The accompanying notes are an integral part
of these consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 1
- DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Wireless Telecom Group, Inc.,
a New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”),
is a global designer and manufacturer of advanced 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”) repeaters,
public safety monitors, noise sources, and programmable noise generators, Wireless Telecom Group supports the development, testing,
and deployment of wireless technologies around the globe. The consolidated financial statements include the accounts of Wireless
Telecom Group, Inc., doing business as, and operating under the trade name, Noise Com, Inc. (“Noisecom”), and its wholly
owned subsidiaries including Boonton Electronics Corporation (“Boonton”), Microlab/FXR (“Microlab”), Wireless
Telecommunications Ltd. and CommAgility Limited (“CommAgility”).
The accompanying Consolidated
Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Consolidated Financial Statements
have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the
results of companies acquired by the Company from the date of each acquisition. All intercompany accounts and transactions have
been eliminated in consolidation.
The Company presents its operations
in three reportable segments: (1) Network solutions, (2) Test and measurement and (3) Embedded solutions. The Network solutions
segment is comprised primarily of the operations of Microlab. The Test and measurement segment is comprised of the operations of
Boonton and Noisecom. The Embedded solutions segment is comprised of the operations of CommAgility.
Use of Estimates
The accompanying financial statements
have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ
from those estimates. The most significant estimates and assumptions include management’s analysis in support of inventory
valuation, accounts receivable valuation, valuation of deferred tax assets, intangible assets, estimated fair values of stock options
and vesting periods of performance-based stock options and restricted stock and estimated fair values of acquired assets and liabilities
in business combinations.
Concentrations of Credit
Risk, Purchases and Fair Value
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
Credit evaluations are performed
on customers requiring credit over a certain amount. Credit risk is mitigated to a lesser extent through collateral such as letters
of credit, bank guarantees or payment terms like cash in advance.
For the year ended
December 31, 2017 one customer, from the Embedded solutions segment, accounted for 10.4% of the Company’s total
consolidated revenues. At December 31, 2017, two customers exceeded 10% of consolidated gross accounts receivable at 17.8%
and 11.2%, respectively. At December 31, 2016, one customer represented 16% of the Company’s gross accounts receivable
balance.
For the years ended December
31, 2017 and 2016 no single third-party supplier accounted for 10% or more of the Company’s total consolidated inventory
purchases.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Cash and Cash Equivalents
The Company considers all highly
liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents consist of operating accounts.
Accounts Receivable and
Allowance for Doubtful Accounts
Trade accounts receivable are
recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are
reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements
and other information regarding the customer’s credit worthiness. Account balances are charged off against the allowance
when it is determined the receivable will not be recovered.
Inventories
Inventories are stated
at the lower of cost (average cost) or market value. Market value is based upon an estimated average selling price reduced
by estimated costs of completion, disposal and transportation. Reductions in inventory valuation are included in cost of sales in the
accompanying Consolidated Statements of Operations and Comprehensive Loss. Finished goods and work-in-process include
material, labor and manufacturing expenses.
The Company reviews inventory
for excess and obsolescence based on best estimates of future demand, product lifecycle status and product development plans. The
Company uses historical information along with these future estimates to reduce the inventory cost basis. Subsequent changes in
facts and circumstances do not result in the restoration or increase in that newly established cost basis.
During the year ended 2017 the
Company recorded inventory adjustments totaling $1,930 comprised of an increase to the Company’s excess and obsolescence
reserve of $1,121 and the write off of gross inventory of $809.
The charge was effected as a result
of a review of inventory balances and net realizable value of the inventory following the launch of the Company’s lean manufacturing
initiative and the adoption of a strategic product plan focused on product lifecycle acceleration.
Inventory carrying value is
net of inventory reserves of $1,856 and $1,549 as of December 31, 2017 and 2016, respectively.
Inventories consist of:
|
|
December 31,
2017
|
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
3,231
|
|
|
|
$
|
3,559
|
|
Work-in-process
|
|
|
631
|
|
|
|
|
531
|
|
Finished goods
|
|
|
2,664
|
|
|
|
|
4,363
|
|
|
|
$
|
6,526
|
|
|
|
$
|
8,453
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets generally
consist of income tax receivables, prepaid insurance, prepaid maintenance agreements and the short term portion of debt issuance
costs. As of December 31, 2017, prepaid and other current assets includes $3,599 contingent asset representing the fair value of
consideration shares issued in connection with the CommAgility acquisition (see Note 2) that are expected to be returned to the
Company under the claw back provision of the Share Purchase Agreement. Upon execution of the claw back provisions the Company will
reduce prepaid expenses and other current assets and shareholders’ equity by $3,599 and the share will no longer be considered
outstanding.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Property, Plant and Equipment
Property, plant and equipment
are reflected at cost, less accumulated depreciation. Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the assets. The estimated useful lives for the property, plant and equipment are:
Machinery and computer equipment
|
3-8 years
|
Furniture and fixtures
|
5-7 years
|
Transportation equipment
|
4 years
|
Leasehold improvements are amortized
over the shorter of the remaining term of the lease or the estimated economic life of the improvement. Repairs and maintenance
are charged to operations as incurred; renewals and betterments are capitalized.
Goodwill
Goodwill represents the excess
of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is
evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test
is necessary. After assessing the totality of events or circumstances, if we determine it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to determine the magnitude
of any impairment.
The Company’s goodwill
balance of $10,260 at December 31, 2017 relates to two of the Company’s reporting units, Embedded solutions and Network solutions.
The Company’s goodwill balance of $1,351 at December 31, 2016 relates to Network solutions. Management’s qualitative
assessment performed in the fourth quarters of 2017 and 2016 did not indicate any impairment of goodwill as each reporting units
fair value is estimated to be in excess of its carrying value.
Intangible and Long-lived
Assets
Intangible assets include patents,
non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the
straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets,
including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted
future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived
assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed
of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated useful lives of intangible
and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition
and other economic factors, expectations regarding the future use of the asset, and our historical experience with similar assets.
The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market
conditions, technological developments, economic conditions and competition. Intangible assets determined to have indefinite useful
lives are not amortized but are tested for impairment annually and more frequently if events occur or circumstances change that
indicate an asset may be impaired.
Fair Value of Financial Instruments
Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the
inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted prices in active
markets for identical assets or liabilities.
Level 2 - Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The categorization of a financial
instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the
Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate
fair value due to their relatively short maturities. The Company’s term loan and revolving credit facility bear interest
at a variable interest rate plus an applicable margin and, therefore, carrying amount approximates fair value.
Contingent Consideration
Under the terms of the CommAgility
Share Purchase Agreement (See Note 2) the Company may be required to pay additional purchase price if certain financial targets
are achieved for the years ending December 31, 2017 and December 31, 2018 (“CommAgility Earn-Out”). As of the acquisition
date, the Company estimated the fair value of the contingent consideration to be $754 (see Note 2) and the Company is required
to reassess the fair value of the contingent consideration at each reporting period.
The significant inputs used
in this fair value estimate include gross revenues and Adjusted EBITDA, as defined, and scenarios for the earn-out periods for
which probabilities are assigned to each scenario to arrive at a single estimated outcome (Level 3). The estimated outcome is then
discounted based on the individual risk analysis of the liability. Although the Company believes its estimates and assumptions
are reasonable, different assumptions, including those regarding the operating results of CommAgility or changes in the future,
may result in different estimated amounts.
The contingent consideration
is included in other long term liabilities in the accompanying Consolidated Balance Sheets. The Company will satisfy this obligation
with a cash payment to the sellers of CommAgility upon the achievement of the respective milestone discussed above.
Revenue Recognition
Revenue from product shipments,
including shipping and handling fees, is recognized once delivery has occurred, provided that persuasive evidence of an arrangement
exists, the price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when
title and risk of loss have transferred to the customer. Revenues from international distributors are recognized in the same manner.
If title does not pass until the product reaches the customer’s delivery site, then revenue recognition is deferred until
that time. There are no formal sales incentives offered to any of the Company’s customers. Volume discounts may be offered
from time to time to customers purchasing large quantities on a per transaction basis.
Standalone sales of software
or software-related items are recognized in accordance with the software revenue recognition guidance. For multiple deliverable
arrangements that only include software items, the Company generally uses the residual method to allocate the arrangement consideration.
Under the residual method, the amount of consideration allocated to the delivered items equals the total arrangement consideration,
less the fair value of the undelivered items. Where vendor-specific objective evidence (“VSOE”) of fair value for the
undelivered items cannot be determined, the Company generally defers revenue until all items are delivered and services have been
performed, or until such evidence of fair value can be determined for the undelivered items.
Software arrangements that require
significant customization or modification of software are accounted for under percentage of completion accounting. The Company
uses the input method to measure progress for arrangements accounted for under percentage of completion accounting.
Shipping and Handling
Freight
billed to customers is recorded as revenue. The Company classifies shipping and handling costs associated with the distribution
of finished product to our customers as cost of sales.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Foreign Currency Translation
Assets and liabilities of non-U.S.
subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated
from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated at the weighted
average spot rate for the periods presented. Translation gains or losses related to net assets located outside the U.S. are shown
as a component of accumulated other comprehensive income in the Consolidated Statements of Shareholders’ Equity. Gains and
losses resulting from foreign currency transactions, which are denominated in currencies other than the Company’s functional
currency, are included in the Consolidated Statements of Operations and Comprehensive Loss.
Other Comprehensive
Income (Loss)
Other comprehensive income (loss)
is recorded directly to a separate section of shareholders’ equity in accumulated other comprehensive income and primarily
includes unrealized gains and losses excluded from the Consolidated Statements of Operations and Comprehensive Loss. These unrealized
gains and losses consist of changes in foreign currency translation.
Research and Development
Costs
Research and development costs
are charged to operations when incurred. The amounts charged to operations for the years ended December 31, 2017 and 2016 were
$4,395 and $4,046, respectively.
Advertising Costs
Advertising expenses are charged
to operations during the year in which they are incurred and aggregated $87 and $150 for the years ended December 31, 2017 and
2016, respectively.
Stock-Based Compensation
The Company follows the
provisions of Accounting Standards Codification (“ASC”) 718, “Compensation-Stock Compensation” which requires
that compensation expense be recognized, based on the fair value of the stock awards. The fair value of the stock awards is
equal to the fair value of the Company’s stock on the date of grant. The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model. When performance-based options are granted, the Company takes into
consideration guidance under ASC 718 and SEC Staff Accounting Bulletin No. 107 (SAB 107) when determining assumptions. The
expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period
of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of
our shares using weekly price observations over an observation period that approximates the expected life of the options. The
risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the
expected option life. The Company accounts for forfeitures when they occur.
Management estimates are necessary
in determining compensation expense for stock options with performance-based vesting criteria. Compensation expense for this type
of stock-based award is recognized over the period from the date the performance conditions are determined to be probable of occurring
through the implicit service period, which is the date the applicable conditions are expected to be met. If the performance conditions
are not considered probable of being achieved, no expense is recognized until such time as the performance conditions are considered
probable of being met, if ever. If the award is forfeited because the performance condition is not satisfied, previously recognized
compensation cost is reversed. Management evaluates performance conditions on a quarterly basis.
Income Taxes
The Company records deferred
taxes in accordance with ASC 740, “Accounting for Income Taxes”. This ASC requires recognition of deferred tax assets
and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried
in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse.
The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The Company periodically assesses
the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and determines
the necessity for a valuation allowance. The Company evaluates which portion, if any, will more likely than not be realized by
offsetting future taxable income, taking into consideration any limitations that may exist on its use of its net operating loss
carry-forwards.
Under ASC 740, the Company must
recognize and disclose uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination
by the taxing authority, based on the technical merits of the position. The amounts recognized in the financial statements attributable
to such position, if any, are recorded if there is a greater than 50% likelihood of being realized upon the ultimate resolution
of the position. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions
requiring recognition or disclosure in its consolidated financial statements.
On December 22, 2017, the United
States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational
corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As a result, the Company re-measured
its U.S. deferred tax assets at the new lower corporate income tax rate. The TCJA also requires a one-time transition tax on the
mandatory deemed repatriation of the cumulative earnings of the Company’s foreign subsidiary as of December 31, 2017. To
determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the
relevant foreign subsidiary, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other
factors. See Note 12 for a discussion of the impact the TCJA.
Income (Loss) Per Common
Share
Basic income (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 income (loss) per share is calculated by dividing 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 and unvested restricted shares. In periods with a net loss, the basic loss per share equals the
diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.
In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully
diluted shares outstanding.
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
19,984
|
|
|
|
|
18,464
|
|
Potentially dilutive stock options
|
|
|
|
878
|
|
|
|
|
706
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
|
20,862
|
|
|
|
|
19,170
|
|
Common stock equivalents are
included in the diluted income (loss) per share calculation only when option exercise prices are lower than the average market
price of the common shares for the period presented.
The weighted average number
of options to purchase common stock not included in diluted loss per share, because the effects are anti-dilutive, was 848 and
1,189 for 2017 and 2016, respectively.
Recent Accounting Pronouncements
Affecting the Company
In January 2017, the Financial
Accounting Standards Board (“FASB”) issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying
the Accounting for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 removes the requirement to perform a hypothetical
purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s
carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods
and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company
early adopted this standard as of January 1, 2017.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
In January 2017, the FASB issued
ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business”
(“ASU 2017-01”).
ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those annual periods
beginning after December 15, 2017, and early adoption is permitted. The Company will adopt this standard on January 1, 2018 and
will apply the standard to any future business combinations.
In August 2016, the FASB issued
ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), to address some
questions about the presentation and classification of certain cash receipts and payments in the statement of cash flows. The update
addresses eight specific issues, including contingent consideration payments made after a business combination, distribution received
from equity method investees and the classification of cash receipts and payments that have aspects of more than one class of cash
flows. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material impact on
its consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”). Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies
in additional paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income
tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement
that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess
tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09
will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability
classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a
statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the amount of taxes
owed using the maximum statutory rate in the employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify
the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing
activity on the statement of cash flows. Under current U.S. GAAP, it is not specified how these cash flows should be classified.
In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture
awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely
to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15,
2016, with early adoption permitted but all of the guidance must be adopted in the same period. The adopted standard did not have
a material impact on the Company’s financial statements.
In February 2016, the FASB issued
ASU 2016-02, “Leases” (“ASU 2016-02”), which creates new accounting and reporting guidelines for leasing
arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet
related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating
leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from
a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures
to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The
new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that
reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach.
The Company is in the process of evaluating the impact of ASU 2016-02 on its consolidated financial statements.
In May 2014, the FASB issued
ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606)” (“ASU 2014-09”). ASU 2014-09 is
a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services
to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In August
2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”,
which defers the effective date by one year, with early adoption on the original effective date permitted. As a result, ASU 2014-09
will be effective for annual and interim periods beginning after December 15, 2017. Entities have the option of two methods of
adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). Effective
January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method for all of its contracts.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The most significant
impact of ASU 2014-09, relates to the Company’s accounting for software license agreements which have multiple
deliverables. For these arrangements, the Company will recognize revenue for each deliverable at a point in time when control
is transferred to the customer since each deliverable has stand-alone value and the criteria to establish VSOE of fair value
has been eliminated. Under the existing guidance the Company recognized revenue at the delivery of the final software
deliverable when VSOE did not exist for the undelivered element. Adoption of the new standard will generally result in an
acceleration of revenues recognized for certain multiple deliverable software license arrangements primarily in the Embedded
solutions segment. These multiple deliverable arrangements represented less than 2% of total consolidated revenues for the
year ended December 31, 2017. Based on customer-specific contracts in effect at December 31, 2017, the Company expects to
recognize a cumulative effect adjustment of approximately $400 to $425 that increases retained earnings on the Consolidated
Balance Sheet. The adjustment reflects revenue that would have been recognized in 2018. For the Company’s Consolidated
Balance Sheet, the adoption of ASU 2014-09 will result is some reclassifications among financial statement accounts, but
these reclassifications will not materially change the total amount of net assets at December 31, 2017.
Management does not believe
there are any other recently issued, but not yet effective accounting pronouncements, if adopted, that would have a material effect
on the accompanying consolidated financial statements.
NOTE 2
- ACQUISITION
On February 17, 2017, Wireless
Telecommunications, Ltd. (the “Acquisition Subsidiary”), a company incorporated in England and Wales which is a wholly
owned subsidiary of Wireless Telecom Group, Inc., completed the acquisition of all of the issued shares in CommAgility a company
incorporated in England and Wales (the “Acquisition”) from CommAgility’s founders. The Acquisition was completed
pursuant to the terms of a Share Purchase Agreement, dated February 17, 2017, and entered into by and among the Company, the Acquisition
Subsidiary and the founders. The Company paid $11,318 in cash on acquisition date and issued 3,488 shares of newly issued common
stock (“Consideration Shares”) with an acquisition date fair value of $6,000.
The Company
financed the cash portion of the transaction with proceeds from a term loan totaling $760, proceeds
from
an asset based revolver totaling $1,098 and cash on hand of $9,460. Refer to Note 3 for additional details regarding the financing
arrangement entered into in connection with this transaction. In addition to the acquisition date cash purchase price the sellers
are to be paid an additional £2,000 (approximately $2,500 at acquisition date) in the form of deferred purchase price payable
beginning in March 2017 through January 2019 and are due an additional purchase price adjustment based on working capital and cash
levels delivered to the buyer as of February 17, 2017 (“Completion Cash Adjustment”). Lastly, the sellers may earn
up to an additional £10,000 (approximately $12,500 at the acquisition date) payment if certain financial targets are achieved
by CommAgility during calendar years 2017 and 2018.
Pursuant to the claw back provision
of the Share Purchase Agreement, 2,093 of the Consideration Shares are subject to forfeiture and return to the Company if (a) 2017
EBITDA, as defined, generated by CommAgility is less than £2,400; or (b) 2018 EBITDA, as defined, generated by CommAgility
is less than £2,400 (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). The Company now estimates that the 2017 Adjusted EBITDA
target will not be met; thus we believe all 2,093 Consideration shares will be forfeited. Accordingly, the Company recorded a contingent
asset of $3,599 which represents the fair value of the Consideration Shares as of acquisition date. This contingent asset is included
in prepaid expenses and other current assets in the Consolidated Balance Sheet as of December 31, 2017. Upon execution of the claw
back provision prepaid and other current assets and shareholders’ equity will be reduced by $3,599.
The acquisition has been accounted
for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations”. Accounting for
acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition
date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the
acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions
to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where
applicable, our estimates are inherently uncertain and subject to refinement. During the twelve months ended December 31, 2017
the Company recorded measurement period adjustments related to the completion of the valuation of intangible assets, contingent
consideration, the contingent asset associated with the equity claw back and deferred taxes. The Company incurred $1,290 of acquisition-related
costs during the twelve months ended December 31, 2017, which is included as part of general and administrative expense in the
accompanying Consolidated Statements of Operations and Comprehensive Loss. Since the acquisition date of February 17, 2017, CommAgility
contributed $9,646 of net sales to the Company for the twelve months ended December 31, 2017.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Various valuation techniques
were used to estimate the fair value of assets acquired and the liabilities assumed which use significant unobservable inputs,
or Level 3 inputs as defined by the fair value hierarchy. Using these valuation approaches requires the Company to make significant
estimates and assumptions. The
following table summarizes the allocation of the purchase consideration
to the fair value of assets acquired and liabilities assumed at the date of acquisition:
|
Amounts
Recognized as
of Acquisition Date
|
|
|
Measurement Period
Adjustments
|
|
|
Amounts
Recognized as
of Acquisition Date
(as
adjusted)
|
|
Cash at close
|
$
|
11,318
|
|
|
$
|
-
|
|
|
$
|
11,318
|
|
Equity issued at close
|
|
6,000
|
|
|
|
-
|
|
|
|
6,000
|
|
Completion Cash Adjustment
|
|
1,382
|
|
|
|
-
|
|
|
|
1,382
|
|
Deferred Purchase Price
|
|
2,515
|
|
|
|
-
|
|
|
|
2,515
|
|
Contingent Consideration
|
|
2,700
|
|
|
|
(1,946)
|
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
23,915
|
|
|
|
(1,946)
|
|
|
|
21,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
4,567
|
|
|
|
-
|
|
|
|
4,567
|
|
Accounts Receivable
|
|
2,267
|
|
|
|
(33)
|
|
|
|
2,234
|
|
Inventory
|
|
1,126
|
|
|
|
(41)
|
|
|
|
1,085
|
|
Intangible Assets
|
|
9,658
|
|
|
|
(4,541)
|
|
|
|
5,117
|
|
Contingent Asset
|
|
-
|
|
|
|
3,599
|
|
|
|
3,599
|
|
Other Assets
|
|
168
|
|
|
|
-
|
|
|
|
168
|
|
Fixed Assets
|
|
304
|
|
|
|
-
|
|
|
|
304
|
|
Accounts Payable
|
|
(1,172)
|
|
|
|
(2)
|
|
|
|
(1,174)
|
|
Accrued Expenses
|
|
(417)
|
|
|
|
-
|
|
|
|
(417)
|
|
Deferred Revenue
|
|
(639)
|
|
|
|
-
|
|
|
|
(639)
|
|
Deferred Tax Liability
|
|
(1,702)
|
|
|
|
867
|
|
|
|
(835)
|
|
Other Long Term Liabilities
|
|
(339)
|
|
|
|
-
|
|
|
|
(339)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
13,821
|
|
|
|
(151)
|
|
|
|
13,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
10,094
|
|
|
$
|
(1,795)
|
|
|
$
|
8,299
|
|
Goodwill is calculated as the
excess of consideration paid over the net assets acquired and represents synergies, organic growth and other benefits that are
expected to arise from integrating CommAgility into our operations. None of the goodwill recorded in this transaction is expected
to be tax deductible.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The following table summarizes
the activity related to Contingent Consideration and Deferred Purchase Price for the twelve months ended December 31, 2017:
|
|
Contingent
Consideration
|
|
|
Deferred Purchase
Price
|
|
Balance at Beginning of Period
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair Value At Acquisition Date
|
|
|
2,700
|
|
|
|
2,515
|
|
Accretion of Interest
|
|
|
73
|
|
|
|
-
|
|
Payment
|
|
|
-
|
|
|
|
(1,408
|
)
|
Measurement Period Adjustment
|
|
|
(1,946
|
)
|
|
|
-
|
|
Fair Value Adjustment
|
|
|
(253
|
)
|
|
|
-
|
|
Foreign Currency Translation
|
|
|
56
|
|
|
|
123
|
|
Balance as of December 31, 2017
|
|
$
|
630
|
|
|
$
|
1,230
|
|
As of December 31, 2017, $780
of deferred purchase price is included in accrued expenses and other current liabilities on the consolidated balance sheet. As
of December 31, 2017, $630 of contingent consideration and $450 of deferred purchase price is included in other long term liabilities
on the consolidated balance sheet.
Pro Forma Information
(Unaudited)
The following unaudited pro
forma information presents the Company’s operations as if the CommAgility acquisition and related financing activities had
occurred on January 1, 2016. The pro forma information includes the following adjustments (i) amortization of acquired definite-lived
intangible assets; (ii) interest expense incurred in connection with the New Credit Facility (described in further detail in Note
3) used to finance the acquisition of CommAgility; and (iii) inclusion of acquisition-related expenses in the earliest period presented.
The pro forma combined statements of operations are not necessarily indicative of the results of operations as they would have
been had the transaction been effected on the assumed date and are not intended to be a projection of future results.
Pro-forma results for the years
ended December 31, 2017 and 2016 are presented below (in thousands, except per share amounts):
(Unaudited)
|
|
2017
|
|
|
2016
|
|
Net Revenues
|
|
$
|
48,130
|
|
|
$
|
42,988
|
|
Net loss
|
|
$
|
(1,843)
|
|
|
$
|
(2,848)
|
|
Basic net loss per share
|
|
$
|
(0.09)
|
|
|
$
|
(0.14)
|
|
Diluted net loss per share
|
|
$
|
(0.09)
|
|
|
$
|
(0.14)
|
|
NOTE 3
- DEBT
Debt consists of the following:
|
|
December 31, 2017
|
|
Revolver at LIBOR Plus Margin
|
|
$
|
1,183
|
|
Term Loan at LIBOR Plus Margin
|
|
|
646
|
|
Total Debt
|
|
|
1,829
|
|
|
|
|
|
|
Debt Maturing within one year
|
|
|
(1,335)
|
|
Non-current portion of long term debt
|
|
$
|
494
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
In connection with the acquisition
of CommAgility, the Company entered into a Credit Agreement with Bank of America, N.A. (the “Lender”) on February 16,
2017 (the “New Credit Facility”), which provided for a term loan in the aggregate principal amount of $760 (the “Term
Loan”) and an asset based revolving loan (the “Revolver”), which is subject to a Borrowing Base Calculation (as
defined in the New Credit Facility) of up to a maximum availability of $9,000 (“Revolver Commitment Amount”). The borrowing
base is calculated as 85% of Eligible accounts receivable and inventory, as defined, subject to certain caps and limits. The borrowing
base is calculated on a monthly basis. The proceeds of the term loan and revolver were used to finance the acquisition of CommAgility.
In connection with the issuance
of the New Credit Facility, the Company paid lender and legal fees of $215 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.
The Company must repay the Term
Loan in installments of $38 per quarter due on the first day of each fiscal quarter beginning April 1, 2017 and continuing until
the term loan maturity date, on which the remaining balance is due in a final installment. The future principal payments under
the term loan are $152 in 2018 and $494 in 2019. The Term Loan and Revolver are both scheduled to mature on November 16, 2019.
The Term and Revolving Loans
bear interest at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loans and Revolving
Loans 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 New Credit Facility) as of the most recently ended fiscal quarter falling into three levels. If the Company’s
Fixed Charge Coverage Ratio is greater than or equal to 1.25 to 1.00, a margin of 3.25% and 2.75%, respectively, is added to LIBOR
rate with a step up to 3.50% and 3.00%, respectively, if the ratio is greater than or equal 1.00 to 1.00 but less than 1.25 to
1.00 and another step up to 3.75% and 3.25%, respectively, if the ratio is less than 1.00 to 1.00. The Company is also required
to pay a commitment fee on the unused commitments under the Revolver at a rate equal to 0.50% per annum and early termination fee
of (a) 2% of the Revolver Commitment Amount and Term Loan if termination occurs before the first anniversary of the New Credit
Facility or (b) 1% of the Revolver Commitment Amount and Term Loan if termination occurs after the first anniversary of the New
Credit Facility but before the second anniversary of the New Credit Facility. The Company’s interest rate plus margin as
of December 31, 2017 on the New Credit Facility was 4.38% and 4.88% for the revolver and term loan, respectively.
The New Credit Facility is secured
by liens on substantially all of the Company’s and its domestic subsidiaries’ assets including a pledge of 66 2/3%
of the equity interests in the Company’s Foreign Subsidiaries (as defined in the New Credit Facility). The New Credit Facility
contains customary affirmative and negative covenants for a transaction of this type, including, among others, the provision of
annual, quarterly and monthly financial statements and compliance certificates, maintenance of property, insurance, compliance
with laws and environmental matters, restrictions on incurrence of indebtedness, granting of liens, making investments and acquisitions,
paying dividends, entering into affiliate transactions and asset sales. Events of default under the New Credit Facility include
but are not limited to: failure to pay obligations when due, breach or failure of any covenant, insolvency or bankruptcy, materially
misleading representations or warranties, occurrence of a Change in Control (as defined) or occurrence of conditions that have
a Material Adverse Effect (as defined).
On August 3, 2017 the Company
entered into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which amended the definition of EBITDA to exclude
the non-cash inventory adjustment of $1,930 recorded during the three months ended June 30, 2017 and to reduce the pledge of equity
interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of December 31, 2017, and
the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 4 - GOODWILL
AND INTANGIBLE ASSETS
Goodwill consists of the following:
|
|
December 31, 2017
|
|
Beginning Balance
|
|
$
|
1,351
|
|
CommAgility Acquisition
|
|
|
10,094
|
|
Measurement Period Adjustments
|
|
|
(1,795)
|
|
Foreign Currency Translation
|
|
|
610
|
|
Ending Balance
|
|
$
|
10,260
|
|
Intangible assets consist of
the following:
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Foreign Exchange
Translation
|
|
|
Net Carrying
Amount
|
|
Customer Relationships
|
|
$
|
2,766
|
|
|
$
|
(494
|
)
|
|
$
|
178
|
|
|
$
|
2,450
|
|
Patents
|
|
|
615
|
|
|
|
(109
|
)
|
|
|
39
|
|
|
|
545
|
|
Non-Compete Agreements
|
|
|
1,107
|
|
|
|
(334
|
)
|
|
|
69
|
|
|
|
842
|
|
Tradename
|
|
|
629
|
|
|
|
-
|
|
|
|
45
|
|
|
|
674
|
|
Total
|
|
$
|
5,117
|
|
|
$
|
(937
|
)
|
|
$
|
331
|
|
|
$
|
4,511
|
|
Amortization of acquired intangible
assets was $937 for the twelve months ended December 31, 2017. Amortization of acquired intangible assets is included as part of
general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss.
The estimated future amortization
expense related to intangible assets is as follows as of December 31, 2017:
2018
|
|
|
$
|
1,122
|
2019
|
|
|
|
1,122
|
2020
|
|
|
|
776
|
2021
|
|
|
|
726
|
2022
|
|
|
|
91
|
Total
|
|
|
$
|
3,837
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 5 - PROPERTY,
PLANT AND EQUIPMENT
Property, plant and equipment,
consist of the following as of December 31:
|
|
2017
|
|
|
2016
|
|
Machinery & Equipment
|
|
$
|
7,268
|
|
|
$
|
6,392
|
|
Furniture & Fixtures
|
|
|
383
|
|
|
|
140
|
|
Transportation Equipment
|
|
|
2
|
|
|
|
121
|
|
Leasehold Improvements
|
|
|
1,121
|
|
|
|
984
|
|
Gross property, plant and equipment
|
|
|
8,774
|
|
|
|
7,637
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
6,044
|
|
|
|
5,470
|
|
Net property, plant and equipment
|
|
$
|
2,730
|
|
|
$
|
2,167
|
|
Depreciation expense of $682
and $503 was recorded for the years ended December 31, 2017 and 2016, respectively.
NOTE 6 - OTHER
ASSETS
Other assets consist of the
following as of December 31:
|
|
2017
|
|
|
2016
|
|
Long term debt issuance costs
|
|
$
|
69
|
|
|
$
|
-
|
|
Deferred costs
|
|
|
124
|
|
|
|
-
|
|
Product demo assets
|
|
|
431
|
|
|
|
560
|
|
Security deposits
|
|
|
50
|
|
|
|
50
|
|
Other
|
|
|
49
|
|
|
|
50
|
|
Total
|
|
$
|
723
|
|
|
$
|
660
|
|
Product demo assets are net
of accumulated amortization expense of $1,129 and $1,001 as of December 31, 2017 and 2016, respectively. Amortization expense related
to demo assets was $128 and $133 in 2017 and 2016, respectively.
NOTE 7 - ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current
liabilities consist of the following as of December 31:
|
|
2017
|
|
|
2016
|
|
Deferred purchase price
|
|
$
|
780
|
|
|
$
|
-
|
|
Bonus
|
|
|
360
|
|
|
|
-
|
|
Payroll and related benefits
|
|
|
594
|
|
|
|
93
|
|
Commissions
|
|
|
331
|
|
|
|
130
|
|
Severance
|
|
|
244
|
|
|
|
-
|
|
Professional fees
|
|
|
109
|
|
|
|
195
|
|
Sales and use and VAT tax
|
|
|
98
|
|
|
|
113
|
|
Goods received not invoiced
|
|
|
73
|
|
|
|
10
|
|
Other
|
|
|
305
|
|
|
|
132
|
|
Total
|
|
$
|
2,894
|
|
|
$
|
673
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 8 - STOCK
REPURCHASES (in thousands, except per share amounts)
During 2016 under the Company’s
stock repurchase program, the Company repurchased 43 shares of its own common stock pursuant to the program at an aggregate cost
of $65, or $1.52 average cost per share. The 2016 repurchases were funded from available cash. There were no repurchases of common
stock under the stock repurchase program in 2017.
NOTE 9 - ACCOUNTING
FOR SHARE BASED COMPENSATION
The Company follows the provisions
of ASC 718. The Company’s results for the years ended December 31, 2017 and December 31, 2016 include share-based compensation
expense totaling $536 and $699, respectively. Such amounts have been included in the consolidated statement of operations and
comprehensive loss within operating expenses.
During
the twelve months ended December 31, 2017 the Company reversed $473 and $119 in share-based compensation expense for unvested stock
options and restricted shares, respectively, that were forfeited as a result of employees exiting the Company. The total shares
forfeited were 113 restricted shares and 1,147 stock options. The Company had assumed a zero forfeiture rate in prior periods.
Incentive Compensation
Plan
In 2012, the Company’s
Board of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which
provides for the grant of restricted stock awards, non-qualified stock options and incentive stock options in compliance with the
Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected
to contribute to the Company’s future growth and success. When originally approved, the Initial 2012 Plan provided for the
grant of awards relating to 2,000 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 shares of the Company’s common stock to be available
for future grants under the 2012 Plan. As of December 31, 2017, there were 26 shares available for issuance under the 2012 Plan,
including those shares available under the Company’s prior incentive compensation plan as of such date.
All service-based options granted
have ten-year terms from the date of grant and typically vest quarterly or annually and become fully exercisable after a maximum
of five years. However, vesting conditions are determined on a grant by grant basis. Performance-based options granted have ten-year
terms and vest and become fully exercisable when determinable performance targets are achieved. Performance targets are agreed
to, and approved by, the Company’s Compensation Committee of the Board of Directors.
Under the 2012 Plan, options
may be granted to purchase shares of the Company’s common stock exercisable only at prices equal to or above the fair market
value on the date of the grant.
The following summarizes the
components of share-based compensation expense for the years ending December 31:
|
|
2017
|
|
|
2016
|
|
Service - based Restricted Common Stock
|
|
$
|
230
|
|
|
$
|
208
|
|
Performance-based Restricted Common Stock
|
|
|
(62)
|
|
|
|
21
|
|
Performance-based Stock Options
|
|
|
(235)
|
|
|
|
115
|
|
Service -based Stock Options
|
|
|
603
|
|
|
|
355
|
|
|
|
$
|
536
|
|
|
$
|
699
|
|
During
the twelve months ended December 31, 2017 the Company reversed $473 and $119 in share-based compensation expense related to stock
option and restricted share forfeitures, respectively, that occurred in 2017. These forfeitures were related to performance based
stock options and restricted shares that were being amortized through 2020 related to employees that left the Company in 2017.
As of December 31, 2017, $569 of unrecognized compensation costs related to unvested stock options is expected to be recognized
over a remaining weighted average period of 2.8 years and $100 of unrecognized
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
compensation
costs related to unvested restricted shares is expected to be recognized over a remaining weighted average period of 0.6 years.
Restricted Common Stock
Awards
A summary of the status of the
Company’s non-vested restricted common stock, as granted under the Company’s approved equity compensation plans, as
of December 31, 2017, and changes during the twelve months ended December 31, 2017, are presented below (in thousands, except per
share amounts):
|
|
2017
|
|
|
2016
|
|
Non-vested Restricted Shares
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of January 1
|
|
|
244
|
|
|
|
$1.52
|
|
|
|
187
|
|
|
|
$2.01
|
|
Granted
|
|
|
150
|
|
|
|
$1.65
|
|
|
|
188
|
|
|
|
$1.38
|
|
Vested and Issued
|
|
|
(122)
|
|
|
|
($1.73)
|
|
|
|
(101)
|
|
|
|
$2.22
|
|
Forfeited
|
|
|
(113)
|
|
|
|
($1.77)
|
|
|
|
(30)
|
|
|
|
$1.33
|
|
Non-vested as of December 31
|
|
|
159
|
|
|
|
$1.64
|
|
|
|
244
|
|
|
|
$1.52
|
|
The following table summarizes
the restricted common stock awards granted to certain directors and officers of the company during the years ended December 31,
2017 and 2016 under the 2012 Plan (in thousands, except per share amounts):
|
|
Number
of
Shares
|
|
|
Fair
Market
Value per
Granted
Share
|
|
|
Vesting
|
2017
|
|
|
|
|
|
|
|
|
|
|
6/5/17 - Service Grant - BOD
|
|
|
150
|
|
|
|
$1.65
|
|
|
Next Annual Meeting - June 2018
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
11/13/2016 - Service Grant - BOD
|
|
|
15
|
|
|
|
$1.59
|
|
|
Annual Meeting - June 2017
|
11/9/2016 - Service Grant - BOD
|
|
|
15
|
|
|
|
$1.64
|
|
|
Annual Meeting - June 2017
|
6/30/16 - Service Grant - CEO
|
|
|
8
|
|
|
|
$1.34
|
|
|
Quarterly Vesting through June 2020
|
6/8/16 - Service Grant - BOD
|
|
|
120
|
|
|
|
$1.33
|
|
|
Annual Meeting - June 2017
|
2016 Total
|
|
|
158
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Performance-Based Stock Option
Awards
A summary of performance-based
stock option activity, and related information for the year ended December 31, 2017 follows (in thousands, except per share amounts):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding as of January 1
|
|
|
2,165
|
|
|
|
$1.32
|
|
|
|
1,965
|
|
|
|
$1.32
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
|
|
$1.36
|
|
Exercised
|
|
|
(550)
|
|
|
|
$0.75
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,010)
|
|
|
|
$1.69
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31
|
|
|
605
|
|
|
|
$1.21
|
|
|
|
2,165
|
|
|
|
$1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
320
|
|
|
|
$0.95
|
|
|
|
1,090
|
|
|
|
$0.96
|
|
The aggregate intrinsic value
of performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of December 31, 2017
was $741 and the weighted average remaining contractual life was 5.0 years. The aggregate intrinsic value of performance-based
stock options exercisable as of December 31, 2017 was $474 and the weighted average remaining contractual life was 2.3 years. The
intrinsic value of options exercised during the twelve months ended December 31, 2017 was $924.
The range of exercise prices of outstanding performance-based options at December 31, 2017 is $0.75 to $3.02 with a weighted average remaining contractual life of 5.0 years and weighted average exercise price of $1.21 per share.
Under the terms of the performance-based
stock option agreements, the awards will fully vest and become exercisable on the date on which the Company’s Board of Directors
shall have determined that specific financial performance milestones have been met, provided the employee remains in the employ
of the Company at such time; provided, however, upon a Change in Control (as defined in the stock option agreements and the 2012
Plan), the stock options shall automatically vest as permitted by the 2012 Plan. As of December 31, 2017, the Company has determined
that the performance conditions on 285 options granted in 2013 and later are probable of being achieved by the year ending 2021.
The Company’s performance-based stock options granted prior to 2013 (consisting of 320 options) are fully amortized.
Service-Based Stock Option
Awards
A summary of service-based stock
option activity and related information for the year ended December 31, 2017 follows (in thousands, except per share amounts):
|
|
2017
|
|
|
2016
|
|
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding as of January 1
|
|
|
1,198
|
|
|
|
$1.51
|
|
|
|
523
|
|
|
|
$2.23
|
|
Granted
|
|
|
845
|
|
|
|
$1.68
|
|
|
|
1,040
|
|
|
|
$1.41
|
|
Exercised
|
|
|
(8)
|
|
|
|
$1.61
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(137)
|
|
|
|
$1.47
|
|
|
|
(70)
|
|
|
|
$1.33
|
|
Expired
|
|
|
(83)
|
|
|
|
$3.00
|
|
|
|
(295)
|
|
|
|
$2.46
|
|
Outstanding as of December 31
|
|
|
1,815
|
|
|
|
$1.53
|
|
|
|
1,198
|
|
|
|
$1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
567
|
|
|
|
$1.38
|
|
|
|
181
|
|
|
|
$2.09
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The aggregate intrinsic value
of service-based stock options (regardless of whether or not such options are exercisable) as of December 31, 2017 was $1,642 and
the weighted average remaining contractual life was 8.9 years. The aggregate intrinsic value of service-based stock options exercisable
as of December 31, 2017 was $594 and the weighted average remaining contractual life was 8.4 years. The intrinsic value of options
exercised during the twelve months ended December 31, 2017 was $12.
The range of exercise prices of outstanding service-based options at December 31, 2017 is $0.75 to $3.75 with a
weighted average remaining contractual life of 8.9 years and a weighted average option exercise price of $1.53 per share.
The following table presents the
assumptions used to estimate the fair value of stock option awards granted during the twelve months ended December 31, 2017:
|
|
|
Number of
Options
(in thousands)
|
|
|
Option
Term
(in years)
|
|
|
Exercise
Price
|
|
|
Risk Free
Interest
Rate
|
|
|
Expected
Volatility
|
|
|
Fair
Value at
Grant
Date
|
|
|
Expected
Dividend
Yield
|
|
|
1/2/17 - Service Grant
|
|
|
100
|
|
|
|
4
|
|
|
|
$1.91
|
|
|
|
1.94
|
%
|
|
|
77.78
|
%
|
|
$
|
1.11
|
|
|
|
0
|
|
|
1/12/17 - Service Grant
|
|
|
20
|
|
|
|
4
|
|
|
|
$1.92
|
|
|
|
1.87
|
%
|
|
|
77.88
|
%
|
|
$
|
1.11
|
|
|
|
0
|
|
|
2/17 17 - Service Grant
|
|
|
100
|
|
|
|
4
|
|
|
|
$1.72
|
|
|
|
1.92
|
%
|
|
|
72.01
|
%
|
|
$
|
0.94
|
|
|
|
0
|
|
|
5/22/17 - Service Grant
|
|
|
35
|
|
|
|
4
|
|
|
|
$1.38
|
|
|
|
1.80
|
%
|
|
|
68.93
|
%
|
|
$
|
0.73
|
|
|
|
0
|
|
|
6/5/17 - Service Grant
|
|
|
350
|
|
|
|
1
|
|
|
|
$1.65
|
|
|
|
1.74
|
%
|
|
|
69.02
|
%
|
|
$
|
0.46
|
|
|
|
0
|
|
|
6/5/17 - Service Grant
|
|
|
200
|
|
|
|
4
|
|
|
|
$1.65
|
|
|
|
1.74
|
%
|
|
|
69.02
|
%
|
|
$
|
0.87
|
|
|
|
0
|
|
|
6/15/17 - Service Grant
|
|
|
40
|
|
|
|
4
|
|
|
|
$1.60
|
|
|
|
1.76
|
%
|
|
|
69.09
|
%
|
|
$
|
0.84
|
|
|
|
0
|
|
NOTE 10 - SEGMENT
AND RELATED INFORMATION
Financial information by
segment
The operating businesses of the
Company are segregated into three reportable segments: (i) Network solutions (ii) Test and measurement and (iii) Embedded solutions.
The network solutions segment is comprised primarily of the operations of the Company’s subsidiary, Microlab. The test and
measurement segment is comprised primarily of the Company’s operations of the Noisecom product line and the operations of
its subsidiary, Boonton. The embedded solutions segment is comprised of the operations of CommAgility Limited which was acquired
on February 17, 2017.
The accounting policies of the
reportable segments are the same as those described in the summary of significant accounting policies. The Company allocates resources
and evaluates the performance of segments based on income or loss from operations, excluding interest, corporate expenses and other
income (expenses).
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Financial information by reportable
segment as of and for the years ended December 31, 2017 and 2016 is presented below:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net sales by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
23,052
|
|
|
$
|
20,199
|
|
Test and measurement
|
|
|
13,380
|
|
|
|
11,128
|
|
Embedded solutions
|
|
|
9,646
|
|
|
|
-
|
|
Total consolidated net sales of reportable segments
|
|
$
|
46,078
|
|
|
$
|
31,327
|
|
|
|
|
|
|
|
|
|
|
Segment income:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
2,935
|
|
|
$
|
2,486
|
|
Test and measurement
|
|
|
431
|
|
|
|
(248
|
)
|
Embedded solutions
|
|
|
374
|
|
|
|
-
|
|
Income from reportable segments
|
|
|
3,740
|
|
|
|
2,238
|
|
|
|
|
|
|
|
|
|
|
Other unallocated amounts:
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(6,685
|
)
|
|
|
(4,786
|
)
|
Other (expenses) income - net
|
|
|
(301
|
)
|
|
|
364
|
|
Consolidated (loss) before
|
|
|
|
|
|
|
|
|
income tax provision (benefit)
|
|
$
|
(3,246
|
)
|
|
$
|
(2,184
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
297
|
|
|
$
|
255
|
|
Test and measurement
|
|
|
393
|
|
|
|
248
|
|
Embedded solutions
|
|
|
1,057
|
|
|
|
-
|
|
Total depreciation and amortization for reportable segments
|
|
$
|
1,747
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
426
|
|
|
$
|
464
|
|
Test and measurement
|
|
|
300
|
|
|
|
355
|
|
Embedded solutions
|
|
|
201
|
|
|
|
-
|
|
Total consolidated capital expenditures by reportable segment
|
|
$
|
927
|
|
|
$
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Total assets by segment:
|
|
|
|
|
|
|
|
|
Network solutions
|
|
$
|
10,442
|
|
|
$
|
10,595
|
|
Test and measurement
|
|
|
6,163
|
|
|
|
7,851
|
|
Embedded solutions
|
|
|
21,733
|
|
|
|
-
|
|
Total assets for reportable segments
|
|
|
38,338
|
|
|
|
18,446
|
|
|
|
|
|
|
|
|
|
|
Corporate assets, principally cash and cash equivalents and deferred income taxes
|
|
|
8,583
|
|
|
|
16,989
|
|
Total consolidated assets
|
|
$
|
46,921
|
|
|
$
|
35,435
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Regional Revenues
Net consolidated revenues from
operations by region were as follows:
|
|
Twelve Months Ended
|
|
|
December 31
|
|
|
2017
|
|
|
2016
|
|
Sales by region
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
33,440
|
|
|
$
|
24,155
|
|
Europe, Middle East, Africa (EMEA)
|
|
|
9,506
|
|
|
|
5,132
|
|
Asia Pacific (APAC)
|
|
|
3,132
|
|
|
|
2,040
|
|
Total revenues
|
|
$
|
46,078
|
|
|
$
|
31,327
|
|
Net revenues are attributable
to a geographic area based on the destination of the product shipment, which may not be the final geographic destination of our
international distributors’ end customer.
The majority of shipments in the
Americas are to customers located within the United States. For the years ended December 31, 2017 and 2016, sales in the United
States amounted to $31,924 and $23,269, respectively.
Shipments to the EMEA region for
all reportable segments were largely concentrated in the UK, Israel and Germany. For the year ended December 31, 2017 shipments
to the UK, Germany and Israel amounted $5,634, $878 and $789, respectively. For the year ended December 31, 2016, sales to the
UK, Germany and Israel amounted to $769, $716 and $1,178, respectively.
The largest concentration of shipments
in the APAC region is to China. For the years ended December 31, 2017 and 2016, shipments to China amounted to $963 and $1,104,
of all shipments to the APAC region, respectively. There were no other shipments significantly concentrated in one country in the
APAC region.
NOTE 11 -
RETIREMENT PLAN
The Company has a 401(k) profit
sharing plan covering all eligible U.S. employees. Company contributions to the plan for the years ended December 31, 2017 and
2016 amounted to $255 and $378, respectively.
NOTE 12 -
INCOME TAXES
On December 22, 2017, the United
States enacted TCJA which instituted fundamental changes to the taxation of multinational corporations, including a reduction the
U.S. corporate income tax rate to 21% beginning in 2018. The Company has recognized $1,247 net tax expense for the year ended 2017
which includes $2,481 deferred tax expense from revaluing the Company’s deferred tax assets to reflect the new U.S. corporate
tax rate. The TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of the
Company’s foreign subsidiary as of December 31, 2017. To determine the amount of this transition tax, the Company must determine
the amount of earnings generated since inception by the relevant foreign subsidiary, as well as the amount of non-U.S. income taxes
paid on such earnings, in addition to potentially other factors. The Company’s earnings and profits from its foreign subsidiary
under the transition tax calculation is offset by net operating losses thus no transition tax is payable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The components of income tax expense
(benefit) related to income (loss) from operations are as follows:
|
|
Years Ended December 31,
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4)
|
|
|
$
|
-
|
|
State
|
|
|
22
|
|
|
|
37
|
|
Foreign
|
|
|
(166)
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,672
|
|
|
|
(340
|
)
|
State
|
|
|
(275)
|
|
|
|
(49)
|
|
Foreign
|
|
|
(2)
|
|
|
|
-
|
|
Total
|
|
$
|
1,247
|
|
|
$
|
(352)
|
|
The following is a reconciliation
of the maximum statutory federal tax rate to the Company’s effective tax relative to operations:
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
|
% of
Pre Tax
Earnings
|
|
% of
Pre Tax
Earnings
|
Statutory federal income tax rate
|
|
|
(34.0)
|
%
|
|
|
(34.0)
|
%
|
Changes in tax rates
|
|
|
67.4
|
|
|
|
-
|
|
Permanent differences
|
|
|
7.9
|
|
|
|
6.9
|
|
Repatriation tax - new law
|
|
|
4.8
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
4.4
|
|
|
|
11.9
|
|
Research and development incentive
|
|
|
(6.7)
|
|
|
|
-
|
|
State income tax net of federal tax benefit
|
|
|
(3.5)
|
|
|
|
1.7
|
|
Foreign rate difference
|
|
|
(1.5)
|
|
|
|
-
|
|
Other
|
|
|
(0.4)
|
|
|
|
(2.6)
|
|
Total
|
|
|
38.4
|
%
|
|
|
(16.1)
|
%
|
In 2017 the difference between
the statutory and effective tax rate is primarily due to the change in tax rates under TCJA. In 2016 the difference between the
statutory and the effective tax rate is primarily due to a change in valuation allowance and a current provision for state income
taxes, respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The components of deferred income
taxes are as follows:
|
|
Years Ended December 31,
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
11,979
|
|
|
$
|
12,559
|
|
Inventory
|
|
|
909
|
|
|
|
786
|
|
Research and development credit
|
|
|
648
|
|
|
|
-
|
|
Stock compensation
|
|
|
165
|
|
|
|
-
|
|
Other
|
|
|
108
|
|
|
|
184
|
|
Goodwill and intangible assets
|
|
|
(1,147)
|
|
|
|
(541)
|
|
Fixed assets
|
|
|
(439)
|
|
|
|
(122)
|
|
Gross deferred tax asset
|
|
|
12,223
|
|
|
|
12,866
|
|
Less valuation allowance
|
|
|
(7,051)
|
|
|
|
(5,462)
|
|
Net deferred tax asset
|
|
$
|
5,172
|
|
|
$
|
7,404
|
|
The Company has a domestic federal
and state net operating loss carryforward at December 31, 2017 of approximately $19,537 and $44,998, respectively, which expires
in 2029. The Company also has a foreign net operating loss carryforward at December 31, 2017 of approximately Euro 12,845 for German
corporate tax and German trade tax purposes.
Realization of the Company’s
deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in
future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating
losses. The Company’s valuation allowances of $7,051 and $5,462 at December 31, 2017 and 2016, respectively, are primarily
associated with the Company’s foreign net operating loss carryforward from an inactive foreign entity, state net operating
loss carryforward and a state research and development credit. The amount of deferred tax assets considered realizable is subject
to adjustment in future periods if estimates of future taxable income are changed. As of December 31, 2017, management believes
that is more likely than not that the Company will fully realize the benefits of its deferred tax assets associated with its domestic
federal net operating loss carryforward.
The Company does not have any
significant unrecognized tax positions and does not anticipate significant increase or decrease in unrecognized tax positions within
the next twelve months.
NOTE 13 –
FAIR VALUE MEASUREMENTS
Fair value is defined by ASC 820
“Fair Value Measurement” as the price that would be received upon selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs
and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
•
|
Level 1 - Quoted prices in active markets for identical assets and liabilities.
|
|
•
|
Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
•
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
Payment of a portion of the CommAgility
purchase price is contingent on the achievement of certain financial targets for the years ending December 31, 2017 and 2018. The
Company estimated the fair value of contingent consideration at acquisition date to be $754. During the three months ended the
December 31, 2017 the Company reassessed the fair value of the contingent consideration and recorded a gain in the amount of $253
as it was determined that the financial targets would not be met for the year ended December 31, 2017. The significant inputs used
in the fair value estimate include anticipated gross revenues and Adjusted EBITDA, as defined, and scenarios for the earn-out periods
for which probabilities are assigned to each scenario to arrive at a single estimated outcome. The estimated outcome is then discounted
based on individual risk analysis of the liability which was 15% at December 31, 2017 and is expected to be paid in March 2019.
As of December
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
31, 2017 the Company’s contingent
consideration liability is $630 and is recorded in other long term liabilities on the consolidated balance sheet. The contingent
consideration liability is considered a Level 3 fair value measurement.
NOTE 14 -
COMMITMENTS AND CONTINGENCIES
Warranties
The Company typically provides
one to three year warranties on all of its products covering both parts and labor. The Company, at its option, repairs or replaces
products that are defective during the warranty period if the proper preventive maintenance procedures have been followed by its
customers.
Operating Leases
The Company leases a 45,700 square
foot facility in Parsippany, New Jersey which has a term ending March 31, 2023 and is currently being used as the Company’s
principal headquarters and manufacturing plant. The Company is also responsible for its proportionate share of the cost of utilities,
repairs, taxes and insurance.
Monthly lease payments range from
approximately $33 in year one to approximately $41 in year eight. Additionally, the Company had available an allowance of approximately
$300 towards alterations and improvements to the premises, which expired on January 31, 2017. The Company used substantially all
of the improvement allowance prior to its expiration. The lease can be renewed at the Company’s option for one five-year
period at fair market value to be determined at term expiration.
Pursuant to the Share Purchase
Agreement dated February 17, 2017 the Company assumed leases for office space in Leicestershire, England consisting of 4,900 square
feet and Duisburg, Germany consisting of 7,446 square feet. The Leicestershire lease expires in November 2020 and the Duisburg
lease is renewable every three months.
The future minimum facility lease
payments are shown below:
2018
|
|
$
|
528
|
|
2019
|
|
|
511
|
|
2020
|
|
|
460
|
|
2021
|
|
|
474
|
|
2022
|
|
|
488
|
|
Thereafter
|
|
|
123
|
|
Total
|
|
$
|
2,584
|
|
Rent expense, inclusive of common
area maintenance charges, for the years ended December 31, 2017 and 2016 was $796 and $585, respectively.
The Company leases certain equipment
under operating lease arrangements. These operating leases expire in various years through 2022. All leases may be renewed at the
end of their respective leasing periods.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The future minimum operating lease
payments are shown below:
2018
|
|
$
|
54
|
|
2019
|
|
|
54
|
|
2020
|
|
|
54
|
|
2021
|
|
|
54
|
|
2022
|
|
|
9
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
225
|
|
Environmental Contingencies
The Company’s operations
are subject to various federal, state, local, and foreign environmental laws, ordinances and regulations that limit discharges
into the environment, establish standards for the handling, generation, use, emission, release, discharge, treatment, storage and
disposal of, or exposure to, hazardous materials, substances and waste, and require cleanup of contaminated soil and groundwater.
The New Jersey Department of Environmental
Protection (the “NJDEP”) conducted an investigation in 1982 concerning disposal at a facility previously leased by
the Company’s Boonton operations. The focus of the investigation involved certain materials formerly used by Boonton’s
manufacturing operations at that site and the possible effect of such disposal on the aquifer underlying the property. The disposal
practices and the use of the materials in question were discontinued in 1978. The Company has cooperated with the NJDEP investigation
and has been diligently pursuing the matter in an attempt to resolve it in accordance with applicable NJDEP operating procedures.
The above referenced activities were conducted by Boonton prior to our acquisition of that entity in 2000.
In 1982, Boonton and the NJDEP
agreed upon a plan to correct ground water contamination at the site, located in the township of Parsippany-Troy Hills, pursuant
to which wells have been installed by Boonton. The plan contemplates that the wells will be operated and that soil and water samples
will be taken and analyzed until such time that contamination levels are satisfactory to the NJDEP. In 2014, the Company received
approval for a groundwater permit from the NJDEP to carry out the final remedial action work plan and report. Under the final phase
of the plan, there will be limited and reduced monitoring and testing as long as concentrations at the site continue on a decreasing
trend.
Expenditures incurred by the Company
during the year ended December 31, 2017 and 2016 in connection with monitoring and testing at the site amounted to approximately
$1 and $18, respectively. While management anticipates that the expenditures in connection with this site will not be substantial
in future years, the Company could be subject to significant future liabilities and may incur significant future expenditures if
further contaminants from Boonton’s testing are identified and the NJDEP requires additional remediation activities. Our
estimate of future remediation costs is $41 through 2027 when we expect final release from the NJDEP. The Company will continue
to be liable under the plan, in all future years, until such time as the NJDEP releases the Company from all obligations.
In December 2016, the Company
and its subsidiary, Boonton, entered into an agreement with an insurance company to settle prior disputes between the parties related
to whether insurance policies were issued by a former insurer and whether they provided coverage for expenses arising from the
NJDEP environmental matter. Under the terms of the settlement agreement, the Company received a payment in the amount of $485 for
full and final settlement of any and all further insurance claims.
At this time, the Company believes
that it is in material compliance with all environmental laws, does not anticipate any material expenditure to meet current or
pending environmental requirements, and generally believes that its processes and products do not present any unusual environmental
concerns. Besides the matter referred to above with the NJDEP, the Company is unaware of any existing, pending or threatened contingent
environmental liability that may have a material adverse effect on its ongoing business operations.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Risks and Uncertainties
Proprietary information and know-how
are important to the Company’s commercial success. There can be no assurance that others will not either develop independently
the same or similar information or obtain and use proprietary information of the Company. Certain key employees have signed confidentiality
and non-compete agreements regarding the Company’s proprietary information.
The Company believes that its
products do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not
assert infringement claims in the future.
The Company’s deferred tax
asset is recorded at tax rates expected to be in existence when those assets are utilized. Should the tax rates change materially
in the future the amount of deferred tax asset could be materially impacted.
NOTE
15 -
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
The following is a summary of
selected quarterly financial data from operations (in thousands, except per share amounts).
2017
|
|
Quarter
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
Net revenues
|
|
$
|
9,549
|
|
|
$
|
11,933
|
|
|
$
|
12,560
|
|
|
$
|
12,036
|
|
Gross Profit
|
|
|
4,333
|
|
|
|
3,344
|
|
|
|
6,113
|
|
|
|
5,471
|
|
Operating income (loss)
|
|
|
(1,719)
|
|
|
|
(2,269)
|
|
|
|
782
|
|
|
|
261
|
|
Net income (loss)
|
|
|
(1,231)
|
|
|
|
(1,368)
|
|
|
|
653
|
|
|
|
(2,547)
|
|
Diluted net income (loss) per share
|
|
|
($0.06)
|
|
|
|
($0.07)
|
|
|
|
$0.03
|
|
|
|
($0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Quarter
|
|
|
|
1st
|
|
|
|
2nd
|
|
|
|
3rd
|
|
|
|
4th
|
|
Net revenues
|
|
$
|
6,368
|
|
|
$
|
7,610
|
|
|
$
|
8,345
|
|
|
$
|
9,004
|
|
Gross Profit
|
|
|
2,720
|
|
|
|
3,339
|
|
|
|
3,823
|
|
|
|
3,280
|
|
Operating income (loss)
|
|
|
(921)
|
|
|
|
(353)
|
|
|
|
268
|
|
|
|
(1,542)
|
|
Net income (loss)
|
|
|
(576)
|
|
|
|
(218)
|
|
|
|
121
|
|
|
|
(1,159)
|
|
Diluted net income (loss) per share
|
|
|
($0.03)
|
|
|
|
($0.01)
|
|
|
|
$0.01
|
|
|
|
($0.06)
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None.