The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
AND POLICIES
The condensed consolidated balance
sheet as of March 31, 2016, the condensed consolidated statements of operations and cash flows for the three-month periods ended
March 31, 2016 and 2015, and the condensed consolidated statement of shareholders’ equity for the three-month period ended
March 31, 2016 have been prepared by the Company (as defined below) 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 fairly present the Company’s results for the interim periods being presented.
The accounting policies followed
by the Company are set forth in Note 1 to the Company’s financial statements included in its annual report on Form 10-K for the
year ended December 31, 2015. 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, estimated fair values
of stock options and vesting periods of performance-based stock options and restricted stock) 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 period ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending
December 31, 2016.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents 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.
The Company has limited concentration
of credit risk in accounts receivable due to the large number of entities comprising our customer base and their dispersion across
many different industries and geographies. Credit evaluations are performed on customers requiring credit over a certain amount.
Credit risk is mitigated to a lesser extent through collateral such as letters of credit, bank guarantees or payment terms like
cash in advance. Credit evaluation is performed independent of the Company’s sales team to ensure segregation of duties.
For the three-months ended
March 31, 2016, one customer accounted for approximately 10% of the Company’s consolidated sales. For the
three-months ended March 31, 2015, no customer accounted for 10% or more of the Company’s consolidated sales. At March
31, 2016 and December 31, 2015, no customer represented 10% or more of the Company’s gross accounts receivable.
The carrying amounts of cash and
cash equivalents, trade receivables, other current assets and liabilities approximate fair value due to the short-term nature
of these instruments.
The Company considers all highly
liquid investments purchased with maturities of three months or less at the time of purchase 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 determined that there were no subsequent events or transactions requiring recognition or disclosure in the condensed
consolidated financial statements through the date the financial statements were issued.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “
Compensation -
Stock Compensation: Improvements to Employee Share-Based Payment Accounting,”
which relates to the accounting
for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award
transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and
(c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December
15, 2016, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of
the adoption of ASU 2016-09 on its consolidated financial statements.
In February 2016, the FASB issued
ASU 2016-02
“Leases”,
which creates new accounting and reporting guidelines for leasing arrangements. The new
standard will require 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 standard will also require new disclosure to help financial
statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard will
be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period,
with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is in
the process of evaluating the impact of the new pronouncement on its consolidated financial statements.
During the fourth quarter of 2015,
the Company adopted ASU 2015-17, “
Balance Sheet Classification of Deferred Taxes,”
on a retrospective basis.
The standard requires entities that present a classified balance sheet to classify all deferred taxes as noncurrent assets or
noncurrent liabilities.
In July 2015, the FASB issued ASU
2015-11,
“Simplifying the Measurement of Inventory.”
ASU 2015-11 applies to inventory that is measured using
first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal and transportation. The amendments in ASU 2015-11 more closely
align the measurement of inventory in US GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). ASU
2015-11 is effective for fiscal years beginning after December 15, 2016. The Company is in the process of evaluating
the impact of this ASU on its consolidated financial statements.
In May 2014, the FASB issued ASU
2014-09, “
Revenue from Contracts with Customers
” (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition
model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting
the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
“
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
,” which defers the effective
date by one year, with early adoption on the original effective date permitted. As a result, ASU 2014-09 will be effective for
annual and interim periods beginning after December 15, 2016. The Company is currently in the process of evaluating the impact
the adoption of this ASU will have on the Company’s consolidated financial statements, but does not expect the impact to be material.
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.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 3 – INCOME TAXES
The Company records deferred taxes
in accordance with Accounting Standards Codification (“ASC”) 740, “
Accounting for Income Taxes
.”
ASC 740 requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and
liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for
the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce
deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax assets
and determines the necessity for a valuation allowance.
The Company had a domestic net
operating loss carryforward at March 31, 2016 of approximately $17,900,000 which expires in 2029. The Company also had a German
net operating loss carryforward at March 31, 2016 of approximately $23,400,000.
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 German net operating loss
carryforward from an inactive German entity. 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, 2016, management believed that it is more
likely than not that the Company will fully realize the benefits of its deferred tax asset associated with its domestic net operating
loss carryforward.
The deferred income tax assets
(liabilities) are summarized as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net deferred tax asset:
|
|
|
|
|
|
|
Uniform capitalization of inventory costs for tax purposes
|
|
$
|
172,752
|
|
|
$
|
158,599
|
|
Reserves on inventories
|
|
|
469,888
|
|
|
|
444,115
|
|
Accruals
|
|
|
30,000
|
|
|
|
10,000
|
|
Tax effect of goodwill
|
|
|
(515,782
|
)
|
|
|
(507,524
|
)
|
Book depreciation over tax
|
|
|
(49,488
|
)
|
|
|
(43,514
|
)
|
Other timing differences
|
|
|
148,087
|
|
|
|
105,725
|
|
Net operating loss carryforward
|
|
|
14,156,534
|
|
|
|
13,858,662
|
|
|
|
|
14,411,991
|
|
|
|
14,026,063
|
|
Valuation allowance for deferred tax assets
|
|
|
(7,012,134
|
)
|
|
|
(7,012,134
|
)
|
|
|
$
|
7,399,857
|
|
|
$
|
7,013,929
|
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
14,631
|
|
State
|
|
|
—
|
|
|
|
31,284
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(336,915
|
)
|
|
|
93,275
|
|
State
|
|
|
(49,013
|
)
|
|
|
8,949
|
|
|
|
$
|
(385,928
|
)
|
|
$
|
148,139
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 3 – INCOME TAXES (Continued)
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, 2016
and December 31, 2015, the Company 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
concluded that there were no significant uncertain tax positions requiring recognition or disclosure in its condensed consolidated
financial statements.
NOTE 4 – INCOME (LOSS) PER
COMMON SHARE
Basic earnings (loss) per share
is calculated by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share are calculated by using the weighted average number of shares
of common stock outstanding and, when dilutive, potential shares from stock options and warrants to purchase common stock, using
the treasury stock method.
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Weighted average common shares outstanding
|
|
|
18,606,582
|
|
|
|
19,496,455
|
|
Potentially dilutive stock options
|
|
|
407,144
|
|
|
|
1,180,154
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
19,013,726
|
|
|
|
20,676,609
|
|
Common stock options are included
in the diluted earnings (loss) per share calculation when the various option exercise prices are less than their relative average
market price during the periods presented in this quarterly report. The weighted average number of shares of common stock underlying
options not included in diluted earnings (loss) per share, because the effects are anti-dilutive, was 2,080,857 and 1,393,446
for the three-months ended March 31, 2016 and 2015, respectively.
NOTE 5 – INVENTORIES
Inventory carrying value is net
of inventory reserves of $1,174,721 and $1,110,288 at March 31, 2016 and December 31, 2015, respectively.
Inventories consist of:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
4,210,346
|
|
|
$
|
3,993,052
|
|
Work-in-process
|
|
|
877,098
|
|
|
|
628,140
|
|
Finished goods
|
|
|
3,712,432
|
|
|
|
3,447,536
|
|
|
|
$
|
8,799,876
|
|
|
$
|
8,068,728
|
|
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).
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 6 – GOODWILL (Continued)
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.
The Company’s goodwill balance
of $1,351,392 at March 31, 2016 and December 31, 2015 related to one of the Company’s reporting units, Microlab. Management’s
qualitative assessment performed in the fourth quarter of 2015 did not indicate any impairment of Microlab’s goodwill as
its fair value was estimated to be in excess of its carrying value. Furthermore, no events have occurred since then that would
change this assessment.
NOTE 7 – ACCOUNTING FOR
SHARE 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, 2016 and
2015 include share-based compensation expense totaling $98,619 and $85,963, respectively. Such amounts have been included in the
Condensed Consolidated Statements of Operations 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 restricted stock awards, non-qualified stock options and incentive stock options in compliance with the Internal
Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected
to contribute to the Company’s future growth and success. When originally approved, the Initial 2012 Plan provided for the grant
of awards relating to 2,000,000 shares of common stock, plus those shares still available under the Company’s prior incentive
compensation plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation
Plan (the “2012 Plan”) allowing for an additional 1,658,045 shares of the Company’s common stock to be available
for future grants under the 2012 Plan. As of March 31, 2016, there were 2,238,500 shares available for issuance under the 2012
Plan, including those shares available under the Company’s prior incentive compensation plan as of such date.
All service-based options granted
have ten-year terms from the date of grant and 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 or the Compensation Committee of the
Board of Directors.
Provisions of the 2012 Plan require
that all awards that are stock options be made at exercise prices equal to or greater than the fair market value on the date of
the grant. The Company did not grant stock option awards during either of the three-month periods ended March 31, 2016 and 2015.
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,
|
|
|
|
2016
|
|
|
2015
|
|
Service-based Restricted Common Stock
|
|
$
|
55,500
|
|
|
$
|
49,800
|
|
Performance-based Stock Options
|
|
|
28,650
|
|
|
|
30,035
|
|
Service-based Stock Options
|
|
|
9,116
|
|
|
|
—
|
|
Performance-based Restricted Common Stock
|
|
|
5,353
|
|
|
|
6,128
|
|
Total Share-Based Compensation Expense
|
|
$
|
98,619
|
|
|
$
|
85,963
|
|
Stock-based compensation for the
three-months ended March 31, 2016 and 2015 is included in general and administrative expenses in the accompanying condensed consolidated
statement of operations.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 – ACCOUNTING FOR
SHARE BASED COMPENSATION (Continued)
Restricted Common Stock Awards:
In June 2015, the Company granted
100,000 shares of restricted common stock to certain non-employee directors of the Company under the 2012 Plan. The shares were
granted at a price of $2.22 per share and will fully vest on the date of the Company’s next annual shareholders meeting
to be held in June 2016, or a vesting period of approximately one year, provided that the director’s service continues through
the vesting date. The total compensation expense to be recognized over the vesting period is $222,000.
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 March 31, 2016, and changes during the three-months ended March 31, 2016, are presented below:
|
|
|
|
|
Weighted Average
|
|
Non-vested Restricted Shares
|
|
Number of Shares
|
|
|
Grant Date Fair Value
|
|
Non-vested at January 1, 2016
|
|
|
187,000
|
|
|
$
|
2.01
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Non-vested at March 31, 2016
|
|
|
187,000
|
|
|
$
|
2.01
|
|
Under the terms of the performance-based
restricted common stock award agreements pertaining to the 87,000 shares of restricted stock granted to employees in 2013, 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 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 award 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 2013, the Company’s Board of Directors
adopted specific revenue and earnings performance targets as vesting conditions. During the first quarter of 2015, management
determined the performance conditions related to these restricted stock awards are probable to be achieved by the year ending
2020. As a result, the Company adjusted the amortization of the fair market value of these awards over the revised implicit service
period from December 2017 to December 2020. If management determines in future periods the achievement of performance conditions
are probable to occur sooner than expected, the Company will accelerate the expensing of the unamortized balance as of that determination
date.
As of March 31, 2016, the unearned
compensation related to Company granted restricted common stock was $157,211 of which $55,500 (pertaining to 100,000 service-based
restricted common stock awards) will be amortized on a straight-line basis through the date of the Company’s next annual
shareholders meeting scheduled to be held in June 2016, the vesting date. The remaining balance of $101,711 (pertaining to 87,000
performance-based shares of restricted common stock awarded in 2013) will be amortized on a straight-line basis through December
31, 2020, the revised implicit service period.
Performance-Based Stock Option
Awards:
A summary of performance-based
stock option activity, and related information for the three-months ended March 31, 2016 follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding, January 1, 2016
|
|
|
1,965,000
|
|
|
$
|
1.32
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding, March 31, 2016
|
|
|
1,965,000
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
Options exercisable:
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
1,090,000
|
|
|
$
|
0.96
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 – ACCOUNTING FOR
SHARE BASED COMPENSATION (Continued)
The aggregate intrinsic value of
performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of March 31, 2016 and
December 31, 2015 was $432,350 and $846,350, respectively. The aggregate intrinsic value of performance-based stock options exercisable
as of March 31, 2016 and December 31, 2015 was $432,350 and $846,350, respectively.
On September 8, 2015, the Company
granted performance-based stock options to a non-executive officer employee to acquire 50,000 shares of common stock at an exercise
price of $1.83 per share, which represented the closing price of the Company’s common stock as reported on the NYSE MKT
on September 8, 2015, the date of grant. The per share fair-value of these performance-based options was $1.03. The per share
fair-value was estimated on the date of grant using the Black-Scholes option pricing method and included the following range of
assumptions: dividend yield 0%, risk-free interest rate of 1.53% and expected option life of 4 years. Volatility assumption was
75.46% and the forfeiture rate was assumed to be 0%.
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. During the first quarter of 2015, management
determined the performance conditions related to the stock option awards granted in 2013 and grants made subsequent thereto (but
on or prior to the date of determination) are probable to be achieved by the year ending 2020. As a result, the Company adjusted
the amortization of the fair market value of these awards over the revised implicit service period from December 2017 to December
2020. If management determines in future periods the achievement of performance conditions are probable to occur sooner than expected,
the Company will accelerate the expensing of the unamortized balance as of that determination date.
As of March 31, 2016, the unearned
compensation related to the 825,000 performance-based stock options granted in August 2013 (with a weighted average per share
exercise price of $1.77) and the 50,000 performance-based stock options granted in September 2015 (with a weighted average per
share exercise price of $1.83) is $497,729 and $46,620, respectively, which have been, and are expected to be, amortized on a
straight-line basis through December 31, 2020, the implicit service period.
The Company’s performance-based
stock options granted prior to 2013 (consisting of 1,090,000 options) are fully amortized.
Service-Based Stock Option
Awards:
A summary of service-based stock
option activity, and related information for the three-months ended March 31, 2016 follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Outstanding, January 1, 2016
|
|
|
523,000
|
|
|
$
|
2.23
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding, March 31, 2016
|
|
|
523,000
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
Options exercisable:
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
390,083
|
|
|
$
|
2.54
|
|
The aggregate intrinsic value of
service-based stock options (regardless of whether or not such options are exercisable) as of March 31, 2016 and December 31,
2015 was $2,900 and $0, respectively.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 7 – ACCOUNTING FOR
SHARE BASED COMPENSATION (Continued)
On November 19, 2015, the Company
granted to the members of the Company’s Strategic Planning and Operating Committee service-based stock options to acquire
145,000 shares of common stock at an exercise price of $1.30 per share, which represented the closing price of the Company’s
common stock as reported on the NYSE MKT on November 19, 2015, the date of grant. The per share fair-value of these service-based
options was $0.75. The per share fair-value was estimated on the date of grant using the Black-Scholes option pricing method and
included the following range of assumptions: dividend yield 0%, risk-free interest rate of 1.68% and expected option life of 4
years. The volatility assumption was 78.22% and the forfeiture rate was assumed to be 0%.
Under the terms of the service-based
stock option agreements relating to the November 19, 2015 stock option grants, the awards vest in twelve equal quarterly installments
over a period of three years and shall be fully vested on November 19, 2018.
As of March 31, 2016, the unearned
compensation related to the 145,000 service-based stock options granted in November 2015 (with a weighted average per share exercise
price of $1.30) was $100,270, which will be amortized on a straight-line basis over the service period through November 2018.
At March 31, 2016, the Company’s
service-based stock options granted prior to November 2015 were fully amortized.
NOTE 8 – SEGMENT INFORMATION
The operating businesses of the
Company are segregated into two reportable segments: (i) network solutions; and (ii) test and measurement. The network solutions
segment is comprised primarily of the operations of Wireless Telecom Group Inc.’s subsidiary, Microlab. The test and measurement
segment is comprised primarily of the Company’s operations of the Noisecom product line and the operations of its subsidiary,
Boonton.
The 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, 2016 and 2015 is set forth below:
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net sales by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
4,213,314
|
|
|
$
|
5,895,159
|
|
Test and measurement
|
|
|
2,155,101
|
|
|
|
2,732,532
|
|
Total consolidated net sales of reportable segments
|
|
$
|
6,368,415
|
|
|
$
|
8,627,691
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss):
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
339,926
|
|
|
$
|
971,391
|
|
Test and measurement
|
|
|
(312,447
|
)
|
|
|
216,464
|
|
Income (loss) from reportable segments
|
|
|
27,479
|
|
|
|
1,187,855
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(948,130
|
)
|
|
|
(849,130
|
)
|
Other (expense) income - net
|
|
|
(41,604
|
)
|
|
|
3,267
|
|
Consolidated income (loss) before income tax provision (benefit)
|
|
$
|
(962,255
|
)
|
|
$
|
341,992
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
55,747
|
|
|
$
|
51,061
|
|
Test and measurement
|
|
|
60,111
|
|
|
|
58,123
|
|
Total depreciation and amortization for reportable segments
|
|
$
|
115,858
|
|
|
$
|
109,184
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment (a):
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
55,230
|
|
|
$
|
144,757
|
|
Test and measurement
|
|
|
19,244
|
|
|
|
102,079
|
|
Total consolidated capital expenditures by reportable segment
|
|
$
|
74,474
|
|
|
$
|
246,836
|
|
|
|
|
|
(a)
|
Net
of
equipment
lease
payable
of
$41,904
(network
solutions)
for
the
three-months
ended
March
31,
2016.
|
Financial
information by reportable segment as of March 31, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
10,498,204
|
|
|
$
|
10,638,961
|
|
Test and measurement
|
|
|
6,955,414
|
|
|
|
7,153,310
|
|
Total assets for reportable segments
|
|
|
17,453,618
|
|
|
|
17,792,271
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and deferred and current taxes
|
|
|
17,349,287
|
|
|
|
16,914,053
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
34,802,905
|
|
|
$
|
34,706,324
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 8 – SEGMENT INFORMATION (Continued)
Consolidated net sales by region
were as follows:
|
|
Three Months Ended
March 31,
|
|
Sales by region
|
|
2016
|
|
|
2015
|
|
Americas
|
|
$
|
5,065,636
|
|
|
$
|
6,466,636
|
|
Europe, Middle East, Africa (EMEA)
|
|
|
948,357
|
|
|
|
1,735,842
|
|
Asia Pacific (APAC)
|
|
|
354,422
|
|
|
|
425,213
|
|
Total Sales
|
|
$
|
6,368,415
|
|
|
$
|
8,627,691
|
|
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, 2016 and 2015, sales in the United States for all reportable segments
amounted to $4,772,171 and $5,792,473, respectively. For the three-months ended March 31, 2016, shipments to the EMEA region were
largely concentrated in Germany. Sales to Germany for all reportable segments amounted to $236,400 of all shipments to the EMEA
region. For the three-months ended March 31, 2015, shipments to the EMEA region were largely concentrated in two countries, Israel
and Germany. Sales to Israel and Germany for all reportable segments amounted to $543,394 and $466,844, respectively, of all shipments
to the EMEA region. During the three-months ended March 31, 2016, the Company shipped lower volumes of its passive components
into a program within the EMEA region, as compared to the same period in 2015, resulting in a decline in sales to the EMEA region.
Shipments to the APAC region were largely concentrated in China. For the three-months ended March 31, 2016 and 2015, sales in
China for all reportable segments amounted to $187,171 and $268,582, 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, the Company’s warranty expense has been minimal.
Leases:
In May 2015, the Company and its
landlord entered into an amendment to the existing lease agreement to remain at its principal corporate headquarters in Hanover
Township, Parsippany, New Jersey through March 31, 2023. Monthly lease payments range from approximately $33,000 in year one to
approximately $41,000 in year eight. Additionally, the Company has available an allowance of approximately $300,000 towards alterations
and improvements to the premises through November 30, 2016. 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 following is a summary of the
Company’s contractual obligations as of March 31, 2016:
Table of Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
Payments by Period
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5- Years
|
|
|
5 Years
|
|
Facility Leases
|
|
$
|
3,155,948
|
|
|
$
|
411,871
|
|
|
$
|
1,311,244
|
|
|
$
|
941,037
|
|
|
$
|
491,796
|
|
Operating and Equipment Leases
|
|
|
170,067
|
|
|
|
63,776
|
|
|
|
106,291
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
3,326,015
|
|
|
$
|
475,647
|
|
|
$
|
1,417,535
|
|
|
$
|
941,037
|
|
|
$
|
491,796
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
NOTE 9 – COMMITMENTS AND CONTINGENCIES
(Continued)
Environmental Contingencies:
In 1982, the Company and the New
Jersey Department of Environmental Protection (the “NJDEP”) agreed upon a plan to correct ground water contamination
at a site, formerly leased by Boonton, located in the Township of Parsippany-Troy Hills, pursuant to which wells have been installed
by the Company. 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 Remedial Action
Work Plan, there will be limited and reduced monitoring and testing as long 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. 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.
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
liability that may have a material adverse effect on its ongoing business operations.
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 the Company’s 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 the 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, 2016, 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.
FORWARD LOOKING STATEMENTS
The statements contained in this
Quarterly Report on Form 10-Q that are not historical facts, including, without limitation, the statements under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things,
the use of forward-looking terminology such as “believes,” “expects,” “intends,” “plans,”
“may,” “will,” “should,” “anticipates” or “continues” or the negative
thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.
These statements are based on the Company’s current expectations of future events and are subject to a number of risks and
uncertainties that may cause the Company’s actual results to differ materially from those described in the forward-looking
statements. These risks and uncertainties include, but are not limited to, the ability of our management to successfully implement
our business plan and strategy, product demand and development of competitive technologies in our market sector, the impact of
competitive products and pricing, the loss of any significant customers, our abilities to protect our property rights, the effects
of adoption of newly announced accounting standards, the effects of economic conditions and trade, legal and other economic risks,
among others. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or projected. These risks and uncertainties are disclosed
from time to time in the Company’s filings with the Securities and Exchange Commission, the Company’s press releases
and in oral statements made by or with the approval of authorized personnel of the Company. You should also consider carefully
the statements in our Annual Report on Form 10-K for the year ended December 31, 2015, which address additional risks that could
cause our actual results to differ from those set forth in any forward-looking statements. The Company’s forward-looking
statements speak only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or review
any forward-looking statements whether as a result of new information, future developments or otherwise.