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 | | |
| 276 | |
| Warranty
reserve | |
| 76 | | |
| 61 | |
| Accrued
bonus | |
| - | | |
| 590 | |
| Holzworth
deferred purchase price | |
| - | | |
| 250 | |
| Other | |
| 556 | | |
| 573 | |
| Total | |
$ | 4,307 | | |
$ | 6,676 | |
NOTE
11 - Accounting for Stock Based Compensation
The
Company’s results for the three months ended September 30, 2022 and 2021 include $300,000 and $99,000, respectively, related to
stock based compensation expense. The Company’s results for the nine months ended September 30, 2022 and 2021 include $950,000
and $302,000, respectively related to stock based compensation expenses. Such amounts have been included in the Consolidated Statement
of Operations and Comprehensive Income/(Loss) within general and administrative expenses in operating expenses. The Company accounts
for forfeitures when they occur.
Incentive
Compensation Plan
In
the second quarter of 2021, the Company’s Board of Directors and shareholders approved the 2021 Long Term Incentive Plan (the “2021
Incentive Plan”), which provides for the grant of equity-based and cash incentives, including restricted stock awards, restricted
stock unit awards, performance unit 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 who are expected to contribute to the Company’s
future growth and success. The 2021 Incentive Plan provides for the grant of awards relating to 1.5 million shares of common stock. As
of September 30, 2022, there are 161,250 shares available for grant under the 2021 Incentive Plan.
All
service-based (time vesting) options granted have ten-year terms from the date of grant and typically vest annually and become fully
exercisable after a maximum of five years. However, vesting conditions are determined on a grant by grant basis.
On
January 6, 2022, the Compensation Committee of the Board of Directors approved the grant of restricted common stock awards to named executive
officers Tim Whelan, Mike Kandell, Dan Monopoli and Alfred Rodriguez of 125,000, 75,000, 50,000 and 50,000 shares respectively which
vest in equal annual installments over two years. If an executive’s service with the Company terminates before the restricted awards
are fully vested, then the shares that are not then fully vested are forfeited and immediately returned to the Company. The grant date
value per share was $2.11.
An
employee grant of 20,000 shares was issued on June 16, 2022, with a grant date per share value of $1.28. The grant vests in equal installments
over two years.
An
employee grant of 50,000 shares was issued on July 5, 2022, with a grant date per share value of $1.26. The grant vests in equal installments
over two years.
NOTE
12 – Reportable Segments
In
March 2022, the Company reorganized into two segments – Test and Measurement (T&M) and Radio, Baseband and Software (RBS).
The T&M segment is comprised of the Boonton, Noisecom and Holzworth brands. T&M is primarily engaged in supplying noise source
components and instruments and electronic testing and measurement instruments to customers in the semiconductor, military, aerospace,
medical and commercial communications industries.
The
RBS segment is comprised of CommAgility and develops the software which enables specialized LTE and 5G deployments, applications and
private network solutions including the LTE physical layer and stack software, for mobile network and related applications. RBS engineers
work closely with customers to provide hardware and software solutions in specialized applications and use-cases in wireless baseband,
private networks, and non-terrestrial (“NTN”) communications. Additionally, CommAgility licenses, implements and customizes
5G and LTE physical layer and stack software for private networks supporting satellite communications, the military and aerospace industries,
offering our customers unique implementation capabilities built on 3rd Generation Partnership Project (“3GPP”) standards.
For
internal reporting purposes, the Company’s chief operating decision maker makes financial decisions and allocates resources based
on segment profit information obtained from the Company’s internal management systems. Segment profitability includes the direct
expenses of each segment and certain corporate allocations for rent and insurance. Management does not include in its measures of segment
profitability of certain corporate expenses such as information technology expenses, finance and accounting expenses, legal and professional
fees, public company expenses and other discreet items that are not core to the measurement of segment management’s performance
but rather are controlled at the corporate level.
Summarized
financial information relating to the Company’s reportable segments is shown in the following table:
Summarized Financial Information Related to Reportable Segments
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Three
months ended | | |
Three
months ended | | |
Nine
months ended | | |
Nine
months ended | |
| | |
September
30, 2022 | | |
September
30, 2021 | | |
September
30, 2022 | | |
September
30, 2021 | |
| | |
T&M | | |
RBS | | |
Total | | |
T&M | | |
RBS | | |
Total | | |
T&M | | |
RBS | | |
Total | | |
T&M | | |
RBS | | |
Total | |
| Net
revenues | |
$ | 4,080 | | |
$ | 1,250 | | |
$ | 5,330 | | |
$ | 5,931 | | |
$ | 1,445 | | |
$ | 7,376 | | |
$ | 15,628 | | |
$ | 3,366 | | |
$ | 18,994 | | |
$ | 16,779 | | |
$ | 6,569 | | |
$ | 23,348 | |
| Cost
of revenues | |
| 1,948 | | |
| 724 | | |
| 2,672 | | |
| 2,564 | | |
| 770 | | |
| 3,334 | | |
| 6,817 | | |
| 1,749 | | |
| 8,566 | | |
| 7,089 | | |
| 2,985 | | |
| 10,074 | |
| Gross
profit | |
| 2,132 | | |
| 526 | | |
| 2,658 | | |
| 3,367 | | |
| 675 | | |
| 4,042 | | |
| 8,811 | | |
| 1,617 | | |
| 10,428 | | |
| 9,690 | | |
| 3,584 | | |
| 13,274 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating
expenses | |
| 1,787 | | |
| 1,418 | | |
| 3,205 | | |
| 1,858 | | |
| 1,684 | | |
| 3,542 | | |
| 5,645 | | |
| 4,456 | | |
| 10,101 | | |
| 5,338 | | |
| 5,307 | | |
| 10,645 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Segment
profitability | |
| 345 | | |
| (892 | ) | |
| (547 | ) | |
| 1,509 | | |
| (1,009 | ) | |
| 500 | | |
| 3,166 | | |
| (2,839 | ) | |
| 327 | | |
| 4,352 | | |
| (1,723 | ) | |
| 2,629 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Corporate
expenses | |
| | | |
| | | |
| 2,034 | | |
| | | |
| | | |
| 2,610 | | |
| | | |
| | | |
| 6,040 | | |
| | | |
| | | |
| 5,884 | |
| Operating
loss | |
| | | |
| | | |
| (2,581 | ) | |
| | | |
| | | |
| (2,110 | ) | |
| | | |
| | | |
| (5,713 | ) | |
| | | |
| | | |
| (3,255 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other
income/(expense) | |
| | | |
| | | |
| (46 | ) | |
| | | |
| | | |
| 20 | | |
| | | |
| | | |
| (705 | ) | |
| | | |
| | | |
| 2,074 | |
| Interest
expense | |
| | | |
| | | |
| 18 | | |
| | | |
| | | |
| (365 | ) | |
| | | |
| | | |
| (159 | ) | |
| | | |
| | | |
| (947 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tax
provision/(benefit) | |
| | | |
| | | |
| (341 | ) | |
| | | |
| | | |
| (1,255 | ) | |
| | | |
| | | |
| (1,540 | ) | |
| | | |
| | | |
| (1,390 | ) |
| Net
income/(loss) from continuing operations | |
| | | |
| | | |
| (2,268 | ) | |
| | | |
| | | |
| (1,200 | ) | |
| | | |
| | | |
| (5,037 | ) | |
| | | |
| | | |
| (738 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income from discontinued operations, net of tax | |
| | | |
| | | |
| 87 | | |
| | | |
| | | |
| 1,013 | | |
| | | |
| | | |
| 11,695 | | |
| | | |
| | | |
| 1,854 | |
| Net
income/(loss) | |
| | | |
| | | |
$ | (2,181 | ) | |
| | | |
| | | |
$ | (187 | ) | |
| | | |
| | | |
$ | 6,658 | | |
| | | |
| | | |
$ | 1,116 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation
and Amortization | |
$ | 260 | | |
$ | 70 | | |
$ | 330 | | |
$ | 225 | | |
$ | 249 | | |
$ | 474 | | |
$ | 794 | | |
$ | 287 | | |
$ | 1,081 | | |
$ | 676 | | |
$ | 742 | | |
$ | 1,418 | |
NOTE
13 – COMMITMENTS AND CONTINGENCIES
There
have been no material changes in our commitments and contingencies and risks and uncertainties as of September 30, 2022, from that previously
disclosed in our annual report on Form 10-K for the year ended December 31, 2021.
NOTE
14 – SHARE REPURCHASE PROGRAM
On
May 4, 2022, the Board of Directors of the Company authorized up to $4 million for a share repurchase program for the Company’s
outstanding stock which expires on December 31, 2022. During the nine months ended September 30, 2022, the Company repurchased 1,683,160
shares of common stock for $2.5 million inclusive of commissions. These shares have been recorded as treasury stock on the Consolidated
Balance Sheet.