In periods with a net loss, the basic loss per
share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they
are anti-dilutive.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 - Summary of Significant Accounting Principles and Policies
Basis of Presentation and Preparation
Wireless Telecom Group, Inc., a New
Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”),
is a global designer and manufacturer of advanced radio frequency (“RF”) and microwave components, modules, systems
and instruments and currently markets its products and services worldwide under the Boonton, Microlab, Noisecom and CommAgility
brands. Serving the wireless, telecommunication, satellite, military, aerospace, and semiconductor industries, Wireless Telecom
Group products enable innovation across a wide range of traditional and emerging wireless technologies. With a unique set of high-performance
products including peak power meters, signal analyzers, signal processing modules, long-term evolution (“LTE”) physical
layer (“PHY”) and stack software, power splitters and combiners, global positioning system (“GPS”) splitters
and repeaters, public safety monitors, noise sources, and programmable noise generators, Wireless Telecom Group supports the development,
testing, and deployment of wireless technologies around the globe.
The Condensed Consolidated Balance
Sheet as of September 30, 2018, the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three
and nine months ended September 30, 2018 and 2017, the Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2018 and 2017 and the Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended September
30, 2018 have been prepared by the Company without audit. The Condensed Consolidated Financial Statements include the accounts
of Wireless Telecom Group, Inc., doing business as and operating under the trade name, Noisecom, and its wholly owned subsidiaries
including Boonton Electronics Corporation (“Boonton”), Microlab/FXR (“Microlab”), Wireless Telecommunications
Ltd. and CommAgility Limited (“CommAgility”). All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications of certain prior year amounts have been made to conform to the current year presentation.
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.
It is suggested that these Interim
Condensed Consolidated Financial Statements be read in conjunction with the Audited Consolidated Financial Statements, and the
notes thereto, included in the Company’s latest Annual Report (Form 10-K).
Condensed Consolidated Financial
Statements
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, 2017. Specific reference is made to that report since certain information and footnote disclosures normally
included in financial statements in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) have been reduced for interim periods in accordance with SEC rules.
The results of operations for the three
and nine months period ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year
ending December 31, 2018.
Use of Estimates
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, intangible assets,
estimated fair values of stock options and estimated fair values of acquired assets and liabilities in business combinations) and
disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of net revenues and
expenses during the reporting period. Actual results could differ from those estimates.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 Condensed Consolidated Statement 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 Income/(Loss).
Concentration Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
The majority of the Company’s cash balance is held outside of the US.
Credit evaluations are performed on
customers requiring credit over a certain amount. Credit risk is mitigated to a lesser extent through collateral such as letters
of credit, bank guarantees or payment terms like cash in advance.
For the three and nine months ended
September 30, 2018, one customer accounted for approximately 23% and 21% of the Company’s consolidated revenues, respectively.
For the three and nine months ended September 30, 2017, one customer accounted for approximately 13% and 10% of the Company’s
consolidated revenues, respectively. At September 30, 2018, one customer exceeded 10% of consolidated gross accounts receivable
at 33%. At December 31, 2017, two customers exceeded 10% of consolidated gross accounts receivable at 18% and 11%, respectively.
Fair Value of Financial Instruments
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs
used in the valuation methodologies in measuring fair value:
Level 1—Quoted prices in active
markets for identical assets or liabilities.
Level 2—Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument
within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Company’s
financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due
to their relatively short maturities. The Company’s term loan and revolving credit facility bear interest at a variable interest
rate plus an applicable margin and, therefore, carrying amount approximates fair value.
Contingent Consideration
Under the terms of the CommAgility
Share Purchase Agreement 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”). The financial targets for 2017
were not achieved therefore there was no earn-out payment made in the nine months ended September 30, 2018. As of December 31,
2017, the Company estimated the fair value of the contingent consideration remaining to be paid based on the 2018 financial results
to be $0.6 million. The Company is required to reassess the fair value of the contingent consideration at each reporting period.
The significant inputs used in this
fair value estimate include CommAgility gross revenues and Adjusted EBITDA, as defined, scenarios for the earn-out periods for
which probabilities are assigned to each scenario to arrive at a single
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
estimated outcome. The estimated outcome
is then discounted based on individual risk analysis of the liability. Although the Company believes its estimates and assumptions
are reasonable, different assumptions, including those regarding the operating results of CommAgility or changes in the future,
may result in different estimated amounts.
During the nine months ended September
30, 2018 the Company recorded a loss on change in fair value of contingent consideration liability of $0.2 million as a result
of the improved financial forecast at CommAgility as compared to prior estimates. As of September 30, 2018, the Company’s
contingent consideration liability has been estimated at $0.9 million and is recorded in other current liabilities in the accompanying
condensed consolidated balance sheet. The Company will satisfy this obligation, if ultimately earned by the CommAgility sellers,
with a cash payment to the sellers of CommAgility upon the achievement of the financial targets for 2018. The contingent consideration
liability is considered a Level 3 fair value measurement.
Subsequent Events
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, and the notes thereto, through the date the financial statements were issued.
NOTE 2 – Accounting Pronouncements
Recently Adopted Accounting Standards
On January 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“Topic
606”), using the “modified retrospective” method, meaning the standard is applied only to the most current period
presented in the financial statements. Furthermore, we elected to apply the standard only to those contracts which were not completed
as of the date of the adoption. Results for reporting periods beginning on the date of adoption are presented under Topic 606,
while prior period amounts have not been adjusted and continue to be reported in accordance with accounting standards in effect
for those periods (see Note 3).
Upon adoption, a cumulative effect
adjustment of $0.4 million was made and the impact resulted in an increase to the January 1, 2018 opening balance of retained earnings.
The adjustment was based on customer-specific contracts in effect at December 31, 2017 and reflects revenue that would have been
recognized in 2018 in accordance with Accounting Standard Codification (“ASC”) Topic 605,
Revenue Recognition
,
and Subtopic 985,
Software
, collectively referred to as “Topic 605”. The beginning balance of deferred revenue
decreased by $0.3 million representing amounts that were invoiced to customers and not recognized and prepaid and other current
assets increased by $0.2 million representing unbilled receivables recognized under Topic 606. Further, accounts receivable increased
$0.2 million as the contra accounts receivable balance representing estimated product returns was reclassified to other current
liabilities.
The most significant impact of Topic
606 relates to the Company’s accounting for software license agreements which have multiple deliverables. Under Topic 605
the Company could not establish vendor specific objective evidence of fair value (“VSOE”) for its undelivered elements
and therefore was not able to separate its delivered software licenses from its future undelivered software license releases. Topic
606 no longer requires separability of promised goods, such as software licenses, on the basis of VSOE. Rather, Topic 606 requires
the Company to identify the performance obligations in the contract — that is, those promised goods and services (or bundles
of promised goods or services) that are distinct — and allocate the transaction price of the contract to those performance
obligations on the basis of estimated standalone selling prices (“SSPs”). For these arrangements, the Company will
recognize revenue for each deliverable at a point in time when control is transferred to the customer since each deliverable has
standalone value.
The primary impact of adopting the
new standard results in an acceleration of revenues recognized for the aforementioned multiple deliverable software license arrangements,
which are primarily in the Embedded Solutions segment. These multiple deliverable arrangements represented less than 2% of total
consolidated revenues for the year ended December 31, 2017.
The timing of revenue recognition for
digital signal processing hardware in the Embedded Solutions segment, radio frequency solutions in the Network Solutions segment
and noise generators and components and power meters and analyzers and related services in the Test and Measurement segment remains
substantially unchanged.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following line items in our Condensed
Consolidated Statement of Operations and Comprehensive Income/(Loss) for the current reporting period and Condensed Consolidated
Balance Sheet as of September 30, 2018 have been provided to reflect both the adoption of Topic 606 as well as a comparative presentation
in accordance with Topic 605 previously in effect (dollars in thousands):
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS AND
COMPREHENSIVE
INCOME
|
|
As Reported (in
Accordance with
ASC Topic 606)
|
|
Balances Without
Adoption of
ASC Topic 606
|
|
Impact of
Adoption
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
14,019
|
|
|
$
|
14,127
|
|
|
$
|
(108)
|
|
Operating income
|
|
|
919
|
|
|
|
1,027
|
|
|
|
(108)
|
|
Net income/(loss)
|
|
|
558
|
|
|
|
666
|
|
|
|
(108)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND
COMPREHENSIVE INCOME
|
|
As Reported (in
Accordance with
ASC Topic 606)
|
|
Balances Without
Adoption of
ASC Topic 606
|
|
Impact of
Adoption
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
40,697
|
|
|
$
|
40,499
|
|
|
$
|
198
|
|
Operating income
|
|
|
1,521
|
|
|
|
1,323
|
|
|
|
198
|
|
Net income/(loss)
|
|
|
752
|
|
|
|
554
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
As Reported (in
Accordance with
ASC Topic 606)
|
|
Balances Without
Adoption of
ASC Topic 606
|
|
Impact of
Adoption
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
1,180
|
|
|
$
|
1,180
|
|
|
$
|
-
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
230
|
|
|
|
816
|
|
|
|
(586)
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
8,349
|
|
|
|
7,763
|
|
|
|
586
|
|
In January 2017, the Financial Accounting
Standards Board (“FASB”) issued ASU 2017-01,
Business Combinations (Topic 805): 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 adopted this standard
on January 1, 2018 and will apply the standard to any future business combinations.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments
, 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 is effective for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years and early adoption is permitted. The Company adopted this standard on January 1, 2018, and it had no material
impact on our financial statements.
Except for the change in accounting
policies for revenue recognition as a result of adopting Topic 606, there have been no other changes to our significant accounting
policies as described in the 2017 Form 10-K that had a material impact on our condensed consolidated financial statements and related
notes.
Recent Accounting Pronouncements
Not Yet Adopted
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
, which creates new accounting and reporting guidelines for leasing arrangements. The new guidance
requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations
created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance,
the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification
as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand
the amount, timing, and uncertainty of cash flows arising from leases. 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 Company is currently evaluating
its population of leases which includes its current operating leases included in its commitment schedules as well as any embedded
leases. The Company does anticipate recognition of additional assets and corresponding liabilities related to leases upon adoption,
but has not yet quantified these as this time. The Company is continuing to assess all potential impacts of ASU 2016-02, including
ASU 2018-10
Codification Improvements to Topic 842, Leases
. During the continued assessment, the Company may identify additional
impacts this ASU will have on its financial statements and related disclosures. The Company plans to adopt the standard effective
January 1, 2019 but has not selected a transitional method and it is reviewing all practical expedients.
On June 20, 2018, the FASB issued ASU
2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
ASU
2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees.
This ASU expands the scope of ASC
Topic
718,
Compensation - Stock Compensation
, which currently only includes share-based payments issued to employees,
to also include share-based payments issued to nonemployees for goods and services. Consequently, the accounting for share-based
payments to nonemployees and employees will be substantially aligned. ASU 2018-07 supersedes ASC
Subtopic
505-50, Equity - Equity-Based Payments to Non-Employees
. The amendments in this ASU are effective for public companies
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted,
but no earlier than a company’s adoption date of Topic 606. The Company does not expect the adoption of this standard to
have a material impact on our financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326)
. ASU 2016-13 changes the impairment model for most financial assets
and will require the use of an “expected loss” model for instruments measured as amortized cost. This pronouncement
is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Company
plans to adopt the standard effective January 1, 2020. We are currently in the process of evaluating the effects of this pronouncement
on our consolidated financial statements.
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
(Topic 820)
. ASU 2018-13 eliminates, modifies and adds disclosure requirements for fair value measurements. This pronouncement
is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early
adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial
statements, including potential early adoption.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
In August 2018, the FASB issued ASU
2018-15,
Intangibles – Goodwill and Other – Internal-Use Software, Customers Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That is a Service Contract.
ASU 2018-15 aligns the requirements for capitalizing
implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop
or obtain internal-use software. This pronouncement is effective for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2019, with early adoption permitted. We are currently in the process of evaluating the effects
of this pronouncement on our consolidated financial statements, including potential early adoption.
NOTE 3 – Revenue
Revenue is recognized upon transfer
of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects
to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over
time or at a point in time. Revenue from performance obligations that transferred at a point in time accounted for approximately
95% of the Company’s total revenue for the three and nine months ended September 30, 2018.
Nature of Products and Services
Hardware
The Company generally has one performance
obligation in its arrangements involving the sales of radio frequency solutions in the Network Solutions segment, digital signal
processing hardware in the Embedded Solutions segment and noise generators and components and power meter and analyzers in the
Test and Measurement segment. When the terms of a contract include the transfer of multiple products, each distinct product is
identified as a separate performance obligation. Generally, satisfaction occurs when control of the promised goods is transferred
to the customer in exchange for consideration in an amount for which we expect to be entitled. Generally, control is transferred
when legal title of the asset moves from the Company to the customer. We sell our products to a customer based on a purchase order,
and the shipping terms per each individual order are primarily used to satisfy the single performance obligation. However, in order
to determine control has transferred to the customer, the Company also considers:
|
·
|
when the Company has a present right to payment for the asset
|
|
·
|
when the Company has transferred physical possession of the asset to the customer
|
|
·
|
when the customer has the significant risks and rewards of ownership of the asset
|
|
·
|
when the customer has accepted the asset
|
Software
Arrangements involving licenses of
software in the Embedded Solutions segment may involve multiple performance obligations, most notably subsequent releases of the
software. The Company has concluded that each software release in a multiple deliverable arrangement in the Embedded Solutions
segment is a distinct performance obligation and, accordingly, transaction price is allocated to each release when the customer
obtains control of the software.
Performance obligations that are not distinct
at contract inception are combined. Specifically, with the Company’s sales of software, contracts that include customization
may result in the combination of the customization services with the license as one distinct performance obligation and recognized
over time. The duration of these performance obligations are typically one year or less.
Services
Arrangements involving calibration and repair services in
the Company’s Test and Measurement segment are generally considered a single performance obligation and are recognized as
the services are rendered.
Shipping and Handling
Shipping and handling activities performed after the customer
obtains control are accounted for as fulfillment activities and recognized as cost of revenues.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Significant Judgments
For the Company’s more complex
software and services arrangements significant judgment is required in determining whether licenses and services are distinct
performance obligations that should be accounted for separately, or, are not distinct, and thus accounted for together. Further,
in cases where we determine that performance obligations should be accounted for separately, judgment is required to determine
the standalone selling price for each distinct performance obligation.
Certain of the Company shipments
include a limited return right. In accordance with Topic 606 the Company recognizes revenue net of expected returns.
Contract Balances
The timing of revenue recognition
may differ from the timing of invoicing to customers and these timing differences result in contract assets or contract liabilities
(deferred revenue) on the Company’s condensed consolidated balance sheet. The Company records a contract asset when revenue
is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Contract assets are
recorded in prepaid expenses and other current assets and are $0.2 million and $0.2 million as of September 30, 2018 and December
31, 2017 (as adjusted), respectively. Deferred revenue is $0.2 million and $0.3 million as of September 30, 2018 and December
31, 2017 (as adjusted), respectively.
Disaggregated Revenue
We disaggregate our revenue from contracts with customers
by product family and geographic location for each of our segments as we believe it best depicts how the nature, timing and uncertainty
of our revenue and cash flows are affected by economic factors. See details in the tables below (dollars in thousands).
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
|
|
Network
Solutions
|
|
Test and
Measurement
|
|
Embedded
Solutions
|
|
Total
|
|
Network
Solutions
|
|
Test and
Measurement
|
|
Embedded
Solutions
|
|
Total
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive RF Components
|
|
$
|
6,034
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,034
|
|
|
$
|
17,181
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,181
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
1,549
|
|
|
|
-
|
|
|
|
1,549
|
|
|
|
-
|
|
|
|
4,636
|
|
|
|
-
|
|
|
|
4,636
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
1,795
|
|
|
|
-
|
|
|
|
1,795
|
|
|
|
-
|
|
|
|
5,349
|
|
|
|
-
|
|
|
|
5,349
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
3,357
|
|
|
|
3,357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,818
|
|
|
|
9,818
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
703
|
|
|
|
703
|
|
Services
|
|
|
-
|
|
|
|
339
|
|
|
|
753
|
|
|
|
1,092
|
|
|
|
-
|
|
|
|
995
|
|
|
|
2,015
|
|
|
|
3,010
|
|
Total Net Revenue
|
|
$
|
6,034
|
|
|
$
|
3,683
|
|
|
$
|
4,302
|
|
|
$
|
14,019
|
|
|
$
|
17,181
|
|
|
$
|
10,980
|
|
|
$
|
12,536
|
|
|
$
|
40,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
5,232
|
|
|
$
|
2,949
|
|
|
$
|
795
|
|
|
$
|
8,976
|
|
|
$
|
14,369
|
|
|
$
|
7,706
|
|
|
$
|
2,980
|
|
|
$
|
25,055
|
|
EMEA
|
|
|
612
|
|
|
|
305
|
|
|
|
3,269
|
|
|
|
4,186
|
|
|
|
2,044
|
|
|
|
1,268
|
|
|
|
9,119
|
|
|
|
12,431
|
|
APAC
|
|
|
190
|
|
|
|
429
|
|
|
|
238
|
|
|
|
857
|
|
|
|
768
|
|
|
|
2,006
|
|
|
|
437
|
|
|
|
3,211
|
|
Total Net Revenue
|
|
$
|
6,034
|
|
|
$
|
3,683
|
|
|
$
|
4,302
|
|
|
$
|
14,019
|
|
|
$
|
17,181
|
|
|
$
|
10,980
|
|
|
$
|
12,536
|
|
|
$
|
40,697
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
|
|
Network
Solutions
|
|
Test and
Measurement
|
|
Embedded
Solutions
|
|
Total
|
|
Network
Solutions
|
|
Test and
Measurement
|
|
Embedded
Solutions
|
|
Total
|
Total Net Revenues by Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passive RF Components
|
|
$
|
6,428
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,428
|
|
|
$
|
17,560
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,560
|
|
Noise Generators and Components
|
|
|
-
|
|
|
|
968
|
|
|
|
-
|
|
|
|
968
|
|
|
|
-
|
|
|
|
3,783
|
|
|
|
-
|
|
|
|
3,783
|
|
Power Meters and Analyzers
|
|
|
-
|
|
|
|
2,659
|
|
|
|
-
|
|
|
|
2,659
|
|
|
|
-
|
|
|
|
5,665
|
|
|
|
-
|
|
|
|
5,665
|
|
Signal Processing Hardware
|
|
|
-
|
|
|
|
-
|
|
|
|
1,351
|
|
|
|
1,351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,704
|
|
|
|
3,704
|
|
Software Licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164
|
|
|
|
164
|
|
Services
|
|
|
-
|
|
|
|
274
|
|
|
|
877
|
|
|
|
1,151
|
|
|
|
-
|
|
|
|
806
|
|
|
|
2,360
|
|
|
|
3,166
|
|
Total Net Revenue
|
|
$
|
6,428
|
|
|
$
|
3,901
|
|
|
$
|
2,231
|
|
|
$
|
12,560
|
|
|
$
|
17,560
|
|
|
$
|
10,254
|
|
|
$
|
6,228
|
|
|
$
|
34,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues by Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
5,828
|
|
|
$
|
3,255
|
|
|
$
|
1,000
|
|
|
$
|
10,083
|
|
|
$
|
15,300
|
|
|
$
|
7,431
|
|
|
$
|
2,612
|
|
|
$
|
25,343
|
|
EMEA
|
|
|
493
|
|
|
|
277
|
|
|
|
1,176
|
|
|
|
1,946
|
|
|
|
1,800
|
|
|
|
1,245
|
|
|
|
3,522
|
|
|
|
6,567
|
|
APAC
|
|
|
107
|
|
|
|
369
|
|
|
|
55
|
|
|
|
531
|
|
|
|
460
|
|
|
|
1,578
|
|
|
|
94
|
|
|
|
2,132
|
|
Total Net Revenue
|
|
$
|
6,428
|
|
|
$
|
3,901
|
|
|
$
|
2,231
|
|
|
$
|
12,560
|
|
|
$
|
17,560
|
|
|
$
|
10,254
|
|
|
$
|
6,228
|
|
|
$
|
34,042
|
|
NOTE 4 – Prepaid Expenses and Other Current Assets
Prepaid expenses and other current
assets generally consist of income tax receivables, prepaid insurance, prepaid maintenance agreements and the short-term portion
of debt issuance costs. As of December 31, 2017, prepaid and other current assets included a $3.6 million contingent asset representing
the fair value of consideration shares issued in connection with the CommAgility acquisition. Under the claw back provision of
the Share Purchase Agreement (see Note 5) the consideration shares were forfeited in March 2018 and are no longer outstanding.
Accordingly, prepaid expenses and other current assets decreased by $3.6 million from December 31, 2017. The forfeited shares
are recorded as treasury stock in the condensed consolidated statement of shareholders’ equity as of September 30, 2018.
NOTE 5 – Acquisition of CommAgility
On February 17, 2017, Wireless
Telecommunications, Ltd. (the “Acquisition Subsidiary”), a company incorporated in England and Wales which is a wholly
owned subsidiary of Wireless Telecom Group, Inc., completed the acquisition of all the issued shares in CommAgility from CommAgility’s
founders. The Acquisition was completed pursuant to the terms of a Share Purchase Agreement, dated February 17, 2017, and entered
into by and among the Company, the Acquisition Subsidiary and the founders. The Company paid $11.3 million in cash on acquisition
date and issued 3,487,528 shares of newly issued Company common stock (“Consideration Shares”) with an acquisition
date fair value of $6.0 million. In addition to the acquisition date cash purchase price the sellers were paid an additional $2.5
million in the form of deferred purchase price payable in installments beginning in March 2017 through January 2019 and were paid
an additional purchase price adjustment based on working capital and cash levels of $1.4 million. Lastly, the sellers could have
earned an additional £10.0 million in purchase price if certain financial targets were met for the years ending December
31, 2017 and December 31, 2018. (See Note 1).
Pursuant to the Share Purchase
Agreement, 2,092,516 of the Consideration Shares were subject to forfeiture and return to the Company if (a) 2017 Adjusted EBITDA,
as defined, generated by CommAgility is less than £2.4 million; or (b) 2018 Adjusted EBITDA, as defined, generated by CommAgility
is less than £2.4 million (in each case as determined by an audit of CommAgility conducted by the accountants of the Acquisition
Subsidiary in accordance with the terms of the Share Purchase Agreement). In March 2018 all consideration shares were forfeited
as the 2017 EBITDA threshold was not achieved.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following table summarizes the activity related
to contingent consideration and deferred purchase price for the nine months ended September 30, 2018 (dollars in thousands):
|
|
Contingent Consideration
|
|
Deferred Purchase
Price
|
Balance at December 31, 2017
|
|
$
|
630
|
|
|
$
|
1,230
|
|
Accretion of Interest
|
|
|
130
|
|
|
|
-
|
|
Payment
|
|
|
-
|
|
|
|
(805)
|
|
Fair Value Adjustment
|
|
|
213
|
|
|
|
-
|
|
Foreign Currency Translation
|
|
|
(29)
|
|
|
|
9
|
|
Balance as of September 30, 2018
|
|
$
|
944
|
|
|
$
|
434
|
|
As of September 30, 2018, the
contingent consideration liability and deferred purchase price are included in accrued expenses and other current liabilities
on the Condensed Consolidated Balance Sheet.
NOTE 6 – Income Taxes
The Company records deferred taxes
in accordance with ASC 740, “
Accounting for Income Taxes
.” ASC 740 requires recognition of deferred tax assets
and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried
in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse.
The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company periodically assesses the value of its deferred tax assets and determines the necessity for a valuation allowance.
Realization of the Company’s
deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in
future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating
losses. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future
taxable income are changed.
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 of the U.S. corporate income tax rate to 21% beginning in
2018 and a new category of income called Global Intangible Low-Taxed Income (“GILTI”). The Company’s income
tax provision for the nine months ended September 30, 2018 includes estimates related to its interpretation of the TCJA in accordance
with SEC Staff Accounting Bulletin No. 118 (“SAB 118”) specifically related to the Company’s GILTI calculation.
These estimates may change as additional clarification and implementation guidance is released.
The effective rate
of income tax provision of 31.5% for the nine months ended September 30, 2018 was higher than the statutory rates in the United
States and United Kingdom primarily due to the impact of global intangible low-taxed income or “GILTI” related to
our controlled foreign corporation offset by research and development deductions in the UK and non-qualified stock option deductions
in the U.S.
NOTE 7 - Earnings Per Share
Basic earnings 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 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, unvested restricted shares and the weighted-average number of restricted stock units outstanding for
the period. In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents
are excluded from the per share calculation because they are anti-dilutive. In accordance with ASC 260, “Earnings Per Share”,
the following table reconciles basic shares outstanding to fully diluted shares outstanding.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
20,972,092
|
|
20,235,876
|
|
20,819,773
|
|
19,799,219
|
|
Potentially dilutive shares
|
|
582,913
|
|
586,419
|
|
762,585
|
|
824,986
|
|
Weighted-average common shares outstanding, assuming dilution
|
|
21,555,005
|
|
20,822,295
|
|
21,582,358
|
|
20,624,205
|
|
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.
For the three and nine month
period ended September 30, 2018 the option exercise price of all outstanding options was lower than the average market price thus
included in the potentially dilutive shares in the table above. For the three and nine month period September 30, 2017, the weighted-average
number of options to purchase common stock not included in diluted loss per share, because the effects are anti-dilutive, was
2,810,143 and 3,198,238 respectively.
NOTE 8 – Inventories
Inventory carrying value is net
of inventory reserves of $1.8 million and $1.9 million at September 30, 2018 and December 31, 2017, respectively.
Inventories consist of:
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Raw Materials
|
|
$
|
3,895
|
|
|
$
|
3,231
|
|
Work-in-Process
|
|
|
564
|
|
|
|
631
|
|
Finished Goods
|
|
|
2,997
|
|
|
|
2,664
|
|
|
|
$
|
7,456
|
|
|
$
|
6,526
|
|
NOTE 9 – Goodwill and Intangible Assets
The Company’s goodwill balance
of $9.9 million at September 30, 2018 relates to two of the Company’s reporting units, Network Solutions ($1.4 million)
and Embedded Solutions ($8.5 million). Management’s qualitative assessment performed in the fourth quarter of 2017 did not
indicate any impairment of goodwill as each reporting units fair value was estimated to be in excess of its carrying value. Furthermore,
no events have occurred since then that would change this assessment.
Goodwill consists of the following
(dollars in thousands):
Beginning Balance
|
|
$
|
10,260
|
|
Foreign Currency Translation
|
|
|
(311)
|
|
Ending Balance
|
|
$
|
9,949
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Intangible assets consist
of the following (dollars in thousands):
|
|
September 30, 2018
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Exchange
Translation
|
|
Net Carrying
Amount
|
Customer Relationships
|
|
$
|
2,766
|
|
|
$
|
(941)
|
|
|
$
|
109
|
|
|
$
|
1,935
|
|
Patents
|
|
|
615
|
|
|
|
(209)
|
|
|
|
24
|
|
|
|
430
|
|
Non-Compete Agreements
|
|
|
1,107
|
|
|
|
(632)
|
|
|
|
51
|
|
|
|
526
|
|
Tradename
|
|
|
629
|
|
|
|
-
|
|
|
|
23
|
|
|
|
651
|
|
Total
|
|
$
|
5,117
|
|
|
$
|
(1,782)
|
|
|
$
|
207
|
|
|
$
|
3,542
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Exchange
Translation
|
|
Net Carrying
Amount
|
Customer Relationships
|
|
$
|
2,766
|
|
|
$
|
(494)
|
|
|
$
|
178
|
|
|
$
|
2,450
|
|
Patents
|
|
|
615
|
|
|
|
(109)
|
|
|
|
39
|
|
|
|
545
|
|
Non-Compete Agreements
|
|
|
1,107
|
|
|
|
(334)
|
|
|
|
69
|
|
|
|
842
|
|
Tradename
|
|
|
629
|
|
|
|
-
|
|
|
|
45
|
|
|
|
674
|
|
Total
|
|
$
|
5,117
|
|
|
$
|
(937)
|
|
|
$
|
331
|
|
|
$
|
4,511
|
|
Amortization of acquired intangible
assets was $0.3 million and $0.8 million for the three and nine months ended September 30, 2018, respectively. Amortization of
acquired intangible assets is included as part of general and administrative expenses in the accompanying Condensed Consolidated
Statements of Operations and Comprehensive Income/(Loss).
The estimated future amortization
expense related to intangible assets is as follows as of September 30, 2018 (dollars in thousands):
Remainder 2018
|
|
$
|
271
|
|
2019
|
|
|
1,083
|
|
2020
|
|
|
748
|
|
2021
|
|
|
701
|
|
2022
|
|
|
87
|
|
Total
|
|
$
|
2,890
|
|
NOTE 10 – Debt
Debt consists of the following
(in thousands):
|
|
September 30, 2018
|
Revolver at LIBOR Plus Margin
|
|
$
|
2,548
|
|
Term Loan at LIBOR Plus Margin
|
|
|
532
|
|
Total Debt
|
|
|
3,080
|
|
Debt Maturing within one year
|
|
|
(2,700)
|
|
Non-current portion of long term debt
|
|
$
|
380
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with the acquisition
of CommAgility, the Company entered into a Credit Agreement with Bank of America, N.A. (the “Lender”) on February 16,
2017 (the “Credit Facility”), which provided for a term loan in the aggregate principal amount of $0.8 million (the “Term
Loan”) and an asset based revolving loan (the “Revolver”), which is subject to a Borrowing Base Calculation (as
defined in the Credit Facility), of up to a maximum availability of $9.0 million (“Revolver Commitment Amount”). The
borrowing base is calculated as 85% of eligible accounts receivable and inventory, as defined, subject to certain caps and limits.
The borrowing base is calculated on a monthly basis. The proceeds of the term loan and revolver were used to finance the acquisition
of CommAgility.
In connection with the issuance of
the Credit Facility, the Company
paid lender and legal fees of $0.2 million which were primarily
related to the Revolver and are capitalized and presented as other current and non-current assets in the Condensed 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 $38,000 per quarter due on the first day of each fiscal quarter
beginning April
1, 2017 and continuing until the term loan maturity date, on which the remaining balance is due in a final installment.
The future principal payments under the term loan are $38,000 in 2018 and $0.5 million in 2019.
The Term Loan and Revolver are both scheduled to mature on
November 16, 2019.
The Term and Revolver Loans bear interest
at the LIBOR rate plus a margin. The margin on the outstanding balance of the Company’s Term Loans and Revolver Loans were
fixed at
3.50% and 3.00%
per annum, respectively, through September
30, 2017. Thereafter, the margins were subject to increase or decrease by Lender on the first day of each of the Borrowers’
fiscal quarters based upon the Fixed Charge Coverage Ratio (as defined in the Credit Facility) as of the most recently ended fiscal
quarter falling into one of three levels. If the Company’s Fixed Charge Coverage Ratio is greater than or equal to 1.25 to 1.00,
a margin of 3.25% and 2.75%, respectively, is added to LIBOR rate with a step up to 3.50% and 3.00%, respectively, if the ratio
is greater than or equal 1.00 to 1.00 but less than 1.25 to 1.00 and another step up to 3.75% and 3.25%, respectively, if the ratio
is less than 1.00 to 1.00.
The Company is also required to pay a commitment fee on the unused commitments
under the Revolver at a rate equal to 0.50% per annum and early termination fee of (a) 2% of the Revolver Commitment Amount and
Term Loan if termination occurs before the first anniversary of the Credit Facility or (b) 1% of the Revolver Commitment Amount
and Term Loan if termination occurs after the first anniversary of the Credit Facility but before the second anniversary of the
Credit Facility. The Company’s interest rate plus margin as of September 30, 2018 on the Credit Facility was 5.00% and 5.50%
for the Revolver and Term Loan, respectively. The Company’s interest rate plus margin as of December 31, 2017 on the Credit
Facility was 4.38% and 4.88% for the Revolver and Term Loan, respectively.
The Credit Facility is secured by liens
on substantially all of the Company’s and its domestic subsidiaries’ assets including a pledge of 66 1/3% of the equity
interests in the Company’s Foreign Subsidiaries (as defined in the Credit Facility). The Credit Facility contains customary
affirmative and negative covenants for a transaction of this type, including, among others, the provision of annual, quarterly
and monthly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental
matters, restrictions on incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends,
entering into affiliate transactions and asset sales. Events of default under the Credit Facility include but are not limited to:
failure to pay obligations when due, breach or failure of any covenant, insolvency 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 Credit Facility, effective June 30, 2017, which amended the definition of “EBITDA” to exclude
the non-cash inventory adjustment of $1.9 million 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 September 30, 2018, and the date
hereof, the Company is in compliance with the covenants of the Credit Facility.
NOTE 11 - Accounting for Share-based Compensation
The Company’s results for the
three and nine month period ended September 30, 2018 includes $0.2 million and $0.5 million related to share-based compensation
expense, respectively. Such amounts have been included in the Condensed Consolidated Statement of Operations and Comprehensive
Income/(Loss) within general and administrative expenses in operating expenses. The Company accounts for forfeitures when they
occur.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Incentive Compensation Plan:
In 2012, the Company’s Board
of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which provides
for the grant of equity, including restricted stock awards, restricted stock units, non-qualified stock options and incentive stock
options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors
of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial
2012 Plan provided for the grant of awards relating to 2 million shares of common stock, plus those shares subject to awards previously
issued under the Company’s 2000 Stock Option Plan that expire, are canceled or are terminated after adoption of the Initial
2012 Plan without having been exercised in full and would have been available for subsequent grants under the 2000 Stock Option
Plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012
Plan”) allowing for an additional 1.6 million shares of the Company’s common stock to be available for future grants
under the 2012 Plan. The 2012 Plan provides that if awards are forfeited, expire or otherwise terminate without issuance of the
shares underlying the awards, or if the award does not result in issuance of all or part of the shares underlying the award, the
unissued shares are again available for awards under the 2012 Plan. As a result of certain award forfeitures and cancellations,
as of September 30, 2018, there are approximately 2.2 million shares available for issuance under the 2012 Plan.
All service-based (time vesting) options
granted have ten-year terms from the date of grant and typically vest annually and become fully exercisable after a maximum of
five years. However, vesting conditions are determined on a grant by grant basis. Performance-based options granted have ten-year
terms and vest and become fully exercisable when determinable performance targets are achieved. Performance targets are approved
by the Company’s compensation committee of the Board of Directors. Under the 2012 Plan, options may be granted to purchase
shares of the Company’s common stock exercisable only at prices equal to or above the fair market value on the date of the
grant.
As
of September 30, 2018, $0.3 million of unrecognized compensation costs related to unvested stock options is expected to be recognized
over a remaining weighted average period of 2.3 years and $0.3 million of unrecognized compensation costs related to unvested restricted
stock awards/units is expected to be recognized over a remaining weighted-average period of 1.7 years.
Restricted Common Stock Awards:
A summary of the status of the Company’s
non-vested restricted common stock awards, granted under the Company’s shareholder approved equity compensation plans, as
of September 30, 2018, and changes during the nine months ended September 30, 2018, are presented below:
|
|
Number
of Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
Non-vested as of December 31
|
|
159,207
|
|
$1.64
|
Granted
|
|
75,000
|
|
$2.01
|
Vested and Issued
|
|
(151,563)
|
|
$1.64
|
Forfeited
|
|
-
|
|
-
|
Non-vested as of September 30
|
|
82,644
|
|
$1.97
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Restricted Stock Units:
On
June 5
th
, 2018 the Company granted 25,000 Restricted Stock Units (“RSU”) to each of our five non-employee
board members under the 2012 Plan. Each RSU represents the Company’s obligation to issue one share of the Company’s
common stock subject to the RSU award agreement and 2012 Plan. The grant date fair value was $2.25 per share and the RSU’s
vest on the day before the first anniversary of the grant date or, if earlier, the effective date of a separation of service due
to death or disability, provided the board member has rendered continuous service to the Company as a member of the board of directors
from grant date to vesting date. Once vested the RSU will be settled by delivery of shares to the board member no later than 30
days following: 1) the third anniversary of the grant date, 2) separation from service following, or coincident with, a vesting
date, or 3) a change in control.
A
summary of restricted stock unit activity for the nine months ended September 30, 2018 follows:
|
|
Number
of
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
Non-vested as of December 31
|
|
-
|
|
-
|
Granted
|
|
125,000
|
|
$2.25
|
Vested and Issued
|
|
-
|
|
-
|
Forfeited
|
|
-
|
|
-
|
Non-vested as of September 30
|
|
125,000
|
|
$2.25
|
Performance-Based Stock Option
Awards:
A summary of performance-based stock
option activity, and related information for the nine months ended September 30, 2018 follows:
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
Outstanding as of December 31
|
|
605,000
|
|
$1.21
|
Granted
|
|
-
|
|
-
|
Exercised
|
|
(300,000)
|
|
$0.96
|
Forfeited
|
|
-
|
|
-
|
Expired
|
|
-
|
|
-
|
Outstanding as of September 30
|
|
305,000
|
|
$1.45
|
|
|
|
|
|
Exercisable at September 30
|
|
20,000
|
|
$0.78
|
The aggregate intrinsic value of performance-based
stock options outstanding (regardless of whether or not such options are exercisable) as of September 30, 2018 was $0.1 million
and the weighted-average remaining contractual life was 6.8 years. The aggregate intrinsic value of performance-based stock options
exercisable as of September 30, 2018 was $20,800 and the weighted-average remaining contractual life was 2.2 years. The intrinsic
value of options exercised during the nine months ended September 30, 2018 was $0.4 million.
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 September 30, 2018, the Company has determined
that the performance conditions on 285,000 options granted in 2013 and later are probable of being achieved by the year ending
2021. The Company’s performance-based stock options granted prior to 2013 (consisting of 20,000 options) are fully amortized.
Service-Based Stock Option Awards:
A summary of service-based stock option
activity and related information for the nine months ended September 30, 2018 follows:
|
|
Number
of
Options
|
|
Weighted
Average
Exercise Price
|
Outstanding as of December 31
|
|
1,815,000
|
|
$1.53
|
Granted
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
-
|
Forfeited
|
|
-
|
|
-
|
Expired
|
|
-
|
|
-
|
Outstanding as of September 30
|
|
1,815,000
|
|
$1.53
|
|
|
|
|
|
Exercisable at September 30
|
|
1,187,917
|
|
$1.50
|
The aggregate intrinsic value of service-based
stock options (regardless of whether or not such options are exercisable) as of September 30, 2018 was $ 0.5 million and the weighted
average remaining contractual life was 8.1 years. The aggregate intrinsic value of service-based stock options exercisable as of
September 30, 2018 was $0.4 million and the weighted average remaining contractual life was 8.1 years.
NOTE 12 – SEGMENT INFORMATION
The operating businesses of the Company
are segregated into three reportable segments: (i) Network Solutions, (ii) Test and Measurement and (iii) Embedded Solutions.
Network Solutions
The Network Solutions segment is comprised
primarily of the operations of the Company’s subsidiary, Microlab. Network Solutions designs and manufactures a wide selection
of RF passive components and integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets,
particularly for small cell deployments, distributed antenna systems (“DAS”), the in-building wireless solutions industry
and radio base-station market. Network Solutions also offers active solution sets to assist in network timing for tunnels and in-building
wireless signaling. Network Solutions customers include telecommunications service providers, systems integrators, neutral host
operators and distributors.
Test and Measurement
The Test and Measurement segment is
comprised primarily of the Company’s operations of the Noisecom product line and the operations of its subsidiary, Boonton.
Noisecom designs and produces noise generation equipment and instruments, calibrated noise sources, noise modules and diodes. Noise
components and instruments are used as a method to provide wide band signals for sophisticated telecommunication and defense applications,
and as a stable reference standard for instruments and systems, including radar and satellite communications. Boonton products
are also used to test terrestrial and satellite communications, radar and telemetry. Certain power meter products are designed
for measuring signals based on wideband modulation formats, allowing a variety of measurements to be
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
made, including maximum power,
peak power, average power and minimum power. Customers of the Test and Measurement segment include large defense contractors and
the U.S. and foreign governments.
Embedded Solutions
The Embedded Solutions segment is comprised
of the operations of CommAgility Limited which was acquired on February 17, 2017. Embedded Solutions supplies signal processing
technology for network validation systems supporting LTE and emerging 5G networks. Additionally, this segment licenses, implements
and configures LTE PHY layer and stack software for private LTE networks supporting satellite communications, the military and
aerospace industries. Customers include wireless communication test equipment companies, defense subcontractors and global technology
and services companies.
The accounting policies of the reportable
segments are the same as those described in the summary of significant accounting policies. The Company allocates resources and
evaluates the performance of segments based on income or loss from operations, excluding interest, corporate expenses and other
income (expenses).
Financial information by reportable
segment for the respective periods is set forth below (in thousands):
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net Sales by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
6,034
|
|
|
$
|
6,428
|
|
|
$
|
17,181
|
|
|
$
|
17,560
|
|
Test and Measurement
|
|
|
3,683
|
|
|
|
3,901
|
|
|
|
10,980
|
|
|
|
10,254
|
|
Embedded Solutions
|
|
|
4,302
|
|
|
|
2,231
|
|
|
|
12,536
|
|
|
|
6,228
|
|
Total Consolidated Net Sales of Reportable Segments
|
|
$
|
14,019
|
|
|
$
|
12,560
|
|
|
$
|
40,697
|
|
|
$
|
34,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income/(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
1,229
|
|
|
$
|
1,424
|
|
|
$
|
2,799
|
|
|
$
|
2,003
|
|
Test and Measurement
|
|
|
590
|
|
|
|
770
|
|
|
|
1,515
|
|
|
|
253
|
|
Embedded Solutions
|
|
|
565
|
|
|
|
41
|
|
|
|
1,448
|
|
|
|
(113
|
)
|
Income/(Loss) from Reportable Segments
|
|
|
2,384
|
|
|
|
2,235
|
|
|
|
5,762
|
|
|
|
2,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Unallocated Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Expenses
|
|
|
(1,465
|
)
|
|
|
(1,453
|
)
|
|
|
(4,242
|
)
|
|
|
(5,348
|
)
|
Other (Expenses)/Income - net
|
|
|
(175
|
)
|
|
|
(72
|
)
|
|
|
(421
|
)
|
|
|
(234
|
)
|
Consolidated Income/(Loss) Before Income Tax Provision/(Benefit)
|
|
$
|
744
|
|
|
$
|
710
|
|
|
$
|
1,099
|
|
|
$
|
(3,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
115
|
|
|
$
|
106
|
|
|
$
|
424
|
|
|
$
|
312
|
|
Test and Measurement
|
|
|
115
|
|
|
|
97
|
|
|
|
412
|
|
|
|
285
|
|
Embedded Solutions
|
|
|
307
|
|
|
|
83
|
|
|
|
937
|
|
|
|
749
|
|
Total Depreciation and Amortization for Reportable Segments
|
|
$
|
537
|
|
|
$
|
286
|
|
|
$
|
1,773
|
|
|
$
|
1,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
28
|
|
|
$
|
107
|
|
|
$
|
311
|
|
|
$
|
250
|
|
Test and Measurement
|
|
|
2
|
|
|
|
95
|
|
|
|
131
|
|
|
|
201
|
|
Embedded Solutions
|
|
|
19
|
|
|
|
68
|
|
|
|
191
|
|
|
|
137
|
|
Total Consolidated Capital Expenditures by Reportable Segment
|
|
$
|
49
|
|
|
$
|
270
|
|
|
$
|
633
|
|
|
$
|
588
|
|
WIRELESS TELECOM GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
September 30,
2018
|
|
December 31,
2017
|
Total Assets by Segment:
|
|
|
|
|
|
|
|
|
Network Solutions
|
|
$
|
11,176
|
|
|
$
|
10,442
|
|
Test and Measurement
|
|
|
6,658
|
|
|
|
6,163
|
|
Embedded Solutions
|
|
|
18,418
|
|
|
|
21,733
|
|
Total Assets for Reportable Segments
|
|
|
36,252
|
|
|
|
38,338
|
|
|
|
|
|
|
|
|
|
|
Corporate Assets, principally cash and cash equivalents and deferred income taxes
|
|
|
10,344
|
|
|
|
8,583
|
|
Total Consolidated Assets
|
|
$
|
46,596
|
|
|
$
|
46,921
|
|
Consolidated net sales by region were as
follows:
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Sales by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
8,976
|
|
|
$
|
10,083
|
|
|
$
|
25,055
|
|
|
$
|
25,343
|
|
Europe, Middle East, Africa (EMEA)
|
|
|
4,186
|
|
|
|
1,946
|
|
|
|
12,431
|
|
|
|
6,567
|
|
Asia Pacific (APAC)
|
|
|
857
|
|
|
|
531
|
|
|
|
3,211
|
|
|
|
2,132
|
|
Total Sales
|
|
$
|
14,019
|
|
|
$
|
12,560
|
|
|
$
|
40,697
|
|
|
$
|
34,042
|
|
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 September 30, 2018 and 2017, revenues in
the United States for all reportable segments amounted to $8.7 million and $9.7 million, respectively. For the nine months ended
September 30, 2018 and 2017, revenue in the United States for all reportable segments amounted to $24.5 million and $24.1 million,
respectively.
Shipments for the three months
ended September 30, 2018 to the EMEA region for all reportable segments were largely concentrated in the UK and Italy at $3.5 million
and $0.2 million, respectively. For the three months ended September 30, 2017 shipments were largely concentrated in UK and Germany
at $1.3 million and $0.2 million, respectively. Shipments for the nine months ended September 30, 2018 to the EMEA region for all
reportable segments were largely concentrated in the UK and Italy at $9.3 million and $0.4 million, respectively. For the nine
months ended September 30, 2017 shipments to the UK, Germany and Israel amounted to $4.1 million, $0.7 million and $0.4 million,
respectively.
The largest concentration of shipments
in the APAC region is to China. For the three month period ending September 30, 2018 and 2017, shipments to China amounted to $0.4
million and $0.2 million, respectively. For the nine month period ending September 30, 2018 and 2017, shipments to China amounted
to $1.9 million and $0.8 million, respectively.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
There have been no material changes in our commitments
and contingencies and risks and uncertainties as of September 30, 2018 from that as previously disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2017.