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, 2021March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-11916
WIRELESS TELECOM GROUP, INC.
(Exact name of Registrant as specified in its charter)
New Jersey | 22-2582295 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
25 Eastmans Road, Parsippany, New Jersey | 07054 | |
(Address of principal executive offices) | (Zip Code) |
(973) 386-9696
(Registrant’s telephone number, including area code)
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.
Yes ☒ No ☐
Yes ☒ | No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
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.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Yes☐ | No ☒ |
Number of shares of Common Stock outstanding as of November 5, 2021:May 2, 2022:
WIRELESS TELECOM GROUP, INC.
Form 10-Q
Table of Contents
2 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value)
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
(Unaudited) | (Unaudited) | |||||||||||||||
September 30 2021 | December 31 2020 | March 31 2022 | December 31 2021 | |||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash & cash equivalents | $ | 1,283 | $ | 4,910 | $ | 19,072 | $ | 4,472 | ||||||||
Accounts receivable - net of reserves of $216 and $143, respectively | 7,420 | 5,520 | ||||||||||||||
Inventories - net of reserves of $1,241 and $1,129 respectively | 9,655 | 8,796 | ||||||||||||||
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 | 2,058 | 2,172 | 2,233 | 1,689 | ||||||||||||
Current assets of discontinued operations | - | 6,869 | ||||||||||||||
TOTAL CURRENT ASSETS | 20,416 | 21,398 | 30,156 | 20,525 | ||||||||||||
PROPERTY PLANT AND EQUIPMENT - NET | 1,629 | 1,824 | 1,300 | 1,110 | ||||||||||||
OTHER ASSETS | ||||||||||||||||
Goodwill | 11,461 | 11,512 | 10,012 | 10,108 | ||||||||||||
Acquired intangible assets, net | 4,249 | 5,242 | 3,418 | 3,661 | ||||||||||||
Deferred income taxes | 6,162 | 5,701 | 2,314 | 5,580 | ||||||||||||
Right of use assets | 1,282 | 1,680 | 1,007 | 1,146 | ||||||||||||
Other assets | 548 | 561 | 290 | 284 | ||||||||||||
Non current assets of discontinued operations | - | 1,937 | ||||||||||||||
TOTAL OTHER ASSETS | 23,702 | 24,696 | 17,041 | 22,716 | ||||||||||||
TOTAL ASSETS | $ | 45,747 | $ | 47,918 | $ | 48,497 | $ | 44,351 | ||||||||
CURRENT LIABILITIES | ||||||||||||||||
Short term debt | $ | 150 | $ | 512 | $ | 62 | $ | 126 | ||||||||
Accounts payable | 2,205 | 1,546 | 1,470 | 1,481 | ||||||||||||
Short term leases | 572 | 534 | 599 | 585 | ||||||||||||
Accrued expenses and other current liabilities | 7,656 | 7,997 | 6,259 | 6,676 | ||||||||||||
Deferred revenue | 691 | 924 | 89 | 408 | ||||||||||||
Current liabilities of discontinued operations | - | 1,965 | ||||||||||||||
TOTAL CURRENT LIABILITIES | 11,274 | 11,513 | 8,479 | 11,241 | ||||||||||||
LONG TERM LIABILITIES | ||||||||||||||||
Long term debt | 3,578 | 8,895 | 267 | 3,595 | ||||||||||||
Long term leases | 766 | 1,200 | 462 | 615 | ||||||||||||
Other long term liabilities | 1,678 | 82 | 52 | 52 | ||||||||||||
Deferred tax liability | 444 | 377 | 222 | 228 | ||||||||||||
TOTAL LONG TERM LIABILITIES | 6,466 | 10,554 | 1,003 | 4,490 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | - | - | - | - | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Preferred stock, $ | par value, shares authorized, issued- | - | - | - | ||||||||||||
Common stock, $ | par value, shares authorized and shares issued, and shares outstanding355 | 349 | ||||||||||||||
Common stock, $ and shares issued, and shares outstanding par value, shares authorized | 362 | 359 | ||||||||||||||
Additional paid in capital | 51,305 | 50,163 | 51,906 | 51,555 | ||||||||||||
Retained earnings/(deficit) | 171 | (946 | ) | |||||||||||||
Treasury stock at cost, | and shares(24,600 | ) | (24,556 | ) | ||||||||||||
Retained earnings | 10,751 | 554 | ||||||||||||||
Treasury stock at cost, and shares | (24,638 | ) | (24,619 | ) | ||||||||||||
Accumulated other comprehensive income | 776 | 841 | 634 | 771 | ||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 28,007 | 25,851 | 39,015 | 28,620 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 45,747 | $ | 47,918 | $ | 48,497 | $ | 44,351 |
See accompanying Notes to Consolidated Financial Statements.
3 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net revenues | $ | 12,824 | $ | 10,868 | $ | 36,168 | $ | 31,404 | ||||||||
Cost of revenues | 6,284 | 5,214 | 17,549 | 15,655 | ||||||||||||
Gross profit | 6,540 | 5,654 | 18,619 | 15,749 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 1,435 | 1,826 | 4,281 | 5,080 | ||||||||||||
Sales and marketing | 1,854 | 1,732 | 5,266 | 5,111 | ||||||||||||
General and administrative | 2,800 | 2,444 | 8,469 | 7,322 | ||||||||||||
Loss on Change in Contingent Consideration | 1,000 | - | 1,000 | - | ||||||||||||
Total operating expenses | 7,089 | 6,002 | 19,016 | 17,513 | ||||||||||||
Operating income/(loss) | (549 | ) | (348 | ) | (397 | ) | (1,764 | ) | ||||||||
Extinguishment of PPP loan | - | - | 2,045 | - | ||||||||||||
Other income/(expense) | 20 | (43 | ) | 29 | 252 | |||||||||||
Interest expense | (365 | ) | (256 | ) | (947 | ) | (727 | ) | ||||||||
Income/(Loss) before taxes | (894 | ) | (647 | ) | 730 | (2,239 | ) | |||||||||
Tax provision/(benefit) | (707 | ) | 128 | (386 | ) | 352 | ||||||||||
Net income/(loss) | $ | (187 | ) | $ | (775 | ) | $ | 1,116 | $ | (2,591 | ) | |||||
Other comprehensive income/(loss): | ||||||||||||||||
Foreign currency translation adjustments | (152 | ) | 565 | (64 | ) | (406 | ) | |||||||||
Comprehensive income/(loss) | $ | (339 | ) | $ | (210 | ) | $ | 1,052 | $ | (2,997 | ) | |||||
Income/(Loss) per share: | ||||||||||||||||
Basic | $ | (0.01 | ) | $ | (0.04 | ) | $ | 0.05 | $ | (0.12 | ) | |||||
Diluted | $ | (0.01 | ) | $ | (0.04 | ) | $ | 0.05 | $ | (0.12 | ) | |||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 22,234 | 21,703 | 21,900 | 21,643 | ||||||||||||
Diluted | 22,234 | 21,703 | 24,219 | 21,643 |
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 to Consolidated Financial Statements.
4 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the Nine Months | For the Three Months | |||||||||||||||
Ended September 30 | Ended March 31 | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||||||||||||||
Net Income/(Loss) | $ | 1,116 | $ | (2,591 | ) | |||||||||||
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: | ||||||||||||||||
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 | 1,604 | 1,631 | 433 | 530 | ||||||||||||
Extinguishment of PPP loan | (2,045 | ) | - | |||||||||||||
Loss on extinguishment of term debt | 792 | - | ||||||||||||||
Gain on sale of Microlab | (16,403 | ) | - | |||||||||||||
Amortization of debt issuance fees | 217 | 215 | 55 | 83 | ||||||||||||
Share-based compensation expense | 301 | 360 | 330 | 114 | ||||||||||||
Deferred rent | (22 | ) | (22 | ) | (7 | ) | (7 | ) | ||||||||
Deferred income taxes | (387 | ) | 1,057 | 3,265 | - | |||||||||||
Provision for doubtful accounts | 72 | (28 | ) | (16 | ) | 3 | ||||||||||
Inventory reserves | 115 | 119 | 24 | 61 | ||||||||||||
Changes in assets and liabilities, net of acquisition: | ||||||||||||||||
Changes in assets and liabilities, net of divestiture: | ||||||||||||||||
Accounts receivable | (1,998 | ) | (1,343 | ) | (1,411 | ) | (853 | ) | ||||||||
Inventories | (993 | ) | (461 | ) | (132 | ) | (517 | ) | ||||||||
Prepaid expenses and other assets | 459 | (226 | ) | (184 | ) | (254 | ) | |||||||||
Accounts payable | 728 | (451 | ) | 304 | 606 | |||||||||||
Deferred revenue | (317 | ) | - | |||||||||||||
Accrued expenses and other liabilities | 1,368 | 888 | (505 | ) | 235 | |||||||||||
Net cash provided/(used) by operating activities | 535 | (852 | ) | |||||||||||||
Net cash used by operating activities | (3,575 | ) | (232 | ) | ||||||||||||
CASH FLOWS PROVIDED/(USED) BY INVESTING ACTIVITIES | ||||||||||||||||
Capital expenditures | (417 | ) | (228 | ) | (151 | ) | (144 | ) | ||||||||
Acquisition of business, net of cash acquired | (200 | ) | (7,189 | ) | ||||||||||||
Deferred purchase price payment | (250 | ) | (200 | ) | ||||||||||||
Divestiture of Microlab, net | 22,753 | - | ||||||||||||||
Net cash provided/(used) by investing activities | (617 | ) | (7,417 | ) | 22,352 | (344 | ) | |||||||||
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES | ||||||||||||||||
Revolver borrowings | 50,220 | 27,432 | ||||||||||||||
Revolver repayments | (50,175 | ) | (29,786 | ) | ||||||||||||
Term loan borrowings | 345 | 8,400 | ||||||||||||||
CASH FLOWS USED BY FINANCING ACTIVITIES | ||||||||||||||||
Term loan repayments | (4,191 | ) | (405 | ) | (4,104 | ) | (449 | ) | ||||||||
Debt issuance fees | - | (1,305 | ) | |||||||||||||
PPP loan | - | 2,045 | ||||||||||||||
Payment of contingent consideration | (460 | ) | - | |||||||||||||
Proceeds from exercise of stock options | 209 | 15 | 24 | - | ||||||||||||
Shares withheld for employee taxes | (44 | ) | (31 | ) | (19 | ) | (17 | ) | ||||||||
ATM shares sold | 565 | - | ||||||||||||||
Net cash provided/(used) by financing activities | (3,531 | ) | 6,365 | (4,099 | ) | (466 | ) | |||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (14 | ) | (138 | ) | (78 | ) | 12 | |||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (3,627 | ) | (2,042 | ) | ||||||||||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 14,600 | (1,030 | ) | |||||||||||||
Cash and Cash Equivalents, at Beginning of Period | 4,910 | 4,245 | 4,472 | 4,910 | ||||||||||||
CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 1,283 | $ | 2,203 | $ | 19,072 | $ | 3,880 | ||||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||||||
Cash paid during the period for interest | $ | 698 | $ | 527 | $ | 122 | $ | 213 | ||||||||
Cash paid during the period for income taxes | $ | 150 | $ | 53 | $ | 12 | $ | 13 | ||||||||
Non cash issuance of common stock in connection with acquisition – see Note 3 |
See accompanying Notes to Consolidated Financial Statements.
5 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except share amounts)
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, 2020 | 34,488,252 | $ | 345 | $ | 49,062 | $ | 7,142 | $ | (24,509 | ) | $ | 651 | $ | 32,691 | ||||||||||||||
Net income/(loss) | - | - | - | (1,147 | ) | - | - | (1,147 | ) | |||||||||||||||||||
Issuance of shares in connection with stock options exercised | ||||||||||||||||||||||||||||
Issuance of shares in connection with stock options exercised, shares | ||||||||||||||||||||||||||||
Issuance of restricted stock | ||||||||||||||||||||||||||||
Issuance of restricted stock, shares | ||||||||||||||||||||||||||||
Forfeiture of restricted stock | (16,667 | ) | ||||||||||||||||||||||||||
Issuance of shares in connection with Holzworth acquisition | 347,319 | 3 | 462 | - | - | - | 465 | |||||||||||||||||||||
Issuance of warrants in connection with term debt | - | - | 151 | - | - | - | 151 | |||||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (26 | ) | - | (26 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 81 | - | - | - | 81 | |||||||||||||||||||||
ATM shares sold | ||||||||||||||||||||||||||||
ATM shares sold, shares | ||||||||||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (935 | ) | (935 | ) | |||||||||||||||||||
Balances at March 31, 2020 | 34,818,904 | $ | 348 | $ | 49,756 | $ | 5,995 | $ | (24,535 | ) | $ | (284 | ) | $ | 31,280 | |||||||||||||
Net income/(loss) | - | - | - | (668 | ) | - | - | (668 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 128 | - | - | - | 128 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (36 | ) | (36 | ) | |||||||||||||||||||
Balances at June 30, 2020 | 34,818,904 | $ | 348 | $ | 49,884 | $ | 5,327 | $ | (24,535 | ) | $ | (320 | ) | $ | 30,704 | |||||||||||||
Net income/(loss) | - | - | - | (775 | ) | - | - | (775 | ) | |||||||||||||||||||
Issuance of shares in connection with stock options exercised | 20,000 | - | 15 | - | - | - | 15 | |||||||||||||||||||||
Issuance of restricted stock | 50,000 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (5 | ) | - | (5 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 151 | - | - | - | 151 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 565 | 565 | |||||||||||||||||||||
Balances at September, 2020 | 34,888,904 | $ | 349 | $ | 50,049 | $ | 4,552 | $ | (24,540 | ) | $ | 245 | $ | 30,655 |
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 Comprehensive Income/(Loss) | Total Shareholders’ Equity | 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 | |||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2022 | 35,915,636 | $ | 359 | $ | 51,555 | $ | 554 | $ | (24,619 | ) | $ | 771 | $ | 28,620 | ||||||||||||||||||||||||||||||||||||||||||
Net income/(loss) | - | - | - | (233 | ) | - | - | (233 | ) | - | - | - | 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 | - | - | - | - | (17 | ) | - | (17 | ) | - | - | - | - | (19 | ) | - | (19 | ) | ||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | - | - | 114 | - | - | - | 114 | - | - | 330 | - | - | - | 330 | ||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 75 | 75 | - | - | - | - | - | (137 | ) | (137 | ) | ||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | 34,888,904 | $ | 349 | $ | 50,277 | $ | (1,179 | ) | $ | (24,573 | ) | $ | 916 | $ | 25,790 | |||||||||||||||||||||||||||||||||||||||||
Net income/(loss) | - | - | - | 1,537 | - | - | 1,537 | |||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 223,517 | 2 | (2 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | - | - | 89 | - | - | - | 89 | |||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 12 | 12 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | 35,112,421 | $ | 351 | $ | 50,364 | $ | 358 | $ | (24,573 | ) | $ | 928 | $ | 27,428 | ||||||||||||||||||||||||||||||||||||||||||
Balances | 35,112,421 | $ | 351 | $ | 50,364 | $ | 358 | $ | (24,573 | ) | $ | 928 | $ | 27,428 | ||||||||||||||||||||||||||||||||||||||||||
Net income/(loss) | - | - | - | (187 | ) | - | - | (187 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in connection with stock options exercised | 140,000 | 1 | 208 | - | - | - | 209 | |||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in connection with Holzworth acquisition | 33,220 | - | 73 | - | - | - | 73 | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (27 | ) | - | (27 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | - | - | 98 | - | - | - | 98 | |||||||||||||||||||||||||||||||||||||||||||||||||
ATM shares sold | 264,701 | 3 | 562 | - | - | - | 565 | |||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (152 | ) | (152 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 | 35,550,342 | $ | 355 | $ | 51,305 | $ | 171 | $ | (24,600 | ) | $ | 776 | $ | 28,007 | ||||||||||||||||||||||||||||||||||||||||||
Balances | 35,550,342 | $ | 355 | $ | 51,305 | $ | 171 | $ | (24,600 | ) | $ | 776 | $ | 28,007 | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2022 | 36,230,636 | $ | 362 | $ | 51,906 | $ | 10,751 | $ | (24,638 | ) | $ | 634 | $ | 39,015 |
See accompanying Notes to Consolidated Financial Statements.
6 |
NOTE 1 - Summary 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 (“RF”) and microwave devices which enable the development, testing and deployment of wireless technology. The Company provides unique, highly customized and configured solutions which drive innovation across a wide range of traditional and emerging wireless technologies.
Oura customers include wireless carriers, aerospace companies, defense contractors, military and government agencies, satellite communication companies, network equipment manufacturers, tower companies, semiconductor device manufacturers, system integrators, neutral host providers and medical device manufacturers.
Our products include components, modules, instruments, systems and software used across the lifecycle of wireless connectivity and communication development, deployment and testing. Our customers use these products in relation to commercial infrastructure development, the expansion and upgrade of distributed antenna systems, deployment of small cell technology, use of medical devices and private long-term evolution (“LTE”) and 5G networks. In addition, the Company’s products are used in the development and testing of satellite communication systems, radar systems, semiconductor devices, automotive electronics and avionics.
The accompanying 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, LLC (“Microlab”)Wireless Telecommunications Ltd., CommAgility Limited and Holzworth Instrumentation, Inc. (“Holzworth”)Noise Com, Inc., Wireless TelecommunicationsBoonton 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 Limited (“CommAgility”). Theyand have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and balances have been eliminated in consolidation.
It is suggested that these interim consolidated financial statements be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the Company’s latest annual report (Form 10-K).
The Company’s fiscal periods are based on the calendar year. Except as otherwise specified, references to “third“first quarter(s)” or “three months” indicate the Company’s three month periodfiscal periods ended September 30,March 31, 2022 and March 31, 2021, and September 30, 2020, and references to “year-end” indicate the fiscal year ended December 31, 2020.2021.
Consolidated Financial Statements
In the opinion of management, the accompanying 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, 2020.2021. Specific reference is made to that report since certain information and footnote disclosures normally included in financial statements in accordance with US GAAP have been reduced for interim periods in accordance with SEC rules.
The results of operations for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.2022.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period. We base our assumptions, judgements and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
7 |
The COVID-19 pandemic hasand 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 related to the COVID-19 pandemic 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 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, 2020.2021.
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.
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.
ForOne customer accounted for 11.2% of consolidated revenue for the three months ended September 30,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 greater than 10% of consolidated revenue. For the nine months ended September 30, 2021 one customer accounted for 10.32% of consolidated revenue. For the three months ended September 30, 2020, one customer accounted for 12.5% of the Company’s consolidated revenues. For the nine months ended September 30, 2020 no one customer accounted for greater than 10% of the Company’s consolidated revenues.
One customer accounted for 12.2% of consolidated accounts receivable as of September 30, 2021. At December 31, 2020, one customer accounted for 12.7% of consolidated accounts 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 - Quoted prices in active markets for identical assets or liabilities.
Level 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 - 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 Holzworth Share Purchase Agreement, the Company iswas required to pay additional purchase price in the form of deferred purchase price payments and an earnout based on Holzworth’s financial results for the years ended December 31, 2020 and 2021.
The significant inputs usedAs of March 31, 2022, the amount due for the Holzworth earnout was $2.9 million and included in this fair value estimate include estimated gross revenuesaccrued expenses and Adjusted EBITDA, as definedother current liabilities in the Holzworth Share Purchase Agreement, and scenarios for the earnout periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome. The estimated outcome is then discounted based on the individual risk analysis of the liability. The contingent consideration liabilities are considered a Level 3 fair value measurement.Consolidated Balance Sheet.
8 |
Segments
The Company accounts for business acquisitionsevaluates its financial reporting in accordance with ASC 805,280 Business CombinationsSegment Reporting. . Under ASC 805As of March 1,2022, the Company is required to reassess contingent consideration liabilities as of each reporting date. Additionally, adjustments to contingent consideration liabilitiesdetermined that occur after the measurement period, which is typically one year, are recorded as a component ofchief operating income in the Consolidated Statement of Operationsdecision maker makes financial decisions and Comprehensive Income/(Loss). Due to the anticipated better than expected financial performance of the Holzworth reporting unit for fiscal year 2021, the Company recorded an increase to the contingent consideration liabilities in the amount of $1.0 million in the three months ended September 30, 2021, which represents the Company’s best estimate of the earnout payableallocates resources based on the expected financial resultssegment profit information for the year ending December 31, 2021. This earnout will be payable in four equal installments in fiscal 2022. The adjustment was recorded as a loss on change in contingent consideration in the Consolidated Statement of Operations and Comprehensive Income/(Loss).two segments. See Note 12.
As of September 30, 2021, amounts due for the Holzworth deferred purchase price and earnout were $ and $ million, respectively.
NOTE 2 – Accounting Pronouncements
Recently Adopted Accounting Standards
There have been no changes to our significant accounting policies as described in the 20202021 Form 10-K that had a material impact on our consolidated financial statements and related notes.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance was effective for the Company beginning on January 1, 2021 and prescribes different transition methods for the various provisions. The adoption of this standard had no material impact on the Company’s financial statements or related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured asat amortized cost. This pronouncement is effective for small reporting companies for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022. The Company plans to adopt the standard effective January 1, 2023. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The new standard is effective March 12, 2020 through December 31, 2022, with the adoption date being dependent upon the Company’s election. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
NOTE 3 – Acquisition of HolzworthDiscontinued Operations
On February 7, 2020March 1, 2022, the Company completed the acquisitionsale of all of the outstanding shares of Holzworth. Holzworth instruments which include signal generators and phased noise analyzers are used by government labs, the semiconductor industry, and network equipment providers, among others, in research and automated test environments. Holzworth is a complimentary business for our Boonton and Noisecom brands with a common customer base and channel partners.
The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business CombinationsMicrolab to RF Industries, Ltd (the “Transaction”). 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.
At closing, a portion of the purchase price was paid to the Sellers through the issuance of shares of the Company’s common stock, valued atCompany received approximately $500,000 based upon a 90-day volume weighted average price for shares of stock of the Company. The shares issued to the Sellers are subject to Lock-up and Voting Agreements.
During 2020, the Company paid $ million in proceeds net cash to the Sellers consistingof indemnification and purchase price adjustment holdbacks of $7.2150,000 million in cash at close,and $600,000100,000 in, respectively, and direct expenses. The indemnification holdback paymentsexpires one year from close and $ in deferredthe final purchase price reduced by $ adjustment, which is primarily comprised of a working capital adjustment, that was owedis to the Company by the Sellers. The final indemnification holdback payment ofbe settled 90 days after close. $200,000 was paid on March 31, 2021.
The Sellers earned a second deferred purchase price payment of $ when Holzworth exceeded $ million in EBITDAof the net proceeds were used to repay our outstanding Term Loan Facility (as defined in the Share Purchase Agreement) for the twelve months ended December 31, 2020. Additionally, the Sellers earnedNote 4) with Muzinich BDC, approximately $3.4600,000 million in additional purchase price in the form of an earnout (“Year 1 Earnout”) which was also based on Holzworth’s EBITDA for the twelve months ended December 31, 2020.
On February 19, 2021, the Company entered into the Second Amendment to Share Purchase Agreement (the “Second Amendment”) with Holzworth. The Second Amendment, among other things, converted the second deferred purchase price of $ into unsecured seller notes with interest at an annual rate of starting from April 1, 2021 until final payment.
Additionally, the parties amended the payment dates of the earnout consideration. The payment for the Year 1 Earnout is $ million, of which $ was paid in cash and $ was issued in common stock as of September 30, 2021.pay our advisors.
The Company may also be required to pay additional amounts in cashterminated its Term Loan Facility with Muzinich BDC and stockCredit Facility with Bank of America N.A. as earnout consideration based on Holzworth’s EBITDA for the fiscal year ending December 31, 2021 (“Year 2 Earnout”). The Year 2 Earnout will be equal to two times the amount, if any, by which Holzworth’s EBITDA for fiscal year December 31, 2021 exceeds Holzworth’s EBITDA for fiscal year 2020. The aggregate payments of the Year 1 Earnout and Year 2 Earnout cannot exceed $ million andTransaction close date (see Note 4 below). Additionally, concurrent with the aggregate purchase price cannot exceed $ million.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).
Due to the anticipated better than expected financial performanceThe Transaction will be treated as a sale of the Holzworth reporting unitassets and liabilities of Microlab to RF Industries, Ltd. for fiscal year 2021,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 recorded an increase toreclassified the contingent considerationassets and liabilities of Microlab as assets and liabilities of discontinued operations in the amountConsolidated 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.
1.0 million
9 |
The following table summarizes the significant items included in the three months ended September 30, 2021 which represents the Company’s best estimateincome from discontinued operations, net of the Year 2 Earnout. The adjustment was recorded as a loss on change in contingent considerationtax in the Consolidated Statement of Operations for the three months ended March 31, 2022 and Comprehensive Income/(Loss).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 componentscarrying value of the purchase pricesignificant classes of assets and the allocationliabilities classified as discontinued operations as of the purchase price at fair value at the acquisition date (in thousands):December 31, 2021:
Schedule of Business ConsiderationAssets and Liabilities
Amounts Recognized as of Acquisition Date | ||||
Cash at close | $ | 7,219 | ||
Equity issued at close | 465 | |||
Purchase price holdback | 800 | |||
Working capital adjustment | (292 | ) | ||
Deferred purchase price | 1,410 | |||
Contingent consideration | 2,440 | |||
Total purchase price | 12,042 | |||
Cash | 30 | |||
Accounts receivable | 514 | |||
Inventory | 1,438 | |||
Intangible assets | 4,260 | |||
Other assets | 967 | |||
Fixed assets | 144 | |||
Accounts payable | (129 | ) | ||
Accrued expenses | (429 | ) | ||
Deferred revenue | (13 | ) | ||
Other long term liabilities | (740 | ) | ||
Net assets acquired | 6,042 | |||
Goodwill | $ | 6,000 |
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 |
Goodwill is calculated as the excess of consideration paid over the net assets acquired and represents synergies, assembled workforce, organic growth and other benefits that are expected to arise from integrating Holzworth into our operations. The goodwill recorded in this transaction is expected to be tax deductible.
The Company’s post acquisitioncash flows related to discontinued operations have not been segregated and are included in the consolidated goodwill is shown below (in thousands):statements of cash flows for all periods presented. Microlab depreciation expense for the three months ended March 31, 2021 and included in the consolidated statement of cash 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.
Schedule of Post Acquisition Consolidated Goodwill
Holzworth | Microlab | CommAgility | Total | |||||||||||||
Balance as of January 1, 2020 | $ | - | $ | 1,351 | $ | 8,718 | $ | 10,069 | ||||||||
Holzworth acquisition | 6,000 | - | - | 6,000 | ||||||||||||
Goodwill Impairment | - | - | (4,742 | ) | (4,742 | ) | ||||||||||
Foreign currency translation | - | - | 185 | 185 | ||||||||||||
Balance as of December 31, 2020 | $ | 6,000 | $ | 1,351 | $ | 4,161 | $ | 11,512 | ||||||||
Foreign currency translation | - | - | 45 | 45 | ||||||||||||
Balance as of March 31, 2021 | $ | 6,000 | $ | 1,351 | $ | 4,206 | $ | 11,557 | ||||||||
Foreign currency translation | - | - | 7 | 7 | ||||||||||||
Balance as of June 30, 2021 | $ | 6,000 | $ | 1,351 | $ | 4,213 | $ | 11,564 | ||||||||
Beginning balance | $ | 6,000 | $ | 1,351 | $ | 4,213 | $ | 11,564 | ||||||||
Foreign currency translation | - | - | (103 | ) | (103 | ) | ||||||||||
Balance as of September 30, 2021 | $ | 6,000 | $ | 1,351 | $ | 4,110 | $ | 11,461 | ||||||||
Closing balance | $ | 6,000 | $ | 1,351 | $ | 4,110 | $ | 11,461 |
NOTE 4 – Debt
Debt consistsTermination of the following (in thousands):
Schedule of Debt
September 30, 2021 | ||||
Revolver at LIBOR plus margin | $ | 45 | ||
Term loan at LIBOR plus margin | 4,125 | |||
Less: Debt issuance costs, net of amortization | (678 | ) | ||
Less: Fair value of warrants, net of amortization | (101 | ) | ||
CIBLS Loan at Bank of England plus margin | 337 | |||
Total Debt | 3,728 | |||
Less: Debt maturing within one year | (150 | ) | ||
Non-current portion of long term debt | $ | 3,578 |
Term loan payments by period (in thousands):
Schedule of Term Loan Payments
Remainder of 2021 | $ | 21 | ||
2022 | 126 | |||
2023 | 168 | |||
2024 | 168 | |||
2025 | 3,936 | |||
Thereafter | 43 | |||
Total | $ | 4,462 |
Muzinich Term Loan Facility and Bank of America N.A. Credit Facility
In connection withOn March 1, 2022, the Holzworth Acquisition, onCompany repaid in full and terminated that certain Credit Agreement dated February 7, 2020, among the Company, as borrower, and its subsidiaries as guarantors, and Muzinich BDC, Inc., as lender (“Muzinich”), entered into a Term Loan Facility, which provides for a term loan in the principal amount of $8.4 million (the “Initial Term Loan”). All proceeds of the Initial Term Loan were used to fund the cash portion of the purchase price for the Holzworth acquisition. Principal paymentsamended on the Initial Term Loan are $21,000 per quarter with a balloon payment at maturity which is February 7, 2025. The Term Loan Facility included an upfront fee of 2.50% of the aggregate principal amount of the Initial Term Loan. In connection with the Term Loan Facility, the Company incurred costs of $1.0 million, including the aforementioned 2.50% upfront fee to Muzinich, which were recorded as a reduction of the carrying amount of the debt and are being amortized over the term of the loan.
On May 4, 2020, the Company entered into the First Amendment to the Term Loan Facility which, among other things, amended the definition of “Indebtedness” to include the PPP (as defined below) loan as long as the proceeds are used for allowable purposes under the CARES Act, the receipt of the loan does not violate the Credit Facility and the Company submits an application for forgiveness and substantially all of the loan is forgiven. The Company received notice in June 2021 that the loan and accrued interest were fully forgiven, as described below.
On February 25, 2021, the Company and its subsidiaries entered into the Second Amendment to the Credit Agreement and Limited Waiver (“Amendment 2”) with Muzinich, in which Muzinich agreed to waive the Company’s obligation to comply with the consolidated leverage ratio and fixed charge coverage ratio financial covenants in the Term Loan Facility for the fiscal quarter ending December 31, 2020. We were not in compliance with such covenants primarily as a result of the impact the COVID-19 pandemic had on our consolidated financial results. Amendment 2, among other things, amended the definition of consolidated EBITDA to include certain cash tax benefits related to our U.K. tax jurisdiction and reduced our consolidated leverage ratio for the twelve month periods ended September 30, 2021 from 3.00 to 2.75, December 31, 2021 from 2.75 to 2.25, March 31, 2022 from 2.50 to 2.00 and June 30, 2022 from 2.25 to 2.00. Additionally, the interest rate margin was increased from 7.25% to 9.25% effective January 1, 2021 and will step down to 8.50% and 7.25% upon the Company achieving consolidated EBITDA on a trailing twelve-month basis of $4.0 million and $6.3 million, respectively. Muzinich and the Company also agreed on an excess cash flow payment of $428,000 which was made in March 2021 and Muzinich provided consent for the Company to change the deferred purchase price payments to and enter into notes with the Holzworth sellers in the amount of $750,000, as described above in Note 3.
On May 27, 2021 the Company and its subsidiaries entered into the Third Amendment to the Credit Agreement and Limited Waiver (“Amendment 3)” with Muzinich in which Muzinich, among other things, permitted CommAgility to enter into the CIBLS Loan Agreement with Lloyds Bank Plc. See description below.
On September 28, 2021 (the “Term Loan Facility”). The Company repaid the Company and its subsidiaries entered into the Fourth Amendment to Credit Agreement and Limited Waiver (“Amendment 4”) with Muzinich. Amendment 4 was executed in connection with a prepayment of theoutstanding principal balance of the Muzinich term loan in the amount of $3.74.1 million and accrued interest thereon of $95,000thereon. Additionally, on September 28, 2021. Additionally,March 1, 2022, the Company paid a prepayment premiumterminated that certain Loan and Security Agreement dated as of2% of the prepayment amount or $74,000.
Under the terms of Amendment 4, the interest rate margin was decreased from 9.25% to 8.75% when trailing twelve month Consolidated EBITDA, as defined, excluding the US R&D tax credit, is less than or equal to $4.0 million and decreased from 8.50% to 8.00% when trailing twelve month Consolidated EBITDA, as defined, excluding the US R&D tax credit, is greater than $4.0 million but equal to or less than $6.3 million. Muzinich also agreed to waive compliance with the financial covenant set forth in Section 7.11(c) of the Credit Agreement from September 28, 2021 until March 31, 2022. Section 7.11(c) requires the trailing four week average liquidity, as defined, of the Company’s CommAgility subsidiary to be no less than $1.0 million. The waiver of this covenant may be extended upon the consent of Muzinich. Additionally, under Amendment 4, the definition of Consolidated Interest Charges was amended to treat the aforementioned principal prepayment of $3.7 million as being made on October 1, 2020.
Credit Facility with Bank of America, N.A.
The Company entered into a Credit Facility with Bank of America, N.A. (“Bank of America”) on February 16, 2017 (the “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 Credit Facility) of up to a maximum availability of $9.0 million (“Revolver Commitment Amount”). The borrowing base is calculated as a percentage of eligible accounts receivable and inventory, as defined, subject to certain caps and limits. The borrowing base is calculated on a monthly basis and interest is calculated at LIBOR plus a margin. The proceeds of the Term Loan and Revolver were used to finance the acquisition of CommAgility in 2017.
In connection with the Acquisition, on February 7, 2020, the Company and certain of its subsidiaries (the “Borrowers”), and Bank of America entered into Amendment No. 5 to the Credit Facility (“BOA Amendment 5”). By entering into BOA Amendment 5, Holzworth, together with CommAgility Limited, became borrowers under the Credit Facility. The obligations of the Borrowers under the Credit Facility are guaranteed by Wireless Telecom Group, Ltd. CommAgility Limited and Wireless Telecom Group, Ltd. are both wholly owned subsidiaries of the Company. Additionally, the Company prepaid the remaining principal balance of the BOA Term Loan in the amount of $304,000.
On May 4, 2020,among the Company, its subsidiaries and Bank of America, entered into Amendment No. 6as 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 among other things, amendedincluded an asset based revolving loan (“revolver”) which was subject to a borrowing base calculation. The outstanding balance of the definitionrevolver at March 1, 2022 was approximately $600,000. The repayment of “Debt” to include the PPP loan as long asTerm Loan Facility and Revolver were funded by the proceeds are used for allowable purposes under the CARES Act and the Company promptly submits an application for forgiveness and substantially all of the loan is forgiven. The Company received notice in June 2021 that the loan and accrued interest were fully forgiven, as described below.Microlab divestiture.
On February 25, 2021, the Company, its subsidiaries and Bank of America entered into Amendment No. 7 which revised the Credit Facility to accommodate the changes to the deferred purchase price payments to and notes with the Holzworth sellers, as described above, and provided Bank of America’s consent to the Company entering into the Muzinich Second Amendment, as described above.
On September 28, 2021, the Company and its subsidiaries entered into Amendment No. 8 (“BOA Amendment 8”) in which Bank of America consented to the aforementioned principal prepayment of the Muzinich term loan and amended the definition of Fixed Charge Coverage Ratio to treat the Muzinich principal prepayment as being made on October 1, 2020. Additionally, Bank of America and the Company agreed that, in accordance with the Credit Facility, the LIBOR should be replaced with a successor rate in accordance with the provisions of BOA Amendment 5. Accordingly, BOA Amendment 8 defines the LIBOR successor rate for loans denominated in U.S. dollars to be the Bloomberg Short-Term Bank Yield Index rate (“BSBY”), loans denominated in Sterling to be the Sterling Overnight Index Average Reference Rate (“SONIA”) and loans denominated in Euros to be the Euro Interbank Offered Rate (“EURIBOR”). Loans drawn after the effective date of BOA Amendment 8 will bear interest as the successor rates named above plus the applicable margin, as defined.
AsThe Company accounted for the termination of September 30, 2021, the interest rate on the Term Loan Facility was 9.75% and the interest rate on the Revolver was 2.13%. The Company had $45,000 drawn on the asset-based revolver as of September 30, 2021. As of September 30, 2021, and the date hereof the Company is in compliance with all covenants of the Credit Facility and the Term Loan Facility.
PPP Loan
On May 4, 2020, the Company received $2.0 million pursuant to a loan from Bankas an extinguishment of America N.A. under the Paycheck Protection Program (“PPP”) of the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the Small Business Association (“SBA”). The loan had an interest rate of 1% and a term of 24 months. A repayment schedule was not provided by Bank of America. Accordingly, as of December 31, 2020 the full amount of the term loan was shown as due in May 2022. Funds from the loan were used only for certain permitted purposes, including payroll, benefits, rent and utilities. The CARES Act and the PPP provided a mechanism for forgiveness of up to the full amount of the loan upon application to the SBA for forgiveness by the Company. The Company applied for forgiveness of the loan and received notice that the loan and accrued interest were fully forgiven, and that the SBA remitted payment in full to Bank of America N.A. on June 5, 2021. The Company elected to account for the loandebt in accordance with Accounting Standard CodificationASC 470 DebtDebt. . Accordingly, theThe Company recordedrecognized a gainloss on extinguishment of debt on the Consolidated Statement of Operations and Comprehensive Income/(Loss) in the nine months ended September 30, 2021.$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 are due monthly beginningbegin 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 subject to a Deed of Priority between Muzinich, Bank of America and Lloyds. The CIBLS Loan ranks subordinate to both the Muzinich Term Loan and Bank of America Credit Facility.CommAgility.
On July 1, 2021, CommAgility executed a draw down of the maximum amount of £250,000. As of September 30, 2021,March 31, 2022, $2162,000,000 is included in short term debt and $316,000267,000 is included long term debt on the Consolidated Balance Sheet.
NOTE 5 – Equity
On July 21, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”), to issue and sell through the Agent, shares of the Company’s common stock, par value $ per share, having an aggregate offering price of up to $12,000,000 (the “Shares”). The Agent was not required to sell any specific number of Shares. Shares sold under the Sales Agreement were issued and sold pursuant to the Company’s previously filed registration statement on Form S-3 (File No. 333-227051) filed with the Securities and Exchange Commission (the “Commission”) on August 27, 2018 and declared effective on September 17, 2018. A prospectus supplement relating to the offering of the Shares was filed with the Commission on July 21, 2021.
From July 21, 2021 through August 6, 2021 the Agent sold shares of the Company’s common stock for net proceeds of $738,827, after deducting sales commissions paid to the Agent in accordance with the terms of the Sales Agreement.
The registration statement pursuant to which the shares were sold expired on September 17, 2021 and was not renewed.
NOTE 6 – 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 less than 12 months months to 8 years years.. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company’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 September 30, 2021March 31, 2022 and December 31, 2020.2021. 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 lease 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 $168,000156,000 and $500,000151,000 forduring the three and nine months ended September 30,March 31, 2022 and 2021, respectively, and was included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities for the three and nine months ended September 30, 2020 was $167,000 and $483,000, respectively.
Operating lease costs for the three and nine months ended September 30,March 31, 2022 and March 31, 2021 were $258,000247,000 and $825,000, respectively. Operating lease costs for the three and nine months ended September 30, 2020 were $269,000 and $791,000276,000, respectively.
The following table presents information about the amount and timing of cash flows arising from the Company’s leases as of September 30, 2021:March 31, 2022:
Schedule of Maturity of Operating Lease Liabilities
(in thousands) | September 30, 2021 | March 31, 2022 | ||||||
Maturity of Lease Liabilities | ||||||||
Remainder of 2021 | $ | 156 | ||||||
2022 | 637 | |||||||
Remainder of 2022 | $ | 481 | ||||||
2023 | 276 | 276 | ||||||
2024 | 158 | 158 | ||||||
2025 | 163 | 163 | ||||||
Thereafter | 69 | |||||||
Total Undiscounted operating lease payments | 1,459 | |||||||
2026 | 69 | |||||||
Total undiscounted operating lease payments | 1,147 | |||||||
Less: imputed interest | (121 | ) | (86 | ) | ||||
Present value of operating lease liabilities | $ | 1,338 | $ | 1,061 | ||||
Balance sheet classification | ||||||||
Current lease liabilities | $ | 572 | $ | 599 | ||||
Long-term lease liabilities | 766 | 462 | ||||||
Total operating lease liabilities | $ | 1,338 | $ | 1,061 | ||||
Other information | ||||||||
Weighted-average remaining term (months) for operating leases | 37 | 34 | ||||||
Weighted-average discount rate for operating leases | 5.88 | % | 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 sublease co-terminates with the master lease on March 31, 2023. The Company evaluated the sublease in accordance with ASC 842 Leases and determined that the sublease is an operating lease. Accordingly, sublease income is recognized on the Consolidated Statement of Operations as other income.
NOTE 76 – Revenue
Revenue 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 a point in time. Revenue from performance obligations that transferred at a point in time accounted for approximately 9791% and 10097% of the Company’s consolidated revenue for each of the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
Nature of Products and Services
Hardware
The Company generally has one performance obligation in its arrangements involving the sales of radio frequency solutions, digital signal processing hardware, power meters, analyzers, noise/signal generators, phase noise analyzers and other components. When the terms of a contract include the transfer of multiple 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 to the 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 also 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 software in the CommAgility brand may involve multiple performance obligations, most notably subsequent releases of the software. 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.
12 |
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.
Certain of the Company shipments include a limited return right. In accordance with Topic 606, the Company recognizes revenue net of expected returns.
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.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 $179,000297,000 and $260,000292,000 as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, and recorded in prepaid expenses and other current assets. Deferred revenue was $691,00089,000 and $924,000408,000 as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The decrease in deferred revenue from December 31, 20202021 is primarily due to recognition of revenue for certain CommAgility projects involving multiple performance obligations, offset by billing in advance of revenue recognition for new projects with multiple performance obligations.
13 |
Disaggregated Revenue
We disaggregate our revenue from contracts with customers by product family and geographic location as we believe it best depicts how the nature, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables 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 services revenue are attributable to the T&M segment in 2022 and 2021, respectively.
Schedule of Disaggregated Revenue
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||
Total net revenues by revenue type | ||||||||||||||||
Passive and active RF components | $ | 5,444 | $ | 4,407 | $ | 12,809 | $ | 14,527 | ||||||||
Signal generators and components | 3,485 | 3,970 | 10,003 | 8,598 | ||||||||||||
Signal analyzers and power meters | 1,996 | 1,451 | 5,392 | 4,297 | ||||||||||||
Signal processing hardware | 813 | 106 | 3,825 | 1,471 | ||||||||||||
Software licenses | 178 | 443 | 1,509 | 1,157 | ||||||||||||
Services | 908 | 491 | 2,630 | 1,354 | ||||||||||||
Total net revenue | $ | 12,824 | $ | 10,868 | $ | 36,168 | $ | 31,404 | ||||||||
Total net revenues by geographic areas | ||||||||||||||||
Americas | $ | 9,547 | $ | 8,958 | $ | 26,018 | $ | 23,598 | ||||||||
EMEA | 1,815 | 1,145 | 5,390 | 4,793 | ||||||||||||
APAC | 1,462 | 765 | 4,760 | 3,013 | ||||||||||||
Total net revenue | $ | 12,824 | $ | 10,868 | $ | 36,168 | $ | 31,404 |
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 87 – Income Taxes
The Company records deferred taxes in accordance with 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 September 30, 2021,March 31, 2022, the Company’s net deferred tax asset of approximately $6.22.3 million is net of a valuation allowance of approximately $7.77.1 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 net 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.
The Company recorded a tax benefit of $386,000 forIn accordance with Accounting Standards Update (“ASU”) 2019-12 the nine months ended September 30, 2021 due to estimated taxable losses primarily as a result of anticipated research and development deductions in the U.K. This was partially offset by the recognition of tax provisions due to the impact of an increase of the deferred tax liability for the Company’s U.K. jurisdiction due to an increase in the enacted U.K. tax rate in the nine months ended September 30, 2021.
The Company recorded a tax provision of approximately $352,0004.9 million related to income from discontinued operations and a tax benefit of approximately $851,000 related to loss from continuing operations for the ninethree months ended September 30, 2020 due to estimated taxable income in the U.S. because qualified expenses under the PPP loan were not expected to be deductible for tax purposes. In recording theMarch 31, 2022 and a tax provision of approximately $93,000 related to income from discontinued operations and a tax benefit of approximately $145,000 related to loss from continuing operations for the ninethree months ended September 30, 2020, the Company had assumed that the PPP loan would be forgiven and, therefore, all PPP qualified expenses were treated as non-deductible. This was offset somewhat by estimated losses as well as research and development deductions in the UK.March 31, 2021.
14 |
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period and, when dilutive, potential shares from stock options using the treasury stock method, 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 per share calculation only when options exercise prices are lower than the average market value of the common shares for the period presented. 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. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
For the Three Months | For the Nine Months | For the Three Months | ||||||||||||||||||||||
Ended September 30, | Ended September 30, | Ended March 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
Weighted average common shares outstanding | 22,233,876 | 21,703,268 | 21,899,799 | 21,642,955 | 22,603,330 | 21,741,550 | ||||||||||||||||||
Potentially dilutive equity awards | 2,449,930 | 388,366 | 2,319,127 | 295,186 | 2,467,056 | 2,308,144 | ||||||||||||||||||
Weighted average common shares outstanding, assuming dilution | 24,683,806 | 22,091,634 | 24,218,926 | 21,938,141 | 25,070,386 | 24,049,694 |
For the three and nine months ended September 30, 2021,March 31, 2022, the weighted average number of options to purchase common stock not included in potentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was not met was . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and is included in potentially dilutive equity awards in the chart above.
For the three and nine months ended September 30, 2020,March 31, 2021, the weighted average number of options and warrants to purchase common stock not included in diluted loss per sharepotentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was not met was . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and , respectively.is included in potentially dilutive equity awards in the chart above.
NOTE 109 – Inventories
Inventory carrying value is net of inventory reserves of $1.2695,000 million at September 30, 2021March 31, 2022 and $1.1681,000 million at December 31, 2020.2021.
Inventories consist of (in thousands):
Schedule of Inventory
March 31, 2022 | December 31, 2021 | |||||||
Inventories consist of (in thousands): | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Raw materials | $ | 3,462 | $ | 3,213 | ||||
Work-in-process | 384 | 542 | ||||||
Finished goods | 1,130 | 1,333 | ||||||
Total Inventory | $ | 4,976 | $ | 5,088 |
September 30, 2021 | December 31, 2020 | |||||||
Raw materials | $ | 6,067 | $ | 4,644 | ||||
Work-in-process | 787 | 618 | ||||||
Finished goods | 2,801 | 3,534 | ||||||
Total Inventory | $ | 9,655 | $ | 8,796 |
15 |
NOTE 1110 – Accrued Expenses and Other Current Liabilities
As of September 30, 2021,March 31, 2022, and December 31, 20202021 accrued expenses and other current liabilities consisted of the following (in thousands):
Schedule of Accrued Expenses and Other Current Liabilities
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31 2021 | |||||||||||||
Holzworth earnout – short term | $ | 2,521 | $ | 3,423 | ||||||||||||
Holzworth earnout (Year 1 and Year 2) | $ | 2,942 | $ | 2,942 | ||||||||||||
Payroll and related benefits | 1,141 | 864 | 911 | 718 | ||||||||||||
Accrued income taxes | 827 | - | ||||||||||||||
Accrued bonus | 41 | 590 | ||||||||||||||
Goods received not invoiced | 1,085 | 458 | 352 | 277 | ||||||||||||
Accrued commissions | 314 | 465 | ||||||||||||||
Accrued professional fees | 216 | 524 | ||||||||||||||
Sales and use and VAT tax | 166 | 276 | ||||||||||||||
Holzworth deferred purchase price | 500 | 950 | - | 250 | ||||||||||||
Professional fees | 481 | 331 | ||||||||||||||
Commissions | 462 | 605 | ||||||||||||||
Bonus | 446 | 123 | ||||||||||||||
Returns reserve | 248 | 212 | ||||||||||||||
Sales and use and VAT tax | 216 | 315 | ||||||||||||||
Warranty reserve | 140 | 140 | 61 | 61 | ||||||||||||
Harris arbitration liability | - | 116 | ||||||||||||||
Other | 416 | 460 | 429 | 573 | ||||||||||||
Total | $ | 7,656 | $ | 7,997 | $ | 6,259 | $ | 6,676 |
The Company’s results for the three months ended September 30,March 31, 2022 and 2021 and 2020 include $ and $, respectively, related to stock based compensation expense. The Company’s results for the nine months ended September 30, 2021 and 2020 include $ and $ , respectively, related to stock based compensation expense. Such amounts have been included in the Consolidated Statement of Operations and Comprehensive Income/(Loss) within general and administrative expenses in operating expenses. The Company accounts for forfeitures when they occur.
Incentive Compensation Plan
In 2012, the Company’s Board of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which provides for the grant of equity, including restricted stock awards, restricted stock units, non-qualified stock options and incentive stock options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial 2012 Plan provided for the grant of awards relating to 2 million shares of common stock, plus those shares subject to awards previously issued under the Company’s 2000 Stock Option Plan that expire, are canceled or are terminated after adoption of the Initial 2012 Plan without having been exercised in full and would have been available for subsequent grants under the 2000 Stock Option Plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional million shares of the Company’s common stock to be available for future grants under the 2012 Plan. As of September 30, 2021, there are awards available for grant under the 2012 Plan.
In the second quarter of 2021, the Company’s Board of Directors and shareholders approved the 2021 Long Term Incentive Plan (the “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, incentive stock options and cash awards, including dividend equivalent rights to employees, officers, directors or other service providers of the Company who are expected to contribute to the Company’s future growth and success. The 2021 Incentive Plan provides for the grant of awards relating to million shares of common stock. As of March 31, 2022, there are shares available for grant under the 2021 Incentive Plan.
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.
On August 2, 2021January 6, 2022 the Company granted Restricted Stock Units (“RSU”) to each of our six independent Board members under the 2021 Incentive Plan. Each RSU represents the Company’s obligation to issue one share of the Company’s common stock subject to the RSU award agreement and 2021 Incentive Plan. The grant date fair value was $ per share and the RSUs vest on the day before the first anniversary of the grant date or, if earlier, the effective date of a separation of service due to death or disability, provided the Board member has rendered continuous service to the Company as a memberCompensation Committee of the Board of Directors fromapproved the grant of restricted common stock awards to named executive officers Tim Whelan, Mike Kandell, Dan Monopoli and Alfred Rodriguez of , , and shares respectively which vest in equal annual installments over two years. If an executive’s service with the Company terminates before the restricted awards are fully vested, then the shares that are not then fully vested are forfeited and immediately returned to the Company. The grant date value per share was $ .
NOTE 12 – Reportable Segments
In March 2022 the Company reorganized into 2 segments – Test and Measurement (T&M) and Radio, Baseband and Software (RBS). The T&M segment is comprised of the Boonton, Noisecom and Holzworth brands. T&M is primarily engaged in supplying noise source components and instruments and electronic testing and measurement instruments to vesting date. Once vestedcustomers in the RSU will be settled by deliverysemiconductor, military, aerospace, medical and commercial communications industries.
16 |
The RBS segment is comprised of sharesCommAgility and develops the software which enables 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 3rd Generation Partnership Project (“3GPP”) standards.
For internal reporting purposes, the Company’s chief operating decision maker makes financial decisions and allocates resources based on segment profit information obtained from 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 discreet items that are not core to the Board member no later than 30 days following: 1)measurement of segment management’s performance but rather are controlled at the third anniversary ofcorporate level.
Summarized financial information relating to the grant date, 2) separation from serviceCompany’s reportable segments is shown in the following or coincident with, a vesting date, or 3) a change in control.table:
Summarized Financial Information Related to Reportable Segments
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 13 – COMMITMENTS AND CONTINGENCIES
There have been no material changes in our commitments and contingencies and risks and uncertainties as of September 30, 2021March 31, 2022 from that previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020.2021.
NOTE 14 - SUBSEQUENT EVENTS
There were no subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements, and the notes thereto, through the date the financial statements were issued.
ITEM 2. 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 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 report on Form 10-K for the year ended December 31, 2020.2021.
Introduction
On March 1, 2022 the Company completed 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 strategic shift for the Company started to see signs of an economic recoveryaway from the COVID-19 pandemic in the third quarter of 2021, specifically in ourlower margin RF Components (“RFC”) product group. However, the Company continuesbusiness to deal with major global disruptions caused by the pandemic including global supply chain shortages of key componentsour higher growth higher margin T&M and a difficult labor market especially for roles requiring technical expertise. We are also assessing President Biden’s executive order on vaccine mandates and the possible impact on us as a supplier to large global defense subcontractors. We have adopted flexible work arrangements in our locations for those employees that can work remotely and continue to implement safety precautions in our facilities.RBS segments.
Our third quarter 2021 consolidated revenue increased 18% from the prior year period reflecting increases in all three of our product groups. The largest increase was in our RFCproduct group due to a recovery in carrier spending from the prior year. Our consolidated gross margin exceeded 50% as improving margins at the RFC and Test and measurement (“T&M”) product groups were offset by lower margins at our Radio, baseband and software product group (“RBS”) due to a higher mix of lower margin hardware and services sales in the quarter. Due to the better than expected performance of our Holzworth brand we recorded a $1.0 million loss on contingent consideration in the quarter which represents the estimated earnout payment for financial performance in fiscal 2021. This earnout will be payable in four equal installments in fiscal 2022.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2021March 31, 2022 Compared with Three Months Ended September 30, 2020March 31, 2021
Net Revenues (in thousands)
Three months ended September 30, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
Revenue | % of Revenue | Change | Revenue | % of Revenue | Change | |||||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||||||||||||||||||||
RF components | $ | 5,448 | $ | 4,418 | 42.5 | % | 40.7 | % | $ | 1,030 | 23.3 | % | ||||||||||||||||||||||||||||||||||||
Test and measurement | 5,931 | 5,797 | 46.2 | % | 53.3 | % | 134 | 2.3 | % | $ | 6,059 | $ | 5,327 | 79.8 | % | 65.1 | % | $ | 732 | 13.7 | % | |||||||||||||||||||||||||||
Radio, baseband, software | 1,445 | 653 | 11.3 | % | 6.0 | % | 792 | 121.3 | % | 1,537 | 2,857 | 20.2 | % | 34.9 | % | (1,320 | ) | -46.2 | % | |||||||||||||||||||||||||||||
Total net revenues | $ | 12,824 | $ | 10,868 | 100.0 | % | 100.0 | % | $ | 1,956 | 18.0 | % | $ | 7,596 | $ | 8,184 | 100.0 | % | 100.0 | % | $ | (588 | ) | -7.2 | % |
Net consolidated revenue increased 18.0% from the prior year period due primarily to increased sales at the RFC product grouprevenues decreased 7.2% due to increased carrier spending specifically on large projects. Also contributing to the increase were higherlower sales of our digital signal processing cards 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 product group.projects. This was only partially offset by higher revenue at our T&M segment due primarily to higher orders for our legacy T&M products.
Gross Profit (in thousands)
Three months ended September 30, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit | Gross Profit % | Change | Gross Profit | Gross Profit % | Change | |||||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||||||||||||||||||||
RF components | $ | 2,497 | $ | 1,927 | 45.8 | % | 43.6 | % | $ | 570 | 29.6 | % | ||||||||||||||||||||||||||||||||||||
Test and measurement | 3,367 | 3,182 | 56.8 | % | 54.9 | % | 185 | 5.8 | % | $ | 3,508 | $ | 3,054 | 57.9 | % | 57.3 | % | $ | 454 | 14.9 | % | |||||||||||||||||||||||||||
Radio, baseband, software | 676 | 545 | 46.8 | % | 83.5 | % | 131 | 24.0 | % | 847 | 1,800 | 55.1 | % | 63.0 | % | (953 | ) | -52.9 | % | |||||||||||||||||||||||||||||
Total gross profit | $ | 6,540 | $ | 5,654 | 51.0 | % | 52.0 | % | $ | 886 | 15.7 | % | $ | 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 15.7% due to higher revenues at all three product groups. Gross profit margin increased at the RFC product group due to higher absorption of fixed manufacturing and overhead costs and at the T&M product group due to a purchase accounting adjustment recorded in the prior year period in the amount of $258,000. Excluding the purchase accounting adjustment, gross margins at the T&M product group declined due to product mix. Gross profit margin at the RBS product group declined due to a higher mix of lower margin hardware and services revenues as compared to the prior year period.revenues.
Operating Expenses (in thousands)
Three months ended September 30, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses | % of Revenue | Change | Operating Expenses | % of Revenue | Change | |||||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||||||||||||||||||||
Research and development | $ | 1,435 | $ | 1,826 | 11.2 | % | 16.8 | % | $ | (391 | ) | -21.4 | % | $ | 1,159 | $ | 1,156 | 15.3 | % | 14.1 | % | $ | 3 | 0.3 | % | |||||||||||||||||||||||
Sales and marketing | 1,854 | 1,732 | 14.5 | % | 15.9 | % | 122 | 7.0 | % | 1,260 | 1,195 | 16.6 | % | 14.4 | % | 65 | 5.4 | % | ||||||||||||||||||||||||||||||
General and administrative | 2,800 | 2,444 | 21.8 | % | 22.5 | % | 357 | 14.6 | % | 3,392 | 2,853 | 44.7 | % | 34.9 | % | 539 | 18.9 | % | ||||||||||||||||||||||||||||||
Loss on change in fair value of contingent consideration | 1,000 | - | 7.8 | % | - | 1,000 | - | |||||||||||||||||||||||||||||||||||||||||
Total operating expenses | $ | 7,089 | $ | 6,002 | 55.3 | % | 55.2 | % | $ | 1,088 | 18.1 | % | $ | 5,811 | $ | 5,204 | 76.5 | % | 63.6 | % | $ | 607 | 11.7 | % |
18 |
Research and development expenses decreased 21.4% fromwere flat with the prior year as modest declines in headcount costs at RBS due primarily to lowerallocations to customer projects were offset by higher third party research and development costs, the majority of which is in connection with our T&M product group. The mix of third party research and development expenses to internal expenses varies by project. We expect to continue third party investments in research and development dependent upon project deadlines, new product development opportunities and longer term product roadmap dependencies which, in turn, may create increases and decreases to research and development expenses as a percentage of revenue. The decline in third party expenses was offset somewhat by unfavorable foreign exchange impact, specifically the increase in the pound sterling which increased approximately 6.9% year over year resulting in an increase in research and development expenses of $61,000.expenses.
Sales and marketing expenses increased $122,0005.4% due to increases in internal commissions, marketing expenses andhigher headcount expenses. The aforementioned unfavorable foreign exchange impact on sales and marketing expenses was approximately $13,000.expenses.
General and administrative expenses increased 14.6%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 period primarily due to an increase in headcount related expensesequity grants to employees which were offset by lower legal, accounting, bonus and legal expenses associated with our debt amendments. The aforementioned unfavorable foreign exchange impact on general and administrative expenses was approximately $29,000.other miscellaneous expenses.
Loss on Contingent ConsiderationExtinguishment of Debt
The Company recorded a $1.0 million loss on contingent considerationextinguishment of debt represents the write 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 the three months ended September 30, 2021 due to an increase in the estimated Holzworth year 2 earnout.full and terminated on March 1, 2022.
Other Income/(Expense)
Other income increased $63,000 from the prior year period due$74,000 primarily to higher foreign exchange gains as compared to the prior year period.
Interest Expense
Consolidated interest expense increased $109,000 from the prior year due to the premium associatedsublease income as a result of our sublease arrangement with our term debt prepayment in September of $74,000RF Industries Ltd. as well as a higher interest rate on our term debt as compared to the prior year.
Taxes
The Company recorded a tax benefit in the current year period as compared to a tax provision in the prior year period due to estimated taxable losses in the current year due primarily to anticipated research and development deductions in the U.K. In the prior year period the Company estimated that qualified PPP loan expenses were not deductible which resulted in a tax provision.
Net Income/Loss
Net loss decreased $588,000 due to increased sales and gross margin in the current year and the recognition of a tax benefit offset by the recognition of the loss on contingent consideration and higher interest expense.
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
Net Revenues (in thousands)
Nine months ended September 30, | ||||||||||||||||||||||||
Revenue | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 12,820 | $ | 14,555 | 35.4 | % | 46.4 | % | $ | (1,735 | ) | -11.9 | % | |||||||||||
Test and measurement | 16,779 | 14,013 | 46.4 | % | 44.6 | % | 2,766 | 19.7 | % | |||||||||||||||
Radio, baseband, software | 6,569 | 2,836 | 18.2 | % | 9.0 | % | 3,733 | 131.6 | % | |||||||||||||||
Total net revenues | $ | 36,168 | $ | 31,404 | 100.0 | % | 100.0 | % | $ | 4,764 | 15.2 | % |
Net consolidated revenue increased 15.2% from the prior year period due primarily to the RBS product group due to higher revenue associated with new software and service contracts and higher sales of our digital signal processing cards as compared to the prior year period. Also contributing to the overall revenue increase was an increase in T&M revenue due to a full year contribution of Holzworth in fiscal 2021, as well as increased revenue from our legacy T&M brands. This was offset by lower revenue at our RFC product group as wireless carrier spend in the first half of 2021 was impacted by the on-going impact of the COVID-19 pandemic.
Gross Profit (in thousands)
Nine months ended September 30, | ||||||||||||||||||||||||
Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 5,345 | $ | 6,576 | 41.7 | % | 45.2 | % | $ | (1,231 | ) | -18.7 | % | |||||||||||
Test and measurement | 9,690 | 7,451 | 57.8 | % | 53.2 | % | 2,239 | 30.0 | % | |||||||||||||||
Radio, baseband, software | 3,584 | 1,722 | 54.6 | % | 60.7 | % | 1,862 | 108.1 | % | |||||||||||||||
Total gross profit | $ | 18,619 | $ | 15,749 | 51.5 | % | 50.1 | % | $ | 2,870 | 18.2 | % |
Consolidated gross profit increased 18.2% due to higher revenues at the T&M and RBS product groups and was only partially offset by lower revenues at the RFC product group. Gross profit margin increased due to the contribution of higher margin software and services sales at the RBS product group and the prior year purchase accounting adjustment of $448,000 at the T&M product group. Excluding the purchase accounting adjustment, gross margin at the T&M product group increased on higher absorption of fixed manufacturing costs.
Operating Expenses (in thousands)
Nine months ended September 30, | ||||||||||||||||||||||||
Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
Research and development | $ | 4,281 | $ | 5,080 | 11.8 | % | 16.2 | % | $ | (799 | ) | -15.7 | % | |||||||||||
Sales and marketing | 5,266 | 5,111 | 14.6 | % | 16.3 | % | 155 | 3.0 | % | |||||||||||||||
General and administrative | 8,469 | 7,322 | 23.4 | % | 23.3 | % | 1,147 | 15.7 | % | |||||||||||||||
Loss on change in fair value of contingent consideration | 1,000 | - | 2.8 | % | - | 1,000 | - | |||||||||||||||||
Total operating expenses | $ | 19,016 | $ | 17,513 | 52.6 | % | 55.8 | % | $ | 1,503 | 8.6 | % |
Research and development expenses decreased 15.7% from the prior year due primarily to lower third party research and development costs, the majority of which is in connection with our third party 5G collaboration agreement and our T&M product group. The mix of third party research and development expenses to internal expenses varies by project. We expect to continue third part investments in research and development dependent upon project deadlines, new product development opportunities and longer term product roadmap dependencies which, in turn, may create increases and decreases to research and development expenses as a percentage of revenue. The decline in third party expenses was offset somewhat by unfavorable foreign exchange impact, specifically the increase in the pound sterling which increased approximately 8.1% year over year resulting in an increase in research and development expenses of $225,000.
Sales and marketing expenses increased 3.0% from the prior year due primarily to higher internal commissions expense and marketing expenses. The aforementioned unfavorable foreign exchange impact on sales and marketing expenses was approximately $50,000.
General and administrative expenses increased 15.7% from the prior year period due primarily to higher headcount related expenses of $844,000 related to the addition of our Chief Revenue Officer in August of 2020, merit and bonus increases and the reinstatement of other benefits that were previously eliminated in the first half of 2020 during the COVID-19 pandemic. Also contributing to the increase are higher legal expenses of $169,000 primarily related to amendments to the Company’s debt agreements and Holzworth Stock Purchase Agreement, higher insurance expenses of $122,000 only partially offset by lower merger and acquisition expenses, and severance and stock compensation expense which decreased $278,000 in total from the prior year period. The aforementioned unfavorable foreign exchange impact on general and administrative expenses was approximately $111,000.
Loss on Contingent Consideration
The Company recorded a $1.0 million loss on contingent consideration in the nine months ended September 30, 2021 due to an increase in the estimated Holzworth year 2 earnout.
Gain on Extinguishment of Debt
The Company recorded a $2.0 million gain on extinguishment of debt in the nine month period ended September 30, 2021, as we received notice from the SBA that our PPP loan was fully forgiven.
Other Income/(Expense)
Other income decreased $223,000 from the prior year period due primarily to lower foreign exchange gains and lower gains on sales of assets.
Interest Expense
Consolidated interest expense increased $220,000decreased $120,000 due primarily to increased interest onthe termination of our Term Loan Facility as compared to the prior year.and Credit Facility on March 1, 2022.
Taxes
The Company recorded aConsolidated tax benefit in the current year period as compared to a tax provision inincreased $706,000 from the prior year period due to estimated taxable losses in the current year due primarily to anticipated research and development deductions in the U.K. In the prior year period the Company estimated that qualified PPP loan expenses were not deductible which resulted in a tax provision.higher loss from continuing operations before taxes.
Net Income/Lossloss from continuing operations
The Company recorded net income of $1.1 million in the nine months ended September 30, 2021 as compared to aConsolidated net loss of $2.6 million infrom continuing operations for the prior year periodfirst quarter 2022 increased $998,000 primarily due to lower gross profit driven by lower RBS revenue and margin, higher salesoperating expenses and gross margin, the recognition of the gaina loss on extinguishment of the PPP Loan and the recognition of a tax benefitdebt. This was only partially offset by higher operating expenses due toother income, lower interest expense and a higher tax benefit recognized in the recognition of a loss on contingent consideration and higher interest expense.quarter.
Net income from discontinued operations, net of tax
Net income from discontinued operations, net of tax in the first quarter of 2022 is comprised of the pre divestiture net income of Microlab of $158,000 and the net gain on sale of Microlab of approximately $16.4 million net of tax provision of approximately $4.9 million.
Net income from discontinued operations, net of tax in the first quarter of 2021 is comprised of the results of Microlab of $335,000 net of tax provision of $93,000.
19 |
LIQUIDITY AND CAPITAL RESOURCES
TheOn March 1, 2022 the Company has three credit facilities – an asset based revolving loancompleted the divestiture of Microlab and received net proceeds of $22.8 million, of which, is subjectthe Company used approximately $4.1 million and $600,000 to a borrowing base calculation (as defined) withrepay in full and terminate the Muzinich Term Loan Facility and Bank of America N.A. (the “Credit Facility” or the “Revolver”), a term loan facility with Muzinich BDC Inc. (“Muzinich”) in the amountCredit Facility, respectively. As of $8.4 million (the “Term Loan Facility”) which was used to finance the Holzworth acquisition in February of 2020, and the Coronavirus Business Interruption Loan Agreement (“CIBLS Loan”) with Lloyds Bank PLC (“Lloyds”). Additionally, on May 4, 2020 the Company received $2.0 million pursuant to a PPP loan, which was fully forgiven by the SBA in June 2021. See Note 4 above and our Annual Report on Form 10-K for the year ended DecemberMarch 31, 2020 for a more detailed description of our credit facilities.
Sources and Uses of Cash
During the nine months ended September 30, 2021,2022 the Company’s consolidated cash balance decreased approximately $3.6 million due primarily to a paydown of $4.2 million of our Term Loan Facility which includes a $3.7 million prepayment on September 28, 2021, the payment of contingent consideration and deferred purchase price related to the Holzworth acquisition of $460,000, payment of the final holdback amount of the Holzworth purchase price of $200,000, and capital expenditures of $417,000. These payments were offset by cash provided by operations due primarily to operating income generated during the nine months ended September 30, 2021.
Operating Activities
Cash provided by operations was $535,000 for the nine months ended September 30, 2021 as compared to cash used by operations of $852,000 in the prior year period. This was due to higher operating income and lower cash used for working capital as compared to the prior year.
Investing Activities
Cash used by investing activities decreased from $7.4 million to $617,000 as the prior year period included $7.2 million in cash paid for the Holzworth acquisition. Capital expenditures increased from $228,000 in the prior year to $417,000 in the current year period as capital expenditures for infrastructure to support our research and development roadmaps have increased.
Financing Activities
Cash from financing activities decreased from cash provided of $6.4 million to cash used of $3.5 million as the current year includes termonly debt paydowns of $4.2 million including a $3.7 million prepayment on September 28th, 2021, and $460,000 related to the payment of contingent consideration and deferred purchase price payment related to the Holzworth acquisition. These uses of cash were offset by the net proceeds of the Company’s at the market equity offering of $565,000, proceeds from the exercise of stock options of $209,000 and proceeds fromobligation is the CIBLS loan in the U.K. which has an outstanding principal balance of $345,000. The prior year cash provided from financing includes the receipt$329,000 as of March 31, 2022 and is more fully described in Note 4 of the Term Loan Facility proceedsconsolidated financial statements. The Company expects to financerepay in full the Holzworth acquisition.CIBLS loan prior to the expiration of the principal and interest holiday which expires on July 1, 2022
As of September 30, 2021, the Company’sMarch 31, 2022 our consolidated cash balance was $1.3 million, $45,000 was drawn on our Revolver and we had availability under our asset-based Credit Facility of $5.1approximately $19.1 million. Our gross debt balance as of September 30, 2021 was $4.5 million.
We expect borrowings available to us under our Credit Facility, our existing cash balance and cash generated byfrom operations 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, including the impactfact that the evolving COVID-19 pandemic has hadCompany 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 our business including our supply chain.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 expects to realize tax benefits in future periods due to the availablehas approximately $14.9 million of U.S. federal net operating loss carryforwards resulting from the dispositionand approximately $41.2 million of a former wholly owned subsidiaryNew Jersey state net operating loss carryforwards as of December 31, 2021. We expect to utilize in 2010. Accordingly, future taxable income is expected to be offset by the utilization2022 all of our federal net operating loss carryforwards and as a result, should increaseapproximately 50% of our state net operating loss carryforwards to offset the Company’s liquidity astaxable gain generated from the Microlab divestiture. Accordingly, in the future, the Company could be subject to cash needed to pay federal and New Jersey state income taxes should be substantially reduced.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 U.K.UK.
On August 27, 2018Operating Activities
Cash used by operating activities increased $3.3 million from the Company filed a shelf registration statement on Form S-3 which was declared effective on September 17, 2018. On July 21, 2021, the Company entered into the Sales Agreement with the Agent to issue and sell through the Agent, shares having an aggregate offering price of up to $12,000,000, as described in Note 5 – Equity above. The Agent was not required to sell any specific number of Shares. Shares sold under the Sales Agreement were issued and sold pursuantprior year period due to the aforementioned Form S-3. A prospectus supplement relatingloss from operations in the quarter as well as an increase in working capital of $2.2 million due primarily to the offering of the Shares was filed with the Commission on July 21,an increase in accounts receivable driven by lower accounts receivable balances at December 31, 2021.
From July 21, 2021 through August 6, 2021Investing Activities
Cash provided by investing activities increased $22.7 million from the Agent sold 264,701 shares ofprior year period due to the Company’s common stock for net proceeds of $739,000 after deducting sales commissions paidreceived related to the Agent in accordance with the termsMicrolab divestiture of the Sales Agreement and $565,000 after deducting direct legal and accounting fees associated with the offering.$22.8 million.
The shelf registration statement expiredFinancing Activities
Cash used by financing activities increased $3.6 million due primarily to the full repayment of the Term Loan Facility on September 17, 2021 and was not renewed by the Company.March 1, 2022.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, the Company does not have any off-balance sheet arrangements.
Effects of Inflation and Changing Prices
The Company does not anticipate that inflation or other expected changes in prices will significantly impact its business.
Critical Accounting Policies
There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 20202021 Form 10-K.
20 |
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 about our expectations that our existing cash balance and cash generated by operations and availability under our Credit Facility will be sufficient to meet our liquidity needs for at least the next twelve months;months and our expectation to realize tax benefits in future periods;repay our expectation that investments in third party research and development may create increases and decreases to research and development expenses as a percentage of revenue and our expectation that uncertainties aroundCIBLS loan before the impactexpiration of the ongoingprincipal and evolving COVID-19 pandemic may impact our ability to meet our cash requirements. These statements involve risks and uncertainties. Theseinterest holiday. Investors are cautioned that such 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 described in the forward-looking statements. These riskshave on our business, supply chain, transportation costs, and uncertainties include, but are not limited to,our backlog; the impact that the evolving COVID-19 pandemic willhas had and may continue to have on our business,supply chain, human capital and the general economy in the future; the potential impact of inflation on our supply chainbusiness and the economy in the future, our ability to hire and retain key personnel with appropriate technical abilities,general, our dependency on capital spending on data and communication networks by our customers and end users,users; our dependency on the deployment of 4G LTE and 5G NR private networks and related services to grow our business,business; the impact of the loss of any significant customers,customers; the ability of our management to successfully implement our evolving business plan and strategy, our ability to raise additional capital to fund our operations given our degree of leverage, product demand and development of competitive technologies in our market sector,plan; the impact of competitive products and pricing,pricing; our abilities to protect our intellectual property rights and our ability to manage risks related to our information technology and cyber security 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. Theseas well as other risks and uncertainties are disclosedset forth in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 Risk
Not applicable.
ITEM 4. 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
There were no changes in our internal control over financial reporting during the three and nine months ended September 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 20202021 Annual Report on Form 10-K.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
No material changes in the quarter.
Item 1A. Risk Factors
The ongoing COVID-19 pandemic has caused and may continue to cause significant uncertainty in the U.S. and global economies as well as the markets we serve. It has affected, and could continue to adversely affect our business, results of operations and financial condition.
The COVID-19 pandemic has resulted in and could continue to adversely affect broader economies, financial markets, and the business environment worldwide. We have been and continue to be unable to accurately predict the full impact that COVID-19 will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, the nature and length of actions taken by governments, businesses and individuals to contain or mitigate its impact, the severity and duration of the economic impact caused by the pandemic, the uncertainty surrounding possible treatments and rollout of vaccines, along with the effectiveness of our response.
The COVID-19 pandemic has impacted our workforce, the workforce of our customer, suppliers and contract manufacturers and has resulted in reduced demand for our products and services in fiscal 2020 and the first half of fiscal 2021 which negatively impacted our financial results for those periods. Although we have started to experience a recovery in the third quarter of 2021, if the pandemic continues, recurs, or worsens, we may experience additional adverse impacts on our operational and commercial activities, including rising costs, volatility in customer orders, supply chain constraints, labor shortages and purchases and declines in our collections of accounts receivable. Due to the speed with which the situation is developing, the breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and the impact on our stock price, access to capital, consolidated results of operations, financial position and cash flows could be material.
There have been no other material changes in our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item Item 4. Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6. Exhibits
** 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 |