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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Summary of Significant Accounting Principles and
Policies
Basis of Presentation and Preparation
Wireless Telecom Group, Inc., a
New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”),
is a global designer and manufacturer of advanced radio frequency (“RF”) and microwave 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”) splitters
and 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 balance sheet as
of March 31, 2019, the consolidated statements of operations and comprehensive income/(loss) for the three months ended March 31,
2019 and 2018, the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 and the consolidated
statement of shareholders’ equity for the three months ended March 31, 2019 and 2018 have been prepared by the Company without
audit. The consolidated financial statements include the accounts of Wireless Telecom Group, Inc., doing business as and operating
under the trade name, Noisecom, and its wholly owned subsidiaries including Boonton Electronics Corporation (“Boonton”),
Microlab/FXR LLC (“Microlab”), Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”).
All intercompany transactions and balances 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 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.
It is suggested that these interim
consolidated financial statements be read in conjunction with the audited consolidated financial statements, and the notes thereto,
included in the Company’s latest annual report (Form 10-K).
The Company’s fiscal periods
are based on the calendar year. Except as otherwise specified, references to “first quarter(s)” or “three months”
indicate the Company’s fiscal periods ending March 31, 2019 and March 31, 2018, and references to “year-end”
indicate the fiscal year ended December 31, 2018.
Consolidated Financial Statements
In the opinion of management, the
accompanying consolidated financial statements referred to above contain all necessary adjustments, consisting of normal accruals
and recurring entries, which are necessary to fairly present the Company’s results for the interim periods being presented.
The accounting policies followed
by the Company are set forth in Note 1 to the Company’s consolidated financial statements included in its annual report on Form
10-K for the year ended December 31, 2018. 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 reduced for interim periods in accordance with SEC rules.
The results of operations for the
three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December
31, 2019.
Reclassification
Certain prior period amounts
have been reclassified to conform with the current period presentation.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Concentration Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
The majority of the Company’s cash balance is held outside of the United States.
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 three months ended March
31, 2019 and 2018, one customer accounted for approximately 31% and 16% of the Company’s consolidated revenues, respectively.
At March 31, 2019 and 2018, one customer accounted for 40% and 23% of consolidated gross accounts receivable, respectively.
Subsequent Events
Management
has evaluated subsequent events and determined that there were no subsequent events or transactions requiring recognition or disclosure
in the consolidated financial statements, and the notes thereto, through the date the financial statements were issued.
NOTE 2 – Accounting Pronouncements
Recently Adopted Accounting
Standards
In February 2016, the FASB issued
Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842)
, which created 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 Company adopted the requirements
of the new standard effective January 1, 2019 using the modified retrospective transition method, which applies the provisions
of the standard at the effective date without adjustment to the comparative periods presented. The Company adopted the following
practical expedients and elected the following accounting policies related to this standard:
|
·
|
Carry forward of historical lease classifications and accounting treatment;
|
|
·
|
Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets
and liabilities for leases with a term of 12 months or less; and
|
|
·
|
The option to not separate lease and non-lease components for certain equipment lease categories
such as office printers and copiers.
|
Adoption of this standard resulted
in the recognition of operating lease right-of-use assets and corresponding lease liabilities of $1.9 million on the consolidated
balance sheet as of January 1, 2019. The standard did not materially impact operating results or liquidity. Disclosures related
to the amount, timing and uncertainty of cash flows arising from leases are included in Note 3.
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 adopted this
standard on January 1, 2019 and it did not have a material impact on our financial statements.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Except for the change in accounting
policies for leases as a result of adopting Topic 842, there have been no other changes to our significant accounting policies
as described in the 2018 Form 10-K that had a material impact on our consolidated financial statements and related notes.
Recent Accounting Pronouncements
Not Yet Adopted
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326)
. ASU 2016-13 changes the impairment model for most financial
assets and will require the use of an “expected loss” model for instruments measured 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 3 – Leases
The Company’s lease agreements
consist of building leases for its operating locations and office equipment leases for printers and copiers with lease terms that
range from less than 12 months to 8 years. At inception, the Company determines if an arrangement contains a lease and whether
that lease meets the classification criteria of a finance or operating lease. The Company’s leases for office equipment such
as printers and copiers contain lease and non-lease components (i.e. maintenance). The Company accounts for lease and non-lease
components of office equipment as a single lease component.
All of the Company’s leases
are operating leases and are presented as right of use lease asset, short term lease liability and long term lease liability on
the consolidated balance sheet as of March 31, 2019. These assets and liabilities are recognized at the commencement date based
on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. Short-term
leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
Lease expense is recognized on a
straight-line basis over the lease term and is included in cost of revenues and general and administrative expenses on the consolidated
statement of operations and comprehensive income/(loss).
An initial right-of-use asset of
$1.9 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Subsequent to
adoption of the new standard there were no new right-of-use assets recognized during the first quarter of 2019. Cash paid for amounts
included in the present value of operating lease liabilities was $0.1 million during the first quarter of 2019 and is included
in operating cash flows.
Operating lease costs were $0.1
million during the first quarter of 2019. Right of use assets in the amount of $1.8 million are included in the consolidated balance
sheet as of March 31, 2019.
The following table presents information
about the amount and timing of cash flows arising from the Company’s operating leases as of March 31, 2019.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands)
|
|
March 31, 2019
|
Maturity of Lease Liabilities
|
|
|
|
|
2019 (remaining)
|
|
$
|
383
|
|
2020
|
|
|
511
|
|
2021
|
|
|
474
|
|
2022
|
|
|
488
|
|
2023
|
|
|
123
|
|
Thereafter
|
|
|
-
|
|
Total Undiscounted Operating Lease Payments
|
|
|
1,979
|
|
|
|
|
|
|
Less: imputed interest
|
|
|
(206)
|
|
Present Value of Operating Lease Liabilities
|
|
|
1,773
|
|
|
|
|
|
|
Other information
|
|
|
|
|
Weighted-average remaining lease term for operating leases (in months)
|
|
|
47
|
|
Weighted-average discount rate for operating leases
|
|
|
5.70%
|
|
NOTE 4 – 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
99% and 95% of the Company’s total revenue for the three months ended March 31, 2019 and 2018, respectively.
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
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 obligat
ion 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 those cases 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 were immaterial as of March 31, 2019 and $0.3 million as of December 31, 2018. Deferred revenue
is $0.2 million and $0.1 million as of March 31, 2019 and December 31, 2018, respectively.
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).
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
Network
Solutions
|
|
|
Test and
Measurement
|
|
|
Embedded
Solutions
|
|
|
Total
|
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive RF Components
|
|
$
|
5,758
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,758
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
1,446
|
|
|
|
-
|
|
|
|
1,446
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
1,308
|
|
|
|
-
|
|
|
|
1,308
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
4,058
|
|
|
|
4,058
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
Services
|
|
|
-
|
|
|
|
276
|
|
|
|
183
|
|
|
|
459
|
|
Total Net Revenue
|
|
$
|
5,758
|
|
|
$
|
3,030
|
|
|
$
|
4,244
|
|
|
$
|
13,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
5,203
|
|
|
$
|
1,804
|
|
|
$
|
175
|
|
|
$
|
7,182
|
|
EMEA
|
|
|
501
|
|
|
|
549
|
|
|
|
4,061
|
|
|
|
5,111
|
|
APAC
|
|
|
54
|
|
|
|
677
|
|
|
|
8
|
|
|
|
739
|
|
Total Net Revenue
|
|
$
|
5,758
|
|
|
$
|
3,030
|
|
|
$
|
4,244
|
|
|
$
|
13,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
Network
Solutions
|
|
|
Test and
Measurement
|
|
|
Embedded
Solutions
|
|
|
Total
|
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive RF Components
|
|
$
|
5,511
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,511
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
1,499
|
|
|
|
-
|
|
|
|
1,499
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
1,980
|
|
|
|
-
|
|
|
|
1,980
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
2,906
|
|
|
|
2,906
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
483
|
|
|
|
483
|
|
Services
|
|
|
-
|
|
|
|
284
|
|
|
|
601
|
|
|
|
885
|
|
Total Net Revenue
|
|
$
|
5,511
|
|
|
$
|
3,763
|
|
|
$
|
3,990
|
|
|
$
|
13,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
4,159
|
|
|
$
|
2,515
|
|
|
$
|
1,423
|
|
|
$
|
8,097
|
|
EMEA
|
|
|
941
|
|
|
|
449
|
|
|
|
2,370
|
|
|
|
3,760
|
|
APAC
|
|
|
411
|
|
|
|
799
|
|
|
|
197
|
|
|
|
1,407
|
|
Total Net Revenue
|
|
$
|
5,511
|
|
|
$
|
3,763
|
|
|
$
|
3,990
|
|
|
$
|
13,264
|
|
NOTE 5 – Acquisition of CommAgility
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 the issued shares in CommAgility 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 Company 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 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 earned $1.5 million in contingent consideration as a result of meeting certain financial targets for the year ended December
31, 2018. The contingent consideration was paid in March 2019. Approximately $0.7 million of the
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
contingent consideration payment
is classified as cash used by operating activities in the consolidated statement of cash flows for the first quarter 2019 and approximately
$0.8 million is classified as cash used for financing activities in the consolidated statement of cash flows for the first quarter
2019 in accordance with ASU 2016-15
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”).
Under ASU 2016-15 the portion of the cash payment up to the acquisition date fair value of the contingent consideration liability
(including measurement period adjustments) is classified as a financing outflow, and the amounts paid in excess of the acquisition
date fair value of that liability will be classified as operating outflows.
Pursuant to the Share Purchase Agreement,
2,092,516 of the Consideration Shares were subject to forfeiture and return to the Company if (a) 2017 Adjusted EBITDA, as defined,
generated by CommAgility was less than £2.4 million; or (b) 2018 Adjusted 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 which are valued
at $3.6 million were forfeited as the 2017 EBITDA threshold was not achieved. The forfeited shares are recorded as treasury stock
in the consolidated statement of shareholders’ equity as of March 31, 2019 and December 31, 2018.
The total purchase price for the
CommAgility acquisition, including the final contingent consideration payment, is $14.6 million which is net of cash acquired.
There are no further purchase price obligations under the Stock Purchase Agreement as of March 31, 2019.
NOTE 6 – Income Taxes
The Company records deferred taxes
in accordance with ASC 740, “
Accounting for Income Taxes
.” ASC 740 requires recognition of deferred tax assets
and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried
in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse.
The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company periodically assesses the value of its deferred tax assets and determines the necessity for a valuation allowance.
Realization of the Company’s
deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in
future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating
losses. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future
taxable income are changed.
As
of March 31, 2019 the Company’s deferred tax asset of $5.1 million is net of a valuation allowance of $6.7 million which
is associated with the Company’s foreign net operating loss carryforward from an inactive foreign entity, state net operating
loss carryforward and a state research and development credit.
The effective rate
of income tax benefit of 28.6% for the three months ended March 31, 2019 was higher than the statutory rates in the United States
and United Kingdom primarily due to the impact of global intangible low-taxed income or “GILTI” related to our controlled
foreign corporation offset by research and development deductions in the UK.
The effective rate of income tax
provision of 13% for the three months ended March 31, 2018 was lower than the statutory rates in the United States and United Kingdom
primarily due to research and development deductions in the United Kingdom and non-qualified stock option deductions offset by
nondeductible expenses and U.S. state income taxes.
NOTE 7 – Earnings (Loss) Per 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, 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.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
20,972,612
|
|
|
|
20,644,409
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive equity awards
|
|
|
708,736
|
|
|
|
988,708
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
21,681,348
|
|
|
|
21,633,117
|
|
For the three months ended March
31, 2019 the weighted-average number of options to purchase common stock not included in diluted loss per share because the effects
are anti-dilutive or the performance condition was not met was 405,000.
NOTE 8 – Inventories
Inventory carrying value is net
of inventory reserves of $1.8 million and $1.9 million at March 31, 2019 and December 31, 2018, respectively.
Inventories consist of (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
3,998
|
|
|
$
|
3,248
|
|
Work-in-process
|
|
|
592
|
|
|
|
557
|
|
Finished goods
|
|
|
3,173
|
|
|
|
3,079
|
|
|
|
$
|
7,763
|
|
|
$
|
6,884
|
|
NOTE 9 – Debt
Debt consists of the following (in
thousands):
|
|
March 31, 2019
|
|
Revolver at LIBOR Plus Margin
|
|
$
|
3,595
|
|
Term Loan at LIBOR Plus Margin
|
|
|
456
|
|
Total Debt
|
|
|
4,051
|
|
Debt maturing within one year
|
|
|
(4,051)
|
|
Non-current portion of long term debt
|
|
$
|
-
|
|
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 “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.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Term Loan and Revolver were
both scheduled to mature on November 16, 2019. On February 26, 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 and Revolver Loans bear
interest at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loans and Revolver
Loans 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 one of 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 March 31, 2019 on the Credit Facility was 5.25% and 5.75% for the Revolver and Term Loan, respectively. The Company’s
interest rate plus margin as of December 31, 2018 on the Credit Facility was 5.38% and 5.88% 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 or bankruptcy, materially
misleading representations or warranties, occurrence of a Change in Control (as defined in the Credit Facility) or occurrence of
conditions that have a Material Adverse Effect (as defined in the Credit Facility).
As of March 31, 2019, and the date
hereof, the Company is in compliance with the covenants of the Credit Facility.
NOTE 10 - Accounting for Stock Based Compensation
The Company’s results for
the three month period ended March 31, 2019 includes $0.2 million related to stock based compensation expense. Such amounts have
been included in the consolidated statement of operations and comprehensive income/(loss) within general and administrative expenses
in operating expenses. The Company accounts for forfeitures when they occur.
Incentive Compensation Plan
In 2012, the Company’s Board
of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which provides
for the grant of equity, including restricted stock awards, restricted stock units, non-qualified stock options and incentive stock
options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors
of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial
2012 Plan provided for the grant of awards relating to 2 million shares of common stock, plus those shares subject to awards previously
issued under the Company’s 2000 Stock Option Plan that expire, are canceled or are terminated after adoption of the Initial
2012 Plan without having been exercised in full and would have been available for subsequent grants under the 2000 Stock Option
Plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012
Plan”) allowing for an additional 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 March 31, 2019, there are approximately 1.7 million shares available for issuance under the 2012 Plan.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Restricted Common Stock Awards
On
January 11, 2019 the Company granted 95,000 restricted stock awards to employees under the 2012 Plan. The awards vest in equal
annual installments over a three year period or upon a change in control, as defined in the 2012 Plan, as long as the grantee continues
to provide service to the Company until the applicable vesting date. The grant date fair value of the restricted stock awards was
$1.56 per share.
Service-Based Stock Option
Awards
On January 11, 2019 the Company
granted 15,000 incentive stock options. The stock options vest in equal annual installments over a three year period or upon a
change in control, as defined in the 2012 Plan, as long as the grantee continues to provide service to the Company until the applicable
vesting date. The following table presents the assumptions used to estimate the fair value of the stock option award granted in
the first quarter of 2019 under the Black Scholes model:
|
|
Number of
Options
|
|
Option
Term
(in years)
|
|
Exercise
Price
|
|
Risk Free
Interest
Rate
|
|
Expected
Volatility
|
|
Fair Value
at Grant
Date
|
|
Expected
Dividend
Yield
|
January 11, 2019
|
|
15,000
|
|
3
|
|
$1.56
|
|
2.52%
|
|
49.80%
|
|
$0.56
|
|
$0.00
|
Outstanding Stock Options and
Unvested Restricted Awards
As of March 31, 2019 there were
1,950,000 service based stock options outstanding and 305,000 performance based stock options outstanding. The range of exercise
prices of outstanding stock options is $0.78 to $1.92. The number of potentially dilutive common shares from stock options (options
with exercise prices that are lower than the average market value of common shares for the period presented) is 266,653 as of March
31, 2019 and have an average exercise price of $1.48 per share.
Additionally, as of March 31, 2019,
there were 327,123 unvested restricted shares and 125,000 unvested restricted stock units outstanding.
NOTE 12 – 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.
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.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. 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).
Financial information by reportable
segment for the respective periods is set forth below (in thousands):
|
|
|
For the three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
|
$
|
5,758
|
|
|
$
|
5,511
|
|
Test and Measurement
|
|
|
|
3,030
|
|
|
|
3,763
|
|
Embedded Solutions
|
|
|
|
4,244
|
|
|
|
3,990
|
|
Total consolidated net revenue of reportable segments
|
|
|
|
13,032
|
|
|
|
13,264
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss):
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
|
|
707
|
|
|
|
813
|
|
Test and Measurement
|
|
|
|
235
|
|
|
|
510
|
|
Embedded Solutions
|
|
|
|
(67)
|
|
|
|
611
|
|
Income (loss) from reportable segments
|
|
|
|
875
|
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
|
(1,272)
|
|
|
|
(1,365)
|
|
Other (expenses) income - net
|
|
|
|
(85)
|
|
|
|
(139)
|
|
Consolidated income/(loss) before Income tax provision/(benefit)
|
|
|
$
|
(482)
|
|
|
$
|
430
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
|
$
|
123
|
|
|
$
|
136
|
|
Test and Measurement
|
|
|
|
115
|
|
|
|
175
|
|
Embedded Solutions
|
|
|
|
311
|
|
|
|
315
|
|
Total depreciation and amortization for reportable segments
|
|
|
$
|
549
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
|
$
|
28
|
|
|
$
|
78
|
|
Test and Measurement
|
|
|
|
59
|
|
|
|
102
|
|
Embedded Solutions
|
|
|
|
41
|
|
|
|
19
|
|
Total consolidated capital expenditures by reportable segment
|
|
|
$
|
128
|
|
|
$
|
199
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
|
$
|
11,078
|
|
|
$
|
10,088
|
|
Test and Measurement
|
|
|
|
8,304
|
|
|
|
5,943
|
|
Embedded Solutions
|
|
|
|
18,630
|
|
|
|
16,804
|
|
Total assets for reportable segments
|
|
|
|
38,012
|
|
|
|
32,835
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and
deferred income taxes
|
|
|
|
9,077
|
|
|
|
11,332
|
|
Total consolidated assets
|
|
|
$
|
47,089
|
|
|
$
|
44,167
|
|
NOTE 13 – COMMITMENTS AND CONTINGENCIES
There have been no material changes in our commitments
and contingencies and risks and uncertainties as of March 31, 2019 from that previously disclosed in our annual report on Form
10-K for the year ended December 31, 2018.