The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND
POLICIES
Basis of Presentation
The condensed consolidated balance
sheet as of September 30, 2017, the condensed consolidated statements of operations and comprehensive income/loss for the three
and nine months ended September 30, 2017 and 2016, the condensed consolidated statements of cash flows for the nine months ended
September 30, 2017 and 2016 and the condensed consolidated statement of shareholder’s equity for the nine months ended September
30, 2017 have been prepared by the Company (as defined below) without audit. The condensed 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 (“Microlab”), Wireless
Telecommunications Ltd. and CommAgility Limited (“CommAgility”), which are collectively referred to herein as the “Company”.
All intercompany transactions and balances have been eliminated in consolidation.
It is suggested that
these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in
the company’s latest shareholders’ annual report (Form 10-K).
Interim Financial Statements
In the opinion of management, the
accompanying condensed consolidated financial statements referred to above contain all necessary adjustments, consisting of normal
accruals and recurring entries, which are necessary to fairly present the Company’s results for the interim periods being
presented.
The accounting policies followed
by the Company are set forth in Note 1 to the Company’s financial statements included in its annual report on Form 10-K for
the year ended December 31, 2016. Specific reference is made to that report since certain information and footnote disclosures
normally included in financial statements in accordance with accounting principles generally accepted in the United States of America
(US GAAP) have been condensed or omitted from this report.
The results of operations for the
three and nine month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2017.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities (including inventory valuation, accounts receivable valuation, valuation of deferred tax assets, intangible assets,
estimated fair values of stock options and vesting periods of performance-based stock options and restricted stock and estimated
fair values of acquired assets and liabilities in business combinations) and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of net revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Concentration Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.
The Company generally has limited
concentration of credit risk in accounts receivable due to the large number of entities comprising the Company’s customer
base and their dispersion across many different industries and geographies. Credit evaluations are performed on customers requiring
credit over a certain amount. Credit risk is mitigated to a lesser extent through collateral such as letters of credit, bank guarantees
or payment terms like cash in advance. Credit evaluation is performed independent of the Company’s sales team to ensure segregation
of duties.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
For the three months ended September
30, 2017, one customer accounted for approximately 13% of the Company’s consolidated revenues and for the nine months ended
September 30, 2017 one customer accounted for approximately 10% of the Company’s consolidated revenue. For the three and
nine months ended September 30, 2016, one customer accounted for approximately 11% and 10%, respectively, of the Company’s
consolidated revenues. At September 30, 2017 two customers represented 19% and 17% of the Company’s gross accounts receivable,
respectively. At December 31, 2016, one customer represented 16% of the Company’s gross accounts receivable balance.
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 CommAgility
Share Purchase Agreement the Company may be required to pay additional purchase price if certain financial targets are achieved
for the years ending December 31, 2017 and December 31, 2018 (“CommAgility Earn-Out”). As of the acquisition date,
the Company estimated the fair value of the contingent consideration to be $754,500 (see Note 3) and the Company is required to
reassess the fair value of the contingent consideration at each reporting period.
The significant inputs used in
this fair value estimate include gross revenues and Adjusted EBITDA, as defined, scenarios for the earn-out periods for which probabilities
are assigned to each scenario to arrive at a single estimated outcome (Level 3). The estimated outcome is then discounted based
on the individual risk analysis of the liability. Although the Company believes its estimates and assumptions are reasonable, different
assumptions, including those regarding the operating results of CommAgility or changes in the future, may result in different estimated
amounts.
The contingent consideration is
included in other long term liabilities in the accompanying condensed consolidated balance sheets. The Company will satisfy this
obligation with a cash payment to the sellers of CommAgility upon the achievement of the respective milestone discussed above.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Revenue Recognition
Revenue from product shipments,
including shipping and handling fees, is recognized once delivery has occurred, provided that persuasive evidence of an arrangement
exists, the price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when
title and risk of loss have transferred to the customer. Revenues from international distributors are recognized in the same manner.
If title does not pass until the product reaches the customer’s delivery site, then revenue recognition is deferred until
that time. There are no formal sales incentives offered to any of the Company’s customers. Volume discounts may be offered
from time to time to customers purchasing large quantities on a per transaction basis.
Standalone sales of software or
software-related items are recognized in accordance with the software revenue recognition guidance. For multiple deliverable arrangements
that only include software items, the Company generally uses the residual method to allocate the arrangement consideration. Under
the residual method, the amount of consideration allocated to the delivered items equals the total arrangement consideration, less
the fair value of the undelivered items. Where vendor-specific objective evidence of fair value for the undelivered items cannot
be determined, the Company generally defers revenue until all items are delivered and services have been performed, or until such
evidence of fair value can be determined for the undelivered items.
Software arrangements that require
significant customization or modification of software are accounted for under percentage of completion accounting. The Company
uses the input method to measure progress for arrangements accounted for under percentage of completion accounting.
Foreign Currency Translation
Assets and liabilities of non-U.S.
subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated
from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated at the weighted
average spot rate for the periods presented. Translation gains or losses related to net assets located outside the U.S. are shown
as a component of accumulated other comprehensive income in the Condensed Consolidated Statements of Shareholders’ Equity.
Gains and losses resulting from foreign currency transactions, which are denominated in currencies other than the Company’s
functional currency, are included in the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).
Other Comprehensive Income
(Loss)
Other comprehensive income (loss)
is recorded directly to a separate section of shareholders’ equity in accumulated other comprehensive income and primarily
includes unrealized gains and losses excluded from the Consolidated Statements of Operations and Comprehensive Income/(Loss). These
unrealized gains and losses consist of changes in foreign currency translation.
Intangible and Long-lived
Assets
Intangible assets include patents,
non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the
straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets,
including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Determination of recoverability is 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,
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
economic conditions and competition.
Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more
frequently if event occur or circumstances change that indicate an asset may be impaired.
Goodwill
Goodwill represents the excess
of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is
evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test
is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude
of any impairment.
Subsequent Events
Management
has evaluated subsequent events and determined that there were no subsequent events or transactions requiring recognition or disclosure
in the condensed consolidated financial statements through the date the financial statements were issued.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In January 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04,
Intangibles
- Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04
removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment
will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount
of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after December
15, 2019, and early adoption is permitted. The Company early adopted this standard as of January 1, 2017.
In March 2016, the FASB
issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting.
Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid in
capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or
benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement
that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present
excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore,
ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the
exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding
obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with the
fair value up to the amount of taxes owed using the maximum statutory rate in the employee’s applicable
jurisdiction(s). ASU 2016- 09 requires a company to classify the cash paid to a tax authority when shares are withheld to
satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current
U.S. GAAP, it is not specified how these cash flows should be classified. In addition, companies will now have to elect
whether to account for forfeitures on share-based payments by (1) recognizing forfeiture awards as they occur or (2)
estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is
currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with
early adoption permitted but all of the guidance must be adopted in the same period. The adopted standard has not had any
impact on the Company’s financial statements.
In January 2017, the FASB
issued ASU No. 2017-01,
Business Combinations: Clarifying the Definition of a Business
(“ASU 2017-01”).
ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within
those annual periods beginning
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
after December 15, 2017, and early
adoption is permitted. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
, to address some questions about the presentation
and classification of certain cash receipts and payments in the statement of cash flows. The update addresses eight specific issues,
including contingent consideration payments made after a business combination, distribution received from equity method investees
and the classification of cash receipts and payments that have aspects of more than one class of cash flows. This standard will
be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption
is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial
statements.
In February 2016, the FASB issued
ASU 2016-02,
Leases
, which creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires
organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations
created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance,
the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification
as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand
the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The
new standard is to be applied using a modified retrospective approach. The Company is in the process of evaluating the impact of
ASU 2016-02 on its consolidated financial statements.
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers
(Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model
requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the
consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
Revenue
from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which defers the effective date by one year, with
early adoption on the original effective date permitted. As a result, ASU 2014-09 will be effective for annual and interim periods
beginning after December 15, 2017. During the third quarter the Company began an implementation project regarding adoption of Topic
606. The Company believes that adoption of Topic 606 will not have a material impact on the Company’s results of operations,
however, the implementation project is on-going.
The Company does not believe there
are any other recently issued, but not yet effective accounting pronouncements, that if adopted would have a material effect on
the accompanying consolidated financial statements.
NOTE 3 – ACQUISITION
On February 17, 2017, Wireless
Telecommunications, Ltd. (the “Acquisition Subsidiary”), a company incorporated in England and Wales which is a wholly
owned subsidiary of Wireless Telecom Group, Inc., completed the acquisition of all of the issued shares in CommAgility Limited,
(“CommAgility”) a company incorporated in England and Wales (the “Acquisition”) from CommAgility’s
founders. The Acquisition was completed pursuant to the terms of a Share Purchase Agreement, dated February 17, 2017, and entered
into by and among the Company, the Acquisition Subsidiary and the founders. The Company paid $11,317,500 in cash on acquisition
date and issued 3,487,528 shares of newly issued common stock (“Consideration Shares”) with an acquisition date fair
value of $5,998,548. The Company financed the cash portion of the transaction with proceeds from a term loan totaling $760,000,
proceeds
from an asset based revolver totaling $1,098,000 and cash on hand of $9,459,500. Refer
to Note 8 for additional details regarding the financing arrangement entered into in connection with this transaction. In addition
to the acquisition date cash purchase price the sellers are to be paid an additional £2,000,000 (approximately $2,500,000
at acquisition date) in the form of deferred purchase price payable beginning in March 2017 through January 2019 and are due an
additional purchase price adjustment based on working capital and cash levels delivered to the buyer as of February 17, 2017 (“Completion
Cash Adjustment”). Lastly, the sellers may earn up to an
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
additional £10,000,000 (approximately
$12,500,000 at the acquisition date) payment if certain financial targets are achieved by CommAgility during calendar years 2017
and 2018.
Pursuant to the Share Purchase
Agreement, 2,092,516 of the Consideration Shares are subject to forfeiture and return to the Company if (a) 2017 EBITDA, as defined,
generated by CommAgility is less than £2,400,000; or (b) 2018 EBITDA, as defined, generated by CommAgility is less than £2,400,000
(in each case as determined by an audit of CommAgility conducted by the accountants of the Acquisition Subsidiary in accordance
with the terms of the Share Purchase Agreement). As of acquisition date the Company estimates that the 2017 Adjusted EBITDA target
will not be met thus we believe all 2,092,516 Consideration shares will be forfeited. Accordingly, the Company recorded a contingent
asset of $3,599,128 which represents the fair value of the consideration shares as of acquisition date. This contingent asset is
included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet as of September 30, 2017.
The acquisition has been accounted
for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accounting for acquisitions requires
us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.
Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date
fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates
are inherently uncertain and subject to refinement. During the three months ended September 30, 2017 the Company recorded measurement
period adjustments related to the completion of the valuation of intangible assets, contingent consideration and contingent asset
associated with the equity claw back and deferred taxes. The Company incurred $0 and $1,289,517 of acquisition-related costs during
the three and nine months ended September 30, 2017, respectively, which is included as part of general and administrative
expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Since the acquisition date
of February 17, 2017, CommAgility contributed $2,231,166 and $6,228,157 of net sales to the Company for the three and nine months
ended September 30, 2017, respectively.
Various valuation techniques were
used to estimate the fair value of assets acquired and the liabilities assumed which use significant unobservable inputs, or Level
3 inputs as defined by the fair value hierarchy. Using these valuation approaches requires the Company to make significant estimates
and assumptions. The
following table summarizes the allocation of the purchase consideration to
the fair value of assets acquired and liabilities assumed at the date of acquisition:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
3/31/2017
|
|
|
Measurement
Period
Adjustments
|
|
|
Revised
9/30/2017
|
|
Cash at close
|
|
$11,317,500
|
|
|
|
|
|
$11,317,500
|
|
Equity issued at close
|
|
5,998,548
|
|
|
|
|
|
5,998,548
|
|
Completion Cash Adjustment
|
|
1,382,288
|
|
|
|
|
|
1,382,288
|
|
Deferred Purchase Price
|
|
2,515,000
|
|
|
|
|
|
2,515,000
|
|
Contingent Consideration
|
|
2,700,353
|
|
|
(1,945,853
|
)
|
|
754,500
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
23,913,689
|
|
|
(1,945,853
|
)
|
|
21,967,836
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
4,566,510
|
|
|
|
|
|
4,566,510
|
|
Accounts Receivable
|
|
2,267,124
|
|
|
|
|
|
2,267,124
|
|
Inventory
|
|
1,125,532
|
|
|
|
|
|
1,125,532
|
|
Intangible Assets
|
|
9,657,600
|
|
|
(4,540,833
|
)
|
|
5,116,768
|
|
Contingent Asset
|
|
|
|
|
3,599,128
|
|
|
3,599,128
|
|
Other Assets
|
|
167,650
|
|
|
|
|
|
167,650
|
|
Fixed Assets
|
|
303,904
|
|
|
|
|
|
303,904
|
|
Accounts Payable
|
|
(1,171,846
|
)
|
|
|
|
|
(1,171,846
|
)
|
Accrued Expenses
|
|
(417,213
|
)
|
|
|
|
|
(417,213
|
)
|
Deferred Revenue
|
|
(638,671
|
)
|
|
|
|
|
(638,671
|
)
|
Deferred Tax Liability
|
|
(1,701,586
|
)
|
|
867,308
|
|
|
(834,279
|
)
|
Other Long Term Liabilities
|
|
(339,096
|
)
|
|
|
|
|
(339,096
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
13,819,908
|
|
|
|
|
|
13,745,511
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$10,093,781
|
|
|
|
|
|
$8,222,325
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Goodwill is calculated as the excess
of consideration paid over the net assets acquired and represents synergies, organic growth and other benefits that are expected
to arise from integrating CommAgility into our operations. None of the goodwill recorded in this transaction is expected to be
tax deductible.
The following table summarizes
the activity related to Contingent Consideration and Deferred Purchase Price for the nine months ended September 30, 2017:
|
|
Contingent
Consideration
|
|
|
Deferred Purchase
Price
|
|
Balance at Beginning of Period
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair Value At Acquisition Date
|
|
|
2,700,353
|
|
|
|
2,515,000
|
|
Accretion of Interest
|
|
|
68,204
|
|
|
|
|
|
Payment
|
|
|
|
|
|
|
(1,071,666
|
)
|
Measurement Period Adjustment
|
|
|
(1,945,853
|
)
|
|
|
|
|
Foreign Currency Translation
|
|
|
52,571
|
|
|
|
120,000
|
|
Balance as of September 30, 2017
|
|
$
|
875,275
|
|
|
$
|
1,563,334
|
|
As of September 30, 2017, $1,116,666
of deferred purchase price is included in accrued expenses and other current liabilities on the condensed consolidated balance
sheet. As of September 30, 2017, $875,275 of contingent consideration and $446,668 of deferred purchase price is included in other
long term liabilities on the condensed consolidated balance sheet.
Pro Forma Information
(Unaudited)
The following unaudited pro forma
information presents the Company’s operations as if the CommAgility acquisition and related financing activities had occurred
on January 1, 2016. The pro forma information includes the following adjustments (i) amortization of acquired definite-lived intangible
assets; (ii) interest expense incurred in connection with the New Credit Facility (described in further detail in Note 8) used
to finance the acquisition of CommAgility; and (iii) inclusion of acquisition-related expenses in the earliest period presented.
The pro forma combined statements of operations are not necessarily indicative of the results of operations as they would
have been had the transaction been effected on the assumed date and are not intended to be a projection of future results.
Pro-forma results for the three
months ended September 30, 2016 are presented below:
(Unaudited)
|
|
2016
|
|
Net Revenues
|
|
$
|
11,613,576
|
|
Net (loss)
|
|
$
|
(125,515
|
)
|
Basic net (loss) per share
|
|
$
|
(0.01
|
)
|
Diluted net (loss) per share
|
|
$
|
(0.01
|
)
|
Pro-forma results for the nine
months ended September 30, 2016 and 2017 are presented below:
(Unaudited)
|
|
2017
|
|
|
2016
|
|
Net Revenues
|
|
$
|
35,416,074
|
|
|
$
|
31,066,037
|
|
Net (loss)
|
|
$
|
(1,441,141
|
)
|
|
$
|
(1,602,277
|
)
|
Basic net (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
Diluted net (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 4 – INCOME TAXES
The Company records deferred taxes
in accordance with Accounting Standards Codification (“ASC”) 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 amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future
taxable income are changed.
The effective rate of income tax
benefit of 44% for the nine months ended September 30, 2017 was higher than the statutory rates in the United States and United
Kingdom primarily due to research and development deductions, state tax benefits related to net operating losses, non-qualified
stock option deductions offset by nondeductible expenses and a lower rate in the United Kingdom.
NOTE 5 - INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per share
is calculated by dividing 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 are calculated by using the weighted average number of shares
of common stock outstanding and, when dilutive, potential shares from stock options, contingent shares and restricted shares, using
the treasury stock method.
|
|
For the Three Months
Ended September 30,
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted average common shares outstanding
|
|
|
20,235,876
|
|
|
|
18,721,346
|
|
|
|
19,799,219
|
|
|
|
18,650,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive shares
|
|
|
2,702,312
|
|
|
|
637,622
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
22,938,188
|
|
|
|
19,358,968
|
|
|
|
19,799,219
|
|
|
|
18,650,274
|
|
Common stock options are included
in the diluted earnings (loss) per share calculation when the various option exercise prices are less than their relative average
market price during the periods presented in this quarterly report. The weighted average number of shares not included in diluted
earnings (loss) per share, because the effects are anti-dilutive, was 2,810,143 and 2,781,844
for
the three-months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the weighted
average number of shares not included in diluted earnings (loss) per share was 5,755,490 and 3,980,229, respectively.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 6 – INVENTORIES
Inventory carrying value is net
of inventory reserves of $2,067,103 and $1,549,089 at September 30, 2017 and December 31, 2016, respectively.
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Inventories consist of:
|
|
|
|
|
|
|
Raw materials
|
|
|
$3,214,276
|
|
|
|
$3,558,430
|
|
Work-in-process
|
|
|
641,449
|
|
|
|
531,210
|
|
Finished goods
|
|
|
2,630,071
|
|
|
|
4,363,111
|
|
|
|
|
$6,485,796
|
|
|
|
$8,452,751
|
|
During the nine month period ended
September 30, 2017 the Company recorded inventory adjustments totaling $1,930,000 comprised of an increase to the Company’s
excess and obsolescence reserve of $1,121,000 and the write off of gross inventory of $809,000.
The
charge was effected as a result of a review of inventory balances and net realizable value of the inventory following the launch
of the Company’s lean manufacturing initiative and the adoption of a strategic product plan focused on product lifecycle
acceleration.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill balance
of $10,113,158 at September 30, 2017 relates to two of the Company’s reporting units, Microlab ($1,351,392) and Embedded
Solutions ($8,761,766). Management’s qualitative assessment performed in the fourth quarter of 2016 did not indicate any
impairment of Microlab’s goodwill as its fair value was estimated to be in excess of its carrying value. Furthermore, no
events have occurred since then that would change this assessment. The Embedded Solutions reporting unit was acquired on February
17, 2017 (see Note 3). No events have occurred since the acquisition date that would indicate any impairment of Embedded Solutions
goodwill.
Goodwill consists of the following:
|
|
September 30,
2017
|
|
Beginning Balance
|
|
$1,351,392
|
|
CommAgility Acquisition
|
|
10,093,781
|
|
Measurement Period
Adj
|
|
(1,871,456
)
|
|
Foreign Currency Translation
|
|
539,441
|
|
Ending Balance
|
|
$10,113,158
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Intangible assets consist
of the following:
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Foreign
Exchange
Translation
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
|
$2,766,500
|
|
|
|
($346,437
|
)
|
|
|
$159,437
|
|
|
|
$2,579,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
614,918
|
|
|
|
(76,593
|
)
|
|
|
35,028
|
|
|
|
573,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Compete Agreements
|
|
|
1,106,600
|
|
|
|
(236,133
|
)
|
|
|
63,069
|
|
|
|
933,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
628,750
|
|
|
|
-
|
|
|
|
41,250
|
|
|
|
670,000
|
|
Total
|
|
|
$5,116,768
|
|
|
|
(659,163
|
)
|
|
|
$298,784
|
|
|
|
$4,756,388
|
|
Amortization of acquired intangible
assets was $47,737 and $659,163 for the three and nine months ended September 30, 2017. As a result of finalizing the fair value
of intangible assets the Company recorded measurement period adjustments of $4,540,833 to reduce gross intangible assets and increase
goodwill during the three months ended September 30, 2017. Additionally, the Company recorded an indefinite lived intangible asset
representing the fair value of the CommAgility tradename. As a result of the measurement period adjustments the Company recorded
a reduction of intangible amortization expense of $228,459 during the three months ended September 30, 2017 which represents a
year to date true up of amortization expense based on the final intangible asset fair value. Amortization of acquired intangible
assets is included as part of general and administrative expenses in the accompanying condensed consolidated statements of operations
and comprehensive income/(loss).
The estimated future amortization
expense related to intangible assets is as follows as of September 30, 2017:
Remainder of 2017
|
|
|
|
$278,430
|
|
|
|
|
|
|
|
2018
|
|
|
|
1,113,719
|
|
2019
|
|
|
|
1,113,719
|
|
2020
|
|
|
|
769,786
|
|
2021
|
|
|
|
720,652
|
|
Thereafter
|
|
|
|
90,082
|
|
|
|
|
|
|
|
Total
|
|
|
|
$4,086,388
|
|
NOTE 8 – DEBT
Debt consists of the following:
|
|
|
September
30, 2017
|
|
Revolver at LIBOR Plus Margin
|
|
|
$1,271,927
|
|
Term Loan at LIBOR Plus Margin
|
|
|
684,000
|
|
Total Debt
|
|
|
1,955,927
|
|
Debt Maturing within one year
|
|
|
(1,423,927
|
)
|
Non-current portion of long term debt
|
|
|
$532,000
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
In connection with the acquisition
of CommAgility, the Company entered into a Credit Agreement with Bank of America, N.A. (the “Lender”) on February 16,
2017 (the “New Credit Facility”), which provided for a term loan in the aggregate principal amount of $760,000 (the
“Term Loan”) and an asset based revolving loan (the “Revolver”), which is subject to a Borrowing Base Calculation
(as defined in the New Credit Facility) of up to a maximum availability of $9,000,000 (“Revolver Commitment Amount”).
The borrowing base is calculated as 85% of Eligible accounts receivable and inventory, as defined, subject to certain caps and
limits. The borrowing base is calculated on a monthly basis. The proceeds of the term loan and revolver were used to finance the
acquisition of CommAgility.
In connection with the issuance
of the New Credit Facility, the Company
paid lender and legal fees of $215,358 which were primarily
related to the Revolver and are capitalized and presented as other current and non-current assets in the condensed consolidated
balance sheets. These costs are recognized as additional interest expense over the term of the related debt instrument using the
straight line method.
The Company must repay the Term
Loan in installments of $38,000 per quarter due on the first day of each fiscal quarter
beginning
April 1, 2017 and continuing until the term loan maturity date, on which the remaining balance is due in a final installment. The
future principal payments under the term loan are $38,000 for the remainder of 2017, $152,000 in 2018 and $494,000 in 2019. The
Term Loan and Revolver are both scheduled to mature on
November 16, 2019.
The Term and Revolving Loans bear
interest at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loans and Revolving
Loans is
3.50% and 3.00%
per annum, respectively, at June 30, 2017
and will continue at these rates until September 30, 2017. Thereafter, the margins shall be subject to increase or decrease by
Lender on the first day of each of the Borrowers’ fiscal quarters based upon the Fixed Charge Coverage Ratio as of the most
recently ended fiscal quarter falling into three levels. If the Company’s Fixed Coverage Leverage Ratio (as defined in the
New Credit Facility) is greater than or equal to ratio 1.25 to 1.00, a margin of 3.25% and 2.75%, respectively, is added to LIBOR
rate with a step up to 3.50% and 3.00%, respectively, if the ratio is greater than or equal 1.00 to 1.00 but less than 1.25 to
1.00 and another step up to 3.75% and 3.25%, respectively, if the ratio is less than 1.00 to 1.00. The Company is also required
to pay a commitment fee on the unused commitments under the Revolver at a rate equal to 0.50% per annum and early termination fee
of (a) 2% of the Revolver Commitment Amount and Term Loan if termination occurs before the first anniversary of the New Credit
Facility or (b) 1% of the Revolver Commitment Amount and Term Loan if termination occurs after the first anniversary of the New
Credit Facility but before the second anniversary of the New Credit Facility.
The New Credit Facility is secured
by liens on substantially all of the Company’s and its domestic subsidiaries’ assets including a pledge of 66 2/3%
of the equity interests in the Company’s Foreign Subsidiaries (as defined in the New Credit Facility). The New Credit Facility
contains customary affirmative and negative covenants for a transaction of this type, including, among others, the provision of
annual, quarterly and monthly financial statements and compliance certificates, maintenance of property, insurance, compliance
with laws and environmental matters, restrictions on incurrence of indebtedness, granting of liens, making investments and acquisitions,
paying dividends, entering into affiliate transactions and asset sales. Events of default under the New Credit Facility include
but are not limited to: failure to pay obligations when due, breach or failure of any covenant, insolvency or bankruptcy, materially
misleading representations or warranties, occurrence of a Change in Control (as defined) or occurrence of conditions that have
a Material Adverse Effect (as defined).
On August 3, 2017 the Company entered
into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which amended the definition of EBITDA to exclude the
non-cash inventory adjustment of $1,930,000 recorded during the three months ended June 30, 2017 and the reduce the pledge of equity
interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of September 30, 2017, and the
date hereof, the Company is in compliance with the covenants of the New Credit Facility.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 9 - ACCOUNTING FOR SHARE BASED COMPENSATION
The Company follows the provisions
of ASC 718, “
Share-Based Payment.
” The Company’s results for the three and nine months ended September
30, 2017 include share-based compensation expense totaling $223,919 and $507,791, respectively. Results for the three and nine
month period ended September 30, 2016 include share-based compensation expense totaling $235,374 and $432,612, respectively. Such
amounts have been included in the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) within operating
expenses.
During
the nine months ended September 30, 2017 the Company reversed $324,922 and $92,017 in stock compensation expense for unvested stock
options and restricted shares, respectively, that were forfeited as a result of employees exiting the Company. The total amounts
forfeited were 87,000 restricted shares and 655,000 stock options. The Company had assumed a zero forfeiture rate in prior periods.
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 restricted stock awards, 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 2,000,000 shares of common stock, plus those shares still available under the Company’s prior incentive
compensation plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation
Plan (the “2012 Plan”) allowing for an additional 1,658,045 shares of the Company’s common stock to be available
for future grants under the 2012 Plan. As of September 30, 2017, there were 26,000
shares available
for issuance under the 2012 Plan, including those shares available under the Company’s prior incentive compensation plan
as of such date.
All service-based options granted
have ten-year terms from the date of grant and typically vest annually and become fully exercisable after a maximum of five years.
However, vesting conditions are determined on a grant by grant basis. Performance-based options granted have ten-year terms and
vest and become fully exercisable when determinable performance targets are achieved. Performance targets are agreed to, and approved
by, the Company’s compensation committee of the board of directors.
Under the 2012 Plan, options may
be granted to purchase shares of the Company’s common stock exercisable at prices equal to or above the fair market value
on the date of the grant.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
The following summarizes the components
of share-based compensation expense by equity type for the three and nine months ended September 30:
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
2017
|
|
|
2016
|
|
Service - based Restricted Common Stock
|
|
|
$22,673
|
|
|
|
$40,598
|
|
Performance-based Restricted Common Stock
|
|
|
1,846
|
|
|
|
5,353
|
|
Performance-based Stock Options
|
|
|
21,500
|
|
|
|
28,650
|
|
Service -based Stock Options
|
|
|
177,900
|
|
|
|
160,773
|
|
|
|
|
223,919
|
|
|
|
235,374
|
|
|
|
|
|
|
|
Nine Months Ended
September 30
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Service - based Restricted Common Stock
|
|
|
$167,106
|
|
|
|
$151,598
|
|
Performance-based Restricted Common Stock
|
|
|
(34,211
|
)
|
|
|
16,059
|
|
Performance-based Stock Options
|
|
|
(135,997
|
)
|
|
|
85,950
|
|
Service -based Stock Options
|
|
|
510,893
|
|
|
|
179,005
|
|
|
|
|
507,791
|
|
|
|
432,612
|
|
As
of September 30, 2017, $926,322 of unrecognized compensation costs related to unvested stock options is expected to be recognized
over a remaining weighted average period of 3.06 years and $186,361 of unrecognized compensation costs related to unvested restricted
shares is expected to be recognized over a remaining weighted average period of 1.2 years.
Restricted Common
Stock Awards:
A summary of the status of the
Company’s non-vested restricted common stock, as granted under the Company’s approved equity compensation plans, as
of September 30, 2017, and changes during the nine months ended September 30, 2017, are presented below:
Non-vested Restricted Shares
|
|
Number of Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of January 1, 2017
|
|
|
244,291
|
|
|
|
$1.52
|
|
Granted
|
|
|
150,000
|
|
|
|
$1.65
|
|
Vested and Issued
|
|
|
(121,563
|
)
|
|
|
$1.40
|
|
Forfeited
|
|
|
(87,000
|
)
|
|
|
$1.62
|
|
Non-vested as of September 30, 2017
|
|
|
185,728
|
|
|
|
$1.66
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Performance-Based Stock Option
Awards:
A summary of performance-based
stock option activity, and related information for the nine months ended September 30, 2017 follows:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding as of January 1, 2017
|
|
|
2,165,000
|
|
|
|
$1.32
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(550,000
|
)
|
|
|
$0.77
|
|
Forfeited
|
|
|
(540,000
|
)
|
|
|
$1.77
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of September 30, 2017
|
|
|
1,075,000
|
|
|
|
$1.38
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
540,000
|
|
|
|
$1.14
|
|
The aggregate intrinsic value of
performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of September 30, 2017
was $347,800 and the weighted average remaining contractual life was 4.4 years. The aggregate intrinsic value of performance-based
stock options exercisable as of September 30, 2017 was $285,800 and the weighted average remaining contractual life was 1.7 years.
The intrinsic value of options exercised during the nine months ended September 30, 2017 was $359,100.
Under the terms of the performance-based
stock option agreements, the awards will fully vest and become exercisable on the date on which the Company’s Board of Directors
shall have determined that specific financial performance milestones have been met, provided the employee remains in the employ
of the Company at such time; provided, however, upon a Change in Control (as defined in the stock option agreements and the 2012
Plan), the stock options shall automatically vest as permitted by the 2012 Plan. As of September 30, 2017, the Company has determined
that the performance conditions on 535,000 options granted 2013 and later are probable of being achieved by the year ending 2020.
The Company’s performance-based stock options granted prior to 2013 (consisting of 540,000 options) are fully amortized.
Service-Based Stock Option
Awards:
A summary of service-based stock
option activity and related information for the nine months ended September 30, 2017 follows:
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
Outstanding as of January 1, 2017
|
|
|
1,198,000
|
|
|
|
$1.51
|
|
Granted
|
|
|
845,000
|
|
|
|
$1.68
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(115,000
|
)
|
|
|
$1.45
|
|
Expired
|
|
|
(83,000
|
)
|
|
|
$3.00
|
|
Outstanding as of September 30, 2017
|
|
|
1,845,000
|
|
|
|
$1.53
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
508,333
|
|
|
|
$1.40
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
The aggregate intrinsic value of
service-based stock options (regardless of whether or not such options are exercisable) as of September 30, 2017 was $297,750 and
the weighted average remaining contractual life was 9.1 years. The aggregate intrinsic value of service-based stock options exercisable
as of September 30, 2017 was $137,608 and the weighted average remaining contractual life was 8.8 years.
The following table presents the
assumptions used to estimate the fair value of stock option awards granted during the nine months ended September 30, 2017:
|
|
Option Term
(in years)
|
|
|
Exercise
Price
|
|
|
Risk Free
Interest Rate
|
|
|
Expected
Volatility
|
|
|
Fair Value at
Grant Date
|
|
|
Expected
Dividend
Yield
|
|
|
Expected
Forfeiture
Rate
|
|
1/2/17 Grant
|
|
|
4
|
|
|
|
$1.91
|
|
|
|
1.94
|
%
|
|
|
77.78
|
%
|
|
|
$1.11
|
|
|
|
0
|
|
|
|
0
|
|
1/12/17 Grant
|
|
|
4
|
|
|
|
1.92
|
|
|
|
1.87
|
%
|
|
|
77.88
|
%
|
|
|
1.11
|
|
|
|
0
|
|
|
|
0
|
|
2/17/17 Grant
|
|
|
4
|
|
|
|
1.72
|
|
|
|
1.92
|
%
|
|
|
72.01
|
%
|
|
|
0.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/22/17 Grant
|
|
|
4
|
|
|
|
1.38
|
|
|
|
1.80
|
%
|
|
|
68.93
|
%
|
|
|
0.73
|
|
|
|
0
|
|
|
|
0
|
|
6/5/17 Grant
|
|
|
1
|
|
|
|
1.65
|
|
|
|
1.74
|
%
|
|
|
69.02
|
%
|
|
|
0.46
|
|
|
|
0
|
|
|
|
0
|
|
6/5/17 Grant
|
|
|
4
|
|
|
|
1.65
|
|
|
|
1.74
|
%
|
|
|
69.02
|
%
|
|
|
0.87
|
|
|
|
0
|
|
|
|
0
|
|
6/15/17 Grant
|
|
|
4
|
|
|
|
1.60
|
|
|
|
1.76
|
%
|
|
|
69.09
|
%
|
|
|
0.84
|
|
|
|
0
|
|
|
|
0
|
|
NOTE 10 – SEGMENT INFORMATION
The operating businesses of the
Company are segregated into three reportable segments: (i) network solutions, (ii) test and measurement and (iii) embedded solutions.
The network solutions segment is comprised primarily of the operations of Wireless Telecom Group Inc.’s subsidiary, Microlab.
The test and measurement segment is comprised primarily of the Company’s operations of the Noisecom product line and the
operations of its subsidiary, Boonton. The embedded solutions segment is comprised of the operations of CommAgility Limited which
was acquired on February 17, 2017.
The accounting policies of the
reportable segments are the same as those described in the summary of significant accounting policies. The Company allocates resources
and evaluates the performance of segments based on income or loss from operations, excluding interest, corporate expenses and other
income (expenses).
Financial information by reportable
segment for the three and nine months ended September 30, 2017 and 2016 is set forth below:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$6,427,646
|
|
|
$5,507,065
|
|
|
$17,560,210
|
|
|
$15,196,799
|
|
Test and measurement
|
|
3,901,486
|
|
|
2,837,236
|
|
|
10,253,863
|
|
|
7,126,021
|
|
Embedded solutions
|
|
2,231,166
|
|
|
-
|
|
|
6,228,157
|
|
|
-
|
|
Total consolidated net sales of reportable segments
|
|
12,560,298
|
|
|
8,344,301
|
|
|
34,042,230
|
|
|
22,322,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Network solutions
|
|
1,424,496
|
|
|
1,081,854
|
|
|
2,002,818
|
|
|
2,466,115
|
|
Test and measurement
|
|
769,603
|
|
|
179,879
|
|
|
253,471
|
|
|
(499,220
|
)
|
Embedded solutions
|
|
41,206
|
|
|
-
|
|
|
(112,939
|
)
|
|
-
|
|
Income (loss) from reportable segments
|
|
2,235,305
|
|
|
1,261,733
|
|
|
2,143,350
|
|
|
1,966,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
(1,453,470
|
)
|
|
(993,650
|
)
|
|
(5,349,614
|
)
|
|
(2,972,851
|
)
|
Other (expenses) income - net
|
|
(71,640
|
)
|
|
(27,267
|
)
|
|
(233,705
|
)
|
|
(79,137
|
)
|
Consolidated
income (loss) before Income tax provision (benefit)
|
|
710,195
|
|
|
240,816
|
|
|
(3,439,968
|
)
|
|
(1,085,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network solutions
|
|
106,785
|
|
|
68,002
|
|
|
311,777
|
|
|
181,706
|
|
Test and measurement
|
|
96,696
|
|
|
62,936
|
|
|
285,329
|
|
|
181,928
|
|
Embedded solutions
|
|
82,972
|
|
|
-
|
|
|
748,700
|
|
|
-
|
|
Total depreciation and amortization for reportable segments
|
|
286,453
|
|
|
130,938
|
|
|
1,345,806
|
|
|
363,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network solutions
|
|
107,162
|
|
|
132,022
|
|
|
249,701
|
|
|
415,401
|
|
Test and measurement
|
|
94,665
|
|
|
81,083
|
|
|
201,495
|
|
|
299,727
|
|
Embedded solutions
|
|
68,278
|
|
|
-
|
|
|
136,984
|
|
|
-
|
|
Total consolidated capital expenditures by reportable segment
|
|
270,104
|
|
|
213,105
|
|
|
588,180
|
|
|
715,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network solutions
|
|
10,055,232
|
|
|
10,594,770
|
|
|
|
|
|
|
|
Test and measurement
|
|
6,441,510
|
|
|
7,851,479
|
|
|
|
|
|
|
|
Embedded solutions
|
|
20,588,726
|
|
|
-
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
37,085,468
|
|
|
18,446,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and deferred income taxes
|
|
11,478,892
|
|
|
16,988,886
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
48,564,360
|
|
|
35,435,135
|
|
|
|
|
|
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Consolidated net sales by region were as
follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30
|
|
September 30
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales by region
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$10,083,348
|
|
|
$6,394,496
|
|
|
$25,343,053
|
|
|
$17,262,164
|
|
Europe, Middle East, Africa(EMEA)
|
|
2,051,218
|
|
|
1,600,694
|
|
|
7,253,334
|
|
|
4,042,081
|
|
Asia Pacific (APAC)
|
|
425,732
|
|
|
349,111
|
|
|
1,445,843
|
|
|
1,018,575
|
|
Total sales
|
|
$12,560,298
|
|
|
$8,344,301
|
|
|
$34,042,230
|
|
|
$22,322,820
|
|
Net sales are attributable to a
geographic area based on the destination of the product shipment.
The majority of shipments in the
Americas are to customers located within the United States. For the three-months ended September 30, 2017 and 2016, revenues in
the United States for all reportable segments amounted to $9,685,577 and $6,210,423, respectively. For the nine months ended September
30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $24,115,968 and $16,593,877, respectively.
Shipments to the EMEA region for
all reportable segments were largely concentrated in the UK, Germany and Israel. For the three-months ended September 30, 2017
shipments to the UK and Germany amounted to $1,294,150 and $187,373, respectively. For the three-months ended September 30, 2016
shipments were largely concentrated in Israel and Germany amounting to $349,418 and $100,653, respectively. For the nine months
ended September 30, 2017 shipments to the UK, Germany and Israel amounted to $4,078,506, $731,165 and $374,298, respectively. For
the nine months ended September 30, 2016, shipments to Israel and Germany amounted to $722,595 and $573,058, respectively.
The largest concentration of shipments
in the APAC region is to China. For the three month period ending September 30, 2017 and 2016, shipments to China amounted to $188,426
and $231,485, respectively. For the nine month period ending September 30, 2017 and 2016 shipments to China amounted to $797,273
and $652,654, respectively.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Warranties:
The Company typically provides
one to two year warranties on all of its products, covering both parts and labor. The Company, at its option, repairs or replaces
products that are defective during the warranty period if the proper preventive maintenance procedures have been followed by its
customers. Historically, the Company’s warranty expense has been minimal.
Leases:
In May 2015, the Company and its
landlord entered into an amendment to the existing lease agreement to provide for the Company to remain at its principal corporate
headquarters in Hanover Township, Parsippany, New Jersey through March 31, 2023. Monthly lease payments range from approximately
$33,000 in year one to approximately $41,000 in year eight. Additionally, the Company had available an allowance of approximately
$300,000 towards alterations and improvements to the premises, which expired on January 31, 2017. The Company used substantially
all of the improvement allowance prior to its expiration. The lease can be renewed at the Company’s option for one five-year
period at fair market value to be determined at term expiration.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
The following is a summary of the
Company’s contractual obligations as of September 30, 2017:
|
|
Payments by Period
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
Total
|
|
2017
|
|
2018-2019
|
|
2020-2021
|
|
Thereafter
|
Facility Leases
|
|
$2,674,362
|
|
|
$121,879
|
|
|
$1,007,135
|
|
|
$934,184
|
|
|
$611,164
|
|
Purchase Obligations
|
|
4,866,041
|
|
|
4,866,041
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Operating and Equipment Leases
|
|
238,648
|
|
|
13,508
|
|
|
108,067
|
|
|
108,067
|
|
|
9,006
|
|
|
|
$7,779,051
|
|
|
$5,001,428
|
|
|
$1,115,202
|
|
|
$1,042,251
|
|
|
$620,170
|
|
Risks and Uncertainties:
Proprietary information and know-how
are important to the Company’s commercial success. There can be no assurance that others will not either develop independently
the same or similar information or obtain and use proprietary information of the Company. Certain key employees have signed confidentiality
and non-compete agreements regarding the Company’s proprietary information.
The Company believes that its products
do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert
infringement claims in the future.
The Company’s deferred tax
asset is recorded at tax rates expected to be in existence when those assets are utilized. Should the tax rates change materially
in the future the amount of deferred tax asset could be materially impacted.