UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

OR

 

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                        to                                       

 

Commission file number

1-11916

 

 

WIRELESS TELECOM GROUP, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey		22-2582295
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)
25 Eastmans Road Parsippany, New Jersey		07054
(Address of Principal Executive Offices)		(Zip Code)

 

(973) 386-9696

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Number of shares of Common Stock outstanding as of July 26, 2017: 22,381,874

WIRELESS TELECOM GROUP, INC.
Table of Contents

 

Item 1 – Financial Statements	3
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4 – CONTROLS AND PROCEDURES	32
PART II – OTHER INFORMATION	33
Item 1. LEGAL PROCEEDINGS	33
Item 1A. RISK FACTORS	33
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	33
Item 3. DEFAULTS UPON SENIOR SECURITIES	33
Item 5. OTHER INFORMATION	33
Item 6. EXHIBITS	33
SIGNATURES	35

PART 1 – FINANCIAL INFORMTION
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

Item 1 – Financial Statements

 

		June 30				December 31,
Assets		2017				2016
		(unaudited)
CURRENT ASSETS
Cash & cash equivalents		$	2,814,839			$	9,350,803
Accounts receivable - net of reserves of $6,892 and $10,740, respectively			6,866,188				5,183,869
Inventories - net of reserves of $2,572,851 and $1,549,089, respectively			7,326,706				8,452,751
Prepaid expenses and other current assets			2,563,984				866,035
TOTAL CURRENT ASSETS			19,571,717				23,853,458
PROPERTY PLANT AND EQUIPMENT - NET			2,410,918				2,166,566
OTHER ASSETS
Goodwill			8,879,991				1,351,392
Acquired Intangible Assets, net			9,351,256				-
Deferred income taxes			8,895,791				7,403,600
Other long term assets			784,826				660,119
TOTAL OTHER ASSETS			27,911,864				9,415,111
TOTAL ASSETS			49,894,499				35,435,135
Liabilities and Shareholders’ Equity
CURRENT LIABILITIES
Short term debt		$	1,674,426				-
Accounts payable			3,414,665				2,986,797
Accrued expenses and other current liabilities			4,739,720				673,067
Deferred Revenue			385,731				-
TOTAL CURRENT LIABILITIES			10,214,542				3,659,864
LONG TERM LIABILITIES
Long term debt			570,000				-
Other long term liabilities			1,516,916				69,058
Deferred Tax Liability			1,590,150				-
TOTAL LONG TERM LIABILITIES			3,677,067				69,058
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued			-				-
Common stock, $.01 par value, 75,000,000 shares authorized, 33,416,752 and 29,786,224 shares issued, 22,381,874 and 18,751,346 shares outstanding			334,167				297,862
Additional paid in capital			46,846,617				40,563,002
Retained earnings			9,069,252				11,668,829
Treasury stock at cost, - 11,034,878 and 11,034,878 shares, respectively			(20,823,480	)			(20,823,480	)
Accumulated Other Comprehensive Income			576,334				-
TOTAL SHAREHOLDERS’ EQUITY			36,002,890				31,706,213
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	49,894,499			$	35,435,135

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
(unaudited)

 

		Three Months Ended								Year to Date Ended
		June 30								June 30
		2017				2016				2017				2016
NET REVENUES		$	11,933,174			$	7,610,104			$	21,481,932			$	13,978,519
COST OF REVENUES			8,589,013				4,271,214				13,805,262				7,919,515
GROSS PROFIT			3,344,161				3,338,890				7,676,670				6,059,004
Operating Expenses
Research and development			1,129,809				1,029,941				2,216,723				2,094,262
Sales and marketing			1,662,652				1,236,081				3,214,738				2,487,257
General and administrative			2,820,816				1,426,256				6,233,307				2,751,524
Total Operating Expenses			5,613,277				3,692,278				11,664,768				7,333,043
Other income/(expense)			(1,674	)			(9,913	)			(3,220	)			(51,517	)
Interest Expense			(109,627	)			(353	)			(158,846	)			(353	)
Income/(Loss) Before Taxes			(2,380,417	)			(363,653	)			(4,150,164	)			(1,325,909	)
Tax Provision/(Benefit)			(1,012,286	)			(145,461	)			(1,550,587	)			(531,389	)
Net (Loss)/Income		$	(1,368,131	)		$	(218,192	)		$	(2,599,577	)		$	(794,520	)
Other Comprehensive Income/(Loss):
Foreign currency translation adjustments			635,242				-				576,334				-
Comprehensive (Loss)		$	(732,889	)		$	(218,192	)		$	(2,023,243	)		$	(794,520	)
Net (Loss)/Income Per Common Share:
Basic		$	(0.07	)		$	(0.01	)		$	(0.13	)		$	(0.04	)
Diluted		$	(0.07	)		$	(0.01	)		$	(0.13	)		$	(0.04	)
Weighted Average Shares Outstanding:
Basic			19,765,101				18,622,116				19,577,271				18,614,350
Diluted			19,765,101				18,622,116				19,577,271				18,614,350

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WIRELESS TELECOM GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the Six Months
		Ended June 30,
		2017				2016
CASH FLOWS PROVIDED/USED BY OPERATING ACTIVITIES
Net income (loss)		$	(2,599,577	)		$	(794,520	)
Adjustments to reconcile net income (loss) to net cash provided/(used) by operating activities:
Depreciation and amortization			1,059,355				232,696
Amortization of debt issuance fees			28,758				-
Share-based compenation expense			283,872				197,238
Deferred rent			13,215				19,302
Deferred income taxes			(1,492,191	)			(531,389	)
Provision for doubtful accounts			(3,848	)			(38,646	)
Inventory reserves			1,278,036				121,369
Changes in assets and liabilities:
Accounts receivable			657,526				798,730
Inventories			1,005,156				(719,034	)
Prepaid expenses and other assets			84,385				84,203
Accounts payable			(771,055	)			302,650
Accrued expenses and other current liabilities			944,532				(137,824	)
Net cash provided/(used) by operating activities			488,164				(465,225	)
CASH FLOWS (USED) BY INVESTING ACTIVITIES
Capital expenditures			(318,074	)			(502,023	)
Proceeds from asset disposal			7,397				-
Acquisition of business net of cash acquired			(8,842,122	)			-
Net cash (used by) investing activities			(9,152,799	)			(502,023	)
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES
Revolver borrowings			15,794,004				-
Revolver repayments			(14,271,578	)			-
Term loan borrowings			760,000				-
Term loan repayments			(38,000	)			-
Debt issuance fees			(215,358	)			-
Proceeds from exercise of stock options			37,500				-
Repayments of equipment lease payable			-				(79,180	)
Repurchase of common stock - 42,995 shares			-				(65,468	)
Net cash provided/(used by) financing activities			2,066,568				(144,648	)
Effect of exchange rate changes on cash and cash equivalents			62,103				-
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(6,535,964	)			(1,111,893	)
Cash and cash equivalents, at beginning of period			9,350,803				9,726,007
CASH AND CASH EQUIVALENTS, AT END OF PERIOD		$	2,814,839			$	8,614,114
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	73,184			$	-
Cash paid during the period for income taxes		$	38,780			$	35,938
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures		$	-			$	(41,904	)
Equipment lease payable		$	-			$	41,904

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)

 

						Common												Other								Total
		Common				Stock				Additional Paid				Retained				Comprehensive								Shareholders’
		Stock Issued				Amount				In Capital				Earnings				Income				Treasury Stock				Equity
Balances at December 31, 2016			29,786,224			$	297,862			$	40,563,002			$	11,668,829				-				($20,823,480	)		$	31,706,213
Net Income (loss)															(2,599,577	)											(2,599,577	)
Issuance of shares in connection with stock options exercised			50,000				500				37,000																37,500
Issuance of shares in connection with CommAgility acquisition			3,487,528				34,875				5,963,673																5,998,548
Issuance of restricted stock			150,000				1,500				(1,500	)
Forfeiture of Restricted Stock			(57,000	)			(570	)			570
Share-based compensation expense											283,872																283,872
Cumulative translation adjustment																			576,334								576,334
Balances at June 30, 2017			33,416,752			$	334,167			$	46,846,617			$	9,069,252				$576,334				($20,823,480	)		$	36,002,890

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES

 

Basis of Presentation

 

The condensed consolidated balance sheet as of June 30, 2017, the condensed consolidated statements of operations and comprehensive (loss) for the three and six months ended June 30, 2017 and 2016 and the condensed consolidated statements of cash flows and shareholders’ equity for the six months ended June 30, 2017 have been prepared by the Company (as defined below) 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, Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”) which are collectively referred to herein as, the “Company”. All intercompany transactions and balances have been eliminated in consolidation.

 

Interim 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, 2016. Specific reference is made to that report since certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) have been condensed or omitted from this report.

 

The results of operations for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

 

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 vesting periods of performance-based stock options and restricted stock 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.

 

Concentration Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

The Company generally has limited concentration of credit risk in accounts receivable due to the large number of entities comprising the Company’s customer base and their dispersion across many different industries and geographies. Credit evaluations are performed on customers requiring credit over a certain amount. Credit risk is mitigated to a lesser extent through collateral such as letters of credit, bank guarantees or payment terms like cash in advance. Credit evaluation is performed independent of the Company’s sales team to ensure segregation of duties.

WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

For the three and six months ended June 30, 2017, one customer accounted for approximately 16% and 11% of the Company’s consolidated revenues, respectively. For the three and six months ended June 30, 2016, one customer accounted for approximately 12% and 11%, respectively, of the Company’s consolidated revenues. At June 30, 2017 one customer represented 19% of the Company’s gross accounts receivable. At December 31, 2016, one customer represented 16% of the Company’s gross accounts receivable balance.

 

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”). As of the acquisition date, the Company estimated the fair value of the contingent consideration to be $1,509,000 (see Note 3) 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, 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 accrued expense and other current liabilities and other long term liabilities in the accompanying condensed 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.

WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

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 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.

 

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 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 Condensed 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. These unrealized gains and losses consist of changes in foreign currency translation.

 

Intangible and Long-lived Assets

 

Intangible assets include patents, non-competition agreements and customer relationships and 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

WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition.

 

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.

 

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 through the date the financial statements were issued.

 

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

 

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 adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, 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 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which creates new accounting and reporting guidelines for leasing arrangements. The new 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

WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

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 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. The Company is in the process of evaluating the impact of this ASU on its consolidated financial statements.

 

The Company 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 3 – 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 Limited, (“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 $11,317,500 in cash on acquisition date and issued 3,487,528 shares of newly issued common stock (“Consideration Shares”) with an acquisition date fair value of $5,998,548. The Company financed the cash portion of the transaction with proceeds from a term loan totaling $760,000, proceeds from an asset based revolver totaling $1,098,000 and cash on hand of $9,459,500. Refer to Note 8 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 £2,000,000 (approximately $2,500,000 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 £10,000,000 (approximately $12,500,000 at the acquisition date) payment if certain financial targets are achieved by CommAgility during calendar years 2017 and 2018.

 

Pursuant to the Share Purchase Agreement, 2,092,516 of the Consideration Shares are subject to forfeiture and return to the Company if (a) 2017 Adjusted EBITDA, as defined, generated by CommAgility is less than £2,400,000; or (b) 2018 Adjusted EBITDA, as defined, generated by CommAgility is less than £2,400,000 (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). As of acquisition date the Company recorded a contingent asset of $1,619,607 based on a probability factor that the 2,092,516 of Consideration Shares will be forfeited. This contingent asset is included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet as of June 30, 2017.

 

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. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations and comprehensive (loss).

 

The Company incurred $17,434 and $1,289,517 of acquisition-related costs during the three months and six months ended June 30, 2017, respectively, which is included as part of general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive (loss). Since the acquisition date of February 17, 2017, CommAgility contributed $3,000,216 and $3,996,992 of net sales to the Company for the three and six months ended June 30, 2017, respectively.

 

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 estimated fair values are expected to change as the Company completes is valuation analyses and purchase price allocation. Management is responsible for these internal and third-party valuations and appraisals and is continuing to review the amounts and allocations. The following table summarizes the preliminary allocation of the purchase consideration to the estimated 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			$11,317,500								$11,317,500
Equity issued at close			5,998,548								5,998,548
Completion Cash Adjustment			1,382,288								1,382,288
Deferred Purchase Price			2,515,000								2,515,000
Contingent Consideration			2,700,353				(1,191,353	)			1,509,000
Total Purchase Price			23,913,689				(1,191,353	)			22,722,336
Cash			4,566,510								4,566,510
Accounts Receivable			2,267,124								2,267,124
Inventory			1,125,532								1,125,532
Intangible Assets			9,657,600								9,657,600
Contingent Asset							1,619,607				1,619,607
Other Assets			167,650								167,650
Fixed Assets			303,904								303,904
Accounts Payable			(1,171,846	)							(1,171,846	)
Accrued Expenses			(417,213	)							(417,213	)
Deferred Revenue			(638,671	)							(638,671	)
Deferred Tax Liability			(1,701,586	)			95,366				(1,606,220	)
Other Long Term Liabilities			(339,096	)							(339,096	)
Net Assets Acquired			13,819,908								15,534,881
Goodwill			$10,093,781								$  7,187,455

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

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.

 

The following table summarizes the activity related to contingent consideration and deferred purchase price for the three and six months ended June 30, 2017:

 

		Contingent Consideration				Deferred Purchase Price
Balance at Beginning of Period		$	-			$	-
Fair Value At Acquisition Date			2,700,353				2,515,000
Accretion of Interest			21,916
Payment							(419,166	)
Foreign Currency Translation			(8,521	)			(6,834	)
Balance as of March 31, 2017		$	2,713,748			$	2,089,000
Accretion of Interest			46,287
Payment							(325,000	)
Measurement Period Adjustment			(1,191,353	)
Foreign Currency Translation			101,617				77,667
Balance as of June 30, 2017		$	1,670,299			$	1,841,667

 

As of June 30, 2017, $1,040,000 of contingent consideration and $1,408,333 of deferred purchase price is included in accrued expenses and other current liabilities on the condensed consolidated balance sheet. As of June 30, 2017, $630,299 of contingent consideration and $433,334 of deferred purchase price is included in other long term liabilities on the condensed 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 8) 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 three months ended June 30, 2016 are presented below:

 

(Unaudited)		2016
Net Revenues		$	10,277,273
Net (loss)		$	(198,089	)
Basic net (loss) per share		$	(0.01	)
Diluted net (loss) per share		$	(0.01	)

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Pro-forma results for the six months ended June 30, 2016 and 2017 are presented below:

 

(Unaudited)		2017				2016
Net Revenues		$	22,855,776			$	19,452,462
Net (loss)		$	(1,852,342	)		$	(1,812,036	)
Basic net (loss) per share		$	(0.09	)		$	(0.09	)
Diluted net (loss) per share		$	(0.09	)		$	(0.09	)

 

NOTE 4 – INCOME TAXES

 

The Company records deferred taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Accounting for Income Taxes.” ASC 740 requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax assets and determines the necessity for a valuation allowance.

 

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.

 

The effective rate of income tax benefit of 37% for the six months ended June 30, 2017 was higher than the statutory rate of 34% primarily due to research and development deductions, state tax benefits related to net operating losses offset by nondeductible expenses and a lower rate in the United Kingdom.

 

NOTE 5 - INCOME (LOSS) PER COMMON SHARE

 

Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share are calculated by using the weighted average number of shares of common stock outstanding and, when dilutive, potential shares from stock options, contingent shares and restricted shares, using the treasury stock method.

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2017				2016				2017				2016
Weighted average common shares outstanding			19,765,101				18,622,116				19,577,271				18,614,350
Potentially dilutive shares			—				—				—				—
Weighted average common shares outstanding, assuming dilution			19,765,101				18,622,116				19,577,271				18,614,350

 

Common stock options are included in the diluted earnings (loss) per share calculation when the various option exercise prices are less than their relative average market price during the periods presented in

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

this quarterly report. The weighted average number of shares not included in diluted earnings (loss) per share, because the effects are anti-dilutive, was 2,921,500 and 352,073 for the three-months ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, the weighted average number of shares not included in diluted earnings (loss) per share was 2,476,598 and 425,601, respectively.

 

NOTE 6 – INVENTORIES

 

Inventory carrying value is net of inventory reserves of $2,572,851 and $1,549,089 at June 30, 2017 and December 31, 2016, respectively.

 

Inventories consist of:

 

			June 30, 2017					December 31, 2016
	Raw materials			$	2,954,106				$	3,558,430
	Work-in-process				689,408					531,210
	Finished goods				3,683,192					4,363,111
				$	7,326,706				$	8,452,751

 

During the three month period ended June 30, 2017 the Company recorded inventory adjustments totaling $1,930,000, comprised of an increase to the Company’s excess and obsolescence reserve of $1,121,000 and the write off of gross inventory of $809,000. 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.

 

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

 

The Company’s goodwill balance of $8,879,991 at June 30, 2017 relates to two of the Company’s reporting units, Microlab ($1,351,392) and Embedded Solutions ($7,528,599). Management’s qualitative assessment performed in the fourth quarter of 2016 did not indicate any impairment of Microlab’s goodwill as its fair value was estimated to be in excess of its carrying value. Furthermore, no events have occurred since then that would change this assessment. The Embedded Solutions reporting unit was acquired on February 17, 2017 (see Note 3). No events have occurred since the acquisition date that would indicate any impairment of Embedded Solutions goodwill.

 

Goodwill consists of the following:

 

		June 30, 2017
Beginning Balance		$	1,351,392
CommAgility Acquisition			10,093,781
Measurement Period Adjustment			(2,906,326	)
Foreign Currency Translation			341,144
Ending Balance		$	8,879,991

 

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Intangible assets consist of the following:

 

		Gross Carrying Amount				Accumulated Amortization				Foreign Exchange Translation				Net Carrying Amount
Customer Relationships			$7,419,250				($400,240	)			$239,246				$7,258,256
Patents			1,320,375				(99,682	)			41,932				1,262,625
Non-Compete Agreements			917,975				(115,504	)			27,904				830,375
Total			$9,657,600				($615,426	)			$309,082				$9,351,256

 

Amortization of acquired intangible assets was $414,781 and $615,426 for the three and six months ended June 30, 2017. Amortization of acquired intangible assets is included as part of general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive (loss).

 

The estimated future amortization expense related to intangible assets is as follows as of June 30, 2017:

 

Remainder of 2017				$  842,524
2018				1,685,048
2019				1,685,048
2020				1,408,255
2021				1,368,714
Thereafter				2,361,667
Total				$9,351,256

 

NOTE 8 – DEBT

 

Debt consists of the following:

 

		June 30 2017
Revolver at LIBOR Plus Margin			$1,522,426
Term Loan at LIBOR Plus Margin			722,000
Total Debt			2,244,426
Debt Maturing within one year			(1,674,426	)
Non-current portion of long term debt			$   570,000

 

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM 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 “New Credit Facility”), which provided for a term loan in the aggregate principal amount of $760,000 (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 $9,000,000 (“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 $215,358 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 $76,000 for the remainder of 2017, $152,000 in 2018 and $494,000 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 is 3.50% and 3.00% per annum, respectively, at June 30, 2017 and will continue at these rates until September 30, 2017. Thereafter, the margins shall be 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 of the most recently ended fiscal quarter falling into three levels. If the Company’s Fixed Coverage Leverage Ratio (as defined in the New Credit Facility) is greater than or equal to ratio 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 an 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 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 $1,930,000 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%. Accordingly, as of June 30, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

NOTE 9 - ACCOUNTING FOR SHARE BASED COMPENSATION

 

The Company follows the provisions of ASC 718, “Share-Based Payment.” The Company’s results for the three month period ended June 30, 2017 includes a credit of $17,517 related to share-based compensation expense due to forfeitures during the quarter. The Company’s results for the six month period ended June 30, 2017 include share-based compensation expense totaling $283,872. Results for the three and six month period ended June 30, 2016 include share-based compensation expense totaling $98,619 and $197,238, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within operating expenses.

 

For the three months ended June 30, 2017 the Company reversed $324,922 and $52,117 in stock compensation expense for stock options and restricted shares, respectively, that were forfeited as a result of employees exiting the Company. The total amounts forfeited during the quarter were 87,000 restricted shares and 655,000 stock options. The result on total share-based compensation expense for the quarter is net credit to expense in the amount of $17,517. 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 2,000,000 shares of common stock, plus those shares still available under the Company’s prior incentive compensation plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional 1,658,045 shares of the Company’s common stock to be available for future grants under the 2012 Plan. As of June 30, 2017, there were 26,000 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 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 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 by equity type for the three and six months ended June 30:

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

		Three Months Ended
		June 30,
		2017				2016
Service - based Restricted Common Stock			$87,685				$55,500
Performance-based Stock Options			(216,138	)			28,650
Service -based Stock Options			152,346				9,116
Performance-based Restricted Common Stock			(41,410	)			5,353
			($17,517	)			$98,619

 

		Six Months Ended
		June 30,
		2017				2016
Service - based Restricted Common Stock			$144,433				$111,000
Performance-based Stock Options			(157,497	)			57,300
Service -based Stock Options			332,993				18,232
Performance-based Restricted Common Stock			(36,057	)			10,706
			$283,872				$197,238

 

As of June 30, 2017, $1,125,722 of unrecognized compensation costs related to unvested stock options is expected to be recognized over a remaining weighted average period of 3.3 years and $250,780 of unrecognized compensation costs related to unvested restricted shares is expected to be recognized over a remaining weighted average period of 1.3 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 June 30, 2017, and changes during the six months ended June 30, 2017, are presented below:

 

Non-vested Restricted Shares		Number of Shares				Weighted Average Grant Date Fair Value
Non-vested at January 1, 2017			244,291				$1.52
Granted			150,000				$1.65
Forfeited			(87,000	)			$1.77
Vested			(121,042	)			$1.40
Non-vested at June 30, 2017			186,249				$1.66

 

Performance-Based Stock Option Awards:

 

A summary of performance-based stock option activity, and related information for the six months ended June 30, 2017 follows:

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

		Options				Weighted Average Exercise Price
Outstanding, January 1, 2017			2,165,000				$1.32
Granted			-				-
Exercised			(50,000	)			$0.75
Forfeited			(540,000	)			$1.77
Expired			-				-
Outstanding, June 30, 2017			1,575,000				$1.18
Options exercisable:
June 30, 2017			1,040,000				$0.95

 

The aggregate intrinsic value of performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of June 30, 2017 was $721,000 and the weighted average remaining contractual life was 3.9 years. The aggregate intrinsic value of performance-based stock options exercisable as of June 30, 2017 was $673,000 and the weighted average remaining contractual life was 2.0 years. The intrinsic value of options exercised during the six months ended June 30, 2017 was $36,550.

 

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 June 30, 2017, the Company has determined that the performance conditions are probable of being achieved by the year ending 2020. The Company’s performance-based stock options granted prior to 2013 (consisting of 1,040,000 options) are fully amortized.

 

Service-Based Stock Option Awards:

 

A summary of service-based stock option activity and related information for the six months ended June 30, 2017 follows:

 

		Options				Weighted Average Exercise Price
Outstanding, January 1, 2017			1,198,000				$1.51
Granted			845,000				1.68
Exercised			-				-
Forfeited			(115,000	)			1.45
Expired			(3,000	)			2.40
Outstanding, June 30, 2017			1,925,000				$1.59
Options exercisable:
June 30, 2017			290,000				$1.80

 

The aggregate intrinsic value of service-based stock options (regardless of whether or not such options are exercisable) as of June 30, 2017 was $212,250 and the weighted average remaining contractual life was 9.0 years. The aggregate intrinsic value of service-based stock options exercisable as of June 30, 2017 was $56,700 and the weighted average remaining contractual life was 6.5 years.

 

The following table presents the assumptions used to estimate the fair value of stock option awards granted during the six months ended June 30, 2016:

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

	Option Term (in years)	Exercise Price	Risk Free Interest Rate	Expected Volatility	Fair Value at Grant Date	Expected Dividend Yield	Expected Forfeiture Rate
1/2/17 Grant	4	$1.91	1.94%	77.78%	$1.11	0	0
1/12/17 Grant	4	1.92	1.87%	77.88%	1.11	0	0
2/17 17 Grant	4	1.72	1.92%	72.01%	0.94	0	0
5/22/17 Grant	4	1.38	1.80%	68.93%	0.73	0	0
6/5/17 Grant	1	1.65	1.74%	69.02%	0.46	0	0
6/5/17 Grant	4	1.65	1.74%	69.02%	0.87	0	0
6/15/17 Grant	4	1.60	1.76%	69.09%	0.84	0	0

 

NOTE 10 – 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. The network solutions segment is comprised primarily of the operations of Wireless Telecom Group Inc.’s subsidiary, Microlab. The test and measurement segment is comprised primarily of the Company’s operations of the Noisecom product line and the operations of its subsidiary, Boonton. The 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).

 

Financial information by reportable segment is set forth below:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2017				2016				2017				2016
Net revenues by segment:
Network solutions		$	5,617,263			$	5,476,421			$	11,132,564			$	9,689,734
Test and measurement			3,315,695				2,133,683				6,352,376				4,288,785
Embedded solutions			3,000,216				-				3,996,992				-
Consolidated net revenues of reportable segments			11,933,174				7,610,104				21,481,932				13,978,519
Segment income (loss):
Network solutions			(329,899)				1,044,335				578,322				1,384,261
Test and measurement			(541,338)				(366,652)				(516,132)				(679,099)
Embedded solutions			75,327				-				(154,146)				-
Income (loss) from reportable segments		$	(795,910)			$	677,683			$	(91,956)			$	705,162
Other unallocated amounts:
Corporate expenses			(1,473,206)				(1,031,071)				(3,896,142)				(1,979,201)
Other (expenses) income - net			(111,301)				(10,266)				(162,066)				(51,870)
Consolidated income (loss) before											-				-
Income tax provision (benefit)		$	(2,380,417)			$	(363,653)			$	(4,150,164)			$	(1,325,909)

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2017				2016				2017				2016
Depreciation and amortization by segment:
Network solutions			103,628				57,957				204,992				113,704
Test and measurement			95,247				58,881				188,634				118,992
Embedded solutions			446,359				-				665,729				-
Total depreciation and amortization for reportable segments		$	645,234			$	116,838			$	1,059,355			$	232,696
Capital expenditures by segment:
Network solutions			58,580				228,149				142,539				283,379
Test and measurement			40,691				199,400				106,830				218,644
Embedded solutions			26,728				-				68,705				-
Total consolidated capital expenditures by reportable segment		$	125,998			$	427,549			$	318,074			$	502,023
			2017				2016
Total assets by segment:
Network solutions		$	9,167,082			$	10,594,770
Test and measurement			6,733,907				7,851,479
Embedded solutions			22,057,874				-
Total assets for reportable segments		$	37,958,863			$	18,446,249
Corporate assets, principally cash and cash equivalents and deferred income taxes		$	11,935,636			$	16,988,886
Total consolidated assets		$	49,894,499			$	35,435,135

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Consolidated net sales by region were as follows:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2017				2016				2017				2016
Sales by region
Americas		$	8,294,953			$	5,802,032			$	15,259,706			$	10,867,668
Europe, Middle East, Africa (EMEA)			3,235,077				1,493,030				5,202,116				2,441,387
Asia Pacific (APAC)			403,144				315,042				1,020,110				669,464
Total Sales		$	11,933,174			$	7,610,104			$	21,481,932			$	13,978,519

 

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 June 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $7,965,566 and $5,611,283, respectively. For the six-months ended June 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $14,430,391 and $10,383,454, respectively.

 

Shipments to the EMEA region for all reportable segments were largely concentrated in the UK, Germany and Israel. For the three-months ended June 30, 2017 shipments to the UK, Germany and Israel amounted to $2,183,460, $288,782 and $118,322, respectively. For the three-months ended June 30, 2016 shipments were largely concentrated in Israel and Germany amounting to $340,750 and $236,005, respectively. For the six-months ended June 30, 2017 shipments to the UK, Germany and Israel amounted to $2,784,356, $543,792 and $367,744, respectively. For the six-months ended June 30, 2016, shipments to Israel and Germany amounted to $373,177 and $472,405, respectively.

 

The largest concentration of shipments in the APAC region is to China. For the three-month period ending June 30, 2017 and 2016, shipments to China amounted to $159,789 and $233,999, respectively. For the six-month period ending June 30, 2017 and 2016 shipments to China amounted to $608,847 and $421,169, respectively.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Warranties:

 

The Company typically provides one-year warranties on all of its products covering both parts and labor. The Company, at its option, repairs or replaces products that are defective during the warranty period if the proper preventive maintenance procedures have been followed by its customers. Historically, the Company’s warranty expense has been minimal.

 

Leases:

 

In May 2015, the Company and its landlord entered into an amendment to the existing lease agreement to provide for the Company to remain at its principal corporate headquarters in Hanover Township, Parsippany, New Jersey through March 31, 2023. Monthly lease payments range from approximately $33,000 in year one to approximately $41,000 in year eight. Additionally, the Company had available an allowance of approximately $300,000 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.

 

The following is a summary of the Company’s contractual obligations as of June 30, 2017:

WIRELESS TELECOM GROUP, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

		Payments by Period
						Remainder
		Total				2017				2018-2019				2020-2021				Thereafter
Facility Leases		$	2,791,517			$	242,813			$	1,003,356			$	934,184			$	611,164
Purchase Obligations			2,966,875				2,966,875				-				-				-
Operating and Equipment Leases			252,157				27,017				108,067				108,067				9,006
		$	6,010,549			$	3,236,705			$	1,111,423			$	1,042,251			$	620,169

 

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.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and the notes to those statements included in Part I, Item I of this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

INTRODUCTION

 

The Company develops, manufactures and markets a wide variety of radio frequency and microwave noise sources, electronic testing and measuring instruments including power meters, voltmeters and modulation meters and passive components for wireless radio frequency conditioning. Additionally, the Company is a supplier of signal processing technology for network validation systems, supporting LTE/4G and emerging 5G networks. The majority of the Company’s products are primarily used by its customers in relation to commercial infrastructure development in support of the expansion and upgrade to distributed antenna systems, deployment of small cell technology and private LTE networks. In addition, the Company’s products are used to test the performance and capability of cellular/PCS and satellite communication systems and to measure the power of radio frequency and microwave systems. Other applications include radio, radar, wireless local area network and digital television.

 

Highlights from the Second Quarter:

 

·

Net revenues of $11,933,174 and $21,481,932 for the three and six months ended June 30, 2017, a year over year increase of 56.8% and 53.7%, respectively.

 

·

Net loss of $1,368,131 and $2,599,577 for the three and six months ended June 30, 2017 representing an increase in net loss of $514,698 and $1,228,723, respectively.

 

o

Net loss negatively impacted by $1,930,000 non-cash inventory impairment charge during the three months ended June 30, 2017.

 

·

New customer orders of $12,110,000 for the three months ended June 30, 2017 representing a year over year increase of $3,083,000 or 34.1%

 

·

June 30, 2017 order backlog of $6,970,000 representing a year over year increase of $3,316,000 or 90.7%

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2017 Compared with Three Months Ended June 30, 2016

 

Net Revenues

 

		Three months ended June 30,
		Revenue								% of Rev								Change
		2017				2016				2017				2016				Amount				Pct.
Network solutions		$	5,617,263			$	5,476,421				47.1	%			72.0	%		$	140,842				2.6	%
Test and measurement			3,315,695				2,133,683				27.8	%			28.0	%			1,182,012				55.4	%
Embedded solutions			3,000,216				-				25.1	%			0.0	%			3,000,216				-
Total net revenues		$	11,933,174			$	7,610,104				100.0	%			100.0	%		$	4,323,070				56.8	%

Net consolidated revenues for the three months ended June 30, 2017 were $11,933,174 as compared to $7,610,104 for the three months ended June 30, 2016, an increase of $4,323,070 or 56.8%. The primary driver for the year over year increase is the inclusion of the Embedded solutions segment which was acquired on February 17, 2017 and contributed $3,000,216 in revenue for the period.

 

Net revenues from the Company’s Network solutions products for the three months ended June 30, 2017 were up modestly. Net revenues from Network solutions products accounted for 47.1% and 72.0% of net consolidated revenues for the three months ended June 30, 2017 and 2016, respectively. The increase in revenues in this segment was primarily due to increased demand for the Company’s passive radio frequency components and subassemblies, largely as a result of increased capital spending by domestic wireless carriers and tower operators.

 

Net revenues from the Company’s Test and measurement products for the three months ended June 30, 2017 were up significantly over the prior year period. Net revenues from Test and measurement products accounted for 27.8% and 28.0% of net consolidated revenues for the three months ended June 30, 2017 and 2016, respectively. The increase in revenues was primarily due to an increase in military and government spending as compared to the corresponding period in the prior year.

 

Gross Profit

 

		Three months ended June 30,
		Gross Profit								Gross Margin								Change
		2017				2016				2017				2016				Amount				Pct.
Network solutions		$	1,182,027			$	2,503,137				21.0	%			45.7	%			(1,321,110	)			-52.8	%
Test and measurement			832,129				835,753				25.1	%			39.2	%			(3,623	)			-0.4	%
Embedded solutions			1,330,005				-				44.3	%			0.0	%			1,330,005				-
Total gross profit		$	3,344,161			$	3,338,890				28.0	%			43.9	%			5,271				0.2	%

 

Consolidated gross profit for the three months ended June 30, 2017 was negatively impacted by a non-cash inventory adjustment of $1,930,000. The adjustment 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 product lifecycle acceleration. The lean manufacturing program focuses on inventory reductions, the minimization of product redesign for alternate use, and the acceleration of the evaluation process of slow moving inventory for product redesign and repurpose.  This, combined with the need to focus manufacturing, operations and engineering efforts on the increasing current order flow, dictated the significant write down at the end of the quarter. The inventory adjustments negatively impacted the Network solutions segment gross margin by $1,206,266 and the Test and measurement segment gross margin by $723,734. The impact of the inventory adjustment was offset by the gross profit of the Embedded solutions segment which contributed $1,330,005 to the overall gross profit increase from the same period last year.

 

Operating Expenses

 

Consolidated operating expenses for the three months ended June 30, 2017 were $5,613,277 or 47.0% of consolidated net revenues as compared to $3,692,278 or 48.5% of consolidated net revenues for the three months ended June 30, 2016. For the three months ended June 30, 2017 as compared to the prior year, consolidated operating expenses increased by $1,920,999 or 52.0%. Consolidated operating expenses were higher in the three months ended June 30, 2017 due to the inclusion of $1,254,678 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $414,781 of amortization expense related to purchased intangibles. Additionally, operating expenses increased from the same period in the prior year due to severance and legal charges of $470,273 associated with two restructuring actions during the three months ended June 30, 2017 and increased commission expense of $181,783 due to higher revenues.

Interest Expense

 

Interest expense increased $109,274 related to our new credit facility, amortization of capitalized debt issuance costs and accretion of the contingent consideration liability.

 

Taxes

 

For the three months ended June 30, 2017, the Company recorded a tax benefit of $1,012,286 due primarily to losses generated from the Company’s operations. For the three months ended June 30, 2016, the Company recorded a tax benefit of $145,461 primarily due to losses generated from the Company’s operations during the period.

 

Net Loss

 

For the three months ended June 30, 2017, the Company realized a net loss of $1,368,131 or $.07 loss per share on a basic and diluted basis, as compared to a net loss of $218,192 or $.01 loss per share on a basic and diluted basis for the three months ended June 30, 2016, a decrease of $1,149,939 or $.06 per diluted share. The decrease was due to the factors discussed above.

 

Six Months Ended June 30, 2017 Compared with Six Months Ended June 30, 2016

 

Net Revenues

 

		Six months ended June 30,
		Revenue								% of Rev								Change
		2017				2016				2017				2016				Amount				Pct.
Network solutions		$	11,132,564			$	9,689,735				51.8	%			69.3	%		$	1,442,829				14.9	%
Test and measurement			6,352,376				4,288,784				29.6	%			30.7	%			2,063,592				48.1	%
Embedded solutions			3,996,992				-				18.6	%			0.0	%			3,996,992				-
Total net revenues		$	21,481,932			$	13,978,519				100.0	%			100.0	%		$	7,503,413				53.7	%

 

Net consolidated revenues for the six months ended June 30, 2017 were $21,481,932 as compared to $13,978,519 for the six months ended June 30, 2016, an increase of $7,503,413 or 53.7%. The primary driver for the year over year increase is the inclusion of the Embedded solutions segment which was acquired on February 17, 2017 and contributed $3,996,992 in revenue for the period.

 

Net revenues from the Company’s Network solutions products were up significantly over the prior year period. Net revenues from Network solutions products accounted for 51.8% and 69.3% of net consolidated revenues for the six months ended June 30, 2017 and 2016, respectively. The increase in revenues was primarily due to increased demand for the Company’s passive radio frequency components and subassemblies, largely as a result of increased capital spending by domestic wireless carriers and tower operators.

 

Net revenues from the Company’s Test and measurement products were up significantly over the prior year period. Net revenues from Test and measurement products accounted for 29.6% and 30.7% of net consolidated revenues for the six months ended June 30, 2017 and 2016, respectively. The increase in revenues was primarily due to an increase in military and government spending as compared to the corresponding period in the prior year.

Gross Profit

 

		Six months ended June 30,
		Gross Profit								Gross Margin								Change
		2017				2016				2017				2016				Amount				Pct.
Network solutions		$	3,642,509			$	4,286,127				32.7	%			44.2	%			(643,618	)			-15.0	%
Test and measurement			2,166,337				1,772,877				34.1	%			41.3	%			393,460				22.2	%
Embedded solutions			1,867,826				-				46.7	%			0.0	%			1,867,826				-
Total gross profit		$	7,676,670			$	6,059,004				35.7	%			43.3	%			1,617,666				26.7	%

 

The Company’s gross profit on consolidated net revenues for the six months ended June 30, 2017 was negatively impacted by a non cash inventory adjustment of $1,930,000. The adjustment 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 product lifecycle acceleration.  The lean manufacturing program focuses on inventory reductions, the minimization of product redesign for alternate use, and the acceleration of the evaluation process of slow moving inventory for product redesign and repurpose.  This, combined with the need to focus manufacturing, operations and engineering efforts on the increasing current order flow, dictated the significant write down at the end of the quarter. The inventory adjustments negatively impacted the Network solutions segment gross margin by $1,206,266 and the Test and measurement segment gross margin by $723,734. The impact of the inventory adjustment was offset by the gross profit of the Embedded Solutions segment which contributed $1,867,826 to the overall gross profit increase from the same period last year.

 

Operating Expenses

 

Consolidated operating expenses for the six months ended June 30, 2017 were $11,664,768 or 54.3% of consolidated net revenues as compared to $7,333,043 or 52.5% of consolidated net revenues for the six months ended June 30, 2016. For the six months ended June 30, 2017 as compared to the prior year, consolidated operating expenses increased by $4,331,724 or 59.1%. Consolidated operating expenses were higher in the six months ended June 30, 2017 due to the inclusion of $2,021,970 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $615,426 of amortization expense related to purchased intangibles. Additionally, operating expenses increased from the same period in the prior year due to $1,289,517 of expenses related to the CommAgility acquisition consisting primarily of professional fees, severance and legal charges of $470,273 associated with two restructuring actions during the three months ended June 30, 2017, increased commission expenses of $375,263 due to higher revenues and higher salaries and benefits due to increased headcount.

 

Other Expenses

 

Other expenses decreased $48,297 as the Company incurred $38,000 in the six months ended June 30, 2016 related to ground water remediation efforts. Interest expense increased $158,493 related to our new credit facility, amortization of capitalized debt issuance costs and accretion of the contingent consideration liability.

 

Tax

 

For the six months ended June 30, 2017, the Company recorded a tax benefit of $1,550,587 due primarily to losses generated from the Company’s operations. For the six months ended June 30, 2016, the Company recorded a tax benefit of $531,389 primarily due to losses generated from the Company’s operations during the period.

Net Loss

 

For the three months ended June 30, 2017, the Company realized a net loss of $2,599,577 or $.13 loss per share on a basic and diluted basis, as compared to a net loss of $794,520 or $.04 loss per share on a basic and diluted basis for the three months ended June 30, 2016, a decrease of $1,805,057 or $.09 per diluted share. The decrease was due to the factors discussed above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We expect our existing cash balance, cash generated by operations and borrowings available under our new credit facility (as described in Note 8 to the financial statements) to be our primary sources of short-term liquidity, and we believe these sources will be sufficient to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

 

Operating Activities

 

Cash provided by operating activities was $488,164 for the six months ended June 30, 2017 as compared to cash used by operating activities of $465,225 for the six months ended June 30, 2016. During the six months ended June 30, 2017 changes in our operating assets and liabilities resulted in a net increase in cash of $1,920,544 primarily due to cash provided from accounts receivable and higher accrued expenses and other liabilities. During the six months ended June 30, 2016, changes in our operating assets and liabilities resulted in a net increase in cash of $328,728 primarily due to cash provided by accounts receivable and an increase in accounts payable. These increases were offset by cash used for inventory.

 

Investing Activities

 

Cash used by investing activities was $9,152,799 for the six months ended June 30, 2017 and was primarily comprised of cash used for the CommAgility acquisition of $8,842,122, net of cash acquired and capital expenditures of $318,074. For the six months ended June 30, 2016 cash used by investing activities was $502,023 and was related to capital expenditures.

 

Financing Activities

 

Cash provided by financing activities was $2,066,568 for the six months ended June 30, 2017 as compared to cash used of $144,648 for the six months ended June 30, 2016. During the six months ended June 30, 2017 the Company received net proceeds of $1,522,426 from the asset based revolver and received $760,000 from the term loan. Principal repayments of the term loan during the six months ended June 30, 2017 were $38,000. Additionally, the Company paid $215,358 in debt issuance costs associated with the new credit facility. During the six months ended June 30, 2016 the Company paid $79,180 related to a capital equipment lease and $65,468 related to the repurchase of common stock.

 

As noted in Note 8 to the financial statements, on February 16, 2017 the Company entered into a Credit Agreement which provided for a term loan in the aggregate principal amount of $760,000 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 $9,000,000. The proceeds of the term loan and revolver were used to finance the acquisition of CommAgility. As of June 30, 2017, $1,522,426 was outstanding on the asset based revolver. At June 30, 2017 the Company has excess availability under the Revolver of $3,198,163.

 

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 $1,930,000 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%. Accordingly, as of June 30, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.

As of June 30, 2017, future minimum lease payments related to the Company’s facility lease and equipment leases are shown below:

 

		Payments by Period
						Remainder
		Total				2017				2018-2019				2020-2021				Thereafter
Facility Leases		$	2,791,517			$	242,813			$	1,003,356			$	934,184			$	611,164
Purchase Obligations			2,966,875				2,966,875				-				-				-
Operating and Equipment Leases			252,157				27,017				108,067				108,067				9,006
		$	6,010,549			$	3,236,705			$	1,111,423			$	1,042,251			$	620,169

 

The Company may pursue strategic opportunities, including potential acquisitions, mergers, divestitures or other activities, which may require significant use of the Company’s capital resources. The Company may incur costs as a result of such activities and such activities may affect the Company’s liquidity in future periods. In order to fund such activities the Company may need to incur additional debt or issue additional securities if market conditions are favorable. However, there can be no certainty that such funding will be available in needed quantities or terms favorable to the Company.

 

The Company believes that its financial resources from working capital and availability under the asset based revolver are adequate to meet its current needs. The Company expects the cash flow of CommAgility to fund the deferred purchase price and contingent consideration liabilities. However, should current global economic conditions deteriorate, additional working capital funding may be required which may be difficult to obtain due to restrictive credit markets.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company does not have any off-balance sheet arrangements.

 

INFLATION AND SEASONALITY

 

The Company does not anticipate that inflation will significantly impact its business or its results of operations nor does it believe that its business is seasonal.

 

Critical Accounting Policies

 

There have been no change in our critical accounting policies or significant accounting estimates as disclosed in our 2016 Form 10-K, except as disclosed below:

 

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 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 of progress for arrangements accounted for under percentage of completion accounting.

 

Valuation of 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.

 

Intangible and Long-lived Assets

 

Intangible assets include patents and customer relationships and 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.

 

FORWARD LOOKING STATEMENTS

 

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “intends,” “plans,” “may,” “will,” “should,” “anticipates” or “continues” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These statements are based on the Company’s current expectations of future events and are subject to a number of risks and uncertainties that may cause the Company’s actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the ability of our management to successfully implement our business plan and strategy, product demand and development of competitive technologies in our market sector, the impact of competitive products and pricing, the loss of any significant customers, our abilities to protect our property rights, the effects of adoption of newly announced accounting standards, the effects of economic conditions and trade, legal and other economic risks, among others. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. These risks and uncertainties are disclosed including in our Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s forward-looking statements speak only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or review any forward-looking statements whether as a result of new information, future developments or otherwise.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to ensure that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that the information relating to Wireless Telecom Group, Inc., including our consolidated subsidiaries, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures are effective.

 

(b) Changes in Internal Control over Financial Reporting

 

We acquired CommAgility on February 17, 2017. We have begun the process to integrate the operations of CommAgility into our overall system of internal control over financial reporting.

 

There were no other changes in our internal control over financial reporting during the three or six months ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 2016 Annual Report on Form 10-K.

PART II – OTHER INFORMATION

 

Item 1.	LEGAL PROCEEDINGS
	There have been no material developments in the legal proceedings described in Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Item 1A.	RISK FACTORS
	There have been no material changes in our risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	None.
Item 3.	DEFAULTS UPON SENIOR SECURITIES
	None.
Item 4.	MINE SAFETY DISCLOSURES
	Not applicable.
Item 5.	OTHER INFORMATION
	None.
Item 6.	EXHIBITS

 

Exhibit No.

Description

 

3.1

Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K/A filed with the SEC on April 22, 2005, Commission File No. 1-11916)

 

3.2

Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.1 to Wireless Telecom Group, Inc.’s Current Report on Form 8-K, filed on July 1, 2016, Commission File No. 011-11916)

 

10.1

Share Purchase Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc., Edward De Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to Exhibit 10.2 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)

 

10.2

Registration Rights Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc., Edward De Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to Exhibit 10.2 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)

 

10.3

Lock Up Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc., Edward De Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to Exhibit 10.3 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)

 

10.4

Voting Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc., Edward De Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to Exhibit 10.4 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)

 

10.5

Loan and Security Agreement, dated February 16, 2017, Wireless Telecom Group, Inc. Boonton Electronics Corporation, Microlab/FXR and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.5 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)

10.6

Amendment No. 1 to the Loan and Security Agreement by and among Wireless Telecom Group, Inc., Boonton Electronic Corporation, Microlab/FXR and Bank of America, N.A. dated August 3, 2017.

 

10.7*

Separation Agreement and General Release by and between Wireless Telecom Group, Inc. and Paul Steven Genova dated May 22, 2017.

 

10.8*

Amendment to the Executive Employment Agreement by and between Wireless Telecom Group Inc. and Timothy Whelan executed on June 9, 2017.

 

31.1

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

31.2

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

101**

The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 15, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive (loss), (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to interim condensed consolidated financial statements.

 

101.INS**

XBRL INSTANCE DOCUMENT

 

101.SCH**

XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

 

101.CAL**

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

 

101.DEF**

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

 

101.LAB**

XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

 

101.PRE**

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

 

* Denotes a management contract or compensatory plan or arrangement.

** Furnished herewith.

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		WIRELESS TELECOM GROUP, INC.
		(Registrant)
	Date:  August 9, 2017	/s/ Timothy Whelan
		Timothy Whelan
		Chief Executive Officer
	Date:  August 9, 2017	/s/ Michael Kandell
		Michael Kandell
		Chief Financial Officer

EXHIBIT INDEX

 

Exhibit No.

Description

 

10.6

Amendment No. 1 to the Loan and Security Agreement by and among Wireless Telecom Group, Inc., Boonton Electronic Corporation, Microlab/FXR and Bank of America, N.A. dated August 3, 2017.

 

10.7*

Separation Agreement and General Release by and between Wireless Telecom Group, Inc. and Paul Steven Genova dated May 22, 2017.

 

10.8*

Amendment to the Executive Employment Agreement by and between Wireless Telecom Group Inc. and Timothy Whelan executed on June 9, 2017.

 

31.1

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

31.2

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

101**

The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017, filed on August 9, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive (loss), (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to interim condensed consolidated financial statements.

 

 

101.INS**

XBRL INSTANCE DOCUMENT

 

101.SCH**

XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

 

101.CAL**

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

 

101.DEF**

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

 

101.LAB**

XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

 

101.PRE**

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

 

*Denotes a management contract or compensatory plan or arrangement.

** Furnished herewith.