Form 10-Q WIRELESS TELECOM GROUP For: Mar 31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

[X]

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

 

For the quarterly period ended March 31, 2021

 

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 of incorporation or organization)		(I.R.S. Employer 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)

 

 

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 [X] 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 [X] 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	[X]
			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 [X]

 

Number of shares of Common Stock outstanding as of May 1, 2021: 21,660,318

 

 

 

WIRELESS TELECOM GROUP, INC.

Form 10-Q

Table of Contents

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES		24

 

 

WIRELESS TELECOM GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares and par value)

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

		(Unaudited)
		March 21 2021				December 31 2020
CURRENT ASSETS
Cash & cash equivalents		$	3,880			$	4,910
Accounts receivable - net of reserves of $146 and $143, respectively			6,378				5,520
Inventories - net of reserves of $1,192 and $1,129 respectively			9,261				8,796
Prepaid expenses and other current assets			2,539				2,172
TOTAL CURRENT ASSETS			22,058				21,398
PROPERTY PLANT AND EQUIPMENT - NET			1,748				1,824
OTHER ASSETS
Goodwill			11,557				11,512
Acquired intangible assets, net			4,929				5,242
Deferred income taxes			5,701				5,701
Right of use assets			1,549				1,680
Other assets			557				561
TOTAL OTHER ASSETS			24,293				24,696
TOTAL ASSETS		$	48,099			$	47,918
CURRENT LIABILITIES
Short term debt		$	84			$	512
Accounts payable			2,118				1,546
Short term leases			546				534
Accrued expenses and other current liabilities			6,351				7,997
Deferred revenue			708				924
TOTAL CURRENT LIABILITIES			9,807				11,513
LONG TERM LIABILITIES
Long term debt			8,933				8,895
Long term leases			1,060				1,200
Other long term liabilities			2,128				82
Deferred tax liability			381				377
TOTAL LONG TERM LIABILITIES			12,502				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 34,888,904 and 34,888,904 shares issued, 21,660,318 and 21,669,361 shares outstanding			349				349
Additional paid in capital			50,277				50,163
Retained earnings			(1,179	)			(946	)
Treasury stock at cost, 13,228,586 and 13,219,543 shares			(24,573	)			(24,556	)
Accumulated other comprehensive income			916				841
TOTAL SHAREHOLDERS’ EQUITY			25,790				25,851
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	48,099			$	47,918

  

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)

 

		For the Three Months Ended
		March 31
			2021				2020
Net revenues		$	11,321			$	9,429
Cost of revenues			5,376				5,001
Gross profit			5,945				4,428
Operating expenses
Research and development			1,382				1,578
Sales and marketing			1,713				1,717
General and administrative			2,862				2,487
Total operating expenses			5,957				5,782
Operating loss			(12	)			(1,354	)
Other income			24				239
Interest expense			(297	)			(225	)
Loss before taxes			(285	)			(1,340	)
Tax benefit			(52	)			(193	)
Net Loss		$	(233	)		$	(1,147	)
Other comprehensive income/(loss):
Foreign currency translation adjustments			75				(935	)
Comprehensive loss		$	(158	)		$	(2,082	)
Loss per share:
Basic		$	(0.01	)		$	(0.05	)
Diluted		$	(0.01	)		$	(0.05	)
Weighted average shares outstanding:
Basic			21,742				21,398
Diluted			21,742				21,398

  

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)

 

		For the Three Months
		Ended March 31
		2021				2020
CASH FLOWS USED BY OPERATING ACTIVITIES
Net Loss		$	(233	)		$	(1,147	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization			530				524
Amortization of debt issuance fees			83				63
Share-based compensation expense			114				81
Deferred rent			(7	)			(7	)
Deferred income taxes			-				(32	)
Provision for doubtful accounts			3				(5	)
Inventory reserves			61				21
Changes in assets and liabilities, net of acquisition:
Accounts receivable			(853	)			58
Inventories			(517	)			(127	)
Prepaid expenses and other assets			(254	)			355
Accounts payable			606				230
Accrued expenses and other liabilities			235				(143	)
Net cash used by operating activities			(232	)			(129	)
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures			(144	)			(51	)
Acquisition of business, net of cash acquired			(200	)			(7,189	)
Net cash used by investing activities			(344	)			(7,240	)
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES
Revolver borrowings			-				8,073
Revolver repayments			-				(8,471	)
Term loan borrowings			-				8,400
Term loan repayments			(449	)			(363	)
Debt issuance fees			-				(1,056	)
Shares withheld for employee taxes			(17	)			(26	)
Net cash provided/(used) by financing activities			(466	)			6,557
Effect of Exchange Rate Changes on Cash and Cash Equivalents			12				(228	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(1,030	)			(1,040	)
Cash and Cash Equivalents, at Beginning of Period			4,910				4,245
CASH AND CASH EQUIVALENTS, AT END OF PERIOD		$	3,880			$	3,205
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	213			$	146
Cash paid during the period for income taxes		$	13			$	28

 

See accompanying Notes to Consolidated Financial Statements.

 

 

WIRELESS TELECOM GROUP, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share amounts)

 

		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	)
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

 

		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

 

See accompanying Notes to Consolidated Financial Statements.

 

 

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 (“RF”) 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.

 

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 lifecycle of wireless connectivity and communication development, deployment and testing. Our customers use these products in relation to commercial infrastructure development, the expansion and upgrade of distributed antenna systems, deployment of small cell technology, use of medical devices and private long-term evolution (“LTE”) and 5G networks. In addition, the Company’s products are used in the development and testing of satellite communication systems, radar systems, semiconductor devices, automotive electronics and avionics.

 

The accompanying consolidated financial statements include the accounts of Wireless Telecom Group, Inc., doing business as and operating under the trade name, Noisecom, and its wholly owned subsidiaries including Boonton Electronics Corporation (“Boonton”), Microlab/FXR LLC (“Microlab”), Holzworth Instrumentation, Inc. (“Holzworth”), Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”). They 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 “first quarter(s)” or “three months” indicate the Company’s fiscal periods ended March 31, 2021 and March 31, 2020, and references to “year-end” indicate the fiscal year ended December 31, 2020.

 

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, 2020. 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 months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.

 

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 continued to negatively impact the Company in the first quarter of 2021, with reduced order flow most notably in our Microlab and Boonton brands from periods prior to the pandemic. We believe this is attributable to the impact of the COVID-19 pandemic on customer spending for products related to these brands. 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 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.

 

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 12.5% and 12.7% of the Company’s consolidated revenue for the three months ended March 31, 2021 and 2020, respectively.

 

One customer accounted for 18.8% of consolidated accounts receivable as of March 31, 2021. At December 31, 2020, one customer accounted for 12.7% 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. 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. We believe the carrying value of the loan obtained under the Paycheck Protection Program approximates fair value due to the expected short term nature of the loan.

 

Contingent Consideration

 

Under the terms of the Holzworth Share Purchase Agreement, the Company is 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 for the year ending December 31, 2021.

 

 

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 earnout periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome. The estimated outcome is then discounted based on the individual risk analysis of the liability. The contingent consideration liabilities are considered a Level 3 fair value measurement.

 

As of March 31, 2021, amounts due for the Holzworth deferred purchase price and earnout were $750,000 and $3.4 million, respectively.

 

Subsequent Events

 

There were no subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements, and the notes thereto, through the date the financial statements were issued.

 

NOTE 2 – Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

There have been no changes to our significant accounting policies as described in the 2020 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 as 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.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial 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 reporting. The new standard is effective March 12, 2020 through December 31, 2022, with the adoption date being dependent upon the Company’s election. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

NOTE 3 – Acquisition of Holzworth

 

On February 7, 2020 the Company completed the acquisition of all of the outstanding shares of Holzworth. 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 customer base and channel partners.

 

The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accounting for acquisitions requires us to recognize separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

 

At closing, a portion of the purchase price was paid to the Sellers through the issuance of 347,319 shares of the Company’s common stock, valued at approximately $500,000 based upon a 90-day volume weighted average price for shares of stock of the Company. The shares issued to the Sellers are subject to Lock-up and Voting Agreements.

 

During 2020, the Company paid $8.3 million in net cash to the Sellers consisting of $7.2 million in cash at close, $600,000 in indemnification holdback payments and $750,000 in deferred purchase price reduced by $292,000 of a working capital adjustment that was owed to the Company by the Sellers. The final indemnification holdback payment of $200,000 was paid on March 31, 2021.

 

 

The Sellers earned a second deferred purchase price payment of $750,000 when Holzworth exceeded $1.25 million in EBITDA (as defined in the Share Purchase Agreement) for the twelve months ended December 31, 2020. Additionally, the Sellers earned $3.4 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.

 

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 $750,000 into unsecured seller notes with interest at an annual rate of 6.5% starting from April 1, 2021 until final payment. The payment date has been changed from March 31, 2021 to three equal installments of $250,000, plus accrued interest, due on July 1, 2021, October 1, 2021 and January 1, 2022.

 

Additionally, the parties amended the payment dates of the earnout consideration. The payment date of the Year 1 Earnout has been amended from March 31, 2021 to (i) six (6) equal quarterly installments of 10% of the Year 1 Earnout payable on the last business day of each calendar quarter between June 30, 2021 and September 30, 2022 and (ii) one (1) installment payment equal to 40% of the Year 1 Earnout on December 31, 2022. The Year 1 Earnout is payable in cash or shares of the Company’s common stock based on the 90 trading day volume weighted average price immediately preceding final determination of the Year 1 Earnout or $2.19 per share. The estimated payment for the Year 1 Earnout is $3.4 million, of which $1.4 million is recorded in accrued expenses and other current liabilities and $2.0 million is recorded in other long term liabilities in the consolidated balance sheet as of March 31, 2021.

 

The Company may also be required to pay additional amounts in cash and stock as earnout consideration based on Holzworth’s EBITDA for the fiscal 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. Pursuant to the Second Amendment, the Year 2 Earnout is payable in four equal quarterly installments payable on the last business day of each calendar quarter between March 31, 2022 and December 31, 2022. The aggregate payments of the Year 1 Earnout and Year 2 Earnout cannot exceed $7.0 million and the aggregate purchase price cannot exceed $17.0 million.

 

 

The following table summarizes the components of the purchase price and the allocation of the purchase price at fair value at the acquisition date (in thousands):

 

		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

 

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 Holzworth into our operations. The goodwill recorded in this transaction is expected to be tax deductible.

 

The Company’s post acquisition consolidated goodwill is shown below (in thousands):

 

		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

 

NOTE 4 – Debt

 

Debt consists of the following (in thousands):
		March 31, 2021
Revolver at LIBOR plus margin		$	-
Term loan at LIBOR plus margin			7,867
Less: Debt issuance costs, net of amortization			(779	)
Less: Fair value of warrants, net of amortization			(116	)
Paycheck Protection Program loan			2,045
Total Debt			9,017
Less: Debt maturing within one year			(84	)
Non-current portion of long term debt		$	8,933

 

 

Term loan payments by period (in thousands):
Remainder of 2021		$	63
2022			2,129
2023			84
2024			84
2025			7,552
Thereafter			-
Total		$	9,912

 

In connection with the Holzworth 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 submitted its application for forgiveness in the first quarter of 2021.

 

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 our U.K. tax jurisdiction and reduced our consolidated leverage ratio for the twelve month periods ended September 30, 2021 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 $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 payments to and enter into notes with the Holzworth sellers in the amount of $750,000, as described above in Note 3.

 

The Company entered into a Credit Facility with Bank of America, N.A. on February 16, 2017 (the “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 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 in 2017.

 

In connection with the Acquisition, on February 7, 2020, the Company and certain of its 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 amount of $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 used for allowable purposes under the CARES Act and the Company promptly submits an application for forgiveness and substantially all of the loan is forgiven. The Company submitted its application for forgiveness in the first quarter of 2021.

 

 

On February 25, 2021, the Company, its subsidiaries and Bank of America 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 described above, and provided Bank of America’s consent to the Company entering into the Muzinich Second Amendment, as described above.

 

As of March 31, 2021, the interest rate on the Term Loan Facility was 10.25% and the interest rate on the Revolver was 2.12%. The Company had zero drawn on the asset-based revolver as of March 31, 2021. As of March 31, 2021, and the date hereof the Company is in compliance with all covenants of the Credit Facility and the 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 has an interest rate of 1% and a term of 24 months. A repayment schedule has not yet been provided by Bank of America. Accordingly, the full amount of the term loan has been shown as due in May 2022. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent and utilities. The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount of the loan upon application to the SBA for forgiveness by the Company. The loan is evidenced by a promissory note, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The Company may prepay the loan at any time prior to maturity with no prepayment penalties. As of March 31, 2021, the Company has applied for forgiveness of the loan, however, has elected to account for the loan in accordance with Accounting Standard Codification 470 Debt until such time that forgiveness is approved by the SBA. The Company can provide no assurance that the loan will be forgiven in whole or in part.

 

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 March 31, 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.

 

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 $164,000 and $151,000 during the three months ended March 31, 2021 and 2020, respectively, and was included in operating cash flows.

 

Operating lease costs for the three months ended March 31, 2021 and March 31, 2020 were $276,000 and $247,000, respectively.

 

 

The following table presents information about the amount and timing of cash flows arising from the Company’s leases as of March 31, 2021:

 

(in thousands)		March 31, 2021
Maturity of Lease Liabilities
Remainder of 2021		$	467
2022			637
2023			276
2024			158
2025			163
Thereafter			69
Total Undiscounted operating lease payments			1,770
Less: imputed interest			(164	)
Present value of operating lease liabilities		$	1,606
Balance sheet classification
Current lease liabilities		$	546
Long-term lease liabilities			1,060
Total operating lease liabilities		$	1,606
Other information
Weighted-average remaining term (months) for operating leases			41
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 99% of the Company’s consolidated revenue for the three months ended March 31, 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.

 

 

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 $210,000 and $260,000 as of March 31, 2021 and December 31, 2020, respectively, and recorded in prepaid expenses and other current assets. Deferred revenue was $708,000 and $924,000 as of March 31, 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).

 

		Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
Total net revenues by revenue type
Passive and active RF components		$	3,134			$	4,268
Signal generators and components			3,329				1,820
Signal analyzers and power meters			1,558				1,565
Signal processing hardware			1,483				1,199
Software licenses			990				108
Services			827				469
Total net revenue		$	11,321			$	9,429
Total net revenues by geographic areas
Americas		$	7,779			$	6,246
EMEA			2,534				2,045
APAC			1,008				1,138
Total net revenue		$	11,321			$	9,429

 

 

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 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 March 31, 2021, the Company’s net deferred tax asset of approximately $5.3 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 Company recorded a tax benefit of $52,000 for the three months ended March 31, 2021, primarily due to the impact of estimated research and development deductions in the U.K. The effective rate of income tax benefit of 18.2% is lower than the statutory rate in the United States due to the impact of the research and development deductions in the U.K.

 

The effective rate of income tax benefit of 12.9% for the three months ended March 31, 2020 was lower than the statutory rates in the United States and the U.K. primarily due to the impact of research and development deductions in the U.K.

 

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.

 

		For the Three Months
		Ended March 31,
		2021				2020
Weighted average common shares outstanding			21,741,550				21,397,919
Potentially dilutive equity awards			2,308,144				388,668
Weighted average common shares outstanding, assuming dilution			24,049,694				21,786,587

 

For the three months ended March 31, 2021, 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 1,320,000. The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is 1,599,807 and is included in potentially dilutive equity awards in the chart above.

 

 

For the three months ended March 31, 2020, the weighted average number of options and warrants 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 1,455,000.

 

NOTE 9 – Inventories

 

Inventory carrying value is net of inventory reserves of $1.2 million at March 31, 2021 and $1.1 million at December 31, 2020.

 

Inventories consist of (in thousands):
		March 31, 2021				December 31, 2020
Raw materials		$	4,689			$	4,644
Work-in-process			584				618
Finished goods			3,988				3,534
Total Inventory		$	9,261			$	8,796

 

NOTE 10 – Accrued Expenses and Other Current Liabilities

 

As of March 31, 2021, and December 31, 2020 accrued expenses and other current liabilities consisted of the following (in thousands):

 

		March 31, 2021				December 31 2020
Holzworth earnout – short term		$	1,369			$	3,423
Payroll and related benefits			1,137				864
Goods received not invoiced			900				458
Holzworth deferred purchase price			750				950
Commissions			605				605
Sales and use and VAT tax			436				315
Professional fees			388				331
Returns reserve			248				212
Warranty reserve			140				140
Bonus			97				123
Harris arbitration liability			-				116
Other			281				460
Total		$	6,351			$	7,997

 

NOTE 11 - Accounting for Stock Based Compensation

 

The Company’s results for the three months ended March 31, 2021 and 2020 include $114,000 and $81,000, respectively, related to stock based compensation expense. 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 2012, the Company’s Board of Directors and shareholders approved the 2012 Incentive Compensation Plan (the “Initial 2012 Plan”), which provides for the grant of equity, including restricted stock awards, restricted stock units, non-qualified stock options and incentive stock options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected to contribute to the Company’s future growth and success. When originally approved, the Initial 2012 Plan provided for the grant of awards relating to 2 million shares of common stock, plus those shares subject to awards previously issued under the Company’s 2000 Stock Option Plan that expire, are canceled or are terminated after adoption of the Initial 2012 Plan without having been exercised in full and would have been available for subsequent grants under the 2000 Stock Option Plan. In June 2014, the Company’s shareholders approved the Amended and Restated 2012 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional 1.6 million shares of the Company’s common stock to be available for future grants under the 2012 Plan. The 2012 Plan provides that if awards are forfeited, expire or otherwise terminate without issuance of the shares underlying the awards, or if the award does not result in issuance of all or part of the shares underlying the award, the unissued shares are again available for awards under the 2012 Plan. As a result of certain award forfeitures and cancellations, as of March 31, 2021, there are approximately 226,000 shares available for issuance under the 2012 Plan.

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

There have been no material changes in our commitments and contingencies and risks and uncertainties as of March 31, 2021 from that previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020.

 

  

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with our interim 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 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 institute distancing of workstations and other 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 first 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 102.9% year over year as a result of increased software and services sales as well as sales of digital signal processing cards. Revenue in our Test and measurement (“T&M”) product group increased 42.2% on higher Holzworth sales and increased sales from our legacy T&M brands. These increases were offset somewhat by a decline in the RF components (“RFC”) product group which we believe continues to be negatively impacted by the COVID-19 pandemic as wireless carrier spending on large projects has declined from the same period last year.

 

RESULTS OF OPERATIONS

 

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

 

Net Revenues (in thousands)

 

		Three months ended March 31,
		Revenue								% of Revenue								Change
		2021				2020				2021				2020				Amount				Pct.
RF components		$	3,137			$	4,276				27.7	%			45.4	%		$	(1,139	)			-26.6	%
Test and measurement			5,327				3,745				47.1	%			39.7	%			1,582				42.2	%
Radio, baseband, software			2,857				1,408				25.2	%			14.9	%			1,449				102.9	%
Total net revenues		$	11,321			$	9,429				100.0	%			100.0	%		$	1,892				20.1	%

 

Net consolidated revenue increased 20.1% from the prior year period due primarily to higher software and services revenue in our RBS group due to new software and service contracts. Also contributing to the overall revenue increase was an increase in T&M revenue due to a full quarter contribution of Holzworth in fiscal 2021 versus a half of quarter in 2020, 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 on large projects has declined from the prior year which we believe is due to the on-going impact of the COVID-19 pandemic.

 

 

Gross Profit (in thousands)

 

		Three months ended March 31,
		Gross Profit								Gross Profit %								Change
		2021				2020				2021				2020				Amount				Pct.
RF components		$	1,091			$	1,943				34.8	%			45.4	%		$	(852	)			-43.8	%
Test and measurement			3,054				1,904				57.3	%			50.8	%			1,150				60.4	%
Radio, baseband, software			1,800				581				63.0	%			41.3	%			1,219				209.8	%
Total gross profit		$	5,945			$	4,428				52.5	%			47.0	%		$	1,517				34.3	%

 

Consolidated gross profit increased 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 as well as higher margin Holzworth products at the T&M product group.

 

Operating Expenses (in thousands)

 

		Three months ended March 31,
		Operating Expenses								% of Revenue								Change
		2021				2020				2021				2020				Amount				Pct.
Research and development		$	1,382			$	1,578				12.2	%			16.7	%		$	(196	)			-12.4	%
Sales and marketing			1,713				1,717				15.1	%			18.2	%			(4	)			-0.2	%
General and administrative			2,862				2,487				25.3	%			26.4	%			375				15.1	%
Total operating expenses		$	5,957			$	5,782				52.6	%			61.3	%		$	175				3.0	%

 

Research and development expenses decreased 12.4% from the prior year due primarily to lower third party research and development consulting and material expenses resulting from the timing of third-party projects.

 

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 15.1% from the prior year period due to the inclusion of a full quarter of Holzworth business in 2021 compared to a partial quarter in 2020 resulting in an increase of $239,000, higher salaries and benefits expense of $294,000 due to merit and headcount increases, increased legal expenses associated with our debt agreement and Holzworth share purchase agreement amendments of $124,000, partially offset by lower mergers and acquisition expenses.

 

Other Income/(Expense)

 

Other income decreased $215,000 from the prior year period due primarily to lower foreign exchange gains recognized on monetary assets and liabilities denominated in currencies other than our functional currencies.

 

Interest Expense

 

Consolidated interest expense increased $72,000 due primarily to increased interest on our Term Loan Facility as compared to the prior year.

 

Taxes

 

Consolidated tax benefit decreased $141,000 from the prior year period due to a lower loss before taxes.

 

Net Income/Loss

 

Consolidated net loss for the first quarter 2021 decreased $915,000 primarily due to higher gross profit driven by higher net revenues and increased gross profit margin only partially offset by higher operating expenses, lower other income and higher interest expense.

 

 

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 dated February 7, 2020 with Muzinich BDC Inc. (“Muzinich”) to finance the Holzworth acquisition in the amount of $8.4 million (the “Term Loan Facility”). Additionally, on May 4, 2020 the Company received $2.0 million pursuant to a loan under the PPP. We have filed for forgiveness of the PPP loan with the SBA but can provide no assurance that it will be forgiven. See Note 4 above and our Annual Report on Form 10-K for the year ended December 31, 2020 for a more detailed description of our credit facilities.

 

Sources and Uses of Cash

 

During the first quarter ended March 31, 2021, the Company’s consolidated cash balance decreased $1.0 million due primarily to a paydown of $428,000 per the terms of our Term Loan Facility with Muzinich and an increase in working capital from December 31, 2020.

 

Operating Activities

 

Cash used by operations increased from $129,000 in the prior year period to $231,000 in the current year. This was primarily due to an increase in working capital as certain product groups’ revenues and order flow increased year over year resulting in higher accounts receivable and inventory balances.

 

Investing Activities

 

Cash used by investing activities decreased from $7.2 million to $344,000 as the prior year period included approximately $7.2 million in cash paid for the Holzworth acquisition. Capital expenditures increased from $51,000 in the prior year to $144,000 in the current year period as investments in software and related hardware infrastructure increased.

 

Financing Activities

 

Cash from financing activities decreased from cash provided of $6.5 million to cash used of $466,000 as the current year includes a term debt paydown of $449,000. The prior year cash provided from financing includes the receipt of the Term Loan Facility proceeds to finance the Holzworth acquisition.

 

As of March 31, 2021, the Company’s consolidated cash balance was $3.9 million. No funds were drawn on our Revolver and we had availability under our asset-based Credit Facility of $6.3 million. Our gross debt balance was $9.9 million which is comprised of the $7.9 million term loan and $2.0 million PPP loan.

 

We expect borrowings available to us under our Credit Facility, our existing cash balance and cash generated by operations will be sufficient to meet our liquidity needs for 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, including the impact the COVID-19 pandemic has had on our business, specifically our RFC product group. Wireless carrier spend on large projects has been reduced which we believe is a result of the COVID-19 pandemic and this has negatively impacted the RFC product group revenue. We expect the uncertainty caused by the COVID-19 pandemic to extend to our business into the second quarter of 2021 and possibly the second half of the year.

 

The Company expects to realize tax benefits in future periods due to the available net operating loss carryforwards resulting from the disposition of a former wholly owned subsidiary in 2010. Accordingly, future taxable income is expected to be offset by the utilization of operating loss carryforwards and as 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 the UK.

 

On August 27, 2018 the Company filed a shelf registration statement on Form S-3 which was declared effective on September 17, 2018. The Form S-3 will permit the Company to issue and sell, from time to time, up to $40 million in aggregate value of shares of its common stock through one or more methods of distribution, subject to applicable SEC limits on the value of securities that the Company, as a smaller reporting company, may sell during an applicable period, market conditions, and the Company’s capital desires and needs.

 

 

The terms of any offering of the Company’s common stock, and the intended use of the net proceeds resulting therefrom, will be established at the times of the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings. The shelf registration statement is intended to provide financial flexibility to access capital in a competitive and expeditious manner when market conditions are appropriate. The shelf registration statement expires on September 17, 2021. The Company intends to update the registration statement prior to expiration.

 

Off-Balance Sheet Arrangements

 

Other than contractual obligations incurred in the normal course of business, the Company does not have any off-balance sheet arrangements.

 

Effects of Inflation and Changing Prices

 

The Company does not anticipate that inflation or other expected changes in prices will significantly impact its business.

 

Critical Accounting Policies

 

There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 2020 Form 10-K.

 

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 about our expectations that our existing cash balance, cash generated by operations and availability under our Credit Facility will be sufficient to meet our liquidity needs for the next twelve months; our expectation to realize tax benefits in future periods and our expectation that uncertainties around the impact of the ongoing COVID-19 pandemic might extend to our business through at least the second quarter of 2021 and possibly the 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 COVID-19 pandemic will have on our business 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, our abilities to protect our intellectual property rights, our ability to manage risks related to our information technology and cyber security, and the risk that our PPP loan will not be forgiven, 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, 2020 and elsewhere in this Quarterly Report on Form 10-Q. The Company’s forward-looking statements speak only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or review any forward-looking statements whether as a result of new information, future developments or otherwise.

 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

ITEM 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 2020 Annual Report on Form 10-K.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

No material changes in the 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 Form10-K for the year ended December 31, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit
Number		Exhibit Description
3.1		Amended and Restated By-laws, as amended on April 7, 2020 (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed with the SEC on May 13, 2020, Commission File No. 001-11916)
10.1		Amendment No. 7 to Loan and Security Agreement by and among Wireless Telecom Group, Inc., Boonton Electronics Corporation, Microlab/FXR LLC, Holzworth Instrumentation, Inc., CommAgility Limited, and Bank of America, N.A. dated February 25, 2021 (incorporated by reference to Exhibit 10.31 to our Current Report on Form 10-K filed with the SEC on March 19, 2021, Commission File No. 001-11916)
10.2		Second Amendment to Credit Agreement among Wireless Telecom Group, Inc., as the Borrower, and Certain Subsidiaries of the Borrower Identified Herein, as the Guarantors, and Muzinich BDC, Inc., as the Lender dated February 25, 2021 (incorporated by reference to Exhibit 10.32 to our Current Report on Form 10-K filed with the SEC on March 19, 2021, Commission File No. 001-11916)
10.3		Second Amendment to Share Purchase Agreement, dated February 19, 2021, by and among Wireless Telecom Group, Inc. and Holzworth Instrumentation Inc., Jason Breitbarth, Joe Koebel and Leyla Bly (“Sellers”), and Jason Breitbarth as the designated representative of Sellers (incorporated by reference to Exhibit 10.33 to our Current Report on Form 10-K filed with the SEC on March 19, 2021, Commission File No. 001-11916)
10.4		Form of First Amendment to the Lock-up and Voting Agreement
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		The following financial information from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the three months ended March 31,2021, filed on May 13, 2021, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income/(Loss), (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Shareholders’ Equity, and (v) the Notes to the Consolidated Financial Statements.
101.INS**		XBRL INSTANCE DOCUMENT
101.SCH**		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL**		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF**		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB**		XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE**		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
		** 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: May 13, 2021
	By:	/s/ Timothy Whelan
		Timothy Whelan
		Chief Executive Officer
Dated: May 13, 2021
	By:	/s/ Michael Kandell
		Michael Kandell
		Chief Financial Officer

 

 

 

 

Exhibit 10.4

 

FIRST AMENDMENT TO LOCK-UP AND VOTING AGREEMENT

 

This First Amendment to Lock-Up and Voting Agreement (this “Amendment”), effective as of February ____, 2021, is by and between Wireless Telecom Group, Inc., a New Jersey corporation (the “Company”), and [NAME OF STOCKHOLDER] (“Stockholder”). The Company and Stockholder are collectively referred to herein as the “Parties”.

 

RECITALS

 

WHEREAS, pursuant to that certain Share Purchase Agreement, dated November 13, 2019, by and among the Company, Joe Koebel, individually, Jason Breitbarth, individually, Leyla Bly, individually, and Jason Breitbarth, in his capacity as the designated representative of the sellers named therein (as amended, the “Purchase Agreement”), the Company purchased all of the Acquired Shares from the Sellers in exchange for the Purchase Price on February 7, 2020;

 

WHEREAS, all capitalized terms used and not defined herein shall have the meanings given such terms in the Lock-Up and Voting Agreement, dated February 7, 2020, by and between the Parties (collectively, the “Lock-Up Agreement”);

 

WHEREAS, pursuant to Section 16 of the Lock-Up Agreement, the Lock-Up Agreement may be amended by written agreement of the Company and Stockholder; and

 

WHEREAS, the Company and Stockholder wish to amend the Lock-Up Agreement on the terms and conditions set forth in this Amendment.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted by the Parties, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

1. Amendment of Lock-Up Agreement.

 

a. Section 11(b) of the Lock-Up Agreement is hereby deleted in its entirety and replaced in lieu thereof with the following:

 

“(b) To the extent any shares of Common Stock are issued in payment of any Earnout Consideration (as defined in the Share Purchase Agreement) in accordance with the terms of the Share Purchase Agreement, such shares shall be considered “Shares” as defined herein, subject to all applicable transfer restrictions, voting and other provisions as set forth herein, except as otherwise provided in this Section 11(b), with the “Effective Date” as defined herein with respect to such shares being the date such shares were issued. If, as of December 31, 2021: (A) the portion of the Earnout Consideration that has been paid in cash through such date represents less than 30% of the aggregate Earnout Consideration paid, the portion of Common Stock issued as Earnout Consideration constituting the difference between the cash percentage paid and 30% of the aggregate Earnout Consideration paid as of such date will be released from the Lock-Up as of December 31, 2021; or (B) $1,500,000 in Earnout Consideration (such amount, the “Lock-Up Threshold”) has been paid, the portion of Common Stock issued as Earnout Consideration constituting the difference between the cash percentage paid, if less than 30% of the Lock-Up Threshold, and 30% of such Earnout Consideration will be released from the Lock-Up as of such payment date. In the event that the Lock-Up Threshold is not reached as of December 31, 2021, at such time as the Lock-Up Threshold is reached, if any, the portion of Common Stock issued as Earnout Consideration constituting the difference between (X) the cash percentage paid as of such date (if less than 30% of the Lock-Up Threshold), and (Y) 30% of such Earnout Consideration, minus (Z) the percentage representing the Common Stock previously released as of December 31, 2021, will be released from the Lock-Up as of such payment date. Any Common Stock issued as Earnout Consideration and not otherwise released from the Lock-Up as set forth in this Section 2.5(a)(x) shall remain subject to the Lock-Up for the duration of the Lock-Up Period.”

 

 

2. Miscellaneous.

 

a. Conflicting Provisions. This Amendment, together with the Lock-Up Agreement, constitutes the complete agreement between the Parties with respect to the subject matter hereof and thereof; provided that this Amendment supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, which relate to the subject matter hereof between the Parties. Except as expressly contemplated herein, the Lock-Up Agreement shall otherwise remain in full force and effect in accordance with its terms. In the event of conflict between this Amendment and the Lock-Up Agreement, this Amendment shall control.

 

b. Binding Effect. Upon each Party’s acceptance hereof by signing in the space provided below, this Amendment shall constitute a binding agreement between the Parties, and shall inure to the benefit of the Parties’ respective successors and assigns. The Parties hereby acknowledge the receipt and sufficiency of good and valuable consideration for their obligations hereunder.

 

c. Other Provisions. Sections 13 and 15 of the Lock-Up Agreement are hereby incorporated by reference into this Amendment and shall apply to this Amendment and be binding upon the Parties, mutatis mutandis, as though included in their entirety herein.

 

(Signature Page Follows)

 

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

 

	COMPANY:
	Wireless Telecom Group, Inc.
	By:
	Name:	Timothy Whelan
	Title:	Chief Executive Officer

 

	STOCKHOLDER:
	[NAME OF STOCKHOLDER]

 

[Signature Page to First Amendment to Lock-Up and Voting Agreement]

 

 

 

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Timothy Whelan, certify that:

  

	1.	I have reviewed this Quarterly Report on Form 10-Q of Wireless Telecom Group, Inc.;
	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

		a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

		a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Dated: May 13, 2021
	By:	/s/ Timothy Whelan
		Timothy Whelan
		Chief Executive Officer

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael Kandell, certify that:

 

	1.	I have reviewed this Quarterly Report on Form 10-Q of Wireless Telecom Group, Inc.;
	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

		a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

		a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Dated: May 13, 2021
	By:	/s/ Michael Kandell
		Michael Kandell
		Chief Financial Officer

 

 

Exhibit 32.1

 

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

 

I, Timothy Whelan, Chief Executive Officer of Wireless Telecom Group, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

 

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 13, 2021
	By:	/s/ Timothy Whelan
		Timothy Whelan
		Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.

 

 

 

 

Exhibit 32.2

 

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

 

I, Michael Kandell, Chief Financial Officer of Wireless Telecom Group, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

 

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 13, 2021
	By:	/s/ Michael Kandell
		Michael Kandell
		Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.