WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
|
|
(unaudited)
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,560,689
|
|
|
$
|
16,599,249
|
|
Accounts receivable - net of allowance
for doubtful accounts of $146,574 and $135,742 for 2014 and 2013, respectively
|
|
|
6,521,660
|
|
|
|
5,357,769
|
|
Inventories
|
|
|
8,048,056
|
|
|
|
8,169,276
|
|
Deferred income taxes - current
|
|
|
1,352,621
|
|
|
|
1,462,552
|
|
Prepaid expenses and other current assets
|
|
|
593,412
|
|
|
|
720,229
|
|
TOTAL CURRENT ASSETS
|
|
|
33,076,438
|
|
|
|
32,309,075
|
|
PROPERTY, PLANT AND EQUIPMENT - NET
|
|
|
1,617,011
|
|
|
|
1,609,427
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,351,392
|
|
|
|
1,351,392
|
|
Deferred income taxes - non-current
|
|
|
7,320,241
|
|
|
|
7,454,935
|
|
Other assets
|
|
|
764,461
|
|
|
|
712,202
|
|
TOTAL OTHER ASSETS
|
|
|
9,436,094
|
|
|
|
9,518,529
|
|
TOTAL ASSETS
|
|
$
|
44,129,543
|
|
|
$
|
43,437,031
|
|
|
|
|
|
|
|
|
|
|
- LIABILITIES AND SHAREHOLDERS’ EQUITY -
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,580,445
|
|
|
$
|
1,459,594
|
|
Accrued expenses and other current liabilities
|
|
|
1,627,758
|
|
|
|
1,523,931
|
|
Equipment lease payable - current
|
|
|
120,103
|
|
|
|
120,103
|
|
TOTAL CURRENT LIABILITIES
|
|
|
3,328,306
|
|
|
|
3,103,628
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Equipment lease payable
|
|
|
29,270
|
|
|
|
59,296
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.01 par value, 75,000,000 shares authorized, 29,232,557 shares issued, 24,033,231 shares outstanding
|
|
|
292,326
|
|
|
|
292,326
|
|
Additional paid-in-capital
|
|
|
39,028,667
|
|
|
|
38,970,783
|
|
Retained earnings
|
|
|
11,139,996
|
|
|
|
10,700,020
|
|
Treasury stock at cost, 5,199,326 shares
|
|
|
(9,689,022
|
)
|
|
|
(9,689,022
|
)
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
40,771,967
|
|
|
|
40,274,107
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
44,129,543
|
|
|
$
|
43,437,031
|
|
See accompanying notes
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
9,185,331
|
|
|
$
|
6,796,989
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
4,919,431
|
|
|
|
3,476,626
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
4,265,900
|
|
|
|
3,320,363
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
760,992
|
|
|
|
612,123
|
|
Sales and marketing
|
|
|
1,267,215
|
|
|
|
1,022,160
|
|
General and administrative
|
|
|
1,435,646
|
|
|
|
1,441,673
|
|
TOTAL OPERATING EXPENSES
|
|
|
3,463,853
|
|
|
|
3,075,956
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
802,047
|
|
|
|
244,407
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE (INCOME) - NET
|
|
|
30,339
|
|
|
|
(14,707
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE INCOME TAXES
|
|
|
771,708
|
|
|
|
259,114
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR (BENEFIT) FROM INCOME TAXES
|
|
|
331,732
|
|
|
|
(87,112
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
439,976
|
|
|
$
|
346,226
|
|
|
|
|
|
|
|
|
|
|
INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
See accompanying notes
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
439,976
|
|
|
$
|
346,226
|
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
118,631
|
|
|
|
80,946
|
|
Stock compensation expense
|
|
|
57,884
|
|
|
|
90,900
|
|
Deferred income taxes
|
|
|
244,625
|
|
|
|
(170,386
|
)
|
Allowance for doubtful accounts
|
|
|
10,832
|
|
|
|
46,926
|
|
Inventory reserves
|
|
|
14,238
|
|
|
|
34,338
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,174,723
|
)
|
|
|
814,969
|
|
Inventories
|
|
|
106,982
|
|
|
|
(806,922
|
)
|
Prepaid expenses and other assets
|
|
|
48,805
|
|
|
|
83,041
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
224,678
|
|
|
|
(978,281
|
)
|
Net cash provided by (used for) operating activities
|
|
|
91,928
|
|
|
|
(458,243
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS (USED FOR) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(100,462
|
)
|
|
|
(59,119
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments of mortgage note
|
|
|
—
|
|
|
|
(19,309
|
)
|
Repayments of equipment lease payable
|
|
|
(30,026
|
)
|
|
|
—
|
|
Repurchase of treasury stock - 150,392 shares for the three-months ended March 31, 2013
|
|
|
—
|
|
|
|
(193,070
|
)
|
Net cash (used for) financing activities
|
|
|
(30,026
|
)
|
|
|
(212,379
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(38,560
|
)
|
|
|
(729,741
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at beginning of period
|
|
|
16,599,249
|
|
|
|
12,969,513
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, AT END OF PERIOD
|
|
$
|
16,560,689
|
|
|
$
|
12,239,772
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
10,000
|
|
|
$
|
30,236
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
49,575
|
|
See accompanying notes
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY
(unaudited)
|
|
Common Stock
|
|
|
Additional Paid
In Capital
|
|
|
Retained
Earnings
|
|
|
Treasury Stock
|
|
|
Total
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
$
|
292,326
|
|
|
$
|
38,970,783
|
|
|
$
|
10,700,020
|
|
|
$
|
(9,689,022
|
)
|
|
$
|
40,274,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
439,976
|
|
|
|
—
|
|
|
|
439,976
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
57,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,884
|
|
Repurchase of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2014
|
|
$
|
292,326
|
|
|
$
|
39,028,667
|
|
|
$
|
11,139,996
|
|
|
$
|
(9,689,022
|
)
|
|
$
|
40,771,967
|
|
See accompanying notes
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND
POLICIES
The condensed consolidated balance
sheets as of March 31, 2014, the condensed consolidated statements of operations and the condensed consolidated statements of cash
flows for the three-month periods ended March 31, 2014 and 2013, and the condensed consolidated statement of shareholders’
equity for the three-month period ended March 31, 2014 have been prepared by the Company without audit. The condensed consolidated
financial statements include the accounts of Wireless Telecom Group, Inc., which operates one of its product lines under the trade
name Noisecom, Inc. (“Noisecom”), and its wholly-owned subsidiaries Boonton Electronics Corporation (“Boonton”),
Microlab/FXR (“Microlab”), WTG Foreign Sales Corporation and NC Mahwah, Inc., which are collectively referred to herein
as, the “Company”. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the
accompanying condensed consolidated financial statements referred to above contain all necessary adjustments, consisting of normal
accruals and recurring entries, which are necessary to present fairly the Company’s results for the interim periods being
presented.
The accounting policies followed
by the Company are set forth in Note 1 to the Company’s financial statements included in its annual report on Form 10-K for
the year ended December 31, 2013. Specific reference is made to that report since certain information and footnote disclosures
normally included in financial statements in accordance with accounting principles generally accepted in the United States of America
(US GAAP) have been condensed or omitted from this report.
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities (including inventory valuation, accounts receivable valuation, valuation of deferred tax assets and estimated fair
values of stock options) and disclosure of contingent assets and liabilities at the date of the financial statements and reported
amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates.
The results of operations for the
three-month periods ended March 31, 2014 and 2013 are not necessarily indicative of the results to be expected for the full year.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company maintains significant
cash investments primarily with two financial institutions, which at times may exceed federally insured limits. The Company performs
periodic evaluations of the relative credit rating of these institutions as part of its investment strategy.
Concentrations of credit risk with
respect to accounts receivable are limited due to the Company’s large customer base. At March 31, 2014 and December 31, 2013,
primarily all of the Company’s receivables pertain to the telecommunications industry.
For the three-months ended March
31, 2014, one customer accounted for 15% and one customer accounted for 10% of the Company’s total consolidated sales. No
single customer accounted for more than 10% of the Company’s consolidated sales for the three-months ended March 31, 2013.
At March 31, 2014, one customer represented 15% of the Company’s gross accounts receivable balance and no other customer
represented more than 10%. At December 31, 2013, no customer represented more than 10% of the Company’s gross accounts receivable
balance.
The carrying amounts of cash and
cash equivalents, trade receivables, other current assets and accounts payable approximate fair value due to the short-term nature
of these instruments.
The Company considers all highly
liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents
consist of bank and money market accounts.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND
POLICIES (Continued)
Management has evaluated subsequent
events and, other than as described in Note 10, determined that there were no subsequent events or transactions requiring recognition
or disclosure in the condensed consolidated financial statements through the date the financial statements were available to be
issued.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In April 2014, the Financial Accounting
Standards Board issued Accounting Standards Update 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals
of Components of an Entity” (“ASU 2014-08”), which changes the criteria for determining which disposals can be
presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation
is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents
a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The new
standard applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective
date. The amendment is effective for annual reporting periods beginning after December 15, 2014. Earlier adoption is permitted.
The Company does not expect the adoption of ASU 2014-08 to have a material impact on its condensed consolidated financial statements.
Management does not believe that
any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying
condensed consolidated financial statements.
NOTE 3 – INCOME TAXES
The Company records deferred taxes
in accordance with Accounting Standards Codification (“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 and determines the
necessity for a valuation allowance.
The Company has a domestic net
operating loss carryforward at March 31, 2014 of approximately $20,500,000 which expires in 2029. The Company also has a foreign
net operating loss carryforward at March 31, 2014 of approximately $23,400,000 which has no expiration.
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 allowance of $7,012,134 is associated with the Company’s foreign net operating loss
carryforward from an inactive foreign entity which is unlikely to be realized in future periods. 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, 2014, 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 net operating loss carryforward.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 3 – INCOME TAXES (Continued)
The
deferred
income
tax assets and (liabilities) are summarized as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net deferred tax asset:
|
|
|
|
|
|
|
Uniform capitalization of inventory costs for tax purposes
|
|
$
|
224,012
|
|
|
$
|
225,022
|
|
Reserves on inventories
|
|
|
582,063
|
|
|
|
556,368
|
|
Allowance for doubtful accounts
|
|
|
58,630
|
|
|
|
54,297
|
|
Accruals
|
|
|
299,655
|
|
|
|
234,008
|
|
Tax effect of goodwill
|
|
|
(444,459
|
)
|
|
|
(435,450
|
)
|
Book depreciation over tax
|
|
|
(287,633
|
)
|
|
|
(252,204
|
)
|
Net operating loss carryforward
|
|
|
15,252,728
|
|
|
|
15,547,580
|
|
|
|
|
15,684,996
|
|
|
|
15,929,621
|
|
Valuation allowance for deferred tax assets
|
|
|
(7,012,134
|
)
|
|
|
(7,012,134
|
)
|
|
|
$
|
8,672,862
|
|
|
$
|
8,917,487
|
|
Under
ASC 740, the Company must recognize the tax benefit from an uncertain position 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 tax benefits recognized
in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon the ultimate resolution of the position.
The components of income tax expense (benefit) related
to income from operations are as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
16,743
|
|
|
$
|
12,369
|
|
State
|
|
|
70,365
|
|
|
|
70,904
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
220,791
|
|
|
|
(154,438
|
)
|
State
|
|
|
23,833
|
|
|
|
(15,947
|
)
|
|
|
$
|
331,732
|
|
|
$
|
(87,112
|
)
|
The
Company has analyzed its filing positions in all of the Federal and state jurisdictions where it is required to file income tax
returns. As of March 31, 2014 and December 31, 2013, the Company has identified its Federal tax return and its
state tax
return in New Jersey as “major” tax jurisdictions, as defined, in which it is required to file income tax returns.
Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring
recognition or disclosure in its condensed consolidated financial statements.
The State of New Jersey is currently
in the process of conducting a field examination of one of the Company’s subsidiary tax
returns
(Microlab) for the years 2009 through 2012. The Company expects the examination to be completed in mid-2014.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 4 - INCOME PER COMMON SHARE
Basic earnings per share is calculated
by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share are calculated by using the weighted average number of shares of common stock outstanding
and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method.
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
24,033,231
|
|
|
23,873,752
|
|
Potentially dilutive stock options
|
|
|
1,374,177
|
|
|
427,292
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
25,407,408
|
|
|
24,301,044
|
|
Common stock options are included
in the diluted earnings per share calculation when the various option exercise prices are less than their relative average market
price during the periods presented in this quarterly report. The weighted average number of options not included in diluted earnings
per share, because the effects are anti-dilutive, was 1,506,379 and 1,718,485 for the three-months ended March 31, 2014 and 2013,
respectively.
NOTE 5 – INVENTORIES
Inventory carrying value is net
of inventory reserves of $779,651 and $765,413 at March 31, 2014 and December 31, 2013, respectively.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Inventories consist of:
|
|
|
|
|
|
|
Raw materials
|
|
$
|
4,518,742
|
|
|
$
|
5,028,743
|
|
Work-in-process
|
|
|
781,016
|
|
|
|
470,983
|
|
Finished goods
|
|
|
2,748,298
|
|
|
|
2,669,550
|
|
|
|
$
|
8,048,056
|
|
|
$
|
8,169,276
|
|
NOTE 6 - 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 not amortized but rather is reviewed for impairment at least annually, or more frequently if a triggering event
occurs. Management first makes a qualitative assessment of whether it is more likely than not that a reporting unit’s
fair value is less than its carrying amount before applying the two-step goodwill impairment test described below. If, based
on the qualitative assessment, the estimated fair value is well in excess of its carrying amount, management will not perform
a quantitative assessment. If, however, the conclusion is that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, management then performs a two-step goodwill impairment test. Under the first step,
the fair value of the reporting unit is compared with its carrying value, and, if an indication of goodwill impairment exists
for the reporting unit, the Company must perform step two of the impairment test (measurement). Under step two, an impairment
loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill as determined by allocating
the fair value of the reporting unit in a manner similar to a purchase price allocation.
The
residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. If the fair value of
the
reporting
unit exceeds its carrying value, step two does not need to be performed.
The
Company’s goodwill balance of $1,351,392 at March 31, 2014 and December 31, 2013 relates to one of the
Company’s
reporting units, Microlab. Management’s qualitative assessment performed in the fourth quarter of 2013 did not indicate any
impairment of Microlab’s goodwill as its fair value is estimated to be well in excess of its carrying value.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 - ACCOUNTING FOR STOCK
BASED COMPENSATION
The Company follows the provisions
of ASC 718, “Share-Based Payment.” The Company’s results for the three-month periods ended March 31, 2014 and
2013 include share-based compensation expense totaling $57,884 and $90,900, respectively. Such amounts have been included in the
Condensed Consolidated Statements of Operations within operating expenses.
The Company has a 2012
Incentive Compensation Plan (the “2012 Plan”) which provides for the grant of Restricted Stock
Awards, Non-Qualified Stock Options and Incentive Stock Options in compliance with the Internal Revenue Code of 1986, as
amended, to employees, officers, directors, consultants and advisors of the Company who are expected to contribute to the
Company’s future growth and success. The 2012 Plan provided for the grant of 2,000,000 shares, plus those shares still
available under the Company’s prior incentive compensation plan. As of March 31, 2014, there were 666,956 shares
available for issuance under the 2012 Plan, including those shares available under the Company’s prior incentive
compensation plan as of such date.
All service-based options granted
have ten-year terms and, from the date of grant, vest annually and become fully exercisable after a maximum of five years. Performance-based
options granted have ten-year terms and vest and become fully exercisable when determinable performance targets are achieved. Performance
targets are agreed to, and approved by, the Company’s board of directors.
Under the Company’s
2012 Plan, options may be granted to purchase shares of the Company’s common stock exercisable at prices equal to or
above the fair market value on the date of the grant.
The Company did not grant restricted
stock or stock option awards during the three-month periods ended March 31, 2014 and 2013.
A summary
of the status of the Company’s non-vested restricted common stock, as granted under the Company’s approved stock compensation
plan, as of March 31, 2014, and changes during the three-months ended March 31, 2014 are presented below:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
Non-vested Restricted Shares
|
|
Number of Shares
|
|
|
Fair Value
|
|
Non-vested at January 1, 2014
|
|
|
220,000
|
|
|
$
|
1.63
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(20,000
|
)
|
|
$
|
1.51
|
|
Non-vested at March 31, 2014
|
|
|
200,000
|
|
|
$
|
1.64
|
|
As of March 31, 2014, the unearned
compensation related to Company granted restricted common stock is $199,650 of which $22,650 (comprising 100,000 restricted common
stock awards) will be amortized on a straight-line basis through the date of the Company’s next annual shareholders meeting
to be held in June 2014, the vesting
date. In March 2014, the Company’s board of directors approved
the accelerated vesting of 20,000 shares of restricted common stock upon the departure of one of its members. The remaining balance
of $177,000 (comprising 100,000 performance-based restricted common stock awards) will begin to be amortized when certain performance
conditions are determined to be probable.
Under
the terms of the performance-based restricted common stock agreements, the awards will fully vest and become exercisable on
the date on which the Board shall have determined that specific financial 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 restricted stock shall automatically vest as permitted by the 2012 Plan. For the
performance-based restricted stock awarded in August 2013, the Company’s
Board of Directors adopted specific
revenue and earnings performance targets as vesting conditions. As of March 31, 2014, the Company has not incurred any
expense relating to these performance-based stock awards as it is not determinable that such performance targets will be
achieved.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 - ACCOUNTING FOR STOCK
BASED COMPENSATION (Continued)
A summary of performance-based
stock option activity, and related information for the three-months ended March 31, 2014
follows
:
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding, January 1, 2014
|
|
|
2,250,000
|
|
|
$
|
1.28
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Canceled/Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding, March 31, 2014
|
|
|
2,250,000
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
Options exercisable:
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
1,300,000
|
|
|
$
|
0.93
|
|
The aggregate intrinsic value of
performance-based stock options outstanding as of March 31, 2014 and December 31,
2013 was $3,381,250
and $1,896,250, respectively. The aggregate intrinsic value of performance-based stock options exercisable as of March 31, 2014
and December 31, 2013 was $2,421,750 and $1,563,750, respectively.
The Company’s performance-based
stock options granted prior to 2013 and the Company’s service-based stock options are fully amortized. For the three-months
ended March 31, 2013, the Company recorded compensation expense in the amount of $49,232.
Under
the terms of the performance-based stock option agreements, the awards will fully vest and become exercisable on
t
he date on which the Board shall have determined that specific financial 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. For the
performance-based stock options awarded in August 2013, the Company’s Board of Directors adopted specific revenue and
earnings performance targets as vesting conditions. As of March 31, 2014, the Company has not incurred any expense relating
to these performance-based stock option awards as it is not determinable that such performance targets will be achieved.
Unearned
compensation
in the amount of $867,683 relating to performance-based stock options granted in 2013 will not be recognized until management considers
the respective performance conditions to be achievable.
A summary
o
f service-based stock option activity, and related information for the three-months ended March 31, 2014 follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding, January 1, 2014
|
|
|
787,000
|
|
|
$
|
2.65
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Canceled/Expired
|
|
|
(160,000
|
)
|
|
$
|
3.02
|
|
Outstanding, March 31, 2014
|
|
|
627,000
|
|
|
$
|
2.55
|
|
|
|
|
|
|
|
|
|
|
Options exercisable:
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
627,000
|
|
|
$
|
2.55
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 - ACCOUNTING FOR STOCK
BASED COMPENSATION (Continued)
The following summarizes the components
of share-based compensation expense by equity type for the three-months ended March 31:
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Restricted Common Stock
|
|
$
|
57,844
|
|
|
$
|
41,667
|
|
Performance-based stock options
|
|
|
—
|
|
|
|
49,233
|
|
Total Share-Based Compensation Expense
|
|
$
|
57,884
|
|
|
$
|
90,900
|
|
Stock-based compensation for the
three-months ended March 31, 2014 and 2013 is included in general and administrative expenses in
the
accompanying condensed consolidated statement of operations.
NOTE 8 – SEGMENT INFORMATION
The operating businesses of the
Company are segregated into two reportable segments, test and measurement and network solutions. The test and measurement segment
is comprised primarily of the operations of Wireless Telecom Group, Inc. which operates the Noisecom product line and the operations
of its subsidiary, Boonton. The network solutions segment is comprised primarily of the operations of the Company’s subsidiary,
Microlab.
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).
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 8 – SEGMENT INFORMATION (Continued)
Financial information by reportable
segment for the three-months ended March 31, 2014 and 2013:
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net sales by segment:
|
|
|
|
|
|
|
|
|
Test and measurement
|
|
$
|
2,795,473
|
|
|
$
|
3,003,163
|
|
Network solutions
|
|
|
6,389,858
|
|
|
|
3,793,826
|
|
Total consolidated net sales and net sales of reportable segments
|
|
$
|
9,185,331
|
|
|
$
|
6,796,989
|
|
|
|
|
|
|
|
|
|
|
Segment income:
|
|
|
|
|
|
|
|
|
Test and measurement
|
|
$
|
225,026
|
|
|
$
|
383,181
|
|
Network solutions
|
|
|
1,515,585
|
|
|
|
786,816
|
|
Income from reportable segments
|
|
|
1,740,611
|
|
|
|
1,169,997
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(938,564
|
)
|
|
|
(925,590
|
)
|
Interest and other income - net
|
|
|
(30,339
|
)
|
|
|
14,707
|
|
Consolidated income before income tax (benefit)
|
|
$
|
771,708
|
|
|
$
|
259,114
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
Test and measurement
|
|
$
|
84,362
|
|
|
$
|
53,766
|
|
Network solutions
|
|
|
34,269
|
|
|
|
27,180
|
|
Total depreciation and amortization for reportable segments
|
|
$
|
118,631
|
|
|
$
|
80,946
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
Test and measurement
|
|
$
|
30,505
|
|
|
$
|
28,965
|
|
Network solutions
|
|
|
69,957
|
|
|
|
30,154
|
|
Total consolidated capital expenditures by reportable segment
|
|
$
|
100,462
|
|
|
$
|
59,119
|
|
Financial information by reportable
segment as of March 31, 2014 and December 31, 2013:
|
|
2014
|
|
|
2013
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
Test and measurement
|
|
$
|
8,403,493
|
|
|
$
|
8,270,614
|
|
Network solutions
|
|
|
10,492,499
|
|
|
|
9,649,681
|
|
Total assets for reportable segments
|
|
|
18,895,992
|
|
|
|
17,920,295
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and deferred and current taxes
|
|
|
25,233,551
|
|
|
|
25,516,736
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
44,129,543
|
|
|
$
|
43,437,031
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 8 – SEGMENT INFORMATION (Continued)
Net consolidated sales by region
were as follows:
|
|
|
Three Months Ended
March 31,
|
|
Sales by region
|
|
|
2014
|
|
|
2013
|
|
Americas
|
|
$
|
7,044,074
|
|
|
$
|
5,308,748
|
|
Europe, Middle East, Africa (EMEA)
|
|
|
1,520,996
|
|
|
|
972,764
|
|
Asia Pacific (APAC)
|
|
|
620,261
|
|
|
|
515,477
|
|
Total Sales
|
|
|
$
|
9,185,331
|
|
|
$
|
6,796,989
|
|
Net sales are attributable to a
geographic area based on the destination of the product shipment. The majority of shipments in the Americas are to customers located
within the United States. For the three-months ended March 31, 2014 and 2013, sales in the United States for all reportable segments
amounted to $6,618,899 and $4,866,846, respectively. For the three-months ended March 31, 2014 and 2013, shipments to the EMEA
region were not significantly concentrated in one country. Shipments to the APAC region were largely concentrated in China. For
the three-months ended March 31, 2014 and 2013, sales in China for all reportable segments amounted to $267,529 and $246,458, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Warranties:
The Company typically provides
one-year warranties on all of its products covering both parts and labor. The Company, at its option, repairs or replaces products
that are defective during the warranty period if the proper preventive maintenance procedures have been followed by its customers.
Historically, warranty expense within the Company has been minimal.
Leases:
On February 25, 2014, the Company
entered into an agreement to remain at its principal corporate headquarters in Hanover Township, Parsippany, New Jersey through
March 31, 2015. 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. The current minimum monthly base rent payment is approximately $29,000.
Environmental Contingencies:
Following an investigation by the
New Jersey Department of Environmental Protection (“NJDEP”) in 1982, of the waste disposal practices at a certain site
formerly leased by Boonton, the Company put a ground water management plan into effect as approved by the NJDEP. Costs associated
with this site are charged directly to income as incurred. The owner of this site has previously notified the Company that if the
NJDEP investigation proves to have interfered with a sale of the property, the owner may seek to hold the Company liable for any
resulting damages. Since May 1983, the owner has been on notice of this problem and has failed to institute any legal proceedings
with respect thereto. While this does not bar the owner from instituting a suit, it is the opinion of the Company’s legal
counsel that it is unlikely that the owner would prevail on any claim.
The Company is diligently pursuing
efforts to satisfy the requirements of the original plan and receive a new determination from the NJDEP. The Company has recently
received approval for a groundwater permit from the NJDEP to carry out the final Remedial Action Work Plan and report. This final
phase results in the limited and reduced monitoring and testing as concentrations at the site continue on a decreasing trend. 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.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
Management is unable to estimate
future remediation costs, if any, at this time. The Company will continue to be liable under the plan, in all future years, until
such time as the NJDEP releases it from all obligations applicable thereto.
Line of Credit:
The Company maintains a line of
credit with a bank. The credit facility provides borrowing availability of up to 100% of the Company’s money market account
balance and 99% of the Company’s short-term investment securities (U.S. Treasury bills) and, under the terms and conditions
of the loan agreement, the facility is fully secured by our money fund account and short-term investment holdings held with the
bank. Advances under the facility will bear interest at a variable rate equal to the London InterBank Offered Rate (“LIBOR”)
in effect at time of borrowing. Additionally, under the terms and conditions of the loan agreement, there is no annual fee and
any amount outstanding under the loan facility may be paid at any time in whole or in part without penalty. As of March 31, 2014,
the Company had no borrowings outstanding under the facility and approximately $4,500,000 of borrowing availability. The Company
has no current plans to borrow from this credit facility as it believes its present cash balances will adequately meet near-term
working capital requirements.
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.
NOTE 10 - SUBSEQUENT EVENT
On April 9, 2014, the Company entered
into and consummated an agreement to repurchase a total of 4,815,110 shares of the Company’s common stock from Investcorp
Technology Ventures, L.P., its largest shareholder at the time, for $2.00 per share. The Company funded the transaction from available
cash.
Prior to the repurchase, Investcorp
Technology Partners held 6,472,666 shares of the common stock of the Company, which represented approximately 26.9% of the outstanding
shares of common stock.
The repurchase agreement was subject
to certain closing conditions including, among other conditions: (i) the resignation of each of Mr. Glenn Luk and Mr. Anand Radhakrishnan
as directors of the Company, and in the case of Mr. Luk, his resignation as Chairman of the Board of Directors of the Company,
(ii) the vesting of 10/12
th
of the restricted stock of the Company previously awarded to Messrs. Luk and Radhakrishnan,
and (iii) the delivery by each of Messrs. Luk and Radhakrishnan to the Company of 180-day lock-up agreements.