UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to _____
Commission file numbernumber: 1-11916
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)
WIRELESS TELECOM GROUP, INC.Securities registered pursuant to Section 12(b) of the Act:
(Exact name of registrant as specified in its charter)
Name of each exchange on which registered | ||||
| ||||
(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. YesxNoo
Yes ☒ No ☐
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). YesxNoo
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
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). YesoNox
Yes ☐ No☒
Number of shares of Common Stock outstanding as of October 22, 2017: 22,790,667August 5, 2021:
WIRELESS TELECOM GROUP, INC.
Form 10-Q
Table of Contents
2 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value)
PART I – FINANCIAL INFORMATION
Item 1 –1. Financial Statements
September 30 2017 | December 31 2016 | (Unaudited) | ||||||||||||||
(unaudited) | June 30 2021 | December 31 2020 | ||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash & cash equivalents | $ | 2,266,532 | $ | 9,350,803 | $ | 4,213 | $ | 4,910 | ||||||||
Accounts receivable - net of reserves of $23,026 and $10,740, respectively | 8,107,931 | 5,183,869 | ||||||||||||||
Inventories - net of reserves of $2,067,103 and $1,549,089, respectively | 6,485,796 | 8,452,751 | ||||||||||||||
Accounts receivable - net of reserves of $214 and $143, respectively | 6,532 | 5,520 | ||||||||||||||
Inventories - net of reserves of $1,216 and $1,129 respectively | 9,365 | 8,796 | ||||||||||||||
Prepaid expenses and other current assets | 4,789,567 | 866,036 | 2,152 | 2,172 | ||||||||||||
TOTAL CURRENT ASSETS | 21,649,826 | 23,853,459 | 22,262 | 21,398 | ||||||||||||
PROPERTY PLANT AND EQUIPMENT – NET | 2,428,245 | 2,166,566 | ||||||||||||||
PROPERTY PLANT AND EQUIPMENT - NET | 1,731 | 1,824 | ||||||||||||||
OTHER ASSETS | ||||||||||||||||
Goodwill | 10,113,158 | 1,351,392 | 11,564 | 11,512 | ||||||||||||
Acquired Intangible Assets, net | 4,756,386 | - | ||||||||||||||
Acquired intangible assets, net | 4,602 | 5,242 | ||||||||||||||
Deferred income taxes | 8,822,687 | 7,403,600 | 5,455 | 5,701 | ||||||||||||
Other | 794,058 | 660,118 | ||||||||||||||
Right of use assets | 1,417 | 1,680 | ||||||||||||||
Other assets | 509 | 561 | ||||||||||||||
TOTAL OTHER ASSETS | 24,486,289 | 9,415,110 | 23,547 | 24,696 | ||||||||||||
TOTAL ASSETS | $ | 48,564,360 | $ | 35,435,135 | $ | 47,540 | $ | 47,918 | ||||||||
CURRENT LIABILITIES | ||||||||||||||||
Short term debt | 1,423,927 | - | $ | 84 | $ | 512 | ||||||||||
Accounts payable | 2,416,202 | 2,986,797 | 2,094 | 1,546 | ||||||||||||
Short term leases | 559 | 534 | ||||||||||||||
Accrued expenses and other current liabilities | 3,290,598 | 673,067 | 6,705 | 7,997 | ||||||||||||
Deferred Revenue | 573,477 | - | ||||||||||||||
Deferred revenue | 598 | 924 | ||||||||||||||
TOTAL CURRENT LIABILITIES | 7,704,204 | 3,659,864 | 10,040 | 11,513 | ||||||||||||
LONG TERM LIABILITIES | ||||||||||||||||
Long term debt | 532,000 | - | 6,925 | 8,895 | ||||||||||||
Long term leases | 914 | 1,200 | ||||||||||||||
Other long term liabilities | 1,810,990 | 69,058 | 1,778 | 82 | ||||||||||||
Deferred Tax Liability | 789,263 | - | ||||||||||||||
Deferred tax liability | 455 | 377 | ||||||||||||||
TOTAL LONG TERM LIABILITIES | 3,132,253 | 69,058 | 10,072 | 10,554 | ||||||||||||
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, 33,886,752 and 29,786,224 shares issued, 22,790,667 and 18,751,346 shares outstanding | 338,867 | 297,862 | ||||||||||||||
Preferred stock, $ par value, shares authorized, issued | - | - | ||||||||||||||
Common stock, $ and shares issued, and shares outstanding par value, shares authorized | 351 | 349 | ||||||||||||||
Additional paid in capital | 47,453,286 | 40,563,002 | 50,364 | 50,163 | ||||||||||||
Retained earnings | 9,722,650 | 11,668,829 | 358 | (946 | ) | |||||||||||
Treasury stock at cost, - 11,096,085 and 11,034,878 shares, respectively | (20,910,394 | ) | (20,823,480 | ) | ||||||||||||
Accumulated Other Comprehensive Income | 1,123,494 | - | ||||||||||||||
Treasury stock at cost, and shares | (24,573 | ) | (24,556 | ) | ||||||||||||
Accumulated other comprehensive income | 928 | 841 | ||||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 37,727,903 | 31,706,213 | 27,428 | 25,851 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 48,564,360 | $ | 35,435,135 | $ | 47,540 | $ | 47,918 |
TheSee accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
3 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(unaudited) (UNAUDITED)
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
NET SALES | $ | 12,560,298 | $ | 8,344,301 | $ | 34,042,230 | $ | 22,322,820 | ||||||||
COST OF SALES | 6,446,992 | 4,521,302 | 20,252,254 | 12,440,817 | ||||||||||||
GROSS PROFIT | 6,113,306 | 3,822,999 | 13,789,976 | 9,882,003 | ||||||||||||
Operating Expenses | ||||||||||||||||
Research and Development | 1,051,233 | 948,654 | 3,267,955 | 3,042,916 | ||||||||||||
Sales and Marketing | 1,946,443 | 1,216,265 | 5,161,181 | 3,703,522 | ||||||||||||
General and Administrative | 2,333,795 | 1,389,996 | 8,567,102 | 4,141,520 | ||||||||||||
Total Operating Expenses | 5,331,471 | 3,554,915 | 16,996,238 | 10,887,958 | ||||||||||||
Other income/(expense) | (1,033 | ) | (27,090 | ) | (4,253 | ) | (78,675 | ) | ||||||||
Interest Expense | (70,607 | ) | (178 | ) | (229,453 | ) | (463 | ) | ||||||||
Income/(loss) before taxes | 710,195 | 240,816 | (3,439,968 | ) | (1,085,093 | ) | ||||||||||
Tax Provision/(Benefit) | 56,799 | 118,980 | (1,493,789 | ) | (412,409 | ) | ||||||||||
Net Income/(Loss) | 653,396 | 121,836 | (1,946,179 | ) | (672,684 | ) | ||||||||||
Other Comprehensive Income/(Loss): | ||||||||||||||||
Foreign currency translation adjustments | 547,160 | - | 1,123,494 | - | ||||||||||||
Comprehensive Income/(Loss) | $ | 1,200,556 | $ | 121,836 | $ | (822,685 | ) | $ | (672,684 | ) | ||||||
Net Income/(Loss) per common share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.01 | $ | (0.10 | ) | $ | (0.04 | ) | ||||||
Diluted | $ | 0.03 | $ | 0.01 | $ | (0.10 | ) | $ | (0.04 | ) | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 20,235,876 | 18,721,346 | 19,799,219 | 18,650,274 | ||||||||||||
Diluted | 22,938,188 | 19,358,968 | 19,799,219 | 18,650,274 |
(In thousands, except per share amounts)
The
2021 | 2020 | 2021 | 2020 | |||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net revenues | $ | 12,023 | $ | 11,108 | $ | 23,344 | $ | 20,536 | ||||||||
Cost of revenues | 5,889 | 5,440 | 11,265 | 10,441 | ||||||||||||
Gross profit | 6,134 | 5,668 | 12,079 | 10,095 | ||||||||||||
Operating expenses | ||||||||||||||||
Research and development | 1,464 | 1,675 | 2,846 | 3,254 | ||||||||||||
Sales and marketing | 1,699 | 1,661 | 3,412 | 3,379 | ||||||||||||
General and administrative | 2,806 | 2,391 | 5,668 | 4,878 | ||||||||||||
Total operating expenses | 5,969 | 5,727 | 11,926 | 11,511 | ||||||||||||
Operating income/(loss) | 165 | (59 | ) | 153 | (1,416 | ) | ||||||||||
Extinguishment of PPP loan | 2,045 | - | 2,045 | - | ||||||||||||
Other income/(expense) | (15 | ) | 56 | 8 | 295 | |||||||||||
Interest expense | (285 | ) | (246 | ) | (582 | ) | (471 | ) | ||||||||
Income/(Loss) before taxes | 1,910 | (249 | ) | 1,624 | (1,592 | ) | ||||||||||
Tax provision/(benefit) | 373 | 419 | 321 | 225 | ||||||||||||
Net income/(loss) | $ | 1,537 | $ | (668 | ) | $ | 1,303 | $ | (1,817 | ) | ||||||
Other comprehensive income/(loss): | ||||||||||||||||
Foreign currency translation adjustments | 12 | (35 | ) | 87 | (971 | ) | ||||||||||
Comprehensive income/(loss) | $ | 1,549 | $ | (703 | ) | $ | 1,390 | $ | (2,788 | ) | ||||||
Income/(Loss) per share: | ||||||||||||||||
Basic | $ | 0.07 | $ | (0.03 | ) | $ | 0.06 | $ | (0.08 | ) | ||||||
Diluted | $ | 0.06 | $ | (0.03 | ) | $ | 0.05 | $ | (0.08 | ) | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 21,763 | 21,707 | 21,728 | 21,626 | ||||||||||||
Diluted | 24,343 | 21,707 | 24,063 | 21,626 |
In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
4 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
(unaudited) (UNAUDITED)
For the Nine Months Ended September 30 | ||||||||
2017 | 2016 | |||||||
CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | (1,946,179 | ) | $ | (672,684 | ) | ||
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: | ||||||||
Depreciation and amortization | 1,345,806 | 363,634 | ||||||
Amortization of debt issuance fees | 48,503 | - | ||||||
Share-based compensation expense | 507,791 | 432,612 | ||||||
Deferred rent | 18,277 | 27,454 | ||||||
Deferred income taxes | (1,419,087 | ) | (434,333 | ) | ||||
Provision for doubtful accounts | 12,286 | (8,788 | ) | |||||
Inventory reserves | 1,314,528 | 221,369 | ||||||
Changes in assets and liabilities, net of acquisition: | ||||||||
Accounts receivable | (529,198 | ) | (176,019 | ) | ||||
Inventories | 1,820,249 | (1,603,381 | ) | |||||
Prepaid expenses and other assets | 238,351 | (14,162 | ) | |||||
Accounts payable | (1,776,291 | ) | 1,091,071 | |||||
Accrued expenses and other liabilities | 814,989 | 30,818 | ||||||
Net cash provided/(used) by operating activities | 450,025 | (742,409 | ) | |||||
CASH FLOWS (USED) BY INVESTING ACTIVITIES | ||||||||
Capital expenditures | (588,180 | ) | (715,128 | ) | ||||
Proceeds from asset disposal | 7,397 | - | ||||||
Acquisition of business net of cash acquired | (9,137,534 | ) | - | |||||
Net cash (used by) investing activities | (9,718,317 | ) | (715,128 | ) | ||||
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES | ||||||||
Revolver borrowings | 25,281,935 | - | ||||||
Revolver repayments | (24,010,007 | ) | - | |||||
Term loan borrowings | 760,000 | - | ||||||
Term loan repayments | (76,000 | ) | - | |||||
Debt issuance fees | (215,358 | ) | - | |||||
Proceeds from exercise of stock options | 424,950 | - | ||||||
Repayments of equipment lease payable | - | (101,296 | ) | |||||
Repurchase of stock | (86,914 | ) | (65,468 | ) | ||||
Net cash provided/(used by) financing activities | 2,078,606 | (166,764 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 105,415 | - | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (7,084,271 | ) | (1,624,301 | ) | ||||
Cash and cash equivalents, at beginning of period | 9,350,803 | 9,726,007 | ||||||
CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 2,266,532 | $ | 8,101,706 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 90,084 | $ | - | ||||
Cash paid during the period for income taxes | $ | 58,454 | $ | 67,438 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Capital expenditures | $ | - | $ | (41,904 | ) | |||
Equipment lease payable | $ | - | $ | 41,904 |
(In thousands)
The
2021 | 2020 | |||||||
For the Six Months | ||||||||
Ended June 30 | ||||||||
2021 | 2020 | |||||||
CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||||||
Net Income/(Loss) | $ | 1,303 | $ | (1,817 | ) | |||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation and amortization | 1,065 | 1,049 | ||||||
Extinguishment of PPP loan | (2,045 | ) | - | |||||
Amortization of debt issuance fees | 150 | 137 | ||||||
Share-based compensation expense | 203 | 210 | ||||||
Deferred rent | (15 | ) | (14 | ) | ||||
Deferred income taxes | 320 | 695 | ||||||
Provision for doubtful accounts | 71 | 2 | ||||||
Inventory reserves | 85 | 90 | ||||||
Changes in assets and liabilities, net of acquisition: | ||||||||
Accounts receivable | (1,079 | ) | (1,351 | ) | ||||
Inventories | (645 | ) | (260 | ) | ||||
Prepaid expenses and other assets | 319 | (110 | ) | |||||
Accounts payable | 585 | 16 | ||||||
Accrued expenses and other liabilities | 77 | 737 | ||||||
Net cash provided/(used) by operating activities | 394 | (616 | ) | |||||
CASH FLOWS PROVIDED/(USED) BY INVESTING ACTIVITIES | ||||||||
Capital expenditures | (313 | ) | (100 | ) | ||||
Acquisition of business, net of cash acquired | (200 | ) | (7,189 | ) | ||||
Net cash provided/(used) by investing activities | (513 | ) | (7,289 | ) | ||||
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES | ||||||||
Revolver borrowings | - | 16,856 | ||||||
Revolver repayments | - | (18,840 | ) | |||||
Term loan borrowings | - | 8,400 | ||||||
Term loan repayments | (470 | ) | (384 | ) | ||||
Debt issuance fees | - | (1,261 | ) | |||||
PPP loan | - | 2,045 | ||||||
Payment of contingent consideration | (105 | ) | - | |||||
Shares withheld for employee taxes | (17 | ) | (26 | ) | ||||
Net cash provided/(used) by financing activities | (592 | ) | 6,790 | |||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 14 | (236 | ) | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (697 | ) | (1,351 | ) | ||||
Cash and Cash Equivalents, at Beginning of Period | 4,910 | 4,245 | ||||||
CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 4,213 | $ | 2,894 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 204 | $ | 347 | ||||
Cash paid during the period for income taxes | $ | 110 | $ | 40 |
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
5 |
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)(UNAUDITED)
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Shareholders’ 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) | - | - | - | (1,946,179 | ) | - | - | (1,946,179 | ) | |||||||||||||||||||
Issuance of shares in connection with stock options exercised | 550,000 | 5,500 | 419,450 | - | - | - | 424,950 | |||||||||||||||||||||
Share-based compensation expense | - | - | 507,791 | - | - | - | 507,791 | |||||||||||||||||||||
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 | (87,000 | ) | (870 | ) | 870 | - | - | - | - | |||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | 1,123,494 | - | 1,123,494 | |||||||||||||||||||||
Repurchase of Stock | - | - | - | - | - | (86,914 | ) | (86,914 | ) | |||||||||||||||||||
Balances at September 30, 2017 | 33,886,752 | $ | 338,867 | $ | 47,453,286 | $ | 9,722,650 | $ | 1,123,494 | $ | (20,910,394 | ) | $ | 37,727,903 |
(In thousands, except share amounts)
The
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||
Balances at January 1, 2020 | 34,488,252 | $ | 345 | $ | 49,062 | $ | 7,142 | $ | (24,509 | ) | $ | 651 | $ | 32,691 | ||||||||||||||
Net income/(loss) | - | - | - | (1,147 | ) | - | - | (1,147 | ) | |||||||||||||||||||
Forfeiture of restricted stock | (16,667 | ) | ||||||||||||||||||||||||||
Issuance of shares in connection with Holzworth acquisition | 347,319 | 3 | 462 | - | - | - | 465 | |||||||||||||||||||||
Issuance of warrants in connection with term debt | - | - | 151 | - | - | - | 151 | |||||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (26 | ) | - | (26 | ) | |||||||||||||||||||
Issuance of restricted stock | ||||||||||||||||||||||||||||
Issuance of restricted stock, shares | ||||||||||||||||||||||||||||
Share-based compensation expense | - | - | 81 | - | - | - | 81 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (935 | ) | (935 | ) | |||||||||||||||||||
Balances at March 31, 2020 | 34,818,904 | $ | 348 | $ | 49,756 | $ | 5,995 | $ | (24,535 | ) | $ | (284 | ) | $ | 31,280 | |||||||||||||
Net income/(loss) | - | - | - | (668 | ) | - | - | (668 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 128 | - | - | - | 128 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | (36 | ) | (36 | ) | |||||||||||||||||||
Balances at June 30, 2020 | 34,818,904 | $ | 348 | $ | 49,884 | $ | 5,327 | $ | (24,535 | ) | $ | (320 | ) | $ | 30,704 |
Common Stock Issued | Common Stock Amount | Additional Paid In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||
Balances at January 1, 2021 | 34,888,904 | $ | 349 | $ | 50,163 | $ | (946 | ) | $ | (24,556 | ) | $ | 841 | $ | 25,851 | |||||||||||||
Net income/(loss) | - | - | - | (233 | ) | - | - | (233 | ) | |||||||||||||||||||
Shares withheld for employee taxes | - | - | - | - | (17 | ) | - | (17 | ) | |||||||||||||||||||
Share-based compensation expense | - | - | 114 | - | - | - | 114 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 75 | 75 | |||||||||||||||||||||
Balances at March 31, 2021 | 34,888,904 | $ | 349 | $ | 50,277 | $ | (1,179 | ) | $ | (24,573 | ) | $ | 916 | $ | 25,790 | |||||||||||||
Balances | 34,888,904 | $ | 349 | $ | 50,277 | $ | (1,179 | ) | $ | (24,573 | ) | $ | 916 | $ | 25,790 | |||||||||||||
Net income/(loss) | - | - | - | 1,537 | - | - | 1,537 | |||||||||||||||||||||
Issuance of restricted stock | 223,517 | 2 | (2 | ) | - | - | - | - | ||||||||||||||||||||
Share-based compensation expense | - | - | 89 | - | - | - | 89 | |||||||||||||||||||||
Cumulative translation adjustment | - | - | - | - | - | 12 | 12 | |||||||||||||||||||||
Balances at June 30, 2021 | 35,112,421 | $ | 351 | $ | 50,364 | $ | 358 | $ | (24,573 | ) | $ | 928 | $ | 27,428 | ||||||||||||||
Balances | 35,112,421 | $ | 351 | $ | 50,364 | $ | 358 | $ | (24,573 | ) | $ | 928 | $ | 27,428 |
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Consolidated Financial Statements.
6 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIESSummary of Significant Accounting Principles and Policies
Basis of Presentation and Preparation
Wireless Telecom Group, Inc., a New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”), specializes in the design and manufacture of advanced radio frequency (“RF”) and microwave devices which enable the development, testing and deployment of wireless technology. The condensed consolidated balance sheet asCompany provides unique, highly customized and configured solutions which drive innovation across a wide range of September 30, 2017,traditional and emerging wireless technologies.
Our customers include wireless carriers, aerospace companies, defense contractors, military and government agencies, satellite communication companies, network equipment manufacturers, tower companies, semiconductor device manufacturers, system integrators, neutral host providers and medical device manufacturers.
Our products include components, modules, instruments, systems and software used across the condensed consolidated statementslifecycle of operationswireless connectivity and comprehensive income/loss forcommunication development, deployment and testing. Our customers use these products in relation to commercial infrastructure development, the threeexpansion and nine months ended September 30, 2017upgrade of distributed antenna systems, deployment of small cell technology, use of medical devices and 2016,private long-term evolution (“LTE”) and 5G networks. In addition, the condensed consolidated statementsCompany’s products are used in the development and testing of cash flows for the nine months ended September 30, 2017satellite communication systems, radar systems, semiconductor devices, automotive electronics and 2016 and the condensed consolidated statement of shareholder’s equity for the nine months ended September 30, 2017 have been prepared by the Company (as defined below) without audit. avionics.
The condensedaccompanying consolidated financial statements include the accounts of Wireless Telecom Group, Inc., doing business as and operating under the trade name, NoiseCom,Noisecom, and its wholly owned subsidiaries including Boonton Electronics Corporation (“Boonton”), Microlab/FXR LLC (“Microlab”), Holzworth Instrumentation, Inc. (“Holzworth”), Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”), which are collectively referred to herein as. They have been prepared using accounting principles generally accepted in the “Company”United States (“U.S. GAAP”). All intercompany transactions and balances have been eliminated in consolidation.
It is suggested that these condensedinterim consolidated financial statements be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the company’sCompany’s latest shareholders’ annual report (Form 10-K).
InterimThe Company’s fiscal periods are based on the calendar year. Except as otherwise specified, references to “second quarter(s)” or “three months” indicate the Company’s three month period ended June 30, 2021 and June 30, 2020, and references to “year-end” indicate the fiscal year ended December 31, 2020.
Consolidated Financial Statements
In the opinion of management, the accompanying condensed consolidated financial statements referred to above contain all necessary adjustments, consisting of normal accruals and recurring entries, which are necessary to fairly present the Company’s results for the interim periods being presented.
The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2016.2020. 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)US GAAP have been condensed or omitted from this report.reduced for interim periods in accordance with SEC rules.
The results of operations for the three and nine month periodssix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.2021.
Use ofCritical Accounting Estimates
The preparation of our consolidated financial statements in conformity with US GAAP requires managementthe Company to make estimates and assumptionsjudgments that affect the reported amountsamount 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 the reported amountsamount of net revenues and expenses duringfor each period. We base our assumptions, judgements and estimates on historical experience and various other factors that we believe to be reasonable under the reporting period. Actualcircumstances. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
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The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains and created significant volatility and disruption of financial markets. Although disruptions related to the COVID-19 pandemic did not impact our estimates and judgements as of the date of this report, it is reasonably possible that our accounting estimates and judgements may change as new events occur and additional information becomes available or is obtained. Furthermore, actual results could differ materially from those estimates.our estimates as of the date of issuance of this Quarterly Report on Form 10-Q under different assumptions or conditions.
For further information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Concentration Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
The 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
One customer accounted for 12.4% and 12.5% of the Company’s sales team to ensure segregation of duties.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Forconsolidated revenue for the three and six months ended SeptemberJune 30, 2017,2021, respectively. No one customer accounted for approximately 13%more than 10% of the Company’s consolidated revenues andrevenue for the ninethree or six months ended SeptemberJune 30, 20172020.
One customer accounted for 16.3% of consolidated accounts receivable as of June 30, 2021. At December 31, 2020, one customer accounted for approximately 10%12.7% of the Company’s consolidated revenue. For the three and nine months ended September 30, 2016, one customer accounted for approximately 11% and 10%, respectively, of the Company’s consolidated revenues. At September 30, 2017 two customers represented 19% and 17% of the Company’s gross accounts receivable, respectively. At December 31, 2016, one customer represented 16% of the Company’s gross accounts receivable balance.receivable.
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—1 - Quoted prices in active markets for identical assets or liabilities.
Level 2—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—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 CommAgilityHolzworth Share Purchase Agreement, the Company may beis required to pay additional purchase price in the form of deferred purchase price payments and an earnout based on Holzworth’s financial results for the year ended December 31, 2020. Additional earnout payments may be due if Holzworth achieves certain financial targets are achieved for the yearsyear ending December 31, 2017 and December 31, 2018 (“CommAgility Earn-Out”). As of the acquisition date, the Company estimated the fair value of the contingent consideration to be $754,500 (see Note 3) and the Company is required to reassess the fair value of the contingent consideration at each reporting period.2021.
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The significant inputs used in this fair value estimate include estimated gross revenues and Adjusted EBITDA, as defined in the Holzworth Share Purchase Agreement, and scenarios for the earn-outearnout periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome (Level 3).outcome. The estimated outcome is then discounted based on the individual risk analysis of the liability. Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of CommAgility or changes in the future, may result in different estimated amounts.
The contingent consideration is included in other long term liabilities inare considered a Level 3 fair value measurement.
As of June 30, 2021, amounts due for the accompanying condensed consolidated balance sheets. TheHolzworth deferred purchase price and earnout were $ and $ million, respectively.
Subsequent Events
On July 21, 2021, the Company will satisfy this obligationentered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with a cash paymentB. Riley Securities, Inc. (the “Agent”), to issue and sell through 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 anyAgent, shares of the Company’s customers. Volume discounts maycommon stock, par value $ per share, having an aggregate offering price of up to $12,000,000 (the “Shares”). The Agent is not required to sell any specific number of Shares. Any Shares to be offered from timeand sold under the Sales Agreement will be issued and sold pursuant to timethe Company’s previously filed and currently effective registration statement on Form S-3 (File No. 333-227051) filed with the Securities and Exchange Commission (the “Commission”) on August 27, 2018, and declared effective on September 17, 2018. A prospectus supplement relating to customers purchasing large quantitiesthe offering of the Shares was filed with the Commission on a per transaction basis.July 21, 2021.
StandaloneFrom July 21, 2021 through August 5, 2021 the Agent sold shares of the Company’s common stock for net proceeds of $731,815, after deducting sales of software or software-related items are recognizedcommissions paid to the Agent 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 valueterms 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 servicesSales Agreement.
NOTE 2 – Accounting Pronouncements
Recently Adopted Accounting Standards
There have been performed, or until such evidence of fair value can be determined for the undelivered items.
Software arrangements that requireno changes to our 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 shownaccounting policies as a component of accumulated other comprehensive incomedescribed 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 Income/(Loss).
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is recorded directly to2020 Form 10-K that had a separate section of shareholders’ equity in accumulated other comprehensive income and primarily includes unrealized gains and losses excluded from the Consolidated Statements of Operations and Comprehensive Income/(Loss). These unrealized gains and losses consist of changes in foreign currency translation.
Intangible and Long-lived Assets
Intangible assets include patents, non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is basedmaterial impact 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,
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
economic conditions and competition. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if event occur or circumstances change that indicate an asset may be impaired.
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.and related notes.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements Not Yet Adopted
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 MarchJune 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation2016-13, Financial Instruments – Credit Losses (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the amount of taxes owed using the maximum statutory rate in the employee’s applicable jurisdiction(s)326). ASU 2016- 09 requires a company to classify2016-13 changes the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligationimpairment model for most financial assets and will require the use of an “expected loss” model for instruments measured as a financing activity on the statement of cash flows. Under current U.S. GAAP, itamortized cost. This pronouncement is not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for small reporting companies for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted but all of2022. The Company plans to adopt the guidance must be adopted instandard effective January 1, 2023. We do not expect the same period. The adopted standard has not had any impact on the Company’s financial statements.
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
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
after December 15, 2017, and early adoption is permitted. The adoption of this ASU is not expectedstandard to have a material impact on our consolidated financial statements.
In August 2016,March 2020, the FASB issued ASU 2016-15,2020-04, 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 impactReference Rate Reform (Topic 848): Facilitation of the adoptionEffects of ASU 2016-15Reference Rate Reform on its consolidatedFinancial Reporting. The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on 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.reporting. The new standard is effective for annual reporting periods beginning afterMarch 12, 2020 through December 15, 2018, including interim periods within that reporting period,31, 2022, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is in the process of evaluatingadoption date being dependent upon the impact of ASU 2016-02 on its consolidated financial statements.
In May 2014,Company’s election. We do not expect 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. During the third quarter the Company began an implementation project regarding adoption of Topic 606. The Company believes that adoption of Topic 606 will notthis standard to have a material impact on the Company’s results of operations, however, the implementation project is on-going.
The Company does not believe there are any other recently issued, but not yet effective accounting pronouncements, that if adopted would have a material effect on the accompanyingour consolidated financial statements.
NOTE 3 – ACQUISITIONAcquisition of Holzworth
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.,7, 2020 the Company 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 3,487,528outstanding shares of newly issuedHolzworth. Holzworth instruments which include signal generators and phased noise analyzers are used by government labs, the semiconductor industry, and network equipment providers, among others, in research and automated test environments. Holzworth is a complimentary business for our Boonton and Noisecom brands with a 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, proceedsfrom an asset based revolver totaling $1,098,000customer base 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 anchannel partners.
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WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 EBITDA, as defined, generated by CommAgility is less than £2,400,000; or (b) 2018 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 estimates that the 2017 Adjusted EBITDA target will not be met thus we believe all 2,092,516 Consideration shares will be forfeited. Accordingly, the Company recorded a contingent asset of $3,599,128 which represents the fair value of the consideration shares as of acquisition date. This contingent asset is included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet as of September 30, 2017.
The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations.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
At closing, a portion of the purchase price was paid to accurately value assets acquired and liabilities assumedthe Sellers through the issuance of shares of the Company’s common stock, valued at approximately $ based upon a 90-day volume weighted average price for shares of stock of the acquisition date as well as contingent consideration, where applicable, our estimatesCompany. The shares issued to the Sellers are inherently uncertain and subject to refinement. Lock-up and Voting Agreements.
During the three months ended September 30, 20172020, the Company recorded measurement period adjustments relatedpaid $ million in net cash to the completionSellers consisting of the valuation$ million in cash at close, $ in indemnification holdback payments and $ in deferred purchase price reduced by $ of intangible assets, contingent consideration and contingent asset associated with the equity claw back and deferred taxes. The Company incurred $0 and $1,289,517 of acquisition-related costs during the three and nine months ended September 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 $2,231,166 and $6,228,157 of net salesa working capital adjustment that was owed to the Company by the Sellers. The final indemnification holdback payment of $ was paid on March 31, 2021.
The Sellers earned a second deferred purchase price payment of $three and ninetwelve months ended December 31, 2020. Additionally, the Sellers earned $ million in additional purchase price in the form of an earnout (“Year 1 Earnout”) which was also based on Holzworth’s EBITDA for the twelve months ended December 31, 2020. when Holzworth exceeded $ million in EBITDA (as defined in the Share Purchase Agreement) for the
On February 19, 2021, the Company entered into the Second Amendment to Share Purchase Agreement (the “Second Amendment”) with Holzworth. The Second Amendment, among other things, converted the second deferred purchase price of $ into unsecured seller notes with interest at an annual rate of % starting from April 1, 2021 until final payment.
Additionally, the parties amended the payment dates of the earnout consideration. The payment for the Year 1 Earnout is $million, of which $was paid on June 30, 2021, $million is recorded in accrued expenses and other current liabilities and $million is recorded in other long term liabilities in the Consolidated Balance Sheet as of June 30, 2021.
Various valuation techniques were usedThe Company may also be required to estimatepay additional amounts in cash and stock as earnout consideration based on Holzworth’s EBITDA for the fair valuefiscal year ending December 31, 2021 (“Year 2 Earnout”). The Year 2 Earnout will be equal to two times the amount, if any, by which Holzworth’s EBITDA for fiscal year December 31, 2021 exceeds Holzworth’s EBITDA for fiscal year 2020. . The aggregate payments of the Year 1 Earnout and Year 2 Earnout cannot exceed $ million and the liabilities assumed which use significant unobservable inputs, or Level 3 inputs as defined byaggregate purchase price cannot exceed $ million.
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The following table summarizes the fair value hierarchy. Using these valuation approaches requirescomponents of the Company to make significant estimatespurchase price and assumptions. Thefollowing table summarizes the allocation of the purchase consideration to theprice at fair value of assets acquired and liabilities assumed at the acquisition date (in thousands):
Schedule of acquisition:Business Consideration
Amounts Recognized as of Acquisition Date | ||||
Cash at close | $ | 7,219 | ||
Equity issued at close | 465 | |||
Purchase price holdback | 800 | |||
Working capital adjustment | (292 | ) | ||
Deferred purchase price | 1,410 | |||
Contingent consideration | 2,440 | |||
Total purchase price | 12,042 | |||
Cash | 30 | |||
Accounts receivable | 514 | |||
Inventory | 1,438 | |||
Intangible assets | 4,260 | |||
Other assets | 967 | |||
Fixed assets | 144 | |||
Accounts payable | (129 | ) | ||
Accrued expenses | (429 | ) | ||
Deferred revenue | (13 | ) | ||
Other long term liabilities | (740 | ) | ||
Net assets acquired | 6,042 | |||
Goodwill | $ | 6,000 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As Reported 3/31/2017 | Measurement Period Adjustments | Revised 9/30/2017 | |||||||
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 | (1,945,853 | ) | 754,500 | |||||
Total Purchase Price | 23,913,689 | (1,945,853 | ) | 21,967,836 | |||||
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 | (4,540,833 | ) | 5,116,768 | |||||
Contingent Asset | 3,599,128 | 3,599,128 | |||||||
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 | ) | 867,308 | (834,279 | ) | ||||
Other Long Term Liabilities | (339,096 | ) | (339,096 | ) | |||||
Net Assets Acquired | 13,819,908 | 13,745,511 | |||||||
Goodwill | $10,093,781 | $8,222,325 |
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, assembled workforce, organic growth and other benefits that are expected to arise from integrating CommAgilityHolzworth into our operations. None of theThe goodwill recorded in this transaction is expected to be tax deductible.
The Company’s post acquisition consolidated goodwill is shown below (in thousands):
Schedule of Post Acquisition Consolidated Goodwill
Holzworth | Microlab | CommAgility | Total | |||||||||||||
Balance as of January 1, 2020 | $ | - | $ | 1,351 | $ | 8,718 | $ | 10,069 | ||||||||
Holzworth acquisition | 6,000 | - | - | 6,000 | ||||||||||||
Goodwill Impairment | - | - | (4,742 | ) | (4,742 | ) | ||||||||||
Foreign currency translation | - | - | 185 | 185 | ||||||||||||
Balance as of December 31, 2020 | $ | 6,000 | $ | 1,351 | $ | 4,161 | $ | 11,512 | ||||||||
Foreign currency translation | - | - | 45 | 45 | ||||||||||||
Balance as of March 31, 2021 | $ | 6,000 | $ | 1,351 | $ | 4,206 | $ | 11,557 | ||||||||
Foreign currency translation | - | - | 7 | 7 | ||||||||||||
Balance as of June 30, 2021 | $ | 6,000 | $ | 1,351 | $ | 4,213 | $ | 11,564 |
NOTE 4 – Debt
Debt consists of the following table summarizes(in thousands):
Schedule of Debt
June 30, 2021 | ||||
Revolver at LIBOR plus margin | $ | - | ||
Term loan at LIBOR plus margin | 7,846 | |||
Less: Debt issuance costs, net of amortization | (729 | ) | ||
Less: Fair value of warrants, net of amortization | (108 | ) | ||
Total Debt | 7,009 | |||
Less: Debt maturing within one year | (84 | ) | ||
Non-current portion of long term debt | $ | 6,925 |
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Term loan payments by period (in thousands):
Schedule of Term Loan Payments
Remainder of 2021 | $ | 42 | ||
2022 | 84 | |||
2023 | 84 | |||
2024 | 84 | |||
2025 | 7,552 | |||
Total | $ | 7,846 |
In connection with the activityHolzworth Acquisition, on February 7, 2020, the Company, as borrower, and its subsidiaries, as guarantors, and Muzinich BDC, Inc., as lender (“Muzinich”), entered into a Term Loan Facility, which provides for a term loan in the principal amount of $8.4 million (the “Initial Term Loan”). All proceeds of the Initial Term Loan were used to fund the cash portion of the purchase price for the Holzworth acquisition. Principal payments on the Initial Term Loan are $21,000 per quarter with a balloon payment at maturity which is February 7, 2025. The Term Loan Facility included an upfront fee of 2.50% of the aggregate principal amount of the Initial Term Loan. In connection with the Term Loan Facility, the Company incurred costs of $1.0 million, including the aforementioned 2.50% upfront fee to Muzinich, which were recorded as a reduction of the carrying amount of the debt and are being amortized over the term of the loan.
On May 4, 2020, the Company entered into the First Amendment to the Term Loan Facility which, among other things, amended the definition of “Indebtedness” to include the PPP (as defined below) loan as long as the proceeds are used for allowable purposes under the CARES Act, the receipt of the loan does not violate the Credit Facility and the Company submits an application for forgiveness and substantially all of the loan is forgiven. The Company received notice in June 2021 that the loan and accrued interest were fully forgiven, as described below.
On February 25, 2021, the Company and its subsidiaries entered into the Second Amendment to the Credit Agreement and Limited Waiver (“Amendment 2”) with Muzinich, in which Muzinich agreed to waive the Company’s obligation to comply with the consolidated leverage ratio and fixed charge coverage ratio financial covenants in the Term Loan Facility for the fiscal quarter ending December 31, 2020. We were not in compliance with such covenants primarily as a result of the impact the COVID-19 pandemic had on our consolidated financial results. Amendment 2, among other things, amended the definition of consolidated EBITDA to include certain cash tax benefits related to Contingent Considerationour U.K. tax jurisdiction and Deferred Purchase Pricereduced our consolidated leverage ratio for the nine monthstwelve month periods ended September 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 | 68,204 | |||||||
Payment | (1,071,666 | ) | ||||||
Measurement Period Adjustment | (1,945,853 | ) | ||||||
Foreign Currency Translation | 52,571 | 120,000 | ||||||
Balance as of September 30, 2017 | $ | 875,275 | $ | 1,563,334 |
As2021 from 3.00 to 2.75, December 31, 2021 from 2.75 to 2.25, March 31, 2022 from 2.50 to 2.00 and June 30, 2022 from 2.25 to 2.00. Additionally, the interest rate margin was increased from 7.25% to 9.25% effective January 1, 2021 and will step down to 8.50% and 7.25% upon the Company achieving consolidated EBITDA on a trailing twelve-month basis of September 30, 2017, $1,116,666$4.0 million and $6.3 million, respectively. Muzinich and the Company also agreed on an excess cash flow payment of $428,000 which was made in March 2021 and Muzinich provided consent for the Company to change the deferred purchase price is included in accrued expensespayments to and other current liabilities on the condensed consolidated balance sheet. As of September 30, 2017, $875,275 of contingent consideration and $446,668 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 connectionenter into notes with the NewHolzworth sellers in the amount of $750,000, as described above in Note 3.
The Company entered into a Credit Facility (describedwith Bank of America, N.A. on February 16, 2017 (the “Credit Facility”), which provided for a term loan in further detailthe 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 Note 8)the Credit Facility) of up to a maximum availability of $9.0 million (“Revolver Commitment Amount”). The borrowing base is calculated as a percentage of eligible accounts receivable and inventory, as defined, subject to certain caps and limits. The borrowing base is calculated on a monthly basis and interest is calculated at LIBOR plus a margin. The proceeds of the Term Loan and Revolver were used to finance the acquisition of CommAgility;CommAgility in 2017.
In connection with the Acquisition, on February 7, 2020, the Company and (iii) inclusioncertain of acquisition-related expensesits subsidiaries (the “Borrowers”), and Bank of America, N.A. entered into Amendment No. 5 (the “Amendment”) to the Credit Facility. By entering into the Amendment, Holzworth, together with CommAgility Limited, became borrowers under the Credit Facility. The obligations of the Borrowers under the Credit Facility are guaranteed by Wireless Telecom Group, Ltd. CommAgility Limited and Wireless Telecom Group, Ltd. are both wholly owned subsidiaries of the Company. Additionally, the Company prepaid the remaining principal balance of the BOA Term Loan in the earliest period presented.The pro forma combined statementsamount of operations$304,000.
On May 4, 2020, the Company, its subsidiaries and Bank of America entered into Amendment No. 6 which, among other things, amended the definition of “Debt” to include the PPP loan as long as the proceeds are not necessarily indicativeused for allowable purposes under the CARES Act and the Company promptly submits an application for forgiveness and substantially all of the resultsloan is forgiven. The Company received notice in June 2021 that the loan and accrued interest were fully forgiven, as described below.
12 |
On February 25, 2021, the Company, its subsidiaries and Bank of operationsAmerica entered into Amendment No. 7 which revised the Credit Facility to accommodate the changes to the deferred purchase price payments to and notes with the Holzworth sellers, as they would have been haddescribed above, and provided Bank of America’s consent to the transaction been effectedCompany entering into the Muzinich Second Amendment, as described above.
As of June 30, 2021, the interest rate on the assumedTerm Loan Facility was 10.25% and the interest rate on the Revolver was 2.09%. The Company had zero drawn on the asset-based revolver as of June 30, 2021. As of June 30, 2021, and the date hereof the Company is in compliance with all covenants of the Credit Facility and arethe Term Loan Facility.
On May 4, 2020, the Company received $2.0 million pursuant to a loan from Bank of America N.A. under the Paycheck Protection Program (“PPP”) of the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the Small Business Association (“SBA”). The loan had an interest rate of 1% and a term of 24 months. A repayment schedule was not intendedprovided by Bank of America. Accordingly, the full amount of the term loan was shown as due in May 2022. Funds from the loan were used only for certain permitted purposes, including payroll, benefits, rent and utilities. The CARES Act and the PPP provided a mechanism for forgiveness of up to bethe full amount of the loan upon application to the SBA for forgiveness by the Company. The Company applied for forgiveness of the loan and received notice that the loan and accrued interest were fully forgiven, and that the SBA remitted payment in full to Bank of America N.A. on June 5, 2021. The Company elected to account for the loan in accordance with Accounting Standard Codification 470 Debt. Accordingly, the Company recorded a projectiongain on extinguishment of future results.
Pro-forma results fordebt on the Consolidated Statement of Operations and Comprehensive Income/(Loss) in the three months ended SeptemberJune 30, 20162021.
NOTE 5 – Leases
The Company’s lease agreements consist of building leases for its operating locations and office equipment leases for printers and copiers with lease terms that range from less than 12 months to 8 years. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company’s leases for office equipment such as printers and copiers contain lease and non-lease components (i.e., maintenance). The Company accounts for lease and non-lease components of office equipment as a single lease component.
All of the Company’s leases are operating leases and are presented below:as right of use lease asset, short term lease liability and long term lease liability on the consolidated balance sheets as of June 30, 2021 and December 31, 2020. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
(Unaudited) | 2016 | |||
Net Revenues | $ | 11,613,576 | ||
Net (loss) | $ | (125,515 | ) | |
Basic net (loss) per share | $ | (0.01 | ) | |
Diluted net (loss) per share | $ | (0.01 | ) |
Pro-forma resultsLease expense is recognized on a straight-line basis over the lease term and is included in cost of revenues and general and administrative expenses on the Consolidated Statement of Operations and Comprehensive Income/(Loss).
An initial right-of-use asset of $1.9 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on January 1, 2019. With our acquisition of Holzworth on February 7, 2020, we acquired a right-of-use asset of $789,000. There have been no other right-of-use assets recognized since the date of adoption of the new lease standard. Cash paid for amounts included in the present value of operating lease liabilities was $168,000 and $332,000 for the ninethree and six months ended SeptemberJune 30, 20162021, respectively, and 2017 are presented below:was included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities for the three and six months ended June 30, 2020 was $166,000 and $317,000, respectively.
(Unaudited) | 2017 | 2016 | ||||||
Net Revenues | $ | 35,416,074 | $ | 31,066,037 | ||||
Net (loss) | $ | (1,441,141 | ) | $ | (1,602,277 | ) | ||
Basic net (loss) per share | $ | (0.07 | ) | $ | (0.08 | ) | ||
Diluted net (loss) per share | $ | (0.07 | ) | $ | (0.08 | ) |
Operating lease costs for the three and six months ended June 30, 2021 were $282,000 and $558,000, respectively. Operating lease costs for the three and six months ended June 30, 2020 were $275,000 and $522,000, respectively.
13 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSThe following table presents information about the amount and timing of cash flows arising from the Company’s leases as of June 30, 2021:
(unaudited)Schedule of Maturity of Operating Lease Liabilities
(in thousands) | June 30, 2021 | |||
Maturity of Lease Liabilities | ||||
Remainder of 2021 | $ | 312 | ||
2022 | 637 | |||
2023 | 276 | |||
2024 | 158 | |||
2025 | 163 | |||
Thereafter | 69 | |||
Total Undiscounted operating lease payments | 1,615 | |||
Less: imputed interest | (142 | ) | ||
Present value of operating lease liabilities | $ | 1,473 | ||
Balance sheet classification | ||||
Current lease liabilities | $ | 559 | ||
Long-term lease liabilities | 914 | |||
Total operating lease liabilities | $ | 1,473 | ||
Other information | ||||
Weighted-average remaining term (months) for operating leases | 39 | |||
Weighted-average discount rate for operating leases | 5.88 | % |
NOTE 6 – Revenue
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that transferred at a point in time accounted for approximately 97% and 100% of the Company’s consolidated revenue for each of the three and six months ended June 30, 2021 and 2020, respectively.
Nature of Products and Services
Hardware
The Company generally has one performance obligation in its arrangements involving the sales of radio frequency solutions, digital signal processing hardware, power meters, analyzers, noise/signal generators, phase noise analyzers and other components. When the terms of a contract include the transfer of multiple products, each distinct product is identified as a separate performance obligation. Generally, satisfaction occurs when control of the promised goods is transferred to the customer in exchange for consideration in an amount for which we expect to be entitled. Generally, control is transferred when legal title of the asset moves from the Company to the customer. We sell our products to a customer based on a purchase order, and the shipping terms per each individual order are primarily used to satisfy the single performance obligation. However, in order to determine when control has transferred to the customer, the Company also considers:
● | when the Company has a present right to payment for the asset; | |
● | when the Company has transferred physical possession of the asset to the customer; | |
● | when the customer has the significant risks and rewards of ownership of the asset; and | |
● | when the customer has accepted the asset. |
Software
Arrangements involving licenses of software in the CommAgility brand may involve multiple performance obligations, most notably subsequent releases of the software. The Company has concluded that each software release in a multiple deliverable arrangement involving CommAgility software licenses is a distinct performance obligation and, accordingly, transaction price is allocated to each release when the customer obtains control of the software.
Performance obligations that are not distinct at contract inception are combined. Specifically, with the Company’s sales of software, contracts that include customization may result in the combination of the customization services with the license as one distinct performance obligation and recognized over time. The duration of these performance obligations are typically one year or less.
14 |
Services
Arrangements involving calibration and repair services of the Company’s products are generally considered a single performance obligation and are recognized as the services are rendered.
Shipping and Handling
Shipping and handling activities performed after the customer obtains control are accounted for as fulfillment activities and recognized as cost of revenues.
Significant Judgments
For the Company’s more complex software and services arrangements, significant judgment is required in determining whether licenses and services are distinct performance obligations that should be accounted for separately or are not distinct and thus accounted for together. Further, in cases where we determine that performance obligations should be accounted for separately, judgment is required to determine the standalone selling price for each distinct performance obligation.
Certain of the Company shipments include a limited return right. In accordance with Topic 606, the Company recognizes revenue net of expected returns.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract assets (unbilled revenue) or contract liabilities (deferred revenue) on the Company’s consolidated balance sheet. The Company records unbilled revenue when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Unbilled revenue was $29,000 and $260,000 as of June 30, 2021 and December 31, 2020, respectively, and recorded in prepaid expenses and other current assets. Deferred revenue was $598,000 and $924,000 as of June 30, 2021 and December 31, 2020, respectively. The decrease in deferred revenue from December 31, 2020 is primarily due to recognition of revenue for certain CommAgility projects involving multiple performance obligations.
Disaggregated Revenue
We disaggregate our revenue from contracts with customers by product family and geographic location as we believe it best depicts how the nature, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below (in thousands).
Schedule of Disaggregated Revenue
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||||||||
Total net revenues by revenue type | ||||||||||||||||
Passive and active RF components | $ | 4,231 | $ | 5,853 | $ | 7,365 | $ | 10,120 | ||||||||
Signal generators and components | 3,188 | 2,808 | 6,517 | 4,628 | ||||||||||||
Signal analyzers and power meters | 1,838 | 1,281 | 3,396 | 2,846 | ||||||||||||
Signal processing hardware | 1,530 | 166 | 3,013 | 1,365 | ||||||||||||
Software licenses | 341 | 606 | 1,331 | 714 | ||||||||||||
Services | 895 | 394 | 1,722 | 863 | ||||||||||||
Total net revenue | $ | 12,023 | $ | 11,108 | $ | 23,344 | $ | 20,536 | ||||||||
Total net revenues by geographic areas | ||||||||||||||||
Americas | $ | 8,692 | $ | 8,395 | $ | 16,471 | $ | 14,640 | ||||||||
EMEA | 1,041 | 1,603 | 3,575 | 3,648 | ||||||||||||
APAC | 2,290 | 1,110 | 3,298 | 2,248 | ||||||||||||
Total net revenue | $ | 12,023 | $ | 11,108 | $ | 23,344 | $ | 20,536 |
15 |
NOTE 47 – INCOME TAXESIncome Taxes
The Company records deferred taxes in accordance with Accounting Standards Codification (“ASC”)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 Company’s major tax jurisdictions are New Jersey, Colorado and the United Kingdom (“U.K.”). The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.
As of June 30, 2021, the Company’s net deferred tax asset of approximately $5.5 million is net of a valuation allowance of approximately $7.7 million which is associated with the Company’s foreign net operating loss carryforward from an inactive foreign entity, state net operating loss carryforward and a state research and development credit.
The effective rateCompany recorded a tax provision of income tax benefit of 44% $321,000 for the ninesix months ended SeptemberJune 30, 2017 was higher than the statutory rates in the United States and United Kingdom2021, primarily due to the impact of an increase of the deferred tax liability for the Company’s U.K. jurisdiction due to an increase in the enacted U.K. tax rate in the three months ended June 30, 2021.
The Company recorded a tax provision of $225,000 for the six months ended June 30, 2020 due to estimated taxable income in the U.S. because qualified expenses under the PPP loan were not expected to be deductible for tax purposes. This was offset somewhat by estimated losses as well as research and development deductions state tax benefits related to net operating losses, non-qualified stock option deductions offset by nondeductible expenses and a lower rate in the United Kingdom.U.K.. After completion of the financial statements as of and for the three and six months ended June 30, 2020, the Internal Revenue Service clarified that qualified expenses under the PPP loan program would be deductible.
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted averageweighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share areis calculated by usingdividing net income (loss) available to common shareholders by the weighted averageweighted-average number of common shares of common stock outstanding for the period and, when dilutive, potential shares from stock options contingent shares and restricted shares, using the treasury stock method.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Weighted average common shares outstanding | 20,235,876 | 18,721,346 | 19,799,219 | 18,650,274 | ||||||||||||
Potentially dilutive shares | 2,702,312 | 637,622 | - | - | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 22,938,188 | 19,358,968 | 19,799,219 | 18,650,274 |
Commonmethod, the weighted average number of unvested restricted shares, the weighted-average number of restricted stock units, the number of shares issuable under the terms of the Holzworth earnout and the weighted average number of warrants to purchase common stock outstanding for the period. Shares from stock options are included in the diluted earnings (loss) per share calculation only when the various optionoptions exercise prices are lesslower than their relativethe average market price duringvalue of the common shares for the period presented. In periods presented in this quarterly report. Thewith a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive. In accordance with ASC 260, “Earnings Per Share”, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
2021 | 2020 | 2021 | 2020 | |||||||||||||
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Weighted average common shares outstanding | 21,762,578 | 21,706,806 | 21,727,801 | 21,626,322 | ||||||||||||
Potentially dilutive equity awards | 2,580,087 | 260,892 | 2,335,554 | 251,181 | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 24,342,665 | 21,967,698 | 24,063,355 | 21,877,503 |
For the three and six months ended June 30, 2021, the weighted average number of sharesoptions to purchase common stock not included in diluted earnings (loss) per share,potentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was 2,810,143not met was . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and 2,781,844foris included in potentially dilutive equity awards in the three-months ended September 30, 2017 and 2016, respectively. chart above.
16 |
For the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2020, the weighted average number of sharesoptions and warrants to purchase common stock not included in diluted earnings (loss) per sharepotentially dilutive equity awards because the effects are anti-dilutive, or the performance condition was 5,755,490not met was and 3,980,229, , respectively.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)NOTE 9 – Inventories
NOTE 6 – INVENTORIES
Inventory carrying value is net of inventory reserves of $2,067,103$1.2 million at June 30, 2021 and $1,549,089$1.1 million at SeptemberDecember 31, 2020.
Inventories consist of (in thousands):
Schedule of Inventory
June 30, 2021 | December 31, 2020 | |||||||
Raw materials | $ | 5,749 | $ | 4,644 | ||||
Work-in-process | 607 | 618 | ||||||
Finished goods | 3,009 | 3,534 | ||||||
Total Inventory | $ | 9,365 | $ | 8,796 |
NOTE 10 – Accrued Expenses and Other Current Liabilities
As of June 30, 20172021, and December 31, 2016, respectively.
September 30, 2017 | December 31, 2016 | |||||||
Inventories consist of: | ||||||||
Raw materials | $3,214,276 | $3,558,430 | ||||||
Work-in-process | 641,449 | 531,210 | ||||||
Finished goods | 2,630,071 | 4,363,111 | ||||||
$6,485,796 | $8,452,751 |
During the nine month period ended September 30, 2017 the Company recorded inventory adjustments totaling $1,930,000 comprised of an increase to the Company’s excess2020 accrued expenses 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 valueother current liabilities consisted of the inventory following the launch(in thousands):
Schedule of the Company’s lean manufacturing initiativeAccrued Expenses and the adoption of a strategic product plan focused on product lifecycle acceleration.Other Current Liabilities
June 30, 2021 | December 31 2020 | |||||||
Holzworth earnout – short term | $ | 1,606 | $ | 3,423 | ||||
Goods received not invoiced | 1,274 | 458 | ||||||
Payroll and related benefits | 1,114 | 864 | ||||||
Holzworth deferred purchase price | 750 | 950 | ||||||
Commissions | 475 | 605 | ||||||
Sales and use and VAT tax | 384 | 315 | ||||||
Professional fees | 322 | 331 | ||||||
Returns reserve | 248 | 212 | ||||||
Warranty reserve | 140 | 140 | ||||||
Bonus | 117 | 123 | ||||||
Harris arbitration liability | - | 116 | ||||||
Other | 275 | 460 | ||||||
Total | $ | 6,705 | $ | 7,997 |
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill balance of $10,113,158 at September 30, 2017 relates to two of the Company’s reporting units, Microlab ($1,351,392) and Embedded Solutions ($8,761,766). 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:
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 | $2,766,500 | ($346,437 | ) | $159,437 | $2,579,500 | |||||||||||
Patents | 614,918 | (76,593 | ) | 35,028 | 573,353 | |||||||||||
Non Compete Agreements | 1,106,600 | (236,133 | ) | 63,069 | 933,535 | |||||||||||
Tradename | 628,750 | - | 41,250 | 670,000 | ||||||||||||
Total | $5,116,768 | (659,163 | ) | $298,784 | $4,756,388 |
Amortization of acquired intangible assets was $47,737 and $659,163results for the three and nine months ended September 30, 2017. As a result of finalizing the fair value of intangible assets the Company recorded measurement period adjustments of $4,540,833 to reduce gross intangible assets and increase goodwill during the three months ended September 30, 2017. Additionally, the Company recorded an indefinite lived intangible asset representing the fair value of the CommAgility tradename. As a result of the measurement period adjustments the Company recorded a reduction of intangible amortization expense of $228,459 during the three months ended September 30, 2017 which represents a year to date true up of amortization expense based on the final intangible asset fair value. Amortization of acquired intangible assets is included as part of general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income/(loss).
The estimated future amortization expense related to intangible assets is as follows as of September 30, 2017:
Remainder of 2017 | $278,430 | ||||
2018 | 1,113,719 | ||||
2019 | 1,113,719 | ||||
2020 | 769,786 | ||||
2021 | 720,652 | ||||
Thereafter | 90,082 | ||||
Total | $4,086,388 |
NOTE 8 – DEBT
Debt consists of the following:
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 Companypaid 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 quarterbeginning April 1, 2017 and continuing until the term loan maturity date, on which the remaining balance is due in a final installment. The future principal payments under the term loan are $38,000 for the remainder of 2017, $152,000 in 2018 and $494,000 in 2019. The Term Loan and Revolver are both scheduled to mature onNovember 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 is3.50% 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 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, 20172021 and the reduce the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3%2020 include $ and $ , respectively, related to 66 1/3%.
As of September 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.”stock based compensation expense. The Company’s results for the three and ninesix months ended SeptemberJune 30, 20172021 and 2020 include share-based$ and $ , respectively related to stock based compensation expense totaling $223,919 and $507,791, respectively. Results for the three and nine month period ended September 30, 2016 include share-based compensation expense totaling $235,374 and $432,612, respectively.expense. Such amounts have been included in the Condensed Consolidated StatementsStatement of Operations and Comprehensive Income/(Loss) within general and administrative expenses in operating expenses.
During the nine months ended September 30, 2017 the Company reversed $324,922 and $92,017 in stock compensation expense for unvested stock options and restricted shares, respectively, that were forfeited as a result of employees exiting the Company. The total amounts forfeited were 87,000 restricted shares and 655,000 stock options. The Company had assumed a zero forfeiture rate in prior periods.accounts for forfeitures when they occur.
17 |
Incentive Compensation Plan:Plan
In 2012, the Company’s Board of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which provides for the grant of equity, including restricted stock awards, restricted stock units, non-qualified stock options and incentive stock options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial 2012 Plan provided for the grant of awards relating to 2,000,0002 million shares of common stock, plus those shares still availablesubject to awards previously issued under the Company’s prior incentive compensation plan.2000 Stock Option Plan that expire, are canceled or are terminated after adoption of the Initial 2012 Plan without having been exercised in full and would have been available for subsequent grants under the 2000 Stock Option Plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional 1,658,045 million shares of the Company’s common stock to be available for future grants under the 2012 Plan. As of SeptemberJune 30, 2017,2021 there were 26,000sharesare awards available for issuancegrant under the 2012 Plan, including those shares available underPlan.
In the Company’s prior incentive compensation plan assecond quarter 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.
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following summarizes the components of share-based compensation expense by equity type for the three and nine months ended September 30:
Three Months Ended | ||||||||
September 30 | ||||||||
2017 | 2016 | |||||||
Service - based Restricted Common Stock | $22,673 | $40,598 | ||||||
Performance-based Restricted Common Stock | 1,846 | 5,353 | ||||||
Performance-based Stock Options | 21,500 | 28,650 | ||||||
Service -based Stock Options | 177,900 | 160,773 | ||||||
223,919 | 235,374 |
Nine Months Ended September 30 | ||||||||
2017 | 2016 | |||||||
Service - based Restricted Common Stock | $167,106 | $151,598 | ||||||
Performance-based Restricted Common Stock | (34,211 | ) | 16,059 | |||||
Performance-based Stock Options | (135,997 | ) | 85,950 | |||||
Service -based Stock Options | 510,893 | 179,005 | ||||||
507,791 | 432,612 |
As of September 30, 2017, $926,322 of unrecognized compensation costs related to unvested stock options is expected to be recognized over a remaining weighted average period of 3.06 years and $186,361 of unrecognized compensation costs related to unvested restricted shares is expected to be recognized over a remaining weighted average period of 1.2 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 September 30, 2017, and changes during the nine months ended September 30, 2017, are presented below:
Non-vested Restricted Shares | Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Non-vested as of January 1, 2017 | 244,291 | $1.52 | ||||||
Granted | 150,000 | $1.65 | ||||||
Vested and Issued | (121,563 | ) | $1.40 | |||||
Forfeited | (87,000 | ) | $1.62 | |||||
Non-vested as of September 30, 2017 | 185,728 | $1.66 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Performance-Based Stock Option Awards:
A summary of performance-based stock option activity, and related information for the nine months ended September 30, 2017 follows:
Options | Weighted Average Exercise Price | |||||||
Outstanding as of January 1, 2017 | 2,165,000 | $1.32 | ||||||
Granted | - | - | ||||||
Exercised | (550,000 | ) | $0.77 | |||||
Forfeited | (540,000 | ) | $1.77 | |||||
Expired | - | - | ||||||
Outstanding as of September 30, 2017 | 1,075,000 | $1.38 | ||||||
Exercisable at September 30, 2017 | 540,000 | $1.14 |
The aggregate intrinsic value of performance-based stock options outstanding (regardless of whether or not such options are exercisable) as of September 30, 2017 was $347,800 and the weighted average remaining contractual life was 4.4 years. The aggregate intrinsic value of performance-based stock options exercisable as of September 30, 2017 was $285,800 and the weighted average remaining contractual life was 1.7 years. The intrinsic value of options exercised during the nine months ended September 30, 2017 was $359,100.
Under the terms of the performance-based stock option agreements, the awards will fully vest and become exercisable on the date on which2021, the Company’s Board of Directors shall have determined that specific financialand shareholders approved the 2021 Long Term Incentive Plan (the “2021 Incentive Plan”), which provides for the grant of equity-based and cash incentives, including stock awards, stock unit awards, performance milestones have been met, provided the employee remains in the employunit awards, non-qualified stock options, incentive stock options and cash awards, including dividend equivalent rights to employees, officers, directors or other service providers of the Company at such time; provided, however, upon a Change in Control (as defined inwho are expected to contribute to the stock option agreementsCompany’s future growth and success. The 2021 Incentive Plan provides for the 2012 Plan), the stock options shall automatically vest as permitted by the 2012 Plan.grant of awards relating to million shares of common stock. As of SeptemberJune 30, 2017,2021 awards have been granted under the Company has determined that the performance conditions on 535,000 options granted 2013 and later are probable of being achieved by the year ending 2020. The Company’s performance-based stock options granted prior to 2013 (consisting of 540,000 options) are fully amortized.2021 Incentive Plan.
Service-Based Stock Option Awards:
A summary of service-based stock option activity and related information for the nine months ended September 30, 2017 follows:
Options | Weighted Average Exercise Price | |||||||
Outstanding as of January 1, 2017 | 1,198,000 | $1.51 | ||||||
Granted | 845,000 | $1.68 | ||||||
Exercised | - | - | ||||||
Forfeited | (115,000 | ) | $1.45 | |||||
Expired | (83,000 | ) | $3.00 | |||||
Outstanding as of September 30, 2017 | 1,845,000 | $1.53 | ||||||
Exercisable at September 30, 2017 | 508,333 | $1.40 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The aggregate intrinsic value of service-based stock options (regardless of whether or not such options are exercisable) as of September 30, 2017 was $297,750 and the weighted average remaining contractual life was 9.1 years. The aggregate intrinsic value of service-based stock options exercisable as of September 30, 2017 was $137,608 and the weighted average remaining contractual life was 8.8 years.
The following table presents the assumptions used to estimate the fair value of stock option awards granted during the nine months ended September 30, 2017:
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 for the three and nine months ended September 30, 2017 and 2016 is set forth below:
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net sales by segment: | ||||||||||||
Network solutions | $6,427,646 | $5,507,065 | $17,560,210 | $15,196,799 | ||||||||
Test and measurement | 3,901,486 | 2,837,236 | 10,253,863 | 7,126,021 | ||||||||
Embedded solutions | 2,231,166 | - | 6,228,157 | - | ||||||||
Total consolidated net sales of reportable segments | 12,560,298 | 8,344,301 | 34,042,230 | 22,322,820 | ||||||||
Segment income (loss): | ||||||||||||
Network solutions | 1,424,496 | 1,081,854 | 2,002,818 | 2,466,115 | ||||||||
Test and measurement | 769,603 | 179,879 | 253,471 | (499,220 | ) | |||||||
Embedded solutions | 41,206 | - | (112,939 | ) | - | |||||||
Income (loss) from reportable segments | 2,235,305 | 1,261,733 | 2,143,350 | 1,966,895 | ||||||||
Other unallocated amounts: | ||||||||||||
Corporate expenses | (1,453,470 | ) | (993,650 | ) | (5,349,614 | ) | (2,972,851 | ) | ||||
Other (expenses) income - net | (71,640 | ) | (27,267 | ) | (233,705 | ) | (79,137 | ) | ||||
Consolidated income (loss) before Income tax provision (benefit) | 710,195 | 240,816 | (3,439,968 | ) | (1,085,093 | ) | ||||||
Depreciation and amortization by segment: | ||||||||||||
Network solutions | 106,785 | 68,002 | 311,777 | 181,706 | ||||||||
Test and measurement | 96,696 | 62,936 | 285,329 | 181,928 | ||||||||
Embedded solutions | 82,972 | - | 748,700 | - | ||||||||
Total depreciation and amortization for reportable segments | 286,453 | 130,938 | 1,345,806 | 363,634 | ||||||||
Capital expenditures by segment: | ||||||||||||
Network solutions | 107,162 | 132,022 | 249,701 | 415,401 | ||||||||
Test and measurement | 94,665 | 81,083 | 201,495 | 299,727 | ||||||||
Embedded solutions | 68,278 | - | 136,984 | - | ||||||||
Total consolidated capital expenditures by reportable segment | 270,104 | 213,105 | 588,180 | 715,128 | ||||||||
September 30, 2017 | December 31, 2016 | |||||||||||
Total assets by segment: | ||||||||||||
Network solutions | 10,055,232 | 10,594,770 | ||||||||||
Test and measurement | 6,441,510 | 7,851,479 | ||||||||||
Embedded solutions | 20,588,726 | - | ||||||||||
Total assets for reportable segments | 37,085,468 | 18,446,249 | ||||||||||
Corporate assets, principally cash and cash equivalents and deferred income taxes | 11,478,892 | 16,988,886 | ||||||||||
Total consolidated assets | 48,564,360 | 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 | Nine Months Ended | |||||||||||
September 30 | September 30 | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Sales by region | ||||||||||||
Americas | $10,083,348 | $6,394,496 | $25,343,053 | $17,262,164 | ||||||||
Europe, Middle East, Africa(EMEA) | 2,051,218 | 1,600,694 | 7,253,334 | 4,042,081 | ||||||||
Asia Pacific (APAC) | 425,732 | 349,111 | 1,445,843 | 1,018,575 | ||||||||
Total sales | $12,560,298 | $8,344,301 | $34,042,230 | $22,322,820 |
Net sales are attributable to a geographic area based on the destination of the product shipment.
The majority of shipments in the Americas are to customers located within the United States. For the three-months ended September 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $9,685,577 and $6,210,423, respectively. For the nine months ended September 30, 2017 and 2016, revenues in the United States for all reportable segments amounted to $24,115,968 and $16,593,877, respectively.
Shipments to the EMEA region for all reportable segments were largely concentrated in the UK, Germany and Israel. For the three-months ended September 30, 2017 shipments to the UK and Germany amounted to $1,294,150 and $187,373, respectively. For the three-months ended September 30, 2016 shipments were largely concentrated in Israel and Germany amounting to $349,418 and $100,653, respectively. For the nine months ended September 30, 2017 shipments to the UK, Germany and Israel amounted to $4,078,506, $731,165 and $374,298, respectively. For the nine months ended September 30, 2016, shipments to Israel and Germany amounted to $722,595 and $573,058, respectively.
The largest concentration of shipments in the APAC region is to China. For the three month period ending September 30, 2017 and 2016, shipments to China amounted to $188,426 and $231,485, respectively. For the nine month period ending September 30, 2017 and 2016 shipments to China amounted to $797,273 and $652,654, respectively.
NOTE 1112 – COMMITMENTS AND CONTINGENCIES
Warranties:
The Company typically provides one to two 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 proceduresThere have been followed by its customers. Historically, the Company’s warranty expense has been minimal.
Leases:
In May 2015, the Companyno material changes in our commitments and its landlord entered into an amendment to the existing lease agreement to providecontingencies and risks and uncertainties as of June 30, 2021 from that previously disclosed in our annual report on Form 10-K for the Company to remain at its principal corporate headquarters in Hanover Township, Parsippany, New Jersey through Marchyear ended December 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.2020.
18 |
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following is a summary of the Company’s contractual obligations as of September 30, 2017:
Payments by Period | |||||||||||||||
Remainder | |||||||||||||||
Total | 2017 | 2018-2019 | 2020-2021 | Thereafter | |||||||||||
Facility Leases | $2,674,362 | $121,879 | $1,007,135 | $934,184 | $611,164 | ||||||||||
Purchase Obligations | 4,866,041 | 4,866,041 | - | - | - | ||||||||||
Operating and Equipment Leases | 238,648 | 13,508 | 108,067 | 108,067 | 9,006 | ||||||||||
$7,779,051 | $5,001,428 | $1,115,202 | $1,042,251 | $620,170 |
Risks and Uncertainties:
Proprietary information and know-how are important to the Company’s commercial success. There can be no assurance that others will not either develop independently the same or similar information or obtain and use proprietary information of the Company. Certain key employees have signed confidentiality and non-compete agreements regarding the Company’s proprietary information.
The Company believes that its products do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future.
The Company’s deferred tax asset is recorded at tax rates expected to be in existence when those assets are utilized. Should the tax rates change materially in the future the amount of deferred tax asset could be materially impacted.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS2. 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 audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2020.
Introduction
The Company continues to deal with the on-going and evolving impacts of the COVID-19 pandemic. As of the date of this filing, the majority of our employees continue to have flexible work arrangements spending the majority of their time working from home. We continue to take safety precautions in all of our facilities globally for those essential employees that are not working remotely. The Company has started a phased re-entry plan bringing more employees back into our facilities on a gradual basis. The Company will continue to adjust our plans based on the facts and circumstances of each jurisdiction in which we operate.
Our second quarter 2021 results reflect increased year over year revenue in two of our three product groups. Revenue at our Radio, baseband and software (“RBS”) product group increased $1.5 million year over year as a result of higher sales of our digital signal processing cards. Revenue in our Test and measurement (“T&M”) product group increased $1.0 million on higher sales from our legacy brands, as we believe customer spending is starting to recover from reductions caused by the COVID-19 pandemic. These increases were partially offset by a decline in the RF components (“RFC”) product group which was due to higher revenues recognized in the second quarter of 2020 prior to the full impact of the COVID-19 pandemic on carrier spending.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020
Net Revenues (in thousands)
Three months ended June 30, | ||||||||||||||||||||||||
Revenue | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 4,235 | $ | 5,861 | 35.2 | % | 52.7 | % | $ | (1,626 | ) | -27.7 | % | |||||||||||
Test and measurement | 5,521 | 4,472 | 45.9 | % | 40.3 | % | 1,049 | 23.5 | % | |||||||||||||||
Radio, baseband, software | 2,267 | 775 | 18.9 | % | 7.0 | % | 1,492 | 192.5 | % | |||||||||||||||
Total net revenues | $ | 12,023 | $ | 11,108 | 100.0 | % | 100.0 | % | $ | 915 | 8.2 | % |
Net consolidated revenue increased 8.2% from the prior year period due primarily to increased sales of our digital signal processing cards. Also contributing to the overall revenue increase was an increase in T&M revenue due to increased revenue from our peak power measurement products as customer spending started to rebound from the COVID-19 pandemic. This was offset by lower revenue at our RFC product group as the second quarter 2020 included several large projects that were started prior to the full impact of the COVID-19 pandemic.
19 |
Gross Profit (in thousands)
Three months ended June 30, | ||||||||||||||||||||||||
Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 1,757 | $ | 2,707 | 41.5 | % | 46.2 | % | $ | (950 | ) | -35.1 | % | |||||||||||
Test and measurement | 3,269 | 2,365 | 59.2 | % | 52.9 | % | 904 | 38.3 | % | |||||||||||||||
Radio, baseband, software | 1,108 | 596 | 48.9 | % | 76.9 | % | 512 | 85.9 | % | |||||||||||||||
Total gross profit | $ | 6,134 | $ | 5,668 | 51.0 | % | 51.0 | % | $ | 467 | 8.2 | % |
Consolidated gross profit increased 8.2% due to higher revenues at T&M and RBS and was only partially offset by lower revenues at RFC. Gross profit margin was flat with the prior year. RFC gross profit margin decreased due to lower volumes and lower absorption of fixed manufacturing costs while T&M gross profit margin increased on higher volumes and higher absorption of fixed manufacturing costs. RBS gross profit margin decreased due to a higher mix of lower margin hardware sales.
Operating Expenses (in thousands)
Three months ended June 30, | ||||||||||||||||||||||||
Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
Research and development | $ | 1,464 | $ | 1,675 | 12.2 | % | 15.1 | % | $ | (211 | ) | -12.6 | % | |||||||||||
Sales and marketing | 1,699 | 1,661 | 14.1 | % | 15.0 | % | 38 | 2.3 | % | |||||||||||||||
General and administrative | 2,806 | 2,391 | 23.3 | % | 21.5 | % | 415 | 17.4 | % | |||||||||||||||
Total operating expenses | $ | 5,969 | $ | 5,727 | 49.6 | % | 51.6 | % | $ | 242 | 4.2 | % |
Research and development expenses decreased 12.6% from the prior year due primarily to lower third party research and development costs, the majority of which is in connection with our third party 5G collaboration agreement. The mix of third party research and development expenses to internal expenses varies by project. We expect to continue third party investments in research and development dependent upon project deadlines, new product development opportunities and longer term product roadmap dependencies which, in turn, may create increases and decreases to research and development expenses as a percentage of revenue. The decline in third party expenses was offset somewhat by unfavorable foreign exchange impact, specifically the increase in the pound sterling which increased approximately 12% year over year.
Sales and marketing expenses were flat with the prior year as higher internal commissions and marketing expenses were offset by lower salaries and benefits driven by lower headcount compared to the prior year.
General and administrative expenses increased 17.4% from the prior year period primarily due to an increase in headcount related expenses of $300,000 related to the addition of our Chief Revenue Officer in August of 2020, merit and bonus increases and the reinstatement of other benefits that were previously eliminated in the first half of fiscal 2020 during the COVID-19 pandemic. Also contributing to the increase is an unfavorable foreign exchange impact of $67,000 and an increase in bad debt expense of $60,000.
Gain on Extinguishment of Debt
The Company recorded a $2.0 million gain on extinguishment of debt in the three months ended June 30, 2021, as we received notice from the SBA that our PPP loan was fully forgiven.
Other Income/(Expense)
Other income decreased $73,000 from the prior year period due primarily to higher foreign exchange losses and lower gains on sales of assets as compared to the prior year period.
Interest Expense
Consolidated interest expense increased $39,000 due primarily to higher interest on our Term Loan Facility as compared to the prior year.
20 |
Taxes
Consolidated tax provision decreased $46,000 from the prior year period as the prior year interim estimated effective tax rate included an assumption that the qualified expenses under the PPP loan program would not be deductible. This led to a higher estimated taxable income for fiscal 2020.
Net Income/Loss
The Company had consolidated net income of $1.5 million for the second quarter 2021 as compared to a consolidated net loss of $667,000 for the second quarter of 2020 primarily due to the recognition of a gain on extinguishment of debt due to the forgiveness of the PPP loan in the current year.
Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
Net Revenues (in thousands)
Six months ended June 30, | ||||||||||||||||||||||||
Revenue | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 7,372 | $ | 10,137 | 31.6 | % | 49.4 | % | $ | (2,765 | ) | -27.3 | % | |||||||||||
Test and measurement | 10,848 | 8,216 | 46.5 | % | 40.0 | % | 2,632 | 32.0 | % | |||||||||||||||
Radio, baseband, software | 5,124 | 2,183 | 21.9 | % | 10.6 | % | 2,941 | 134.7 | % | |||||||||||||||
Total net revenues | $ | 23,344 | $ | 20,536 | 100.0 | % | 100.0 | % | $ | 2,808 | 13.7 | % |
Net consolidated revenue increased 13.7% from the prior year period due primarily to higher software and services revenue in our RBS group due to new software and service contracts and higher sales of our digital signal processing cards. Also contributing to the overall revenue increase was an increase in T&M revenue due to a full year contribution of Holzworth in fiscal 2021, as well as increased revenue from our legacy T&M brands. This was offset by lower revenue at our RFC product group as wireless carrier spend in the first half of 2021 was impacted by the on-going impact of the COVID-19 pandemic.
Gross Profit (in thousands)
Six months ended June 30, | ||||||||||||||||||||||||
Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
RF components | $ | 2,848 | $ | 4,649 | 38.6 | % | 45.9 | % | $ | (1,801 | ) | -38.7 | % | |||||||||||
Test and measurement | 6,323 | 4,269 | 58.3 | % | 52.0 | % | 2,054 | 48.1 | % | |||||||||||||||
Radio, baseband, software | 2,908 | 1,177 | 56.8 | % | 53.9 | % | 1,731 | 147.1 | % | |||||||||||||||
Total gross profit | $ | 12,079 | $ | 10,095 | 51.7 | % | 49.2 | % | $ | 1,984 | 19.7 | % |
Consolidated gross profit increased 19.7% due to higher revenues at T&M and RBS and was only partially offset by lower revenues at RFC. Gross profit margin increased due to the contribution of higher margin software and services sales at RBS, sales of higher margin Holzworth products at the T&M product group and higher absorption of fixed manufacturing costs on higher volumes at the T&M product group.
21 |
Operating Expenses (in thousands)
Six months ended June 30, | ||||||||||||||||||||||||
Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Amount | Pct. | |||||||||||||||||||
Research and development | $ | 2,846 | $ | 3,254 | 12.2 | % | 15.8 | % | $ | (408 | ) | -12.5 | % | |||||||||||
Sales and marketing | 3,412 | 3,379 | 14.6 | % | 16.5 | % | 33 | 1.0 | % | |||||||||||||||
General and administrative | 5,668 | 4,878 | 24.3 | % | 23.8 | % | 790 | 16.2 | % | |||||||||||||||
Total operating expenses | $ | 11,926 | $ | 11,511 | 51.1 | % | 56.1 | % | $ | 415 | 3.6 | % |
Research and development expenses decreased 12.5% from the prior year due primarily to lower third party research and development costs, the majority of which is in connection with our third party 5G collaboration agreement. The mix of third party research and development expenses to internal expenses varies by project. We expect to continue third part investments in research and development dependent upon project deadlines, new product development opportunities and longer term product roadmap dependencies which, in turn, may create increases and decreases to research and development expenses as a percentage of revenue. The decline in third party expenses was offset somewhat by unfavorable foreign exchange impact, specifically the increase in the pound sterling which increased approximately 12% year over year.
Sales and marketing expenses were flat with the prior year as higher internal and external commissions expense was offset by lower salaries and benefits expense driven by lower headcount compared to the prior year.
General and administrative expenses increased 16.2% from the prior year period due primarily to higher headcount related expenses of $600,000 related to the addition of our Chief Revenue Officer in August of 2020, merit and bonus increases and the reinstatement of other benefits that were previously eliminated in the first half of 2020 during the COVID-19 pandemic. Also contributing to the increase are higher legal expenses of approximately $100,000 primarily related to amendments to the Company’s debt agreements and Holzworth Stock Purchase Agreement and an unfavorable foreign exchange impact of approximately $100,000 as compared to the prior year period.
Gain on Extinguishment of Debt
The Company recorded a $2.0 million gain on extinguishment of debt in the six month period ended June 30, 2021, as we received notice from the SBA that our PPP loan was fully forgiven.
Other Income/(Expense)
Other income decreased $287,000 from the prior year period due primarily to lower foreign exchange gains.
Interest Expense
Consolidated interest expense increased $111,000 due primarily to increased interest on our Term Loan Facility as compared to the prior year.
Taxes
Consolidated tax provision increased $96,000 from the prior year period due primarily to an increase in the deferred tax liability in our U.K. tax jurisdiction resulting from an increase in the tax rate in the U.K. which was enacted in the second quarter 2021.
Net Income/Loss
Consolidated net income for the first half of 2021 increased $3.1 million primarily due to the recognition of a gain on extinguishment of debt as a result of the forgiveness of the PPP loan and higher gross profit driven by higher revenues and increased gross profit margin only partially offset by higher operating expenses, lower foreign exchange gains and higher interest expense.
22 |
LIQUIDITY AND CAPITAL RESOURCES
The Company has two credit facilities – an asset based revolving loan which is subject to a borrowing base calculation (as defined) with Bank of America, N.A. (the “Credit Facility” or the “Revolver”) and a term loan facility with Muzinich BDC Inc. (“Muzinich”) in the amount of $8.4 million (the “Term Loan Facility”) which was used to finance the Holzworth acquisition in February of 2020. Additionally, on May 4, 2020 the Company received $2.0 million pursuant to a PPP loan, which was fully forgiven by the SBA in June 2021. See Note 4 above and our Annual Report on Form 10-K for the year ended December 31, 2016.2020 for a more detailed description of our credit facilities.
INTRODUCTIONSources and Uses of Cash
The Company develops, manufactures and marketsDuring the six months ended June 30, 2021, the Company’s consolidated cash balance decreased approximately $700,000 due primarily to a wide varietypaydown 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,$470,000 per the Company is a supplierterms of signal processing technology for network validation systems, supporting LTE/4G and emerging 5G networks. The majorityour Term Loan Facility, the payment of contingent consideration related to the Holzworth acquisition of $105,000, payment of the Company’s products are primarily used by its customers in relation to commercial infrastructure development in supportfinal holdback amount of the expansionHolzworth purchase price of $200,000, and upgradecapital expenditures of $313,000. These payments were offset by cash provided by operations due primarily to distributed antenna systems, deployment of small cell technology and private LTE networks. In addition,operating income generated during 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 radiofrequency and microwave systems. Other applications include radio, radar, wireless local area network and digital television.six months ended June 30, 2021.
The company has accomplished its highest quarter of revenue in three yearsOperating Activities
Cash provided by operations was $394,000 for the combined Test and measurement and Network solutions segments, reflecting successful execution in both segments. The addition of the strong performing Embedded solutions segment helped drive consolidated revenues 50.5% higher than the third quarter of 2016. Management is pleased with the revenue performance and profitability of the Embedded solutions segment since the acquisition in the first quarter of 2017 and expects it to continue to contribute to the company’s growth.
Highlights from the Third Quarter:
RESULTS OF OPERATIONS
Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016
Net Revenues
Three months ended September 30 | ||||||||||||||||||
Revenue | % of Rev | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $6,427,646 | $5,507,065 | 51.2 | % | 66.0 | % | $920,581 | 16.7 | % | |||||||||
Test and measurement | 3,901,486 | 2,837,236 | 31.0 | % | 34.0 | % | 1,064,250 | 37.5 | % | |||||||||
Embedded solutions | 2,231,166 | - | 17.8 | % | 0.0 | % | 2,231,166 | - | ||||||||||
Total net revenues | $12,560,298 | $8,344,301 | 100.0 | % | 100.0 | % | $4,215,997 | 50.5 | % |
Net consolidated revenues for the threesix months ended SeptemberJune 30, 2017 were $12,560,2982021 as compared to $8,344,301 for the three months ended September 30, 2016, an increasecash used by operations of $4,215,997 or 50.5%. 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 $2,231,166$616,000 in revenue for the period.
Net revenues from the Company’s Network solutions products for the three months ended September 30, 2017 were up 16.7% from the prior year. Net revenues from Network solutions products accounted for 51.2% and 66.0% of net consolidated revenues for the three months ended September 30, 2017 and 2016, respectively. The increase in revenues in this segment was 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 in capacity densification projects and small cell deployments.
Net revenues from the Company’s Test and measurement products for the three months ended September 30, 2017 were up 37.5% over the prior year period. Net revenues from Test and measurement products accounted for 31.1% and 34.0% of net consolidated revenues for the three months ended September 30, 2017 and 2016, respectively. The increase in revenuesThis 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 September 30 | ||||||||||||||||||
Gross Profit | Gross Margin | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $2,981,120 | $2,512,910 | 46.4 | % | 45.6 | % | 468,210 | 18.6 | % | |||||||||
Test and measurement | 2,165,830 | 1,310,089 | 55.5 | % | 46.2 | % | 855,741 | 65.3 | % | |||||||||
Embedded solutions | 966,356 | - | 43.3 | % | 0.0 | % | 966,356 | - | ||||||||||
Total gross profit | $6,113,306 | $3,822,999 | 48.7 | % | 45.8 | % | 2,290,307 | 59.9 | % |
Consolidated gross profit for the three months ended September 30, 2017 was $6,113,306 as compared to $3,822,999 in the corresponding period in the prior year. The increase was primarily due to the contribution of the Embedded solutions segment in the current quarter and improved profitability in the Test and measurement segment due to higher sales of products which have a high gross profit margin. Also contributing to the increase was higher absorption of our fixed labor and manufacturing overhead costs as a result of increased volumes in the Network solutions and Test and measurement segments.
Operating Expenses
Consolidated operating expenses for the three months ended September 30, 2017 were $5,331,471 or 42.4% of consolidated net revenues as compared to $3,554,915 or 42.6% of consolidated net revenues for the three months ended September 30, 2016. For the three months ended September 30, 2017income as compared to the prior year.
Investing Activities
Cash used by investing activities decreased from $7.3 million to $513,000 as the prior year consolidated operating expenses increased by $1,776,556 or 50.0%. Consolidated operating expenses were higherperiod included $7.2 million in cash paid for the three months ended September 30, 2017 due to the inclusion of $925,150 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $43,737 of amortization expense related to purchased intangibles. Additionally, operating expensesHolzworth acquisition. Capital expenditures increased from the same period$100,000 in the prior year due to higher commission expense of $373,691, increased employee compensation and benefits of $165,500 associated with higher headcount and higher corporate expenses primarily due to integration related expenses of $158,447.
Interest Expense
Interest expense increased $70,429 related to our new credit facility and amortization of capitalized debt issuance costs.
Other Income/(Expense)
Other expense decreased $26,057 due to reduction in environmental remediation costs from the prior year.
Taxes
For the three months ended September 30, 2017 and 2016, the Company recorded tax expense of $56,799 and $118,980, respectively, due primarily to income generated from the Company’s operations during those periods and was predominately comprised of non-cash deferred tax expense.
Net Income
For the three months ended September 30, 2017, the Company realized net income of $653,396 or $.03 per share on a basic and diluted basis, as compared to a net income of $121,836 or $.01 per share on a basic and diluted basis for the three months ended September 30, 2016, an increase of $531,560 or $.02 per basic and diluted share. The increase was due to the factors discussed above.
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
Net Revenues
Nine months ended September 30 | ||||||||||||||||||
Revenue | % of Rev | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $17,560,210 | $15,196,800 | 51.6 | % | 68.1 | % | $2,363,410 | 15.6 | % | |||||||||
Test and measurement | 10,253,863 | 7,126,020 | 30.1 | % | 31.9 | % | 3,127,843 | 43.9 | % | |||||||||
Embedded solutions | 6,228,157 | - | 18.3 | % | 0.0 | % | 6,228,157 | - | ||||||||||
Total net revenues | $34,042,230 | $22,322,820 | 100.0 | % | 100.0 | % | $11,719,410 | 52.5 | % |
Net consolidated revenues for the nine months ended September 30, 2017 were $34,042,230 as compared to $22,322,820 for the nine months ended September 30, 2016, an increase of $11,719,410 or 52.5%. 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 $6,228,157 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 51.6% and 68.1% of net consolidated revenues for the nine months ended September 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 in capacity densification projects and small cell deployments.
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 30.1% and 31.9% of net consolidated revenues for the nine months ended September 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$313,000 in the prior year.
Gross Profitcurrent year period as capital expenditures for infrastructure to support our research and development roadmaps have increased.
Nine months ended September 30 | ||||||||||||||||||
Gross Profit | Gross Margin | Change | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | Amount | Pct. | |||||||||||||
Network solutions | $6,623,630 | $6,799,036 | 37.7 | % | 44.7 | % | (175,406 | ) | -2.6 | % | ||||||||
Test and measurement | 4,332,165 | 3,082,967 | 42.2 | % | 43.3 | % | 1,249,198 | 40.5 | % | |||||||||
Embedded solutions | 2,834,181 | - | 45.5 | % | 0.0 | % | 2,834,181 | - | ||||||||||
Total gross profit | $13,789,976 | $9,882,003 | 40.5 | % | 44.3 | % | 3,907,973 | 39.5 | % |
The Company’s gross profit on consolidated net revenues forFinancing Activities
Cash from financing activities decreased from cash provided of $6.8 million to cash used of $592,000 as the nine months ended September 30, 2017 was negatively impacted bycurrent year includes a non cash inventory adjustmentterm debt paydown of $1,930,000 recorded in the second quarter of 2017. The adjustment was effected as a result of a review of inventory balances$470,000 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 second quarter. The inventory adjustments negatively impacted the Network solutions and Test and measurement segments gross profit by $1,206,266 and $723,734, respectively, for the nine months ended September 30, 2017. The impact of the inventory adjustment was offset by the gross profit of the Embedded Solutions segment which contributed $2,834,181 to the overall gross profit increase from the same period last year as well as improved profitability in the Test and measurement segment due to higher sales of products which have a high gross profit margin. Also offsetting the inventory impairment charge in the nine months ended September 30, 2017 was higher absorption of fixed labor and manufacturing overhead associated with higher volumes as compared to the prior period for the Network solutions and Test and measurement segments.
Operating Expenses
Consolidated operating expenses for the nine months ended September 30, 2017 were $16,996,238 or 49.9% of consolidated net revenues as compared to $10,887,958 or 48.8% of consolidated net revenues for the nine months ended September 30, 2016. For the nine months ended September 30, 2017 as compared to the prior year, consolidated operating expenses increased by $6,108,280 or 56.1%. Consolidated operating expenses were higher in the nine months ended September 30, 2017 due to the inclusion of $2,947,120 of expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $659,163 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$105,000 related to the CommAgility acquisition consisting primarilypayment of professional fees, increased commission expenses of $748,954 due to higher revenues, severance and legal charges of $572,912 associated with restructuring actions during the nine months ended September 30, 2017, increased employee compensation and benefits of $336,735 due to increased headcount and higher corporate expenses primarily due to integration expenses.
Other Expenses
Other expenses decreased $74,422 duecontingent consideration related to the reduction in environmental remediation expensesHolzworth acquisition. The prior year cash provided from financing includes the prior year. Interest expense increased $228,990 relatedreceipt of the Term Loan Facility proceeds to finance the Holzworth acquisition.
As of June 30, 2021, the Company’s consolidated cash balance was $4.2 million. No funds were drawn on our Revolver and we had availability under our asset-based Credit Facility of $7.6 million. Our gross debt balance as of June 30, 2021 was $7.8 million which represents the term loan balance.
We expect borrowings available to us under our Credit Facility, net proceeds from sales of our common stock pursuant to our new credit facility, amortization of capitalized debt issuance costs and accretion of the contingent consideration liability.
Tax
For the nine months ended September 30, 2017, the Company recorded a tax benefit of $1,493,789 due primarily to losses generated from the Company’s operations. For the nine months ended September 30, 2016, the Company recorded a tax benefit of $412,409 primarily due to losses generated from the Company’s operations during the period.
Net Loss
For the nine months ended September 30, 2017, the Company realized a net loss of $1,946,179 or $.10 loss per share on a basic and diluted basis, as compared to a net loss of $672,684 or $.04 loss per share on a basic and diluted basis for the nine months ended September 30, 2016, a decrease of $1,273,495 or $.06 per diluted share. The decrease was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We expectAt Market Issuance Sales Agreement with B. Riley Securities, Inc., our existing cash balance and cash generated by operations and borrowings available under our new credit facility (as described in Note 8 ) 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.control, including the impact the evolving COVID-19 pandemic has had on our business including our supply chain. We expect the uncertainty caused by the COVID-19 pandemic might extend to our business into the second half of the year.
Operating Activities
Cash provided by operating activities was $450,025 for the nine months ended September 30, 2017 as comparedThe Company expects to cash used by operating activities of $742,409 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017 changesrealize tax benefits in our operating assets and liabilities resulted in a net increase in cash of $568,100 primarilyfuture periods due to reductionsthe available net operating loss carryforwards resulting from the disposition of a former wholly owned subsidiary in inventory, prepaids and other asset and higher accrued expenses and other liabilities. This was2010. Accordingly, future taxable income is expected to be offset by lower accounts payablethe utilization of operating loss carryforwards and, anas a result, should increase the Company’s liquidity as cash needed to pay federal and New Jersey state income taxes should be substantially reduced. Additionally, CommAgility benefits from a research and development deduction which significantly reduces the cash needed to pay taxes in accounts receivable. During the nine months ended September 30, 2016, changes in our operating assets and liabilities resulted in a net decrease in cash of $671,673 primarily due to an increase in inventory offset by an increase in accounts payable.U.K..
Investing Activities
Cash used by investing activities was $9,718,317 for the nine months ended September 30, 2017 and was primarily comprised of cash used for the CommAgility acquisition of $9,137,534, net of cash acquired and capital expenditures of $588,180. For the nine months ended September 30, 2016 cash used by investing activities was $715,128 and was related to capital expenditures.
Financing Activities
Cash provided by financing activities was $2,078,606 for the nine months ended September 30, 2017 as compared to cash used of $166,764 for the nine months ended September 30, 2016. During the nine months ended September 30, 2017On August 27, 2018 the Company received net proceeds of $1,271,928 from the asset based revolver and received $760,000 from the term loan. Principal repayments of the term loan during the nine months endedfiled a shelf registration statement on Form S-3 which was declared effective on September 30, 2017 were $76,000. Additionally, the Company paid $215,358 in debt issuance costs associated with the new credit facility. During the nine months ended September 30, 2016 the Company paid $101,296 related to a capital equipment lease and $65,468 related to the repurchase of common stock.
As disclosed in Note 8, on February 16, 201717, 2018. On July 21, 2021, the Company entered into a Creditthe Sales Agreement which provided for a term loan inwith the Agent to issue and sell through the Agent, shares having an 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)offering price of up to a maximum availability$12,000,000, as described in Note 1 – Summary of $9,000,000.Significant Accounting Principles and Policies under “Subsequent Events” above. The proceedsAgent is not required to sell any specific number of Shares. Any Shares to be offered and sold under the Sales Agreement will be issued and sold pursuant to the aforementioned Form S-3. A prospectus supplement relating to the offering of the term loan and revolver were used to financeShares was filed with the acquisition of CommAgility. As of September 30, 2017, $1,271,928 was outstandingCommission on the asset based revolver. At September 30, 2017 the Company has excess availability under the Revolver of $4,252,538.July 21, 2021.
23 |
On
From July 21, 2021 through August 3, 20175, 2021 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 the reduce the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of September 30, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
As of September 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 | $2,674,362 | $121,879 | $1,007,135 | $934,184 | $611,164 | ||||||||||
Purchase Obligations | 4,866,041 | 4,866,041 | - | - | - | ||||||||||
Operating and Equipment Leases | 238,648 | 13,508 | 108,067 | 108,067 | 9,006 | ||||||||||
$7,779,051 | $5,001,428 | $1,115,202 | $1,042,251 | $620,170 |
The Company may pursue strategic opportunities, including potential acquisitions, mergers, divestitures or other activities, which may require significant useAgent sold 261,968 shares of the Company’s capital resources.common stock for net proceeds of $731,815, after deducting sales commissions paid to the Agent in accordance with the terms of the Sales Agreement.
The shelf registration statement expires on September 17, 2021. The Company may incur costs as a resultintends to update the registration statement prior to expiration.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of such activities and such activities may affectbusiness, 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 SEASONALITYEffects of Inflation and Changing Prices
The Company does not anticipate that inflation or other expected changes in prices will significantly impact its business or its results of operations nor does it believe that its business is seasonal.business.
Critical Accounting Policies
There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 20162020 Form 10-K, except as disclosed below:10-K.
Revenue RecognitionForward Looking Statements
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, non-competition agreements, customer relationships and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and our historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if event occur or circumstances change that indicate an asset may be impaired.
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, without limitation, some of 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 include statements that adoption of ASU 2017-01 and Topic 606 are not expected to have a material impact on the Company’s financial statements or results of operations, respectively; about our sourcesexpectations that our existing cash balance, cash generated by operations, net proceeds from sales of short-term liquidityour common stock pursuant to our At Market Issuance Sales Agreement with B. Riley Securities, Inc. and availability under our belief that these sourcesCredit Facility will be sufficient to meet our liquidity needs for at least the next 12twelve months; our expectation to realize tax benefits in future periods; our expectation that is financial resources from working capitalinvestments in third party research and development may create increases and decreases to research and development expenses as a percentage of revenue and our availability underexpectation that uncertainties around the asset based revolver are adequate to meet our current needs; that Embedded solutions will continue to contribute toimpact of the company’s revenueongoing and profitability growth; and that cash flow from CommAgility will fundevolving COVID-19 pandemic might extend into the deferred purchase price and contingent consideration.second half of the year. These statements 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 impact that the evolving COVID-19 pandemic will have on our business, our supply chain and the economy in the future, our dependency on capital spending on data and communication networks by our customers and end users, our dependency on the deployment of 4G LTE and 5G NR private networks and related services to grow our business, the impact of the loss of any significant customers, the ability of our management to successfully implement our business plan and strategy, our ability to raise additional capital to fund our operations given our degree of leverage, 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 intellectual property rights, the effects of adoption of newly announced accounting standards, the effects of economic conditionsour ability to manage risks related to our information technology and trade, legal and other economic risks,cyber security, 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 in our Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in this Quarterly Report on Form 10Q.2020. 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.
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES4. 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 nineand six months ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 20162020 Annual Report on Form 10-K.
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PART II – OTHER INFORMATION
Item 1. | Legal Proceedings |
There have been noNo material developmentschanges 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.quarter.
Item 1A. | Risk Factors |
There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-KForm10-K for the year ended December 31, 2016.2020.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSNone.
None.
Item 3. | Defaults upon Senior Securities |
Item 3. DEFAULTS UPON SENIOR SECURITIESNone.
None.
Item 4. | Mine Safety Disclosures |
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. | Other Information |
Item 5. OTHER INFORMATIONNone.
None.
Item 6. | Exhibits |
Certification | ||
31.2 | Certification | |
32.1 | Certification | |
32.2 | Certification | |
101** | The following financial | |
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 | |
COVER page formatted as Inline XBRL | ||
** Furnished herewith. |
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* 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. | |||
Dated: August 11, 2021 | |||
By: | /s/ Timothy Whelan | ||
Timothy Whelan | |||
Chief Executive Officer | |||
Dated: August 11, 2021 | |||
By: | /s/ Michael Kandell | ||
Michael Kandell | |||
Chief Financial Officer |
EXHIBIT INDEX