The accompanying notes are an integral part
of these consolidated financial statements.
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.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
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”), is a global designer and manufacturer of advanced RF, microwave and millimeter wave components,
modules, systems and instruments and currently markets its products and services worldwide under the Boonton, Microlab,
Noisecom and CommAgility brands. Serving the wireless, telecommunication, satellite, military, aerospace, and semiconductor
industries, Wireless Telecom Group products enable innovation across a wide range of traditional and emerging wireless
technologies. With a unique set of high-performance products including peak power meters, signal analyzers, signal processing
modules, long term evolution (“LTE”) physical layer (“PHY”) and stack software, power splitters and
combiners, global positioning system (“GPS”) repeaters, public safety monitors, noise sources, and programmable
noise generators, Wireless Telecom Group supports the development, testing, and deployment of wireless technologies around
the globe. The consolidated financial statements include the accounts of Wireless Telecom Group, Inc., doing business as, and
operating under the trade name, Noise Com, Inc. (“Noisecom”), and its wholly owned subsidiaries including Boonton
Electronics Corporation (“Boonton”), Microlab/FXR (“Microlab”), Wireless Telecommunications Ltd. and
CommAgility Limited (“CommAgility”).
The accompanying Consolidated
Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Consolidated Financial Statements
have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the
results of companies acquired by the Company from the date of each acquisition. All intercompany accounts and transactions have
been eliminated in consolidation.
The Company presents its operations
in three reportable segments: (1) Network Solutions, (2) Test and Measurement and (3) Embedded Solutions. The Network Solutions
segment is comprised primarily of the operations of Microlab. The Test and Measurement segment is comprised of the operations of
Boonton and Noisecom. The Embedded Solutions segment is comprised of the operations of CommAgility.
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, 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.
Reclassification
Certain prior period
amounts have been reclassified to conform with the current period presentation.
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 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 years ended December
31, 2018 and 2017 one customer, from the Embedded Solutions segment, accounted for 22.0% and 10.4% of the Company’s total
consolidated revenues, respectively. At December 31, 2018 one customer exceeded 10% of consolidated gross accounts receivable at
32.1%. At December 31, 2017, two customers exceeded 10% of consolidated gross accounts receivable at 17.8% and 11.2%, respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
For the year ended December
31, 2018 two suppliers exceed 10% of consolidated inventory purchases at 15% and 13%, respectively. For the year ended December
31, 2017 no single third-party supplier accounted for 10% or more of the Company’s total consolidated inventory purchases.
Cash and Cash Equivalents
The Company considers all highly
liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents consist of operating accounts.
Accounts Receivable and
Allowance for Doubtful Accounts
Trade accounts receivable are
recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments. 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 (average cost) or net realizable value. 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 sales in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Finished goods and
work-in-process include material, labor and manufacturing 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.
During the year ended 2017 the
Company recorded inventory adjustments totaling $1.9 million comprised of an increase to the Company’s excess and obsolescence
reserve of $1.1 million and the write off of gross inventory of $0.8 million. 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.
Inventory carrying value is
net of inventory reserves of approximately $1.9 million as of December 31, 2018 and 2017.
Inventories consist of (in thousands):
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
Raw materials
|
|
|
$
|
3,248
|
|
|
|
$
|
3,231
|
|
|
Work-in-process
|
|
|
|
557
|
|
|
|
|
631
|
|
|
Finished goods
|
|
|
|
3,079
|
|
|
|
|
2,664
|
|
|
|
|
|
$
|
6,884
|
|
|
|
$
|
6,526
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current
assets generally consist of income tax receivables, prepaid insurance, prepaid maintenance agreements and the short term portion
of debt issuance costs. As of December 31, 2017, prepaid and other current assets included a $3.6 million contingent asset representing
the fair value of consideration shares issued in connection with the CommAgility acquisition. Under the claw back provisions of
the Share Purchase Agreement (see Note 3) the consideration shares were forfeited in March 2018 and are no longer outstanding.
Accordingly, prepaid expenses and other current assets decreased by $3.6 million from December 31, 2017. The forfeited shares are
recorded as treasury stock in the consolidated statement of shareholders’ equity as of December 31, 2018.
Property, Plant and Equipment
Property, plant and equipment
are reflected at cost, less accumulated depreciation. 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
|
3-8 years
|
Furniture and fixtures
|
5-7 years
|
Transportation equipment
|
4 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.
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.
The Company’s goodwill
balance relates to two of the Company’s reporting units, Embedded Solutions and Network Solutions. Management’s qualitative
assessment performed in the fourth quarters of 2018 and 2017 did not indicate any impairment of goodwill as each reporting units
fair value is estimated to be in excess of its carrying value.
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 three to five 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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
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 (See Note 3) 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. The financial targets for
2017 were not achieved therefore there was no earn-out payment made in the twelve months ended December 31, 2018
.
As of December 31, 2017, the Company estimated the fair value of the contingent consideration
remaining to be paid based on the 2018 financial results to be $0.6 million. 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, and scenarios for the earn-out 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. 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.
During the twelve months ended
December 31, 2018 the Company recorded a loss on change in fair value of contingent consideration liability of $0.6 million due
to the improved financial results at CommAgility as compared to prior estimates. As of December 31, 2018, the Company’s contingent
consideration liability is $1.4 million and is recorded in accrued expenses and other current liabilities in the accompanying consolidated
balance sheet. The Company will satisfy this obligation with a cash payment to the sellers of CommAgility in the first quarter
of 2019. The contingent consideration liability is considered a Level 3 fair value measurement.
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.
Gains and losses resulting from foreign currency transactions, which are denominated in currencies other than the Company’s
functional currency, are included in the Consolidated Statements of Operations and Comprehensive Loss. The Company recognized $0.1
million in foreign exchange transaction losses in fiscal 2017 and 2018.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
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. These
unrealized gains and losses consist of changes in foreign currency translation.
Research and Development
Costs
Research and development costs
are charged to operations when incurred. The amounts charged to operations for the years ended December 31, 2018 and 2017 were
$4.9 million and $4.4 million, respectively.
Advertising Costs
Advertising expenses are charged
to operations during the year in which they are incurred and aggregated $0.1 million for the years ended December 31, 2018 and
2017.
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 stock awards. The fair value of the stock awards is equal
to the fair value of the Company’s stock on the date of grant. The fair value of options at the date of grant are estimated
using the Black-Scholes option pricing model. When performance-based 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
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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
On December 22, 2017, the United
States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational
corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As a result, the Company re-measured
its U.S. deferred tax assets at the new lower corporate income tax rate. The TCJA also requires a one-time transition tax on the
mandatory deemed repatriation of the cumulative earnings of the Company’s foreign subsidiary as of December 31, 2017. To
determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the
relevant foreign subsidiary, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other
factors. See Note 12 for a discussion of the impact the TCJA.
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 and the weighted-average number of restricted stock units 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.
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
20,858,298
|
|
|
|
|
19,983,747
|
|
Potentially dilutive equity awards
|
|
|
|
707,492
|
|
|
|
|
877,935
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
|
21,565,790
|
|
|
|
|
20,861,682
|
|
The weighted average number
of options to purchase common stock not included in diluted loss per share because the performance condition was not met in 2018
was 285,000. The weighted average number of options to purchase common stock not included in diluted loss per share in 2017, because
the effects are anti-dilutive or the performance condition was not met, was 1,048,000.
Recent Accounting Pronouncements
Adopted in 2018
On January 1, 2018, the Company
adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“Topic
606”), using the “modified retrospective” method, meaning the standard is applied only to the most current period
presented in the financial statements. Furthermore, we elected to apply the standard only to those contracts which were not completed
as of the date of the adoption. Results for reporting periods beginning on the date of adoption are presented under Topic 606,
while prior period amounts have not been adjusted and continue to be reported in accordance with accounting standards in effect
for those periods (see Note 2).
Upon adoption, a cumulative
effect adjustment of $0.3 million was made and the impact resulted in an increase to the January 1, 2018 opening balance of retained
earnings. The adjustment was based on customer-specific contracts in effect at December 31, 2017 and reflects revenue that would
have been recognized in 2018 in accordance with Accounting Standard Codification (“ASC”) Topic 605,
Revenue Recognition
,
and Subtopic 985,
Software
, collectively referred to as “Topic 605”. The beginning balance of deferred revenue
decreased by $0.2 million representing amounts that were invoiced to customers and not recognized and prepaid and other current
assets increased by $0.1 million representing unbilled receivables recognized under Topic 606. Further, accounts receivable increased
$0.2 million as the contra accounts receivable balance representing estimated product returns was reclassified to other current
liabilities.
The most significant impact
of Topic 606 relates to the Company’s accounting for software license agreements which have multiple deliverables. Under
Topic 605 the Company could not establish vendor specific objective evidence of fair value (“VSOE”) for its undelivered
elements and therefore was not able to separate its delivered software licenses from its future undelivered software license releases.
Topic 606 no longer requires separability of promised goods, such as software licenses,
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
on the basis of VSOE. Rather, Topic 606
requires the Company to identify the performance obligations in the contract — that is, those promised goods and services
(or bundles of promised goods or services) that are distinct — and allocate the transaction price of the contract to those
performance obligations on the basis of estimated standalone selling prices (“SSPs”). For these arrangements, the Company
will recognize revenue for each deliverable at a point in time when control is transferred to the customer since each deliverable
has standalone value.
The primary impact of adopting
the new standard results in an acceleration of revenues recognized for the aforementioned multiple deliverable software license
arrangements, which are primarily in the Embedded Solutions segment. These multiple deliverable arrangements represented less than
2% of total consolidated revenues for the year ended December 31, 2017.
The timing of revenue recognition
for digital signal processing hardware in the Embedded Solutions segment, radio frequency solutions in the Network Solutions segment
and noise generators and components and power meters and analyzers and related services in the Test and Measurement segment remains
substantially unchanged.
The following line items in
our Consolidated Statement of Operations and Comprehensive Income/(Loss) for the twelve months ended December 31, 2018 and Consolidated
Balance Sheet as of December 31, 2018 have been provided to reflect both the adoption of Topic 606 as well as a comparative presentation
in accordance with Topic 605 previously in effect (in thousands):
|
|
Twelve Months Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS AND COMPREHENSIVE
INCOME
|
|
As Reported (in Accordance with ASC Topic 606)
|
|
|
Balances Without
Adoption of
ASC Topic 606
|
|
|
Impact of Adoption
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
52,788
|
|
|
$
|
52,590
|
|
|
$
|
198
|
|
Operating income
|
|
|
779
|
|
|
|
581
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
35
|
|
|
|
(163)
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEET
|
|
As Reported (in Accordance with ASC Topic 606)
|
|
|
Balances Without
Adoption of
ASC Topic 606
|
|
|
Impact of Adoption
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
103
|
|
|
$
|
608
|
|
|
$
|
(505)
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
7,556
|
|
|
|
7,051
|
|
|
|
505
|
|
Recent Accounting Pronouncements
Not Yet Adopted
In February 2016, the FASB issued
ASU 2016-02,
Leases (Topic 842)
, 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. We have adopted the requirements
of the new lease standard effective January 1, 2019. We have elected the optional transition method to apply the standard as of
the effective date and therefore, we will not apply the standard to the comparative periods presented in our financial statements.
The impact of adoption will be the recognition of a right-to-use asset and
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
corresponding lease liability
on the Company’s Consolidated Balance Sheet in the amount of approximately $1.8 million. Adoption of the new lease standard
will not have a significant impact on the Company’s Consolidated Statement of Operations and Comprehensive Income/(Loss).
On June 20, 2018, the FASB issued
ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees.
This ASU expands the scope of ASC Topic 718,
Compensation - Stock Compensation
, which currently only includes share-based
payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. Consequently,
the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 supersedes ASC
Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees
. The amendments in this ASU are effective for public companies
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company does not expect the adoption of this standard to
have a material impact on our financial statements.
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 as amortized cost. This
pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019.
The Company plans to adopt the standard effective January 1, 2020. We are currently in the process of evaluating the effects of
this pronouncement on our consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-13,
Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
(Topic 820)
. ASU 2018-13 eliminates, modifies and adds disclosure requirements for fair value measurements. This pronouncement
is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early
adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial
statements.
NOTE 2
– 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
95% of the Company’s total revenue for the twelve months ended December 31, 2018.
Nature of Products and Services
Hardware
The Company generally has one
performance obligation in its arrangements involving the sales of radio frequency solutions in the Network Solutions segment, digital
signal processing hardware in the Embedded Solutions segment and noise generators and components and power meter and analyzers
in the Test and Measurement segment. 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 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
|
|
·
|
when the customer has accepted the asset
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Software
Arrangements involving licenses
of software in the Embedded Solutions segment 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 in the Embedded Solutions
segment 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
in the Company’s Test and Measurement segment are generally considered a single performance obligation and are recognized
as the services are rendered.
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 or contract liabilities
(deferred revenue) on the Company’s Consolidated Balance Sheet. The Company records a contract asset when revenue is recognized
prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Contract assets are recorded in prepaid
expenses and other current assets and are $0.3 million and $0.1 million as of December 31, 2018 and 2017 (as adjusted), respectively.
Deferred revenue is $0.1 million and $0.4 million as of December 31, 2018 and 2017 (as adjusted), respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Disaggregated Revenue
We disaggregate our revenue from contracts with customers
by product family and geographic location for each of our segments 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).
|
|
Twelve Months Ended December 31, 2018
|
|
|
|
Network
Solutions
|
|
|
Test and
Measurement
|
|
|
Embedded
Solutions
|
|
|
Total
|
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive and Active RF Solutions
|
|
$
|
22,275
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,275
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
6,130
|
|
|
|
-
|
|
|
|
6,130
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
6,769
|
|
|
|
-
|
|
|
|
6,769
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
12,746
|
|
|
|
12,746
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
704
|
|
|
|
704
|
|
Services
|
|
|
-
|
|
|
|
1,313
|
|
|
|
2,851
|
|
|
|
4,164
|
|
Total Net Revenue
|
|
$
|
22,275
|
|
|
$
|
14,212
|
|
|
$
|
16,301
|
|
|
$
|
52,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
18,871
|
|
|
$
|
10,223
|
|
|
$
|
3,755
|
|
|
$
|
32,849
|
|
EMEA
|
|
|
2,591
|
|
|
|
1,659
|
|
|
|
12,019
|
|
|
|
16,269
|
|
APAC
|
|
|
813
|
|
|
|
2,330
|
|
|
|
527
|
|
|
|
3,670
|
|
Total Net Revenue
|
|
$
|
22,275
|
|
|
$
|
14,212
|
|
|
$
|
16,301
|
|
|
$
|
52,788
|
|
|
|
Twelve Months Ended December 31, 2017
|
|
|
|
Network
Solutions
|
|
|
Test and
Measurement
|
|
|
Embedded
Solutions
|
|
|
Total
|
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive and Active RF Solutions
|
|
$
|
23,052
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23,052
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
4,928
|
|
|
|
-
|
|
|
|
4,928
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
7,367
|
|
|
|
-
|
|
|
|
7,367
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
5,828
|
|
|
|
5,828
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
564
|
|
|
|
564
|
|
Services
|
|
|
-
|
|
|
|
1,085
|
|
|
|
3,254
|
|
|
|
4,339
|
|
Total Net Revenue
|
|
$
|
23,052
|
|
|
$
|
13,380
|
|
|
$
|
9,646
|
|
|
$
|
46,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
19,789
|
|
|
$
|
9,861
|
|
|
$
|
3,790
|
|
|
$
|
33,440
|
|
EMEA
|
|
|
2,432
|
|
|
|
1,595
|
|
|
|
4,889
|
|
|
|
8,916
|
|
APAC
|
|
|
831
|
|
|
|
1,924
|
|
|
|
967
|
|
|
|
3,722
|
|
Total Net Revenue
|
|
$
|
23,052
|
|
|
$
|
13,380
|
|
|
$
|
9,646
|
|
|
$
|
46,078
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
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
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 $11.3 million 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 $6.0 million. In addition to the acquisition date cash purchase price the sellers were paid an additional $2.5
million in the form of deferred purchase price in installments beginning in March 2017 through January 2019 and were paid an
additional purchase price adjustment based on working capital and cash levels of $1.4 million. Lastly, the sellers could have
earned an additional purchase price (“contingent consideration”) if certain financial targets were met for the
years ended December 31, 2017 and 2018 (See Note 1). The contingent consideration liability as of December 31, 2018 is $1.4
million and is expected to be paid in the first quarter of 2019.
Pursuant to the claw back provision
of the Share Purchase Agreement, 2,092,516 of the Consideration Shares were subject to forfeiture and return to the Company if
(a) 2017 EBITDA, as defined, generated by CommAgility was less than £2.4 million; or (b) 2018 EBITDA, as defined, generated
by CommAgility was less than £2.4 million (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). In March 2018 all consideration shares
were forfeited as the 2017 EBITDA threshold was not achieved.
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 twelve months ended December 31, 2017 the Company recorded measurement period adjustments
related to the completion of the valuation of intangible assets, contingent consideration, the contingent asset associated with
the equity claw back and deferred taxes. The Company incurred $1.3 million of acquisition-related costs during the twelve months
ended December 31, 2017, which is included as part of general and administrative expense in the accompanying Consolidated Statements
of Operations and Comprehensive Income/(Loss). In 2017, from the acquisition date of February 17, 2017, CommAgility contributed
$9.6 million of net revenue to the Company. 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
including measurement period adjustments (in thousands):
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
|
|
Amounts Recognized as of
Acquisition Date
|
|
Cash at close
|
|
$
|
11,318
|
|
Equity issued at close
|
|
|
6,000
|
|
Completion Cash Adjustment
|
|
|
1,382
|
|
Deferred Purchase Price
|
|
|
2,515
|
|
Contingent Consideration
|
|
|
754
|
|
Total Purchase Price
|
|
|
21,969
|
|
|
|
|
|
|
Cash
|
|
|
4,567
|
|
Accounts Receivable
|
|
|
2,234
|
|
Inventory
|
|
|
1,085
|
|
Intangible Assets
|
|
|
5,117
|
|
Contingent Asset
|
|
|
3,599
|
|
Other Assets
|
|
|
168
|
|
Fixed Assets
|
|
|
304
|
|
Accounts Payable
|
|
|
(1,174)
|
|
Accrued Expenses
|
|
|
(417)
|
|
Deferred Revenue
|
|
|
(639)
|
|
Deferred Tax Liability
|
|
|
(835)
|
|
Other Long Term Liabilities
|
|
|
(339)
|
|
Net Assets Acquired
|
|
|
13,670
|
|
|
|
|
|
|
Goodwill
|
|
$
|
8,299
|
|
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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The following table summarizes the
activity related to Contingent Consideration and Deferred Purchase Price for the twelve months ended December 31, 2017 and December
31, 2018 (in thousands):
|
|
Contingent
Consideration
|
|
|
Deferred Purchase
Price
|
|
Balance at December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair Value At Acquisition Date
|
|
|
2,700
|
|
|
|
2,515
|
|
Accretion of Interest
|
|
|
73
|
|
|
|
-
|
|
Payment
|
|
|
-
|
|
|
|
(1,408)
|
|
Measurement Period Adjustment
|
|
|
(1,946)
|
|
|
|
-
|
|
Fair Value Adjustment
|
|
|
(253)
|
|
|
|
-
|
|
Foreign Currency Translation
|
|
|
56
|
|
|
|
123
|
|
Balance as of December 31, 2017
|
|
$
|
630
|
|
|
$
|
1,230
|
|
Accretion of Interest
|
|
|
281
|
|
|
|
-
|
|
Payment
|
|
|
-
|
|
|
|
(805)
|
|
Fair Value Adjustment
|
|
|
578
|
|
|
|
-
|
|
Foreign Currency Translation
|
|
|
(47)
|
|
|
|
-
|
|
Balance as of December 31, 2018
|
|
$
|
1,442
|
|
|
$
|
425
|
|
As of December 31, 2018, $0.4 million
of deferred purchase price and $1.4 million of contingent consideration is included in accrued expenses and other current liabilities
on the consolidated balance sheet. As of December 31, 2017, $0.8 million of deferred purchase price is included in accrued expenses
and other current liabilities on the consolidated balance sheet and $0.6 million and $0.5 million of contingent consideration and
deferred purchase price, respectively, is included in other long term liabilities on the 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 Credit Facility (described in further detail in Note 4) used
to finance the acquisition of CommAgility; and (iii) inclusion of acquisition-related expenses in the earliest period presented.
The 2017 pro forma combined statement of operations is not necessarily indicative of the results of operations as they would have
been had the transaction been effected on the assumed date and is not intended to be a projection of future results.
Pro-forma results for the year ended
December 31, 2017 are presented below (in thousands, except per share amounts):
(Unaudited)
|
|
2017
|
|
Net Revenues
|
|
$
|
48,130
|
|
Net loss
|
|
$
|
(1,843
|
)
|
Basic net loss per share
|
|
$
|
(0.09
|
)
|
Diluted net loss per share
|
|
$
|
(0.09
|
)
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
NOTE 4 - DEBT
Debt consists of the following (in
thousands):
|
|
December 31, 2018
|
|
Revolver at LIBOR Plus Margin
|
|
$
|
1,522
|
|
Term Loan at LIBOR Plus Margin
|
|
|
494
|
|
Total Debt
|
|
|
2,016
|
|
Debt Maturing within one year
|
|
|
(2,016)
|
|
Non-current portion of long term debt
|
|
$
|
-
|
|
In connection with the acquisition
of CommAgility, the Company entered into a Credit Facility with Bank of America, N.A. (the “Lender”) on February 16,
2017 (the “Credit Facility”), which provided for a term loan in the aggregate principal amount of $0.8 million (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 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 Credit Facility, the Company paid lender and legal fees of $0.2 million which were primarily related to the Revolver and are
capitalized and presented as other current and non-current assets in the Consolidated Balance Sheets. These costs are recognized
as additional interest expense over the term of the related debt instrument using the straight line method which approximates the
effective interest 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 $0.5 million in 2019. The Term Loan and Revolver are both scheduled to mature on November 16, 2019. On February
27, 2019 the Company entered into Amendment No. 3 to the Credit Facility which extends the termination date of the Revolver from
November 16, 2019 to March 31, 2020.
The Term Loan and Revolver bear interest
at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loan and Revolver were fixed
at 3.50% and 3.00% per annum, respectively, through September 30, 2017. Thereafter, the margins were 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 defined
in the Credit Facility) as of the most recently ended fiscal quarter falling into three levels. If the Company’s Fixed Charge Coverage
Ratio is greater than or equal to 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 Credit Facility or (b) 1% of the Revolver
Commitment Amount and Term Loan if termination occurs after the first anniversary of the Credit Facility but before the second
anniversary of the Credit Facility. The Company’s interest rate plus margin as of December 31, 2018 was 5.38% and 5.88% for
the Revolver and Term Loan, respectively. The Company’s interest rate plus margin as of December 31, 2017 was 4.38% and 4.88%
for the Revolver and Term Loan, respectively.
The Credit Facility is secured by
liens on substantially all of the Company’s and its domestic subsidiaries’ assets including a pledge of 66 1/3% of
the equity interests in the Company’s Foreign Subsidiaries (as defined in the Credit Facility). The 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 Credit Facility include but
are not limited to: failure to pay obligations when due, breach or failure of any covenant, insolvency
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
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).
As of December 31, 2018, and the date
hereof, the Company is in compliance with the covenants of the Credit Facility.
NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following
(in thousands):
|
|
Network
Solutions
|
|
|
Embedded
Solutions
|
|
|
Total
|
|
Balance as of January 1, 2017
|
|
$
|
1,351
|
|
|
$
|
-
|
|
|
$
|
1,351
|
|
CommAgility Acquisition
|
|
|
-
|
|
|
|
10,094
|
|
|
|
10,094
|
|
Measurement Period Adjustments
|
|
|
-
|
|
|
|
(1,795)
|
|
|
|
(1,795)
|
|
Foreign Currency Translation
|
|
|
-
|
|
|
|
610
|
|
|
|
610
|
|
Balance as of December 31, 2017
|
|
|
1,351
|
|
|
|
8,909
|
|
|
|
10,260
|
|
Foreign Currency Translation
|
|
|
-
|
|
|
|
(482)
|
|
|
|
(482)
|
|
Balance as of December 31, 2018
|
|
$
|
1,351
|
|
|
$
|
8,427
|
|
|
$
|
9,778
|
|
Intangible assets consist of the following
(in thousands):
|
|
December 31, 2018
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Exchange
Translation
|
|
Net Carrying
Amount
|
Customer Relationships
|
|
$
|
2,766
|
|
|
$
|
(1,082
|
)
|
|
$
|
71
|
|
|
$
|
1,755
|
|
Patents
|
|
|
615
|
|
|
|
(240
|
)
|
|
|
15
|
|
|
|
390
|
|
Non-Compete Agreements
|
|
|
1,107
|
|
|
|
(727
|
)
|
|
|
41
|
|
|
|
421
|
|
Tradename
|
|
|
629
|
|
|
|
-
|
|
|
|
11
|
|
|
|
640
|
|
Total
|
|
$
|
5,117
|
|
|
$
|
(2,049
|
)
|
|
$
|
138
|
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Exchange
Translation
|
|
Net Carrying
Amount
|
Customer Relationships
|
|
$
|
2,766
|
|
|
$
|
(494
|
)
|
|
$
|
178
|
|
|
$
|
2,450
|
|
Patents
|
|
|
615
|
|
|
|
(109
|
)
|
|
|
39
|
|
|
|
545
|
|
Non-Compete Agreements
|
|
|
1,107
|
|
|
|
(334
|
)
|
|
|
69
|
|
|
|
842
|
|
Tradename
|
|
|
629
|
|
|
|
-
|
|
|
|
45
|
|
|
|
674
|
|
Total
|
|
$
|
5,117
|
|
|
$
|
(937
|
)
|
|
$
|
331
|
|
|
$
|
4,511
|
|
Amortization of acquired intangible
assets was $1.1 million and $0.9 million for the twelve months ended December 31, 2018 and 2017, respectively. Amortization of
acquired intangible assets is included as part of general and administrative expenses in the accompanying consolidated statements
of operations and comprehensive loss.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The estimated future amortization expense
related to intangible assets is as follows as of December 31, 2018 (in thousands):
2019
|
|
|
$
|
1,061
|
|
2020
|
|
|
|
734
|
|
2021
|
|
|
|
687
|
|
2022
|
|
|
|
84
|
|
Total
|
|
|
$
|
2,566
|
|
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, consist
of the following as of December 31 (in thousands):
|
|
2018
|
|
|
2017
|
|
Machinery & Equipment
|
|
$
|
7,928
|
|
|
$
|
7,268
|
|
Furniture & Fixtures
|
|
|
440
|
|
|
|
383
|
|
Transportation Equipment
|
|
|
2
|
|
|
|
2
|
|
Leasehold Improvements
|
|
|
1,217
|
|
|
|
1,121
|
|
Gross property, plant and equipment
|
|
|
9,587
|
|
|
|
8,774
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
7,009
|
|
|
|
6,044
|
|
Net property, plant and equipment
|
|
$
|
2,578
|
|
|
$
|
2,730
|
|
Depreciation expense of $1.0 million and
$0.7 million was recorded for the years ended December 31, 2018 and 2017, respectively.
NOTE 7 - OTHER ASSETS
Other assets consist of the following as
of December 31 (in thousands):
|
|
2018
|
|
|
2017
|
|
Long term debt issuance
|
|
$
|
-
|
|
|
$
|
69
|
|
Deferred S3 Costs
|
|
|
255
|
|
|
|
-
|
|
Deferred cost
|
|
|
96
|
|
|
|
124
|
|
Product demo assets
|
|
|
351
|
|
|
|
431
|
|
Security deposit
|
|
|
50
|
|
|
|
50
|
|
Other
|
|
|
35
|
|
|
|
49
|
|
Total
|
|
$
|
787
|
|
|
$
|
723
|
|
Product demo assets are net of accumulated
amortization expense of $1.2 million and $1.1 million as of December 31, 2018 and 2017, respectively. Amortization expense related
to demo assets was $0.2 million and $0.1 million in 2018 and 2017, respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
NOTE 8 - ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES
Accrued expenses and other current liabilities
consist of the following as of December 31 (in thousands):
|
|
2018
|
|
|
2017
|
|
Contingent Consideration Liability
|
|
$
|
1,442
|
|
|
$
|
-
|
|
Deferred purchase price
|
|
|
852
|
|
|
|
780
|
|
Bonus
|
|
|
800
|
|
|
|
360
|
|
Payroll and related benefits
|
|
|
755
|
|
|
|
669
|
|
Goods received not invoiced
|
|
|
435
|
|
|
|
39
|
|
Commissions
|
|
|
444
|
|
|
|
360
|
|
Sales and use and VAT tax
|
|
|
374
|
|
|
|
98
|
|
Professional fees
|
|
|
233
|
|
|
|
150
|
|
Return Reserve
|
|
|
199
|
|
|
|
-
|
|
Warranty Reserve
|
|
|
90
|
|
|
|
-
|
|
Other
|
|
|
459
|
|
|
|
194
|
|
Severance
|
|
|
-
|
|
|
|
244
|
|
Total
|
|
$
|
6,083
|
|
|
$
|
2,894
|
|
NOTE 9 - ACCOUNTING FOR STOCK BASED
COMPENSATION
The Company follows the provisions of ASC
718. The Company’s results for the years ended December 31, 2018 and December 31, 2017 include stock based compensation expense
totaling $0.7 million and $0.5 million, respectively. Such amounts have been included in the consolidated statement of operations
and comprehensive loss within operating expenses.
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 1.6 million shares of the Company’s common stock to be available for future grants
under the 2012 Plan. The 2012 Plan provides that if awards are forfeited, expire or otherwise terminate without issuance of the
shares underlying the awards, or if the award does not result in issuance of all or part of the shares underlying the award, the
unissued shares are again available for awards under the 2012 Plan. As a result of certain award forfeitures and cancellations,
as of December 31, 2018, there are approximately 1.8 million shares available for issuance under the 2012 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. Performance-based options granted have ten-year
terms and vest and become fully exercisable when determinable performance targets are achieved. Performance targets are 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 only at prices equal to or above the fair market value on the date of the
grant.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The following summarizes the components
of share-based compensation expense for the years ending December 31 (in thousands):
|
|
2018
|
|
|
2017
|
|
Performance Based Restricted Stock Awards
|
|
$
|
-
|
|
|
$
|
(62)
|
|
Service Based Restricted Stock Awards
|
|
|
172
|
|
|
|
230
|
|
Service Based Restricted Stock Units
|
|
|
175
|
|
|
|
-
|
|
Performance Based Stock Options
|
|
|
50
|
|
|
|
(235)
|
|
Service Based Stock Options
|
|
|
305
|
|
|
|
603
|
|
|
|
$
|
702
|
|
|
$
|
536
|
|
As of
December 31, 2018, $0.3 million of unrecognized compensation costs related to unvested stock options is expected to be recognized
over a remaining weighted average period of 2.8 years, $0.3 million of unrecognized compensation costs related to unvested restricted
shares is expected to be recognized over a remaining weighted average period of 3.6 years and $0.1 million of unrecognized compensation
costs related to unvested restricted stock units is expected to be recognized over 6 months.
The company
had no stock option or restricted share forfeitures during the twelve months ended December 31, 2018.
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 December 31,
2018 and 2017, and changes during the twelve months ended December 31, 2018 and 2017, are presented below:
|
|
2018
|
|
2017
|
Non-vested Restricted Shares
|
|
Number
of Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of January 1
|
|
|
159,207
|
|
|
$
|
1.64
|
|
|
|
244,291
|
|
|
$
|
1.52
|
|
Granted
|
|
|
225,000
|
|
|
$
|
1.68
|
|
|
|
150,000
|
|
|
$
|
1.65
|
|
Vested and Issued
|
|
|
(152,084)
|
|
|
$
|
1.64
|
|
|
|
(122,084)
|
|
|
$
|
1.73
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
(113,000)
|
|
|
$
|
1.77
|
|
Non-vested as of December 31
|
|
|
232,123
|
|
|
$
|
1.68
|
|
|
|
159,207
|
|
|
$
|
1.64
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The following table summarizes the restricted
common stock awards granted to certain directors and officers of the company during the years ended December 31, 2018 and 2017
under the 2012 Plan:
|
|
Number
of
Shares
|
|
|
Fair
Market
Value
per
Granted
Share
|
|
Vesting
|
2018
|
|
|
|
|
|
|
|
|
|
|
8/1/2018 – Service Grant – Employees
|
|
|
75,000
|
|
|
$
|
2.01
|
|
|
Annual Vesting through August 2021
|
12/20/18 – Service Grant - Employees
|
|
|
150,000
|
|
|
$
|
1.52
|
|
|
Annual Vesting through December 2022
|
2018 Total
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
6/5/17 - Service Grant - BOD
|
|
|
150,000
|
|
|
$
|
1.65
|
|
|
Next Annual Meeting - June 2018
|
Restricted Stock Units:
On June
5, 2018 the Company granted 25,000 Restricted Stock Units (“RSU”) to each of our five non-employee board members under
the 2012 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 2012 Plan. The grant date fair value was $2.25 per share and the RSU’s 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 member of the board of directors from grant date
to vesting date. Once vested, the RSU will be settled by delivery of shares to the board member no later than 30 days following:
1) the third anniversary of the grant date, 2) separation from service following, or coincident with, a vesting date, or 3) a change
in control.
A summary
of restricted stock unit activity for the twelve months ended December 31, 2018 follows:
Restricted Stock Units
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
As of January 1
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
125,000
|
|
|
|
$2.25
|
|
Vested and Issued
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested as of December 31
|
|
|
125,000
|
|
|
|
$2.25
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Performance-Based Stock Option
Awards
A summary of performance-based stock option
activity, and related information for the years ended December 31, 2018 and December 31, 2017 follows:
|
|
2018
|
|
|
2017
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding as of January 1
|
|
|
605,000
|
|
|
|
$1.21
|
|
|
|
2,165,000
|
|
|
|
$1.32
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(300,000)
|
|
|
|
$0.96
|
|
|
|
(550,000)
|
|
|
|
$0.75
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,010,000)
|
|
|
|
$1.69
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31
|
|
|
305,000
|
|
|
|
$1.45
|
|
|
|
605,000
|
|
|
|
$1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
20,000
|
|
|
|
$0.78
|
|
|
|
320,000
|
|
|
|
$0.95
|
|
The aggregate intrinsic value of performance-based
stock options outstanding (regardless of whether or not such options are exercisable) as of December 31, 2018 was $0.1 million
and the weighted average remaining contractual life was 6.6 years. The aggregate intrinsic value of performance-based stock options
exercisable as of December 31, 2018 was approximately $20,000 and the weighted average remaining contractual life was 2.0 years.
The intrinsic value of options exercised during the twelve months ended December 31, 2018 was $0.4 million.
The range of exercise prices of outstanding
performance-based options at December 31, 2018 is $0.78 to $1.83 with a weighted average exercise price of $1.45 per share.
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 December 31, 2018, the Company has determined
that the performance conditions on 285,000 options granted in 2013 and later are probable of being achieved by the year ending
2021. The Company’s performance-based stock options granted prior to 2013 (consisting of 20,000 options) are fully amortized.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Service-Based Stock Option
Awards
A summary of service-based stock option
activity and related information for the years ended December 31, 2018 and 2017 follows:
|
|
2018
|
|
|
2017
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding as of January 1
|
|
|
1,815,000
|
|
|
|
$1.53
|
|
|
|
1,198,000
|
|
|
|
$1.51
|
|
Granted
|
|
|
160,000
|
|
|
|
$1.52
|
|
|
|
845,000
|
|
|
|
$1.68
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500)
|
|
|
|
$1.61
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(137,500)
|
|
|
|
$1.48
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(83,000)
|
|
|
|
$3.00
|
|
Outstanding as of December 31
|
|
|
1,975,000
|
|
|
|
$1.52
|
|
|
|
1,815,000
|
|
|
|
$1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
1,225,000
|
|
|
|
$1.49
|
|
|
|
566,667
|
|
|
|
$1.38
|
|
The aggregate intrinsic value of service-based
stock options (regardless of whether or not such options are exercisable) as of December 31, 2018 was $0.5 million and the weighted
average remaining contractual life was 8.0 years. The aggregate intrinsic value of service-based stock options exercisable as of
December 31, 2018 was $0.3 million and the weighted average remaining contractual life was 7.8 years.
The range of exercise prices of outstanding
service-based options at December 31, 2018 is $1.30 to $1.92 with a weighted average exercise price of $1.52 per share.
The following table presents the assumptions
used to estimate the fair value of stock option awards granted during the twelve months ended December 31, 2018:
|
|
Number of
Options
|
|
|
Option Term
(in years)
|
|
|
Exercise
Price
|
|
|
Risk Free
Interest
Rate
|
|
|
Expected
Volatility
|
|
|
Fair
Value at
Grant
Date
|
|
|
Expected
Dividend
Yield
|
|
12/20/18 – Service Grant
|
|
|
160,000
|
|
|
|
4
|
|
|
|
$1.52
|
|
|
|
2.65
|
%
|
|
|
48.53
|
%
|
|
|
$0.62
|
|
|
|
$0.00
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
NOTE 10 - SEGMENT
AND RELATED INFORMATION
Financial information by segment
The operating businesses of the Company
are segregated into three reportable segments: (i) Network Solutions, (ii) Test and Measurement and (iii) Embedded Solutions.
Network Solutions
The Network Solutions segment is comprised
primarily of the operations of the Company’s subsidiary, Microlab. Network Solutions designs and manufactures a wide selection
of RF passive components and integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets,
particularly for small cell deployments, distributed antenna systems (“DAS”), the in-building wireless solutions industry
and radio base-station market. Network Solutions also offers active solution sets to assist in network timing for tunnels and in-building
wireless signaling. Network Solutions customers include telecommunications service providers, systems integrators, neutral host
operators and distributors.
Test and Measurement
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.
Noisecom designs and produces noise generation equipment and instruments, calibrated noise sources, noise modules and diodes. Noise
components and instruments are used as a method to provide wide band signals for sophisticated telecommunication and defense applications,
and as a stable reference standard for instruments and systems, including radar and satellite communications. Boonton products
are also used to test terrestrial and satellite communications, radar and telemetry. Certain power meter products are designed
for measuring signals based on wideband modulation formats, allowing a variety of measurements to be made, including maximum power,
peak power, average power and minimum power. Customers of the Test and Measurement segment include large defense contractors and
the U.S. and foreign governments.
Embedded Solutions
The Embedded Solutions segment is
comprised of the operations of CommAgility Limited which was acquired on February 17, 2017. Embedded Solutions supplies signal
processing technology for network validation systems supporting LTE and emerging 5G networks. Additionally, this segment licenses,
implements and configures LTE PHY layer and stack software for private LTE networks supporting satellite communications, the military
and aerospace industries. Customers include wireless communication test equipment companies, defense subcontractors and global
technology and services companies.
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).
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Financial information by reportable
segment as of and for the years ended December 31, 2018 and 2017 is presented below (in thousands):
|
|
For the twelve months ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net sales by segment:
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
22,275
|
|
|
$
|
23,052
|
|
Test and Measurement
|
|
|
14,212
|
|
|
|
13,380
|
|
Embedded Solutions
|
|
|
16,301
|
|
|
|
9,646
|
|
Total consolidated net sales of reportable segments
|
|
$
|
52,788
|
|
|
$
|
46,078
|
|
|
|
|
|
|
|
|
|
|
Segment income:
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
3,476
|
|
|
$
|
2,935
|
|
Test and Measurement
|
|
|
1,728
|
|
|
|
431
|
|
Embedded Solutions
|
|
|
1,093
|
|
|
|
374
|
|
Income from reportable segments
|
|
|
6,297
|
|
|
|
3,740
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(5,519)
|
|
|
|
(6,685)
|
|
Other expenses - net
|
|
|
(695)
|
|
|
|
(301)
|
|
Consolidated income/(loss) before Income tax provision/(benefit)
|
|
$
|
83
|
|
|
$
|
(3,246)
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
539
|
|
|
$
|
297
|
|
Test and Measurement
|
|
|
527
|
|
|
|
393
|
|
Embedded Solutions
|
|
|
1,239
|
|
|
|
1,057
|
|
Total depreciation and amortization for reportable segments
|
|
$
|
2,305
|
|
|
$
|
1,747
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
359
|
|
|
$
|
426
|
|
Test and Measurement
|
|
|
193
|
|
|
|
300
|
|
Embedded Solutions
|
|
|
301
|
|
|
|
201
|
|
Total consolidated capital expenditures by reportable segment
|
|
$
|
853
|
|
|
$
|
927
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
10,088
|
|
|
$
|
10,442
|
|
Test and Measurement
|
|
|
5,943
|
|
|
|
6,163
|
|
Embedded Solutions
|
|
|
16,804
|
|
|
|
21,733
|
|
Total assets for reportable segments
|
|
|
32,835
|
|
|
|
38,338
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and deferred income taxes
|
|
|
11,332
|
|
|
|
8,583
|
|
Total consolidated assets
|
|
$
|
44,167
|
|
|
$
|
46,921
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Regional Revenues
Net consolidated revenues from operations
by region were as follows (in thousands):
|
|
Twelve Months Ended
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Americas
|
|
$
|
32,849
|
|
|
$
|
33,440
|
|
Europe, Middle East, Africa(EMEA)
|
|
|
16,269
|
|
|
|
8,916
|
|
Asia Pacific (APAC)
|
|
|
3,670
|
|
|
|
3,722
|
|
Total revenues
|
|
$
|
52,788
|
|
|
$
|
46,078
|
|
Net revenues 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 years ended December 31, 2018 and 2017, sales in the United States amounted
to $31.9 million in each year.
For the year ended December 31, 2018
shipments to the EMEA regions for all reportable segments were largely concentrated in the UK, Italy and Ireland. Shipments to
the UK, Italy and Ireland in 2018 amounted to $12.4 million, $0.5 million and $0.5 million, respectively. For the year ended December
31, 2017 shipments to the EMEA region for all reportable segments were largely concentrated in the UK, Israel and Germany. Shipments
to the UK, Germany and Israel in 2017 amounted $5.6 million, $0.9 million and $0.8 million, respectively.
The largest concentration of shipments
in the APAC region is to China. For the years ended December 31, 2018 and 2017, shipments to China amounted to $2.0 million and
$1.6 million, of all shipments to the APAC region, respectively. There were no other shipments significantly concentrated in one
country in the APAC region.
NOTE 11 - RETIREMENT
PLAN
The Company has a 401(k) profit sharing
plan covering all eligible U.S. employees. Company contributions to the plan for the years ended December 31, 2018 and 2017 amounted
to $0.2 million and $0.3 million, respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
NOTE 12 - INCOME
TAXES-
The components of income tax expense related to net income (loss) from operations are as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(4)
|
|
State
|
|
|
46
|
|
|
|
22
|
|
Foreign
|
|
|
(223)
|
|
|
|
(166)
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
389
|
|
|
|
1,672
|
|
State
|
|
|
(41)
|
|
|
|
(275)
|
|
Foreign
|
|
|
(123)
|
|
|
|
(2)
|
|
Total
|
|
$
|
48
|
|
|
$
|
1,247
|
|
The following is a reconciliation
of the maximum statutory federal tax rate to the Company’s effective tax relative to operations:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
% of
Pre Tax
Earnings
|
|
|
% of
Pre Tax
Earnings
|
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
|
(34.0)
|
%
|
State income tax net of federal tax benefit
|
|
|
137.5
|
|
|
|
(3.5)
|
|
Changes in tax rates
|
|
|
0.0
|
|
|
|
67.4
|
|
Foreign rate difference
|
|
|
(239.7)
|
|
|
|
(1.5)
|
|
Repatriation tax - new law
|
|
|
0.0
|
|
|
|
4.8
|
|
Change in valuation allowance
|
|
|
(138.2)
|
|
|
|
4.4
|
|
Permanent differences
|
|
|
11.8
|
|
|
|
7.9
|
|
Research and development incentive
|
|
|
(342.7)
|
|
|
|
(6.7)
|
|
Global intangible low-taxed income
|
|
|
607.6
|
|
|
|
0.0
|
|
Other
|
|
|
(0.2)
|
|
|
|
(0.4)
|
|
Total
|
|
|
57.1
|
%
|
|
|
38.4
|
%
|
In 2018, the difference between the
statutory and effective tax rate is due to global intangible low-taxed income, research and development deductions in the United
Kingdom, foreign tax rate differences and a reduction in the state valuation allowance. In 2017 the difference between the statutory
and effective tax rate is primarily due to the change in tax rates under TCJA.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The components of deferred income
taxes are as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
11,259
|
|
|
$
|
11,979
|
|
Inventory
|
|
|
943
|
|
|
|
909
|
|
Research and development credit
|
|
|
648
|
|
|
|
648
|
|
Stock compensation
|
|
|
138
|
|
|
|
165
|
|
Other
|
|
|
73
|
|
|
|
108
|
|
Goodwill and intangible assets
|
|
|
(925)
|
|
|
|
(1,147)
|
|
Fixed assets
|
|
|
(438)
|
|
|
|
(439)
|
|
Gross deferred tax asset
|
|
|
11,698
|
|
|
|
12,223
|
|
Less valuation allowance
|
|
|
(6,722)
|
|
|
|
(7,051)
|
|
Net deferred tax asset
|
|
$
|
4,976
|
|
|
$
|
5,172
|
|
The Company has a domestic federal
and state net operating loss carryforward at December 31, 2018 of approximately $18.0 million and $43.7 million, respectively,
which begin to expire in 2029. The Company also has foreign net operating loss carryforwards at December 31, 2018 of approximately
$15.0 million for German and UK corporate tax and German trade tax purposes.
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 valuation allowances of $6.7 million and $7.1 million at December
31, 2018 and 2017, respectively, are primarily 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
amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable
income are changed. As of December 31, 2018, management believes that it is more likely than not that the Company will fully
realize the benefits of its deferred tax assets associated with its domestic federal net operating loss carryforward.
The Company does not have any
significant unrecognized tax positions and does not anticipate a significant increase or decrease in unrecognized tax
positions within the next twelve months.
On December 22, 2017, the United
States enacted TCJA which instituted fundamental changes to the taxation of multinational corporations, including a reduction
of the U.S. corporate income tax rate to 21% beginning in 2018. In response to the complexities of this new legislation, the
SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to provide companies with transitional relief. Specifically, SAB
118 provided up to one year from the date of enactment for companies to finalize the accounting for the effects of this new
legislation. As of December 31, 2018, the Company has completed the accounting for the tax effects of the TCJA and did not
have any material adjustments related to changes made to provisional amounts in accordance with SAB 118 guidance.
The Company has elected to record
taxes related to the global intangible low-taxed income as a period cost.
The Company has recognized $1.2 million
net tax expense for the year ended 2017 which includes $2.5 million deferred tax expense from revaluing the Company’s deferred
tax assets to reflect the new U.S. corporate tax rate. The TCJA also requires a one-time transition tax on the mandatory deemed
repatriation of the cumulative earnings of the Company’s foreign subsidiary as of December 31, 2017. To determine the amount
of this transition tax, the Company determined the amount of earnings generated since inception by the relevant foreign subsidiary,
as well as the amount of non-U.S. income taxes paid on such
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
earnings, in addition to potentially other factors. The Company’s
earnings and profits from its foreign subsidiary under the transition tax calculation is offset by net operating losses thus no
transition tax was payable.
NOTE 13 –
FAIR VALUE MEASUREMENTS
Fair value is defined by ASC 820 “Fair Value
Measurement” as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use
of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
·
|
Level 1 - Quoted prices in active markets for identical assets and liabilities.
|
|
·
|
Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for
the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets and liabilities. This includes pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
|
Payment of a portion of the
CommAgility purchase price is contingent on the achievement of certain financial targets for the years ending December 31,
2017 and 2018. The Company estimated the fair value of contingent consideration at acquisition date to be $0.8 million. During the
twelve months ended December 31, 2018 the Company reassessed the fair value of the contingent consideration and recorded
a loss in the amount of $0.6 million as a result of the improved financial results at CommAgility as compared to prior
estimates. The significant inputs used in the fair value estimate include anticipated gross revenues and Adjusted EBITDA, as
defined, and scenarios for the earn-out periods for which probabilities are assigned to each scenario to arrive at a single
estimated outcome. The estimated outcome is then discounted based on individual risk analysis of the liability which was 15%
at December 31, 2018 and will be paid in March 2019. As of December 31, 2018 the Company’s contingent consideration
liability is $1.4 million and is recorded in accrued expenses and other current liabilities on the consolidated balance
sheet. The contingent consideration liability is considered a Level 3 fair value measurement.
NOTE 14 - COMMITMENTS
AND CONTINGENCIES
Warranties
The Company typically provides one
to three 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.
Operating Leases
The Company leases a 45,700 square
foot facility in Parsippany, New Jersey which has a term ending March 31, 2023 and is currently being used as the Company’s
principal headquarters and manufacturing plant. The Company is also responsible for its proportionate share of the cost of utilities,
repairs, taxes and insurance.
Monthly lease payments range from
approximately $33,000 in year one to approximately $41,000 in year eight. 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.
Pursuant to the Share Purchase Agreement
dated February 17, 2017 the Company assumed leases for office space in Leicestershire, England consisting of 4,900 square feet
and Duisburg, Germany consisting of 7,446 square feet. The Leicestershire lease expires in November 2020 and the Duisburg lease
is renewable every three months.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
The future minimum facility lease
payments are shown below (in thousands):
|
2019
|
|
|
$
|
539
|
|
|
2020
|
|
|
|
510
|
|
|
2021
|
|
|
|
474
|
|
|
2022
|
|
|
|
488
|
|
|
2023
|
|
|
|
123
|
|
|
Total
|
|
|
$
|
2,134
|
|
Rent expense, inclusive of common
area maintenance charges, for the years ended December 31, 2018 and 2017 was approximately $0.8 million.
The Company leases certain equipment
under operating lease arrangements. These operating leases expire in various years through 2022. All leases may be renewed at the
end of their respective leasing periods.
The future minimum operating lease
payments are shown below (in thousands):
|
2019
|
|
|
$
|
54
|
|
|
2020
|
|
|
|
54
|
|
|
2021
|
|
|
|
54
|
|
|
2022
|
|
|
|
9
|
|
|
Total
|
|
|
$
|
171
|
|
Environmental Contingencies
The Company’s operations are
subject to various federal, state, local, and foreign environmental laws, ordinances and regulations that limit discharges into
the environment, establish standards for the handling, generation, use, emission, release, discharge, treatment, storage and disposal
of, or exposure to, hazardous materials, substances and waste, and require cleanup of contaminated soil and groundwater.
The New Jersey Department of Environmental
Protection (the “NJDEP”) conducted an investigation in 1982 concerning disposal at a facility previously leased by
the Company’s Boonton operations. The focus of the investigation involved certain materials formerly used by Boonton’s
manufacturing operations at that site and the possible effect of such disposal on the aquifer underlying the property. The disposal
practices and the use of the materials in question were discontinued in 1978. The Company has cooperated with the NJDEP investigation
and has been diligently pursuing the matter in an attempt to resolve it in accordance with applicable NJDEP operating procedures.
The above referenced activities were conducted by Boonton prior to our acquisition of that entity in 2000.
In 1982, Boonton and the NJDEP agreed
upon a plan to correct ground water contamination at the site, located in the township of Parsippany-Troy Hills, pursuant to which
wells have been installed by Boonton. The plan contemplates that the wells will be operated and that soil and water samples will
be taken and analyzed until such time that contamination levels are satisfactory to the NJDEP. In 2014, the Company received approval
for a groundwater permit from the NJDEP to carry out the final remedial action work plan and report. Under the final phase of the
plan, there will be limited and reduced monitoring and testing as long as concentrations at the site continue on a decreasing trend.
Expenditures incurred by the Company
during the year ended December 31, 2018 and 2017 in connection with monitoring and testing at the site amounted to approximately
$8,000 and $1,000, respectively. While management anticipates that the expenditures in connection with this site will not be substantial
in future years, the Company could be subject to significant future liabilities and may incur significant future expenditures if
further contaminants from Boonton’s testing are identified and the NJDEP requires additional remediation activities. Our
estimate of future monitoring and testing costs is $35,000 through 2027 when we expect final release from the NJDEP. The Company
will continue to be liable under the plan, in all future years, until such time as the NJDEP releases the Company from all obligations.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
At this time, the Company believes
that it is in material compliance with all environmental laws, does not anticipate any material expenditure to meet current or
pending environmental requirements, and generally believes that its processes and products do not present any unusual environmental
concerns. Besides the matter referred to above with the NJDEP, the Company is unaware of any existing, pending or threatened contingent
environmental liability that may have a material adverse effect on its ongoing business operations.
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.
NOTE 15
– SUBSEQUENT EVENTS
On February 27, 2019 the Company
entered into Amendment No. 3 to the Credit Facility which extends the termination date of the Revolver from November 16, 2019
to March 31, 2020.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of
selected quarterly financial data from operations (in thousands, except per share amounts).
2018
|
|
Quarter
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
Net revenues
|
|
$
|
13,264
|
|
|
$
|
13,414
|
|
|
$
|
14,019
|
|
|
$
|
12,091
|
|
Gross profit
|
|
|
6,268
|
|
|
|
6,171
|
|
|
|
6,464
|
|
|
|
5,264
|
|
Operating income/(loss)
|
|
|
568
|
|
|
|
33
|
|
|
|
919
|
|
|
|
(741)
|
|
Net income/(loss)
|
|
|
374
|
|
|
|
(179)
|
|
|
|
558
|
|
|
|
(718)
|
|
Diluted earnings/(loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.01)
|
|
|
$
|
0.03
|
|
|
$
|
(0.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
Quarter
|
|
|
|
|
1st
|
|
|
|
2nd
|
|
|
|
3rd
|
|
|
|
4th
|
|
Net revenues
|
|
$
|
9,549
|
|
|
$
|
11,933
|
|
|
$
|
12,560
|
|
|
$
|
12,036
|
|
Gross profit
|
|
|
4,333
|
|
|
|
3,344
|
|
|
|
6,113
|
|
|
|
5,471
|
|
Operating income/(loss)
|
|
|
(1,718)
|
|
|
|
(2,247)
|
|
|
|
804
|
|
|
|
293
|
|
Net income/(loss)
|
|
|
(1,231)
|
|
|
|
(1,368)
|
|
|
|
653
|
|
|
|
(2,547)
|
|
Diluted earnings/(loss) per share
|
|
$
|
(0.06)
|
|
|
$
|
(0.07)
|
|
|
$
|
0.03
|
|
|
$
|
(0.12)
|
|