| Description of Company and Summary of Significant Accounting Policies | NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: Organization and Basis of Presentation 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. Our 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 include the accounts of Wireless Telecom Group, Inc., doing business as and operating under the trade name, Noisecom,
and its wholly owned subsidiaries including Boonton Electronics Corporation (“Boonton”), Microlab/FXR LLC (“Microlab”),
Holzworth Instrumentation, Inc. (“Holzworth”), Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”).
They 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. In June 2020 the Company completed
an internal reorganization and now presents its operations as one reportable segment. Prior to June 2020 the Company presented
its operations in three reportable segments. The Company identifies segments in accordance with ASC 280 Segment Reporting Use of Estimates The accompanying financial statements
have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ
from those estimates. The most significant estimates and assumptions include management’s analysis in support of inventory
valuation, accounts receivable valuation, valuation of deferred tax assets, returns reserves, warranty accruals, goodwill and intangible
assets, estimated fair values of stock options and vesting periods of performance-based stock options and restricted stock. Concentrations of Credit Risk,
Purchases and Fair Value 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. For the twelve months ended December
31, 2020, no one customer accounted for more than 10% of the Company’s total consolidated revenues. For the twelve months
ended December 31, 201,9 one CommAgility customer accounted for 24.8% of the Company’s total consolidated revenues. At December
31, 2020, one customer exceeded 10% of consolidated gross accounts receivable at 12.7%. At December 31, 2019 one customer exceeded
10% of consolidated gross accounts receivable at 12.9%. For the year ended December 31, 2020,
two suppliers exceeded 10% of consolidated inventory purchases at 14% each. For the year ended December 31, 2019, three suppliers
comprised or exceeded 10% of consolidated inventory purchases at 18% and 14% and 10%, respectively. Cash and Cash Equivalents Cash and cash equivalents represent
deposits in banks and highly liquid investments purchased with maturities of three months or less at the date of purchase. Accounts Receivable and Allowance
for Doubtful Accounts Trade accounts receivable and contract
assets for unbilled receivables are stated at the amount owed by the customer, net of allowances for doubtful accounts, returns
and rebates. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent
payment history, the customer’s current financial statements and other information regarding the customer’s credit
worthiness. Account balances are charged off against the allowance when it is determined the receivable will not be recovered. Inventories Inventories are stated at the lower
of cost or net realizable value. Inventory cost is determined on an average cost basis. Net realizable value is based upon an estimated
average selling price reduced by estimated costs of completion, disposal and transportation. Reductions in inventory valuation
are included in cost of revenues in the accompanying Consolidated Statements of Operations and Comprehensive Income/Loss. Finished
goods and work-in-process include material, labor and overhead expenses. The Company reviews inventory for
excess and obsolescence based on best estimates of future demand, product lifecycle status and product development plans. The Company
uses historical information along with these future estimates to reduce the inventory cost basis. Subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly established cost basis. Inventory carrying value is net of
inventory reserves of approximately $1.1 million as of December 31, 2020 and $1.0 million as of December 31, 2019.
December 31, December 31,
Inventories consist of (in thousands): 2020 2019
Raw materials $ 4,644 $ 4,023
Work-in-process 618 406
Finished goods 3,534 2,896
$ 8,796 $ 7,325 Prepaid Expenses and Other
Current Assets Prepaid expenses and other current
assets generally consist of income tax receivables, contract assets for unbilled receivables, prepaid insurance, prepaid maintenance
agreements and the short term portion of debt issuance costs. The income tax receivable balance included in prepaid and other current
assets was $1.2 million and $1.1 million as of December 31, 2020 and December 31, 2019, respectively. Property, Plant and Equipment Property, plant and equipment are
reflected at cost, less accumulated depreciation. Upon application of acquisition accounting, property, plant and equipment are
measured at estimated fair value as of the acquisition date to establish a new historical cost basis. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives for the property, plant
and equipment are:
Machinery and computer equipment/software 3-8 years
Furniture and fixtures 5-7 years Leasehold improvements are amortized
over the shorter of the remaining term of the lease or the estimated economic life of the improvement. Repairs and maintenance
are charged to operations as incurred; renewals and betterments are capitalized. Business Combinations The
Company uses the acquisition method of accounting for business combinations which requires the tangible and intangible assets acquired
and liabilities assumed to be recorded at their respective fair market value as of the acquisition date. Goodwill represents the
excess of the consideration transferred over the fair value of the net assets acquired. The fair values of the assets acquired
and liabilities assumed are determined based upon the Company’s valuation and involves making significant estimates and assumptions
based on facts and circumstances that existed as of the acquisition date. The Company uses a measurement period following the acquisition
date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired
and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition
date. Goodwill Goodwill represents the excess of
the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is evaluated
for impairment annually, or more frequently if events occur or circumstances change that would indicate that goodwill might be
impaired, by first performing a qualitative evaluation of events and circumstances impacting the reporting unit to determine the
likelihood of goodwill impairment. Based on that qualitative evaluation, if the Company determines it is more likely than not that
the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise we perform a quantitative
impairment test. The Company has three reporting units
with goodwill – Holzworth, Microlab and CommAgility. The Company performed a qualitative assessment in the fourth quarter
of 2020 of each reporting unit. The qualitative assessment of Holzworth and Microlab did not indicate any impairment of goodwill.
As a result of declining demand of CommAgility’s signal processing hardware cards from a single customer and the particularly
high uncertainty associated with the ultimate trajectory of the pandemic, including the degree to which governments continue to
restrict business and personal activities, and the impact that uncertainty has on the growth of new software license and services
revenue to offset the signal processing hardware sales decline, the Company performed a quantitative impairment test of the goodwill
of the CommAgility reporting unit. For goodwill impairment testing using
the quantitative approach, the Company estimates the fair value of the selected reporting unit using the income approach and the
market approach. Fair value under the income approach is derived primarily through the use of a discounted cash flow model based
on our best estimate of amounts and timing of future revenues and cash flows and our most recent business and strategic plans.
Fair value under the market approach is derived by applying a multiple to our best estimate of future revenue. The Company applies
equal weighting to the income approach and the market approach to arrive at an estimated fair value. The estimated fair value is
compared to the carrying value of the reporting unit, including goodwill. If the fair value of the reporting unit exceeds the carrying
value, no impairment charge is recorded. If the carrying value of the reporting unit exceeds the fair value an impairment charge
is recorded to goodwill in the amount by which carrying value exceeds fair value. Both the income approach and market approach
require judgmental assumptions about projected revenue growth, future operating margins, discount rates and terminal values over
a multi-year period. There are inherent uncertainties related to these assumptions and management’s judgment in applying
them to the analysis of goodwill impairment. While the Company believes it has made reasonable estimates and assumptions to calculate
the fair value of its reporting units, it is possible a material change could occur. In the fourth quarter of 2020, the
Company recorded a goodwill impairment charge of $4.7 million related to the CommAgility reporting unit. The non-cash impairment
charge was due to a number of factors that arose as part of our quantitative assessment, including an assessment of our historical
results and the significant decline in hardware sales in 2020, the difficulty of predicting future customer demand, the uncertainty
of future sales of 4G hardware cards, the uncertainty of the growth of 5G software and services revenues due to the early stages
of 5G adoption for new technology and expectations for 5G deployments, the uncertainty of the continued future impacts of the COVID
19 pandemic on customer spending, and the potential for a more prolonged recovery for enterprise spending and longer-term investment.
Despite the asset impairment charge the Company believes the markets in which CommAgility operates, specifically LTE and 5G private
networks, have long term growth potential and the Company is committed to growing the revenue and profitability of the reporting
unit. Due to the many variables inherent
in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions
may have a material effect on the results of our impairment analysis. After recording the 2020 goodwill impairment charge, the
Company’s consolidated goodwill balance as of December 31, 2020 was comprised of $1.4 million related to the Microlab reporting
unit, $6.0 million related to the Holzworth reporting unit and $4.1 million related to the CommAgility reporting unit. As of December 31, 2019, the Company’s
consolidated goodwill balance of $10.1 million was comprised of $1.4 million related to the Microlab reporting unit and $8.7 million
related to the CommAgility reporting unit. Management’s qualitative assessment performed in the fourth quarter of 2019 did
not indicate any impairment of goodwill. Intangible and Long-lived Assets Intangible assets include acquired
technology, patents, non-competition agreements, customer relationships and tradenames. Intangible assets with finite lives are
amortized using the straight-line method over the estimated economic lives of the assets, which range from three to twelve years.
Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate
of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment
loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated
useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence,
demand, competition and other economic factors, expectations regarding the future use of the asset, and our historical experience
with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including
product demand, market conditions, technological developments, economic conditions and competition. Intangible assets determined
to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if events occur or
circumstances change that indicate an asset may be impaired. 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. We believe the carrying value of the loan
obtained under the Paycheck Protection Program approximates fair value due to the expected short term nature of the loan. During the fourth quarter of 2020,
the Company recorded a goodwill impairment charge of $4.7 million related to the CommAgility reporting unit. The determination
of the impairment charge was based on the income and market approaches which are based on the present value of future cash flows
and an estimated multiple of future revenues, respectively. The determination of the impairment charge was based on Level 3 valuation
inputs. Contingent Consideration Under the terms of the Holzworth
Share Purchase Agreement (as defined in Note 2) the Company is required to pay additional purchase price in the form of deferred
purchase price payments and an earnout if certain financial targets are achieved for the years ending December 31, 2020 and December
31, 2021 (see Note 2). As of the acquisition date, the Company estimated the fair value of the deferred purchase price and earnout
remaining to be paid related to the 2020 and 2021 financial targets to be $660,000 and $2.4 million, respectively. The earnout
may be paid in cash or common stock at the Company’s option. The Company is required to reassess the fair value of the contingent
consideration at each reporting period. The significant inputs used in this
fair value estimate include estimated gross revenues and Adjusted EBITDA, as defined 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. Due to the better than expected financial
performance of the Holzworth reporting unit during fiscal 2020, the Company recorded an increase to the contingent consideration
liabilities in the amount of $1.1 million in the fourth quarter of 2020. The adjustment was recorded as a loss on change in fair
value of contingent consideration in the Consolidated Statement of Operations and Comprehensive Income/(Loss). Foreign Currency Translation Assets and liabilities of non-U.S.
subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated
from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated at the weighted
average spot rate for the periods presented. Translation gains or losses related to net assets located outside the U.S. are shown
as a component of accumulated other comprehensive income in the Consolidated Statements of Changes in Shareholders’ Equity. Aggregate foreign currency gains
and losses, such as those resulting from the settlement of receivables or payables in a currency other than the subsidiary’s
functional currency, are recorded in the Consolidated Statements of Operations and Comprehensive Income/(Loss) (included in other
income/expense). Foreign currency transaction gains were $64,000 in fiscal 2020. Foreign currency transaction losses in in fiscal
2019 were not material. Other Comprehensive Income/(Loss) Other comprehensive income/(loss)
is recorded directly to a separate section of shareholders’ equity in accumulated other comprehensive income and includes
unrealized gains and losses excluded from net income/(loss). These unrealized gains and losses consist of changes in foreign currency
translation. Research and Development Costs Research and development (R&D)
costs are charged to operations when incurred. R&D costs include salaries and benefits, depreciation expense on equipment used
for R&D purposes and third-party material and consulting costs, if clearly related to an R&D activity. Salaries and benefits
of engineers working on customer contracts for which the Company is earning services or consulting revenues are allocated to costs
of revenues. The amounts charged to operations for R&D costs for the years ended December 31, 2020 and 2019 were $6.4 million
and $5.9 million, respectively. Advertising Costs Advertising expenses are charged
to operations during the year in which they are incurred and aggregated to $235,000 and $91,000 for the years ended December 31,
2020 and 2019, respectively. Stock-Based Compensation The Company follows the provisions
of Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation” which requires
that compensation expense be recognized, based on the fair value of the equity awards on the date of grant. The fair value of restricted
share awards and restricted stock unit awards is determined using the market value of our common stock on the date of the grant.
The fair value of stock options at the date of grant are estimated using the Black-Scholes option pricing model. When performance-based
stock options are granted, the Company takes into consideration guidance under ASC 718 and SEC Staff Accounting Bulletin No. 107
(SAB 107) when determining assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise
patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based
upon historical volatility of our shares using daily price observations over an observation period that approximates the expected
life of the options. The risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for periods
similar to the expected option life. The Company accounts for forfeitures for all equity awards when they occur. Management estimates are necessary
in determining compensation expense for stock options with performance-based vesting criteria. Compensation expense for this type
of stock-based award is recognized over the period from the date the performance conditions are determined to be probable of occurring
through the implicit service period, which is the date the applicable conditions are expected to be met. If the performance conditions
are not considered probable of being achieved, no expense is recognized until such time as the performance conditions are considered
probable of being met, if ever. If the award is forfeited because the performance condition is not satisfied, previously recognized
compensation cost is reversed. Management evaluates performance conditions on a quarterly basis. Income Taxes The Company records deferred taxes
in accordance with ASC 740, “Accounting for Income Taxes”. This ASC 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 asset, a majority of which has been generated by a history of net operating losses and determines
the necessity for a valuation allowance. The Company evaluates which portion, if any, will more likely than not be realized by
offsetting future taxable income, taking into consideration any limitations that may exist on its use of its net operating loss
carry-forwards. Under ASC 740, the Company must recognize
and disclose uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination by the
taxing authority, based on the technical merits of the position. The amounts recognized in the financial statements attributable
to such position, if any, are recorded if there is a greater than 50% likelihood of being realized upon the ultimate resolution
of the position. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions
requiring recognition or disclosure in its consolidated financial statements. Earnings/(Loss) Per Common
Share 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 and the weighted average number of warrants to purchase common stock outstanding for the period.
Shares from stock options and warrants 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.
For the Years Ended December 31,
2020 2019
Weighted average common shares outstanding 21,656,906 21,110,632
Potentially dilutive equity awards 313,341 522,996
Weighted average common shares outstanding, assuming dilution 21,970,247 21,633,628 The weighted average number of options
and warrants to purchase common stock not included in diluted loss per share because the effects are anti-dilutive, or the performance
condition was not met in 2020 was 3,114,792. The estimated number of shares issuable under the terms of the Holzworth earnout,
if the entire earnout was paid in shares of common stock, (see Note 2) at December 31, 2020 was 1,559,807. The weighted average number of options
to purchase common stock not included in diluted loss per share in 2019, because the effects are anti-dilutive or the performance
condition was not met, was 1,324,548. Recent Accounting Pronouncements
Adopted in 2020 In August 2018, the FASB issued ASU
2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customers Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That is a Service Contract. Recent Accounting Pronouncements
Not Yet Adopted In June 2016, the FASB issued ASU
2016-13, Financial Instruments – Credit Losses (Topic 326) In December 2019, the FASB issued
ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. 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. |
