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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended
September 30,
2022
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 number:
1-11916
WIRELESS TELECOM GROUP, INC.
(Exact
name of Registrant as specified in its charter)
New Jersey |
|
22-2582295 |
(State or other jurisdiction |
|
(I.R.S.
Employer Identification No.) |
of incorporation or organization) |
|
|
25 Eastmans Road,
Parsippany,
New Jersey
|
|
07054 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(973)
386-9696
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol |
|
Name
of each exchange on which registered |
Common Stock |
|
WTT |
|
NYSE American |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted 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 such files).
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.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
Number
of shares of Common Stock outstanding as of November 7, 2022:
21,556,751
WIRELESS
TELECOM GROUP, INC.
Form
10-Q
Table
of Contents
WIRELESS
TELECOM GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except number of shares and par value)
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
See
accompanying Notes to Consolidated Financial Statements.
WIRELESS
TELECOM GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME/(LOSS)
(UNAUDITED)
(In
thousands, except per share amounts)
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 to Consolidated Financial Statements.
WIRELESS
TELECOM GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
See
accompanying Notes to Consolidated Financial Statements.
WIRELESS
TELECOM GROUP, INC.
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(In
thousands, except share amounts)
The
quarterly amounts above may not add to the full year Consolidated
Statement of Operations due to rounding.
See
accompanying Notes to Consolidated Financial Statements.
WIRELESS
TELECOM GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 - Summary of
Significant Accounting Principles and Policies
Basis of Presentation and Preparation
Wireless
Telecom Group, Inc., a New Jersey corporation, together with its
subsidiaries (“we”, “us”, “our” or the “Company”), specializes in
the design and manufacture of advanced radio frequency and
microwave devices which enable the development, testing and
deployment of wireless technology. The Company provides unique,
highly customized and configured solutions which drive innovation
across a wide range of traditional and emerging wireless
technologies.
The
consolidated financial statements for the twelve months ended
December 31, 2021 included the accounts of Wireless Telecom Group,
Inc., doing business as, and operating under the trade name Noise
Com, Inc., and its wholly owned subsidiaries including Boonton
Electronics Corporation, Microlab/FXR, Wireless Telecommunications
Ltd., CommAgility Limited and Holzworth Instrumentation, Inc. Noise
Com, Inc., Boonton Electronics Corporation, Microlab/FXR,
CommAgility Limited Ltd., and Holzworth Instrumentation, Inc. are
hereinafter referred to as “Noisecom”, “Boonton”, “Microlab”,
“CommAgility” and “Holzworth”, respectively.
As
more fully described in Note 3, on March 1, 2022, the Company
completed the sale of Microlab to RF Industries, Ltd. In accordance
with applicable accounting guidance, the results of Microlab are
presented as discontinued operations in the Consolidated Statements
of Operations and Comprehensive Income/(Loss) and, as such, have
been excluded from continuing operations. Further, the Company
reclassified the assets and liabilities of Microlab as assets and
liabilities of discontinued operations in the Consolidated Balance
Sheet as of December 31, 2021. The Consolidated Statements of Cash
Flows are presented on a consolidated basis for both continuing
operations and discontinued operations.
Our
consolidated financial statements from continuing operations
include the accounts of Noisecom, Boonton, Holzworth, and
CommAgility and have been prepared using accounting principles
generally accepted in the United States (“U.S. GAAP”). All
intercompany transactions and balances have been eliminated in
consolidation.
It is
suggested that these interim consolidated financial statements be
read in conjunction with the audited consolidated financial
statements, and the notes thereto, included in the Company’s latest
annual report (Form 10-K).
The
Company’s fiscal periods are based on the calendar year. Except as
otherwise specified, references to “third quarter(s)” or “three
months” indicate the Company’s fiscal periods ended September 30,
2022 and September 30, 2021, and references to “year-end” indicate
the fiscal year ended December 31, 2021.
Consolidated Financial Statements
In
the opinion of management, the accompanying 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, 2021.
Specific reference is made to that report since certain information
and footnote disclosures normally included in financial statements
in accordance with US GAAP have been reduced for interim periods in
accordance with SEC rules.
The
results of operations for the three and nine months ended September
30, 2022 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2022.
Critical Accounting Estimates
The
preparation of our consolidated financial statements requires the
Company to make estimates and judgments that affect the reported
amount of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amount of revenues and expenses for each period. We base
our assumptions, judgements and estimates on historical experience
and various other factors that we believe to be reasonable under
the circumstances. At least quarterly, we evaluate our assumptions,
judgments and estimates, and make changes as deemed
necessary.
The
COVID-19 pandemic, the conflict between Russia and Ukraine and the
impact of global inflation and supply chain disruption have
negatively impacted regional and global economies and created
significant volatility and disruption of financial markets.
Although these disruptions 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
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, 2021.
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.
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.
One
customer accounted for 16.6% of consolidated
revenue for the three months ended September 30, 2022. A different
customer accounted for 10.5% of consolidated
revenue for the nine months ended September 30, 2022. One customer
accounted for 10.8% of consolidated
revenue for the three months ended September 30, 2021. Two
customers accounted for 15.9% and 10.4% of consolidated
revenue, respectively, for the nine months ended September 30,
2021.
Two
customers accounted for 23.6% and 10.7%, respectively,
of consolidated accounts receivable as of September 30, 2022. At
December 31, 2021, no one customer accounted for greater than 10%
of consolidated accounts 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 - Quoted prices in active markets for identical assets or
liabilities.
Level
2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the
assets or liabilities.
Level
3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
The
categorization of a financial instrument within the valuation
hierarchy is based on the lowest level of input that is significant
to the fair value measurement.
The
carrying amounts of the Company’s financial instruments, including
cash, accounts receivable, accounts payable and accrued
liabilities, approximate fair value due to their relatively short
maturities.
Contingent Consideration
Under
the terms of the Holzworth Share Purchase Agreement, the Company
was required to pay additional purchase price in the form of an
earnout based on Holzworth’s financial results for the years ended
December 31, 2020 and 2021.
As of
September 30, 2022, the amount due for the Holzworth earnout was
$1.8
million and is included in accrued expenses and other current
liabilities in the Consolidated Balance Sheet.
Segments
The
Company evaluates its financial reporting in accordance with ASC
280 Segment Reporting. As of March 1, 2022, the Company
determined that the chief operating decision maker makes financial
decisions and allocates resources based on segment operating
profit. See Note 12.
NOTE
2 – Accounting
Pronouncements
Recently
Adopted Accounting Standards
There
have been no changes to our significant accounting policies as
described in the 2021 Form 10-K that had a material impact on our
consolidated financial statements and related notes.
Recent
Accounting Pronouncements Not Yet Adopted
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments –
Credit Losses (Topic 326). ASU 2016-13 changes the impairment
model for most financial assets and will require the use of an
“expected loss” model for instruments measured at amortized cost.
This pronouncement is effective for small reporting companies for
fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2022. The Company plans to adopt the
standard effective January 1, 2023. We do not expect the adoption
of this standard to have a material impact on our consolidated
financial statements.
NOTE
3 – Discontinued
Operations
On
March 1, 2022, the Company completed the sale of Microlab to RF
Industries, Ltd (the “Transaction”). At closing, the Company
received approximately $22.8 million in
proceeds net of indemnification and purchase price adjustment
holdbacks of $150,000 and $100,000,
respectively, and direct expenses. The indemnification holdback
expires one year from close. In July, the Company received $225,000
in final purchase price adjustment primarily related to the working
capital adjustment. This amount is recorded as proceeds of the
Microlab divestiture in the Consolidated Statements of Cash Flows.
Approximately, $4.1 million of the
net proceeds were used to repay our outstanding Term Loan Facility
(as defined in Note 4) with Muzinich BDC, approximately $600,000 of the net
proceeds were used to repay our outstanding revolver balance
related to the Bank of America Credit Facility (as defined in Note
4) and approximately $486,000 were used to pay our
advisors.
The
Company terminated its Term Loan Facility with Muzinich BDC and
Credit Facility with Bank of America N.A. as of the Transaction
close date (see Note 4 below). Additionally, concurrent with the
closing, the Company entered into a sublease with RF Industries,
Ltd for approximately one-half of the square footage of our
corporate headquarters in Parsippany, NJ (see Note 5
below).
The
Transaction was treated as a sale of the assets and liabilities of
Microlab to RF Industries, Ltd. for U.S. federal and applicable
state income tax purposes. The Company has approximately $14.9 million of U.S.
federal net operating loss carryforwards and approximately
$41.2 million of New
Jersey state net operating loss carryforwards as of December 31,
2021. We expect to utilize all of our federal net operating loss
carryforwards and approximately 50% of our
state net operating loss carryforwards to offset the taxable gain
generated from the Microlab divestiture.
In
accordance with Accounting Standards Codification (“ASC”) 205-20
Discontinued Operations, the results of Microlab are
presented as discontinued operations in the Consolidated Statements
of Operations and, as such, have been excluded from continuing
operations. Further, the Company reclassified the assets and
liabilities of Microlab as assets and liabilities of discontinued
operations in the Consolidated Balance Sheet as of December 31,
2021. The Consolidated Statements of Cash Flows are presented on a
consolidated basis for both continuing operations and discontinued
operations.
The
following table summarizes the significant items included in income
from discontinued operations, net of tax in the Consolidated
Statement of Operations for the three and nine months ended
September 30, 2022 and 2021 (in thousands):
Schedule of Discontinued Operation, Net of
Tax
|
|
September
30,
2022
|
|
|
September
30,
2021
|
|
|
September
30,
2022
|
|
|
September
30,
2021
|
|
|
|
Three
months ended |
|
|
Nine
months ended |
|
|
|
September
30,
2022
|
|
|
September
30,
2021
|
|
|
September
30,
2022
|
|
|
September
30,
2021
|
|
Net
revenues |
|
$ |
- |
|
|
$ |
5,447 |
|
|
$ |
2,477 |
|
|
$ |
12,820 |
|
Cost
of revenues |
|
|
- |
|
|
|
2,950 |
|
|
|
1,626 |
|
|
|
7,475 |
|
Gross
profit |
|
|
- |
|
|
|
2,497 |
|
|
|
851 |
|
|
|
5,345 |
|
Operating
expenses |
|
|
- |
|
|
|
938 |
|
|
|
693 |
|
|
|
2,486 |
|
Gain
on divestiture, net of expenses |
|
|
87 |
|
|
|
- |
|
|
|
16,490 |
|
|
|
- |
|
Income
from Discontinued Operations before income taxes |
|
|
87 |
|
|
|
1,559 |
|
|
|
16,648 |
|
|
|
2,859 |
|
Income
tax expense |
|
|
- |
|
|
|
546 |
|
|
|
4,953 |
|
|
|
1,005 |
|
Income
from Discontinued Operations, net of income taxes |
|
$ |
87 |
|
|
$ |
1,013 |
|
|
$ |
11,695 |
|
|
$ |
1,854 |
|
The
following table summarizes the carrying value of the significant
classes of assets and liabilities classified as discontinued
operations as of December 31, 2021:
Schedule of Assets and
Liabilities
|
|
|
|
Current
Assets |
|
|
|
Accounts
receivable, net |
|
$ |
2,883 |
|
Inventories,
net |
|
|
3,986 |
|
Total
current assets |
|
|
6,869 |
|
|
|
|
|
|
Property,
plant and equipment, net |
|
|
421 |
|
Goodwill |
|
|
1,351 |
|
Other
non current assets |
|
|
165 |
|
Total
non current assets |
|
|
1,937 |
|
|
|
|
|
|
Total
assets |
|
$ |
8,806 |
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
Accounts
payable |
|
$ |
783 |
|
Accrued
expenses and other current liabilities |
|
|
1,182 |
|
|
|
|
|
|
Total
current liabilities |
|
$ |
1,965 |
|
The
cash flows related to discontinued operations have not been
segregated and are included in the consolidated statements of cash
flows for all periods presented. Microlab depreciation expense for
the nine months ended September 30, 2021 and included in the
consolidated statement of cash flow was $186,000.
Depreciation expense recorded in the three months ended March 31,
2022 for Microlab was not material and there were no capital
expenditures for Microlab in the three months ended March 31, 2022.
Capital expenditures in the three and nine months ended September,
2021 were approximately $38,000 and $88,000,
respectively.
NOTE
4 – Debt
Termination of
Muzinich Term Loan Facility and Bank of America N.A. Credit
Facility
On
March 1, 2022, the Company repaid in full and terminated that
certain Credit Agreement dated February 7, 2020, among the Company,
its subsidiaries and Muzinich BDC, Inc., as amended on May 4, 2020,
February 25, 2021, May 27, 2021, and September 28, 2021 (the “Term
Loan Facility”). The Company repaid the outstanding principal
balance of $4.1 million and accrued interest
thereon. Additionally, on March 1, 2022, the Company terminated
that certain Loan and Security Agreement dated as of February 16,
2017 among the Company, its subsidiaries and Bank of America, as
amended on June 30, 2017, January 23, 2019, February 27, 2019,
November 8, 2019, February 7, 2020, May 1, 2020, February 25, 2021
and September 28, 2021 (the “Credit Facility”), which included an
asset based revolving loan (“revolver”) which was subject to a
borrowing base calculation. The outstanding balance of the revolver
at March 1, 2022 was approximately $600,000. The repayment of
the Term Loan Facility and Revolver were funded by the proceeds of
the Microlab divestiture.
The
Company accounted for the termination of the Term Loan Facility and
Credit Facility as an extinguishment of debt in accordance with ASC
470 Debt. The Company recognized a loss on extinguishment of
debt of $792,000 which
was primarily comprised of unamortized debt issuance
costs.
CIBLS
Loan
On
May 27, 2021, CommAgility entered into the Coronavirus Business
Interruption Loan Agreement (“CIBLS Loan”) with Lloyds Bank PLC
(“Lloyds”). Under the terms of the CIBLS Loan CommAgility can draw
up to a maximum of £250,000 for purposes of supporting daily
business cash flow. The CIBLS Loan is repayable in 48 consecutive
equal monthly installments beginning in month 13 after the initial
loan drawdown (12 month principal repayment holiday). Interest is
payable monthly at the official bank rate of the Bank of England
plus an interest margin of 2.35% per annum. Interest
payments begin in month 13 after the initial loan drawdown. The
first twelve months of interest payments are paid by the U.K.
government. The CIBLS Loan is secured by the assets of
CommAgility.
On
July 1, 2021, CommAgility executed a draw down of the maximum
amount of £250,000. On May 30, 2022, CommAgility
repaid the CIBLS Loan in full.
As of
September 30, 2022, the Company has no outstanding debt
obligations.
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 as
right of use lease asset, short term lease liability and long term
lease liability on the consolidated balance sheets as of June 30,
2022 and December 31, 2021. 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.
Lease
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 $160,000 and $476,000 for the three and
nine months ended September 30, 2022, respectively, and was
included in operating cash flows. Cash paid for amounts included in
the present value of operating lease liabilities for the three and
nine months ended September 30, 2021, was $155,000 and $463,000,
respectively.
Operating
lease costs for the three and nine months ended September 30, 2022,
were $299,000 and $787,000, respectively.
Operating lease costs for the three and nine months ended September
30, 2021, were $250,000 and $801,000,
respectively.
The
following table presents information about the amount and timing of
cash flows arising from the Company’s leases as of September 30,
2022:
Schedule of Maturity of Operating Lease
Liabilities
|
|
|
|
(in
thousands) |
|
September
30, 2022
|
|
Maturity
of Lease Liabilities |
|
|
|
|
Remainder
of 2022 |
|
$ |
161 |
|
2023 |
|
|
276 |
|
2024 |
|
|
158 |
|
2025 |
|
|
163 |
|
2026 |
|
|
69 |
|
Total
undiscounted operating lease payments |
|
|
827 |
|
Less:
imputed interest |
|
|
(61 |
) |
Present
value of operating lease liabilities |
|
$ |
766 |
|
|
|
|
|
|
Balance
sheet classification |
|
|
|
|
Current
lease liabilities |
|
$ |
369 |
|
Long-term
lease liabilities |
|
|
397 |
|
Total
operating lease liabilities |
|
$ |
766 |
|
|
|
|
|
|
Other
information |
|
|
|
|
Weighted-average
remaining term (months) for operating leases |
|
|
33 |
|
Weighted-average
discount rate for operating leases |
|
|
5.88 |
% |
On
March 1, 2022, the Company entered into a sublease for
approximately one-half of the corporate headquarters in Parsippany
N.J. with RF Industries, Ltd. The sublease co-terminates with the
master lease on March 31, 2023. The Company evaluated the sublease
in accordance with ASC 842 Leases and determined that the
sublease is an operating lease. Accordingly, sublease income is
recognized on the Consolidated Statement of Operations as other
income.
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 94%
and 96%
of the Company’s consolidated revenue for the three months ended
September 30, 2022 and 2021, respectively. Revenue recognized over
time was 6% and 4% of the Company’s
consolidated revenue for the three months ended September 30, 2022
and 2021, respectively. Revenue from performance obligations that
transferred at a point in time accounted for approximately
92% and 97% of the Company’s
consolidated revenue for the nine months ended September 30, 2022
and 2021, respectively. Revenue recognized over time was 8% and 3% of the Company’s
consolidated revenue for the nine months ended September 30, 2022
and 2021, respectively.
Nature
of Products and Services
Hardware
The
Company generally has one performance obligation in its
arrangements involving the sales of 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.
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.
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 $100,000
and $292,000 as
of September 30, 2022 and December 31, 2021, respectively, and
recorded in prepaid expenses and other current assets. Deferred
revenue was $92,000 and $408,000 as of September 30, 2022
and December 31, 2021, respectively. The decrease in deferred
revenue from December 31, 2021 is 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 September 30, 2022 |
|
|
Nine
Months Ended September 30, 2022 |
|
|
|
Test
and
Measurement |
|
|
Radio,
Baseband, Software |
|
|
Consolidated |
|
|
Test
and
Measurement |
|
|
Radio,
Baseband, Software |
|
|
Consolidated |
|
Total
net revenues by revenue type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal
generators and components |
|
$ |
2,428 |
|
|
$ |
- |
|
|
$ |
2,428 |
|
|
$ |
9,475 |
|
|
$ |
- |
|
|
$ |
9,475 |
|
Signal
analyzers and power meters |
|
|
1,232 |
|
|
|
- |
|
|
|
1,232 |
|
|
|
4,738 |
|
|
|
- |
|
|
|
4,738 |
|
Signal
processing hardware |
|
|
- |
|
|
|
885 |
|
|
|
885 |
|
|
|
- |
|
|
|
1,446 |
|
|
|
1,446 |
|
Software
licenses |
|
|
- |
|
|
|
66 |
|
|
|
66 |
|
|
|
- |
|
|
|
481 |
|
|
|
481 |
|
Services |
|
|
420 |
|
|
|
299 |
|
|
|
719 |
|
|
|
1,415 |
|
|
|
1,439 |
|
|
|
2,854 |
|
Total
net revenue |
|
$ |
4,080 |
|
|
$ |
1,250 |
|
|
$ |
5,330 |
|
|
$ |
15,628 |
|
|
$ |
3,366 |
|
|
$ |
18,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues by geographic areas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
2,925 |
|
|
$ |
332 |
|
|
$ |
3,257 |
|
|
$ |
11,012 |
|
|
$ |
1,822 |
|
|
$ |
12,834 |
|
EMEA |
|
|
452 |
|
|
|
899 |
|
|
|
1,351 |
|
|
|
1,952 |
|
|
|
1,370 |
|
|
|
3,322 |
|
APAC |
|
|
703 |
|
|
|
19 |
|
|
|
722 |
|
|
|
2,664 |
|
|
|
174 |
|
|
|
2,838 |
|
Total
net revenue |
|
$ |
4,080 |
|
|
$ |
1,250 |
|
|
$ |
5,330 |
|
|
$ |
15,628 |
|
|
$ |
3,366 |
|
|
$ |
18,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2021 |
|
|
Nine
Months Ended September 30, 2021 |
|
|
|
Test
and
Measurement |
|
|
Radio,
Baseband, Software |
|
|
Consolidated |
|
|
Test
and
Measurement |
|
|
Radio,
Baseband, Software |
|
|
Consolidated |
|
Total
net revenues by revenue type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal
generators and components |
|
$ |
3,485 |
|
|
$ |
- |
|
|
$ |
3,485 |
|
|
$ |
10,002 |
|
|
$ |
- |
|
|
$ |
10,002 |
|
Signal
analyzers and power meters |
|
|
1,996 |
|
|
|
- |
|
|
|
1,996 |
|
|
|
5,392 |
|
|
|
- |
|
|
|
5,392 |
|
Signal
processing hardware |
|
|
- |
|
|
|
813 |
|
|
|
813 |
|
|
|
- |
|
|
|
3,826 |
|
|
|
3,826 |
|
Software
licenses |
|
|
- |
|
|
|
178 |
|
|
|
178 |
|
|
|
- |
|
|
|
1,508 |
|
|
|
1,508 |
|
Services |
|
|
450 |
|
|
|
454 |
|
|
|
904 |
|
|
|
1,385 |
|
|
|
1,235 |
|
|
|
2,620 |
|
Total
net revenue |
|
$ |
5,931 |
|
|
$ |
1,445 |
|
|
$ |
7,376 |
|
|
$ |
16,779 |
|
|
$ |
6,569 |
|
|
$ |
23,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues by geographic areas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
4,219 |
|
|
$ |
488 |
|
|
$ |
4,707 |
|
|
$ |
11,988 |
|
|
$ |
2,640 |
|
|
$ |
14,628 |
|
EMEA |
|
|
517 |
|
|
|
808 |
|
|
|
1,325 |
|
|
|
2,015 |
|
|
|
3,741 |
|
|
|
5,756 |
|
APAC |
|
|
1,195 |
|
|
|
149 |
|
|
|
1,344 |
|
|
|
2,776 |
|
|
|
188 |
|
|
|
2,964 |
|
Total
net revenue |
|
$ |
5,931 |
|
|
$ |
1,445 |
|
|
$ |
7,376 |
|
|
$ |
16,779 |
|
|
$ |
6,569 |
|
|
$ |
23,348 |
|
NOTE
7 – Income
Taxes
The
Company records deferred taxes in accordance with ASC 740,
Accounting for Income Taxes. ASC 740 requires recognition of
deferred tax assets and liabilities for temporary differences
between tax basis of assets and liabilities and the amounts at
which they are carried in the financial statements, based upon the
enacted rates in effect for the year in which the differences are
expected to reverse. The Company establishes a valuation allowance
when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company periodically assesses the value of its
deferred tax assets and determines the necessity for a valuation
allowance.
Realization
of the Company’s deferred tax assets is dependent upon the Company
generating sufficient taxable income in the appropriate tax
jurisdictions in future years to obtain benefit from the reversal
of net deductible temporary differences and from utilization of net
operating losses. The Company’s major tax jurisdictions are New
Jersey, Colorado, California 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
September 30, 2022, the Company’s net deferred tax asset of
$2.4 million is net of a
valuation allowance of approximately $2.8 million
which is associated with the Company’s state net operating loss
carryforward and a state research and development credit. The net
deferred tax asset decreased approximately $3.2
million from December 31, 2021 due to the reduction in federal and
New Jersey net operating loss carryforwards due to the taxable gain
to be recognized on the Microlab divestiture. The Company expects
to utilize in 2022 all of its federal net operating loss
carryforwards and approximately one-half of its New Jersey state
net operating loss carryforwards to offset the taxable gain
recognized on the Microlab divestiture.
In
accordance with Accounting Standards Update (“ASU”) 2019-12 the
Company recorded a tax benefit from continuing operations of
$341,000 and $1.5 million for the three and
nine months ended September 30, 2022, respectively. The Company
recorded a tax provision of approximately $5.0
million related to income from discontinued operations for the nine
months ended September 30, 2022. The Company recorded a tax benefit
from continuing operations of $1.3 million and $1.4 million for the three and
nine months ended September 30, 2021, respectively. The Company
recorded a tax provision of approximately $500,000 and
$1.0
million related to income from discontinued operations for the
three and nine months ended September 30, 2021.
NOTE
8 – Earnings (Loss)
Per Share
Basic
earnings (loss) per share is calculated by dividing net income
(loss) available to common shareholders by the weighted-average
number of shares of common stock outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net
income (loss) available to common shareholders by the
weighted-average number of common shares outstanding for the period
and, when dilutive, potential shares from stock options using the
treasury stock method, 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 per share calculation
only when options exercise prices are lower than the average market
value of the common shares for the period presented. In periods
with a net loss, the basic loss per share equals the diluted loss
per share as all common stock equivalents are excluded from the per
share calculation because they are anti-dilutive. In accordance
with ASC 260, “Earnings Per Share”, the following table reconciles
basic shares outstanding to fully diluted shares
outstanding.
Schedule of Weighted Average Common Shares
Outstanding
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
For
the Three Months |
|
|
For
the Nine Months |
|
|
|
Ended
September 30, |
|
|
Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
21,133,536 |
|
|
|
22,233,876 |
|
|
|
21,885,805 |
|
|
|
21,899,799 |
|
Potentially
dilutive equity awards |
|
|
1,583,915 |
|
|
|
2,449,930 |
|
|
|
2,020,993 |
|
|
|
2,319,127 |
|
Weighted
average common shares outstanding, assuming dilution |
|
|
22,717,451 |
|
|
|
24,683,806 |
|
|
|
23,906,798 |
|
|
|
24,218,926 |
|
For
the three and nine months ended September 30, 2022, the weighted
average number of options to purchase common stock not included in
potentially dilutive equity awards because the effects are
anti-dilutive, or the performance condition was not met was
1,965,000 and 1,317,216, respectively. The
number of shares issuable under the terms of the Holzworth earnout
as of September 30, 2022, if all paid in shares of common stock, is
839,161 and is included in
potentially dilutive equity awards in the chart above.
The
weighted average number of options to purchase common stock not
included in potentially dilutive equity awards because the effects
are anti-dilutive, or the performance condition was not met was
1,205,000 for the
three and nine month periods ended September 30, 2021. The number
of shares issuable under the terms of the Holzworth earnout as of
September 30, 2021, if all paid in shares of common stock, is
1,430,889 and is included in
potentially dilutive equity awards in the chart above.
NOTE
9 – Inventories
Inventory
carrying value is net of inventory reserves of $686,000 at September 30, 2022 and
$681,000 at December 31,
2021.
Schedule of Inventory
|
|
September
30,
2022
|
|
|
December
31,
2021
|
|
Inventories
consist of (in thousands): |
|
|
|
|
|
|
|
|
September
30,
2022
|
|
|
December
31,
2021
|
|
Raw
materials |
|
$ |
3,856 |
|
|
$ |
3,213 |
|
Work-in-process |
|
|
508 |
|
|
|
542 |
|
Finished
goods |
|
|
1,321 |
|
|
|
1,333 |
|
Total
Inventory |
|
$ |
5,685 |
|
|
$ |
5,088 |
|
NOTE
10 – Accrued Expenses
and Other Current Liabilities
As of
September 30, 2022, and December 31, 2021 accrued expenses and
other current liabilities consisted of the following (in
thousands):
Schedule of Accrued Expenses and Other Current
Liabilities
|
|
September
30,
2022
|
|
|
December
31
2021
|
|
Holzworth
earnout (Year 1 and Year 2) |
|
$ |
1,845 |
|
|
$ |
2,942 |
|
Payroll
and related benefits |
|
|
889 |
|
|
|
718 |
|
Accrued
commissions |
|
|
192 |
|
|
|
465 |
|
Accrued
professional fees |
|
|
398 |
|
|
|
524 |
|
Goods
received not invoiced |
|
|
110 |
|
|
|
277 |
|
Sales
and use and VAT tax |
|
|
241 |
|
|
|
|