed to, and approved by,
On January 6, 2022 the Company’s compensation committeeCompensation Committee of the boardBoard of directors.
UnderDirectors approved the 2012 Plan, options may be granted to purchase sharesgrant of the Company’s common stock exercisable at prices equal to or above the fair market value on the date of the grant.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following summarizes the components of share-based compensation expense by equity type for the three and nine months ended September 30:
Three Months Ended | ||||||||
September 30 | ||||||||
2017 | 2016 | |||||||
Service - based Restricted Common Stock | $22,673 | $40,598 | ||||||
Performance-based Restricted Common Stock | 1,846 | 5,353 | ||||||
Performance-based Stock Options | 21,500 | 28,650 | ||||||
Service -based Stock Options | 177,900 | 160,773 | ||||||
223,919 | 235,374 |
Nine Months Ended September 30 | ||||||||
2017 | 2016 | |||||||
Service - based Restricted Common Stock | $167,106 | $151,598 | ||||||
Performance-based Restricted Common Stock | (34,211 | ) | 16,059 | |||||
Performance-based Stock Options | (135,997 | ) | 85,950 | |||||
Service -based Stock Options | 510,893 | 179,005 | ||||||
507,791 | 432,612 |
As of September 30, 2017, $926,322 of unrecognized compensation costs related to unvested stock options is expected to be recognized over a remaining weighted average period of 3.06 years and $186,361 of unrecognized compensation costs related to unvested restricted shares is expected to be recognized over a remaining weighted average period of 1.2 years.
Restricted Common Stock Awards:
A summary of the status of the Company’s non-vested restricted common stock as granted under the Company’s approved equity compensation plans, asawards to named executive officers Tim Whelan, Mike Kandell, Dan Monopoli and Alfred Rodriguez of September 30, 2017, , , and changes during the nine months ended September 30, 2017, are presented below:
Non-vested Restricted Shares | Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Non-vested as of January 1, 2017 | 244,291 | $1.52 | ||||||
Granted | 150,000 | $1.65 | ||||||
Vested and Issued | (121,563 | ) | $1.40 | |||||
Forfeited | (87,000 | ) | $1.62 | |||||
Non-vested as of September 30, 2017 | 185,728 | $1.66 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Performance-Based Stock Option Awards:
A summary of performance-based stock option activity, and related information for the nine months ended September 30, 2017 follows:
Options | Weighted Average Exercise Price | |||||||
Outstanding as of January 1, 2017 | 2,165,000 | $1.32 | ||||||
Granted | - | - | ||||||
Exercised | (550,000 | ) | $0.77 | |||||
Forfeited | (540,000 | ) | $1.77 | |||||
Expired | - | - | ||||||
Outstanding as of September 30, 2017 | 1,075,000 | $1.38 | ||||||
Exercisable at September 30, 2017 | 540,000 | $1.14 |
The aggregate intrinsic value of performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of September 30, 2017 was $347,800 and the weighted average remaining contractual life was 4.4 shares respectively which vest in equal annual installments over two years. The aggregate intrinsic value of performance-based stock options exercisable as of September 30, 2017 was $285,800 and the weighted average remaining contractual life was 1.7 years. The intrinsic value of options exercised during the nine months ended September 30, 2017 was $359,100.
Under the terms of the performance-based stock option agreements, the awards will fully vest and become exercisable on the date on which the Company’s Board of Directors shall have determined that specific financial performance milestones have been met, provided the employee remains in the employ ofIf an executive’s service with the Company at such time; provided, however, upon a Change in Control (as defined interminates before the stock option agreementsrestricted awards are fully vested, then the shares that are not then fully vested are forfeited and immediately returned to the 2012 Plan), the stock options shall automatically vest as permitted by the 2012 Plan. As of September 30, 2017,Company. The grant date value per share was $ .
NOTE 12 – Reportable Segments
In March 2022 the Company has determined that the performance conditions on 535,000 options granted 2013reorganized into 2 segments – Test and later are probable of being achieved by the year ending 2020.Measurement (T&M) and Radio, Baseband and Software (RBS). The Company’s performance-based stock options granted prior to 2013 (consisting of 540,000 options) are fully amortized.
Service-Based Stock Option Awards:
A summary of service-based stock option activity and related information for the nine months ended September 30, 2017 follows:
Options | Weighted Average Exercise Price | |||||||
Outstanding as of January 1, 2017 | 1,198,000 | $1.51 | ||||||
Granted | 845,000 | $1.68 | ||||||
Exercised | - | - | ||||||
Forfeited | (115,000 | ) | $1.45 | |||||
Expired | (83,000 | ) | $3.00 | |||||
Outstanding as of September 30, 2017 | 1,845,000 | $1.53 | ||||||
Exercisable at September 30, 2017 | 508,333 | $1.40 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The aggregate intrinsic value of service-based stock options (regardless of whether or not such options are exercisable) as of September 30, 2017 was $297,750 and the weighted average remaining contractual life was 9.1 years. The aggregate intrinsic value of service-based stock options exercisable as of September 30, 2017 was $137,608 and the weighted average remaining contractual life was 8.8 years.
The following table presents the assumptions used to estimate the fair value of stock option awards granted during the nine months ended September 30, 2017:
Option Term (in years) | Exercise Price | Risk Free Interest Rate | Expected Volatility | Fair Value at Grant Date | Expected Dividend Yield | Expected Forfeiture Rate | ||||||||||||||||||||||
1/2/17 Grant | 4 | $1.91 | 1.94 | % | 77.78 | % | $1.11 | 0 | 0 | |||||||||||||||||||
1/12/17 Grant | 4 | 1.92 | 1.87 | % | 77.88 | % | 1.11 | 0 | 0 | |||||||||||||||||||
2/17/17 Grant | 4 | 1.72 | 1.92 | % | 72.01 | % | 0.94 | 0 | 0 | |||||||||||||||||||
5/22/17 Grant | 4 | 1.38 | 1.80 | % | 68.93 | % | 0.73 | 0 | 0 | |||||||||||||||||||
6/5/17 Grant | 1 | 1.65 | 1.74 | % | 69.02 | % | 0.46 | 0 | 0 | |||||||||||||||||||
6/5/17 Grant | 4 | 1.65 | 1.74 | % | 69.02 | % | 0.87 | 0 | 0 | |||||||||||||||||||
6/15/17 Grant | 4 | 1.60 | 1.76 | % | 69.09 | % | 0.84 | 0 | 0 |
NOTE 10 – SEGMENT INFORMATION
The operating businesses of the Company are segregated into three reportable segments: (i) network solutions, (ii) test and measurement and (iii) embedded solutions. The network solutions segment is comprised primarily of the operations of Wireless Telecom Group Inc.’s subsidiary, Microlab. The test and measurement segment is comprised primarily of the Company’s operations of the Noisecom product line and the operations of its subsidiary, Boonton. The embedded solutionsT&M segment is comprised of the operationsBoonton, Noisecom and Holzworth brands. T&M is primarily engaged in supplying noise source components and instruments and electronic testing and measurement instruments to customers in the semiconductor, military, aerospace, medical and commercial communications industries.
16 |
The RBS segment is comprised of CommAgility Limitedand develops the software which was acquiredenables specialized LTE and 5G deployments, applications and private network solutions including the LTE physical layer and stack software, for mobile network and related applications. RBS engineers work closely with customers to provide hardware and software solutions in specialized applications and use-cases in wireless baseband, private networks, and non-terrestrial (“NTN”) communications. Additionally, CommAgility licenses, implements and customizes 5G and LTE physical layer and stack software for private networks supporting satellite communications, the military and aerospace industries, offering our customers unique implementation capabilities built on February 17, 2017.3rd Generation Partnership Project (“3GPP”) standards.
The accounting policies ofFor internal reporting purposes, the reportable segments are the same as those described in the summary of significant accounting policies. The CompanyCompany’s chief operating decision maker makes financial decisions and allocates resources and evaluates the performance of segments based on income or losssegment profit information obtained from operations, excluding interest,the Company’s internal management systems. Segment profitability includes the direct expenses of each segment and certain corporate allocations for rent and insurance. Management does not include in its measures of segment profitability certain corporate expenses such as information technology expenses, finance and accounting expenses, legal and professional fees, public company expenses and other income (expenses).discreet items that are not core to the measurement of segment management’s performance but rather are controlled at the corporate level.
FinancialSummarized financial information byrelating to the Company’s reportable segment for the three and nine months ended September 30, 2017 and 2016segments is set forth below:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net sales by segment: | ||||||||||||
Network solutions | $6,427,646 | $5,507,065 | $17,560,210 | $15,196,799 | ||||||||
Test and measurement | 3,901,486 | 2,837,236 | 10,253,863 | 7,126,021 | ||||||||
Embedded solutions | 2,231,166 | - | 6,228,157 | - | ||||||||
Total consolidated net sales of reportable segments | 12,560,298 | 8,344,301 | 34,042,230 | 22,322,820 | ||||||||
Segment income (loss): | ||||||||||||
Network solutions | 1,424,496 | 1,081,854 | 2,002,818 | 2,466,115 | ||||||||
Test and measurement | 769,603 | 179,879 | 253,471 | (499,220 | ) | |||||||
Embedded solutions | 41,206 | - | (112,939 | ) | - | |||||||
Income (loss) from reportable segments | 2,235,305 | 1,261,733 | 2,143,350 | 1,966,895 | ||||||||
Other unallocated amounts: | ||||||||||||
Corporate expenses | (1,453,470 | ) | (993,650 | ) | (5,349,614 | ) | (2,972,851 | ) | ||||
Other (expenses) income - net | (71,640 | ) | (27,267 | ) | (233,705 | ) | (79,137 | ) | ||||
Consolidated income (loss) before Income tax provision (benefit) | 710,195 | 240,816 | (3,439,968 | ) | (1,085,093 | ) | ||||||
Depreciation and amortization by segment: | ||||||||||||
Network solutions | 106,785 | 68,002 | 311,777 | 181,706 | ||||||||
Test and measurement | 96,696 | 62,936 | 285,329 | 181,928 | ||||||||
Embedded solutions | 82,972 | - | 748,700 | - | ||||||||
Total depreciation and amortization for reportable segments | 286,453 | 130,938 | 1,345,806 | 363,634 | ||||||||
Capital expenditures by segment: | ||||||||||||
Network solutions | 107,162 | 132,022 | 249,701 | 415,401 | ||||||||
Test and measurement | 94,665 | 81,083 | 201,495 | 299,727 | ||||||||
Embedded solutions | 68,278 | - | 136,984 | - | ||||||||
Total consolidated capital expenditures by reportable segment | 270,104 | 213,105 | 588,180 | 715,128 | ||||||||
September 30, 2017 | December 31, 2016 | |||||||||||
Total assets by segment: | ||||||||||||
Network solutions | 10,055,232 | 10,594,770 | ||||||||||
Test and measurement | 6,441,510 | 7,851,479 | ||||||||||
Embedded solutions | 20,588,726 | - | ||||||||||
Total assets for reportable segments | 37,085,468 | 18,446,249 | ||||||||||
Corporate assets, principally cash and cash equivalents and deferred income taxes | 11,478,892 | 16,988,886 | ||||||||||
Total consolidated assets | 48,564,360 | 35,435,135 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Consolidated net sales by region were as follows:
Three Months Ended | Nine Months Ended | |||||||||||
September 30 | September 30 | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Sales by region | ||||||||||||
Americas | $10,083,348 | $6,394,496 | $25,343,053 | $17,262,164 | ||||||||
Europe, Middle East, Africa(EMEA) | 2,051,218 | 1,600,694 | 7,253,334 | 4,042,081 | ||||||||
Asia Pacific (APAC) | 425,732 | 349,111 | 1,445,843 | 1,018,575 | ||||||||
Total sales | $12,560,298 | $8,344,301 | $34,042,230 | $22,322,820 |
Net sales are attributable to a geographic area based on the destination of the product shipment.
The majority of shipmentsshown in the Americas arefollowing table:
Summarized Financial Information Related to customers located within the United States. For the three-months ended September 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $9,685,577 and $6,210,423, respectively. For the nine months ended September 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $24,115,968 and $16,593,877, respectively.Reportable Segments
Shipments to the EMEA region for all reportable segments were largely concentrated in the UK, Germany and Israel. For the three-months ended September 30, 2017 shipments to the UK and Germany amounted to $1,294,150 and $187,373, respectively. For the three-months ended September 30, 2016 shipments were largely concentrated in Israel and Germany amounting to $349,418 and $100,653, respectively. For the nine months ended September 30, 2017 shipments to the UK, Germany and Israel amounted to $4,078,506, $731,165 and $374,298, respectively. For the nine months ended September 30, 2016, shipments to Israel and Germany amounted to $722,595 and $573,058, respectively.
The largest concentration of shipments in the APAC region is to China. For the three month period ending September 30, 2017 and 2016, shipments to China amounted to $188,426 and $231,485, respectively. For the nine month period ending September 30, 2017 and 2016 shipments to China amounted to $797,273 and $652,654, respectively.
Three months ended | Three months ended | |||||||||||||||||||||||
March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
T&M | RBS | Consolidated | T&M | RBS | Consolidated | |||||||||||||||||||
Net revenues | $ | 6,059 | $ | 1,537 | $ | 7,596 | $ | 5,327 | $ | 2,857 | $ | 8,184 | ||||||||||||
Cost of revenues | 2,551 | 690 | 3,241 | 2,273 | 1,057 | 3,330 | ||||||||||||||||||
Gross profit | 3,508 | 847 | 4,355 | 3,054 | 1,800 | 4,854 | ||||||||||||||||||
Segment Operating Expenses | 1,871 | 1,598 | 3,469 | 1,401 | 1,835 | 3,236 | ||||||||||||||||||
Segment Profitability | 1,637 | (751 | ) | 886 | 1,653 | (35 | ) | 1,618 | ||||||||||||||||
Corporate Expenses | 2,342 | 1,968 | ||||||||||||||||||||||
Operating Loss | (1,456 | ) | (350 | ) | ||||||||||||||||||||
Other income/(expense) | (691 | ) | 27 | |||||||||||||||||||||
Interest expense | (177 | ) | (297 | ) | ||||||||||||||||||||
Income/(Loss) before taxes | (2,324 | ) | (620 | ) | ||||||||||||||||||||
Tax provision/(benefit) | (851 | ) | (145 | ) | ||||||||||||||||||||
Net income/(loss) from continuing operations | (1,473 | ) | (475 | ) | ||||||||||||||||||||
Net income from Discontinued Operations, net of tax | 11,670 | 242 | ||||||||||||||||||||||
Net income/(loss) | $ | 10,197 | $ | (233 | ) | |||||||||||||||||||
Depreciation and Amortization | $ | 279 | $ | 154 | $ | 433 | $ | 224 | $ | 246 | $ | 470 |
NOTE 1113 – COMMITMENTS AND CONTINGENCIES
Warranties:
The Company typically provides one to two year warranties on all of its products, covering both parts and labor. The Company, at its option, repairs or replaces products that are defective during the warranty period if the proper preventive maintenance proceduresThere have been followed by its customers. Historically, the Company’s warranty expense has been minimal.
Leases:
In May 2015, the Companyno material changes in our commitments and its landlord entered into an amendment to the existing lease agreement to providecontingencies and risks and uncertainties as of March 31, 2022 from that previously disclosed in our annual report on Form 10-K for the Company to remain at its principal corporate headquartersyear ended December 31, 2021.
NOTE 14 - SUBSEQUENT EVENTS
There were no subsequent events or transactions requiring recognition or disclosure in Hanover Township, Parsippany, New Jerseythe consolidated financial statements, and the notes thereto, through March 31, 2023. Monthly lease payments range from approximately $33,000 in year one to approximately $41,000 in year eight. Additionally, the Company had available an allowance of approximately $300,000 towards alterations and improvements todate the premises, which expired on January 31, 2017. The Company used substantially all of the improvement allowance prior to its expiration. The lease can be renewed at the Company’s option for one five-year period at fair market value to be determined at term expiration.financial statements were issued.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following is a summary of the Company’s contractual obligations as of September 30, 2017:
Payments by Period | |||||||||||||||
Remainder | |||||||||||||||
Total | 2017 | 2018-2019 | 2020-2021 | Thereafter | |||||||||||
Facility Leases | $2,674,362 | $121,879 | $1,007,135 | $934,184 | $611,164 | ||||||||||
Purchase Obligations | 4,866,041 | 4,866,041 | - | - | - | ||||||||||
Operating and Equipment Leases | 238,648 | 13,508 | 108,067 | 108,067 | 9,006 | ||||||||||
$7,779,051 | $5,001,428 | $1,115,202 | $1,042,251 | $620,170 |
Risks and Uncertainties:
Proprietary information and know-how are important to the Company’s commercial success. There can be no assurance that others will not either develop independently the same or similar information or obtain and use proprietary information of the Company. Certain key employees have signed confidentiality and non-compete agreements regarding the Company’s proprietary information.
The Company believes that its products do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future.
The Company’s deferred tax asset is recorded at tax rates expected to be in existence when those assets are utilized. Should the tax rates change materially in the future the amount of deferred tax asset could be materially impacted.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and the notes to those statements included in Part I, Item I of this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements contained in our Annual Reportannual report on Form 10-K for the year ended December 31, 2016.2021.
INTRODUCTIONIntroduction
The Company develops, manufactures and markets a wide variety of radio frequency and microwave noise sources, electronic testing and measuring instruments including power meters, voltmeters and modulation meters and passive components for wireless radio frequency conditioning. Additionally,On March 1, 2022 the Company iscompleted the sale of Microlab to RF Industries, Ltd. and received approximately $23.7 million in cash. Concurrent with the divestiture we repaid our outstanding Term Loan Facility with Muzinich BDC and Credit Facility with Bank of America N.A. and terminated both facilities. The divestiture of Microlab represents a supplierstrategic shift for the Company away from lower margin RF Components business to our higher growth higher margin T&M and RBS segments.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021
Net Revenues (in thousands)
Three months ended March 31, | ||||||||||||||||||||||||
Revenue | % of Revenue | Change | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
Test and measurement | $ | 6,059 | $ | 5,327 | 79.8 | % | 65.1 | % | $ | 732 | 13.7 | % | ||||||||||||
Radio, baseband, software | 1,537 | 2,857 | 20.2 | % | 34.9 | % | (1,320 | ) | -46.2 | % | ||||||||||||||
Total net revenues | $ | 7,596 | $ | 8,184 | 100.0 | % | 100.0 | % | $ | (588 | ) | -7.2 | % |
Net consolidated revenues decreased 7.2% due to lower sales of our digital signal processing technologycards and lower software sales at our RBS segment. The lower software revenue is the result, in part, of more volatile quarter to quarter revenue recognition patterns due to the timing, delivery and complexity of RBS projects. This was only partially offset by higher revenue at our T&M segment due primarily to higher orders for network validation systems, supporting LTE/4Gour legacy T&M products.
Gross Profit (in thousands)
Three months ended March 31, | ||||||||||||||||||||||||
Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
Test and measurement | $ | 3,508 | $ | 3,054 | 57.9 | % | 57.3 | % | $ | 454 | 14.9 | % | ||||||||||||
Radio, baseband, software | 847 | 1,800 | 55.1 | % | 63.0 | % | (953 | ) | -52.9 | % | ||||||||||||||
Total gross profit | $ | 4,355 | $ | 4,854 | 57.3 | % | 59.3 | % | $ | (499 | ) | -10.3 | % |
Consolidated gross profit declined 10% due to lower sales of higher margin software at our RBS segment. This was only partially offset by T&M gross profit which increased due to higher revenues.
Operating Expenses (in thousands)
Three months ended March 31, | ||||||||||||||||||||||||
Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
Research and development | $ | 1,159 | $ | 1,156 | 15.3 | % | 14.1 | % | $ | 3 | 0.3 | % | ||||||||||||
Sales and marketing | 1,260 | 1,195 | 16.6 | % | 14.4 | % | 65 | 5.4 | % | |||||||||||||||
General and administrative | 3,392 | 2,853 | 44.7 | % | 34.9 | % | 539 | 18.9 | % | |||||||||||||||
Total operating expenses | $ | 5,811 | $ | 5,204 | 76.5 | % | 63.6 | % | $ | 607 | 11.7 | % |
18 |
Research and emerging 5G networks. development expenses were flat with the prior year as modest declines in headcount costs at RBS due to allocations to customer projects were offset by higher third party expenses.
Sales and marketing expenses increased 5.4% due to higher headcount and marketing expenses.
General and administrative expenses increased 18.9% due primarily to expenses associated with the divestiture of Microlab of approximately $530,000 and higher stock based compensation expense which increased $215,000 from the prior year due to equity grants to employees which were offset by lower legal, accounting, bonus and other miscellaneous expenses.
Loss on Extinguishment of Debt
The majorityloss on extinguishment of debt represents the Company’s products arewrite off of unamortized debt costs associated with our Term Loan Facility with Muzinich BDC and Credit Facility with Bank of America N.A. which were repaid in full and terminated on March 1, 2022.
Other Income/(Expense)
Other income increased $74,000 primarily used by its customers in relationdue to commercial infrastructure development in supportsublease income as a result of our sublease arrangement with RF Industries Ltd. as well as higher gains on sales of assets.
Interest Expense
Consolidated interest expense decreased $120,000 due primarily to the expansiontermination of our Term Loan Facility and upgradeCredit Facility on March 1, 2022.
Taxes
Consolidated tax benefit increased $706,000 from the prior year period due to distributed antenna systems, deployment of small cell technology and private LTE networks. In addition, the Company’s products are used to test the performance and capability of cellular/PCS and satellite communication systems and to measure the power of radiofrequency and microwave systems. Other applications include radio, radar, wireless local area network and digital television.a higher loss from continuing operations before taxes.
The company has accomplished its highest quarter of revenue in three yearsNet loss from continuing operations
Consolidated net loss from continuing operations for the combined Testfirst quarter 2022 increased $998,000 primarily due to lower gross profit driven by lower RBS revenue and measurementmargin, higher operating expenses and Network solutions segments, reflecting successful executiona loss on extinguishment of debt. This was only partially offset by higher other income, lower interest expense and a higher tax benefit recognized in both segments. The additionthe quarter.
Net income from discontinued operations, net of the strong performing Embedded solutions segment helped drive consolidated revenues 50.5% higher than the third quartertax
Net income from discontinued operations, net of 2016. Management is pleased with the revenue performance and profitability of the Embedded solutions segment since the acquisitiontax in the first quarter of 2017 and expects it to continue to contribute to the company’s growth.
Highlights from the Third Quarter:
RESULTS OF OPERATIONS
Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016
Net Revenues
Three months ended September 30 | ||||||||||||||||||
Revenue | % of Rev | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $6,427,646 | $5,507,065 | 51.2 | % | 66.0 | % | $920,581 | 16.7 | % | |||||||||
Test and measurement | 3,901,486 | 2,837,236 | 31.0 | % | 34.0 | % | 1,064,250 | 37.5 | % | |||||||||
Embedded solutions | 2,231,166 | - | 17.8 | % | 0.0 | % | 2,231,166 | - | ||||||||||
Total net revenues | $12,560,298 | $8,344,301 | 100.0 | % | 100.0 | % | $4,215,997 | 50.5 | % |
Net consolidated revenues for the three months ended September 30, 2017 were $12,560,298 as compared to $8,344,301 for the three months ended September 30, 2016, an increase of $4,215,997 or 50.5%. The primary driver for the year over year increase2022 is the inclusioncomprised of the Embedded solutions segment which was acquired on February 17, 2017 and contributed $2,231,166 in revenue for the period.
Net revenues from the Company’s Network solutions products for the three months ended September 30, 2017 were up 16.7% from the prior year. Net revenues from Network solutions products accounted for 51.2% and 66.0% of net consolidated revenues for the three months ended September 30, 2017 and 2016, respectively. The increase in revenues in this segment was due to increased demand for the Company’s passive radio frequency components and subassemblies, largely as a result of increased capital spending by domestic wireless carriers and tower operators in capacity densification projects and small cell deployments.
Net revenues from the Company’s Test and measurement products for the three months ended September 30, 2017 were up 37.5% over the prior year period. Net revenues from Test and measurement products accounted for 31.1% and 34.0% of net consolidated revenues for the three months ended September 30, 2017 and 2016, respectively. The increase in revenues was primarily due to an increase in military and government spending as compared to the corresponding period in the prior year.
Gross Profit
Three months ended September 30 | ||||||||||||||||||
Gross Profit | Gross Margin | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $2,981,120 | $2,512,910 | 46.4 | % | 45.6 | % | 468,210 | 18.6 | % | |||||||||
Test and measurement | 2,165,830 | 1,310,089 | 55.5 | % | 46.2 | % | 855,741 | 65.3 | % | |||||||||
Embedded solutions | 966,356 | - | 43.3 | % | 0.0 | % | 966,356 | - | ||||||||||
Total gross profit | $6,113,306 | $3,822,999 | 48.7 | % | 45.8 | % | 2,290,307 | 59.9 | % |
Consolidated gross profit for the three months ended September 30, 2017 was $6,113,306 as compared to $3,822,999 in the corresponding period in the prior year. The increase was primarily due to the contribution of the Embedded solutions segment in the current quarter and improved profitability in the Test and measurement segment due to higher sales of products which have a high gross profit margin. Also contributing to the increase was higher absorption of our fixed labor and manufacturing overhead costs as a result of increased volumes in the Network solutions and Test and measurement segments.
Operating Expenses
Consolidated operating expenses for the three months ended September 30, 2017 were $5,331,471 or 42.4% of consolidated net revenues as compared to $3,554,915 or 42.6% of consolidated net revenues for the three months ended September 30, 2016. For the three months ended September 30, 2017 as compared to the prior year, consolidated operating expenses increased by $1,776,556 or 50.0%. Consolidated operating expenses were higher in the three months ended September 30, 2017 due to the inclusion of $925,150 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $43,737 of amortization expense related to purchased intangibles. Additionally, operating expenses increased from the same period in the prior year due to higher commission expense of $373,691, increased employee compensation and benefits of $165,500 associated with higher headcount and higher corporate expenses primarily due to integration related expenses of $158,447.
Interest Expense
Interest expense increased $70,429 related to our new credit facility and amortization of capitalized debt issuance costs.
Other Income/(Expense)
Other expense decreased $26,057 due to reduction in environmental remediation costs from the prior year.
Taxes
For the three months ended September 30, 2017 and 2016, the Company recorded tax expense of $56,799 and $118,980, respectively, due primarily to income generated from the Company’s operations during those periods and was predominately comprised of non-cash deferred tax expense.
Net Income
For the three months ended September 30, 2017, the Company realizedpre divestiture net income of $653,396 or $.03 per shareMicrolab of $158,000 and the net gain on a basic and diluted basis, as compared to asale of Microlab of approximately $16.4 million net of tax provision of approximately $4.9 million.
Net income from discontinued operations, net of $121,836 or $.01 per share on a basic and diluted basis fortax in the three months ended September 30, 2016, an increasefirst quarter of $531,560 or $.02 per basic and diluted share. The increase was due to the factors discussed above.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
Net Revenues
Nine months ended September 30 | ||||||||||||||||||
Revenue | % of Rev | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $17,560,210 | $15,196,800 | 51.6 | % | 68.1 | % | $2,363,410 | 15.6 | % | |||||||||
Test and measurement | 10,253,863 | 7,126,020 | 30.1 | % | 31.9 | % | 3,127,843 | 43.9 | % | |||||||||
Embedded solutions | 6,228,157 | - | 18.3 | % | 0.0 | % | 6,228,157 | - | ||||||||||
Total net revenues | $34,042,230 | $22,322,820 | 100.0 | % | 100.0 | % | $11,719,410 | 52.5 | % |
Net consolidated revenues for the nine months ended September 30, 2017 were $34,042,230 as compared to $22,322,820 for the nine months ended September 30, 2016, an increase of $11,719,410 or 52.5%. The primary driver for the year over year increase2021 is the inclusioncomprised of the Embedded solutions segment which was acquired on February 17, 2017 and contributed $6,228,157 in revenue for the period.results of Microlab of $335,000 net of tax provision of $93,000.
Net revenues from the Company’s Network solutions products were up significantly over the prior year period. Net revenues from Network solutions products accounted for 51.6% and 68.1% of net consolidated revenues for the nine months ended September 30, 2017 and 2016, respectively. The increase in revenues was primarily due to increased demand for the Company’s passive radio frequency components and subassemblies, largely as a result of increased capital spending by domestic wireless carriers and tower operators in capacity densification projects and small cell deployments.
Net revenues from the Company’s Test and measurement products were up significantly over the prior year period. Net revenues from Test and measurement products accounted for 30.1% and 31.9% of net consolidated revenues for the nine months ended September 30, 2017 and 2016, respectively. The increase in revenues was primarily due to an increase in military and government spending as compared to the corresponding period in the prior year.
Gross Profit
Nine months ended September 30 | ||||||||||||||||||
Gross Profit | Gross Margin | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $6,623,630 | $6,799,036 | 37.7 | % | 44.7 | % | (175,406 | ) | -2.6 | % | ||||||||
Test and measurement | 4,332,165 | 3,082,967 | 42.2 | % | 43.3 | % | 1,249,198 | 40.5 | % | |||||||||
Embedded solutions | 2,834,181 | - | 45.5 | % | 0.0 | % | 2,834,181 | - | ||||||||||
Total gross profit | $13,789,976 | $9,882,003 | 40.5 | % | 44.3 | % | 3,907,973 | 39.5 | % |
The Company’s gross profit on consolidated net revenues for the nine months ended September 30, 2017 was negatively impacted by a non cash inventory adjustment of $1,930,000 recorded in the second quarter of 2017. The adjustment was effected as a result of a review of inventory balances and net realizable value of the inventory following the launch of the Company’s lean manufacturing initiative and the adoption of product lifecycle acceleration. The lean manufacturing program focuses on inventory reductions, the minimization of product redesign for alternate use, and the acceleration of the evaluation process of slow moving inventory for product redesign and repurpose. This, combined with the need to focus manufacturing, operations and engineering efforts on the increasing current order flow, dictated the significant write down at the end of the second quarter. The inventory adjustments negatively impacted the Network solutions and Test and measurement segments gross profit by $1,206,266 and $723,734, respectively, for the nine months ended September 30, 2017. The impact of the inventory adjustment was offset by the gross profit of the Embedded Solutions segment which contributed $2,834,181 to the overall gross profit increase from the same period last year as well as improved profitability in the Test and measurement segment due to higher sales of products which have a high gross profit margin. Also offsetting the inventory impairment charge in the nine months ended September 30, 2017 was higher absorption of fixed labor and manufacturing overhead associated with higher volumes as compared to the prior period for the Network solutions and Test and measurement segments.
Operating Expenses
Consolidated operating expenses for the nine months ended September 30, 2017 were $16,996,238 or 49.9% of consolidated net revenues as compared to $10,887,958 or 48.8% of consolidated net revenues for the nine months ended September 30, 2016. For the nine months ended September 30, 2017 as compared to the prior year, consolidated operating expenses increased by $6,108,280 or 56.1%. Consolidated operating expenses were higher in the nine months ended September 30, 2017 due to the inclusion of $2,947,120 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $659,163 of amortization expense related to purchased intangibles. Additionally, operating expenses increased from the same period in the prior year due to $1,289,517 of expenses related to the CommAgility acquisition consisting primarily of professional fees, increased commission expenses of $748,954 due to higher revenues, severance and legal charges of $572,912 associated with restructuring actions during the nine months ended September 30, 2017, increased employee compensation and benefits of $336,735 due to increased headcount and higher corporate expenses primarily due to integration expenses.
Other Expenses
Other expenses decreased $74,422 due to the reduction in environmental remediation expenses from the prior year. Interest expense increased $228,990 related to our new credit facility, amortization of capitalized debt issuance costs and accretion of the contingent consideration liability.
Tax
For the nine months ended September 30, 2017, the Company recorded a tax benefit of $1,493,789 due primarily to losses generated from the Company’s operations. For the nine months ended September 30, 2016, the Company recorded a tax benefit of $412,409 primarily due to losses generated from the Company’s operations during the period.
Net Loss
For the nine months ended September 30, 2017, the Company realized a net loss of $1,946,179 or $.10 loss per share on a basic and diluted basis, as compared to a net loss of $672,684 or $.04 loss per share on a basic and diluted basis for the nine months ended September 30, 2016, a decrease of $1,273,495 or $.06 per diluted share. The decrease was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On March 1, 2022 the Company completed the divestiture of Microlab and received net proceeds of $22.8 million, of which, the Company used approximately $4.1 million and $600,000 to repay in full and terminate the Muzinich Term Loan Facility and Bank of America Credit Facility, respectively. As of March 31, 2022 the Company’s only debt obligation is the CIBLS loan in the U.K. which has an outstanding principal balance of $329,000 as of March 31, 2022 and is more fully described in Note 4 of the consolidated financial statements. The Company expects to repay in full the CIBLS loan prior to the expiration of the principal and interest holiday which expires on July 1, 2022
As of March 31, 2022 our consolidated cash balance was approximately $19.1 million. We expect our existing cash balance and cash generated byfrom operations and borrowings available under our new credit facility (as described in Note 8 ) to be our primary sources of short-term liquidity, and we believe these sources will be sufficient to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.control, including the fact that the Company will no longer benefit from the performance of the Microlab brand which historically accounted for a substantial portion of our consolidated revenue and that we will be entirely dependent on the RBS and T&M segments.
The Microlab divestiture will be treated as a sale of the assets and liabilities for U.S. federal and applicable state income tax purposes. The Company has approximately $14.9 million of U.S. federal net operating loss carryforwards and approximately $41.2 million of New Jersey state net operating loss carryforwards as of December 31, 2021. We expect to utilize in 2022 all of our federal net operating loss carryforwards and approximately 50% of our state net operating loss carryforwards to offset the taxable gain generated from the Microlab divestiture. Accordingly, in the future, the Company could be subject to cash income taxes which is expected to reduce our liquidity. Additionally, CommAgility benefits from a research and development deduction which significantly reduces the cash needed to pay taxes in the UK.
Operating Activities
Cash provided by operating activities was $450,025 for the nine months ended September 30, 2017 as compared to cash used by operating activities of $742,409 forincreased $3.3 million from the nine months ended September 30, 2016. Duringprior year period due to the nine months ended September 30, 2017 changesloss from operations in our operating assets and liabilities resulted in a netthe quarter as well as an increase in cashworking capital of $568,100$2.2 million due primarily due to reductions in inventory, prepaids and other asset and higher accrued expenses and other liabilities. This was offset by lower accounts payable and an increase in accounts receivable. Duringreceivable driven by lower accounts receivable balances at December 31, 2021.
Investing Activities
Cash provided by investing activities increased $22.7 million from the nine months ended September 30, 2016, changes in our operating assets and liabilities resulted in a net decrease in cash of $671,673 primarilyprior year period due to an increase in inventory offset by an increase in accounts payable.the net proceeds received related to the Microlab divestiture of $22.8 million.
InvestingFinancing Activities
Cash used by investing activities was $9,718,317 for the nine months ended September 30, 2017 and was primarily comprised of cash used for the CommAgility acquisition of $9,137,534, net of cash acquired and capital expenditures of $588,180. For the nine months ended September 30, 2016 cash used by investing activities was $715,128 and was related to capital expenditures.
Financing Activities
Cash provided by financing activities was $2,078,606 forincreased $3.6 million due primarily to the nine months ended September 30, 2017 as compared to cash used of $166,764 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017 the Company received net proceeds of $1,271,928 from the asset based revolver and received $760,000 from the term loan. Principal repaymentsfull repayment of the term loan during the nine months ended September 30, 2017 were $76,000. Additionally, the Company paid $215,358 in debt issuance costs associated with the new credit facility. During the nine months ended September 30, 2016 the Company paid $101,296 related to a capital equipment lease and $65,468 related to the repurchase of common stock.Term Loan Facility on March 1, 2022.
As disclosed in Note 8, on February 16, 2017 the Company entered into a Credit Agreement which provided for a term loanOff-Balance Sheet Arrangements
Other than contractual obligations incurred in the aggregate principal amountnormal course of $760,000 and an asset based revolving loan (the “Revolver”), which is subject to a Borrowing Base Calculation (as defined inbusiness, the New Credit Facility) of up to a maximum availability of $9,000,000. The proceeds of the term loan and revolver were used to finance the acquisition of CommAgility. As of September 30, 2017, $1,271,928 was outstanding on the asset based revolver. At September 30, 2017 the Company has excess availability under the Revolver of $4,252,538.
On August 3, 2017 the Company entered into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which amended the definition of EBITDA to exclude the non-cash inventory adjustment of $1,930,000 recorded during the three months ended June 30, 2017 and the reduce the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of September 30, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
As of September 30, 2017, future minimum lease payments related to the Company’s facility lease and equipment leases are shown below:
Payments by Period | |||||||||||||||
Remainder | |||||||||||||||
Total | 2017 | 2018-2019 | 2020-2021 | Thereafter | |||||||||||
Facility Leases | $2,674,362 | $121,879 | $1,007,135 | $934,184 | $611,164 | ||||||||||
Purchase Obligations | 4,866,041 | 4,866,041 | - | - | - | ||||||||||
Operating and Equipment Leases | 238,648 | 13,508 | 108,067 | 108,067 | 9,006 | ||||||||||
$7,779,051 | $5,001,428 | $1,115,202 | $1,042,251 | $620,170 |
The Company may pursue strategic opportunities, including potential acquisitions, mergers, divestitures or other activities, which may require significant use of the Company’s capital resources. The Company may incur costs as a result of such activities and such activities may affect the Company’s liquidity in future periods. In order to fund such activities the Company may need to incur additional debt or issue additional securities if market conditions are favorable. However, there can be no certainty that such funding will be available in needed quantities or terms favorable to the Company.
The Company believes that its financial resources from working capital and availability under the asset based revolver are adequate to meet its current needs. The Company expects the cash flow of CommAgility to fund the deferred purchase price and contingent consideration liabilities. However, should current global economic conditions deteriorate, additional working capital funding may be required which may be difficult to obtain due to restrictive credit markets.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly impact its business or its results of operations nor does it believe that its business is seasonal.
Critical Accounting Policies
There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 20162021 Form 10-K, except as disclosed below:10-K.
Revenue Recognition
Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenues from international distributors are recognized in the same manner. If title does not pass until the product reaches the customer’s delivery site, then revenue recognition is deferred until that time. There are no formal sales incentives offered to any of the Company’s customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis.
Standalone sales of software or software-related items are recognized in accordance with the software revenue recognition guidance. For multiple deliverable arrangements that only include software items, the Company generally uses the residual method to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered items equals the total arrangement consideration, less the fair value of the undelivered items. Where vendor-specific objective evidence of fair value for the undelivered items cannot be determined, the Company generally defers revenue until all items are delivered and services have been performed, or until such evidence of fair value can be determined for the undelivered items.
Software arrangements that require significant customization or modification of software are accounted for under percentage of completion accounting. The Company uses the input method to measure of progress for arrangements accounted for under percentage of completion accounting.
Forward Looking Statements
Valuation of Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude of any impairment.
Intangible and Long-lived Assets
Intangible assets include patents, non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and our historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if event occur or circumstances change that indicate an asset may be impaired.
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, without limitation, some of the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements that adoption of ASU 2017-01 and Topic 606 are not expected to have a material impact on the Company’s financial statements or results of operations, respectively; about our sources of short-term liquidityexpectations that our existing cash balance and our belief that these sourcescash generated by operations will be sufficient to meet our liquidity needs for at least the next 12 months; that is financial resources from working capitaltwelve months and our availability underexpectation to repay our CIBLS loan before the asset based revolverexpiration of the principal and interest holiday. Investors are adequate to meet our current needs;cautioned that Embedded solutions will continue to contribute to the company’s revenue and profitability growth; and that cash flow from CommAgility will fund the deferred purchase price and contingent consideration. These statements involve risks and uncertainties. Thesesuch forward-looking statements are based on the Company’s current expectationsnot guarantees of future eventsperformance and are subject toinvolve a number of risks and uncertainties that may cause the Company’scould materially affect actual results, including, among others, the ongoing impact that the conflict in Ukraine and related sanctions have had and may continue to differ materially from those describedhave on our business, supply chain, transportation costs, and our backlog; the impact that the evolving COVID-19 pandemic has had and may continue to have on our supply chain, human capital and the general economy in the forward-looking statements. These risksfuture; the potential impact of inflation on our business and uncertainties include, but are not limitedthe economy in general, our dependency on capital spending on data and communication networks by our customers and end users; our dependency on the deployment of 4G LTE and 5G NR private networks and related services to grow our business; the impact of the loss of any significant customers; the ability of our management to successfully implement our evolving business plan and strategy, product demand and development of competitive technologies in our market sector,
plan; the impact of competitive products and pricing, the loss of any significant customers,pricing; our abilities to protect our intellectual property rights the effects of adoption of newly announced accounting standards, the effects of economic conditions and trade, legalour ability to manage risks related to our information technology and cyber security as well as other economic risks, among others. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. These risks and uncertainties are disclosedset forth in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in this Quarterly Report on Form 10Q. The Company’s2021. These forward-looking statements speak only as of the date of this Quarterly Report. Therelease and the Company undertakes nodoes not undertake any obligation to publicly update or reviewrevise any forward-looking statements whetherinformation to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as a result of new information, future developments or otherwise.required by law.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to ensure that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that the information relating to Wireless Telecom Group, Inc., including our consolidated subsidiaries, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
We acquired CommAgility on February 17, 2017. We have begun the process to integrate the operations of CommAgility into our overall system of internal control over financial reporting.
There were no other changes in our internal control over financial reporting during the three or nine months ended September 30, 2017March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 20162021 Annual Report on Form 10-K.
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGSLegal Proceedings
There have been no
No material developmentschanges in the legal proceedings described in Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.quarter.
Item 1A. RISK FACTORSRisk Factors
There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-KForm10-K for the year ended December 31, 2016.2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. DEFAULTS UPON SENIOR SECURITIESDefaults upon Senior Securities
None.
None.
Item 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
Not applicable.
Item 5. OTHER INFORMATIONOther Information
None.
* Denotes a management contract or compensatory plan or arrangement.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WIRELESS TELECOM GROUP, INC. | |||
Dated: May 11, 2022 | By: | ||
/s/ Timothy Whelan | |||
Timothy Whelan | |||
Chief Executive Officer |
Dated: May 11, 2022 | |||
By: | |||
/s/ Michael Kandell | |||
Michael Kandell | |||
Chief Financial Officer |
EXHIBIT INDEX