UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM
|
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to____
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file number:
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company |
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Number of shares of Common Stock outstanding as of July 29, 2022:
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 | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 |
| Item 4. | Controls and Procedures | 23 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 24 |
| Item 1A. | Risk Factors | 24 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3. | Defaults Upon Senior Securities | 24 |
| Item 4. | Mine Safety Disclosures | 24 |
| Item 5. | Other Information | 24 |
| Item 6. | Exhibits | 25 |
| SIGNATURES | 26 | |
| 2 |
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) | ||||||||
| June
30 2022 | December
31 2021 | |||||||
| CURRENT ASSETS | ||||||||
| Cash & cash equivalents | $ | $ | ||||||
| Accounts
receivable - net of reserves of $ | ||||||||
| Inventories
- net of reserves of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| PROPERTY PLANT AND EQUIPMENT - NET | ||||||||
| OTHER ASSETS | ||||||||
| Goodwill | ||||||||
| Acquired intangible assets, net | ||||||||
| Deferred income taxes | ||||||||
| Right of use assets | ||||||||
| Other assets | ||||||||
| Non current assets of discontinued operations | ||||||||
| TOTAL OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Short term debt | $ | $ | ||||||
| Accounts payable | ||||||||
| Short term leases | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Current liabilities of discontinued operations | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Long term debt | ||||||||
| Long term leases | ||||||||
| Other long term liabilities | ||||||||
| Deferred tax liability | ||||||||
| TOTAL LONG TERM LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized, issued | ||||||||
| Common
stock, $ par value, shares authorized and shares issued, and shares outstanding | ||||||||
| Additional paid in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock at cost, and shares | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements.
| 3 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30 | June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain/(loss) on extinguishment of debt | ( | ) | ||||||||||||||
| Other income/(expense) | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Income/(loss) before taxes | ( | ) | ( | ) | ||||||||||||
| Tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income/(loss) from continuing operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income from discontinued operations, net of taxes | ||||||||||||||||
| Net income/(loss) | $ | ( | ) | $ | $ | $ | ||||||||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive income/(loss) | $ | ( | ) | $ | $ | $ | ||||||||||
| Income/(loss) per share from continuing operations: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Income per share from discontinued operations: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Income/(loss) per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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.
| 4 |
WIRELESS TELECOM GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| For the Six Months | ||||||||
| Ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net loss to net cash provided/(used) by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Extinguishment of PPP loan | ( | ) | ||||||
| Loss on extinguishment of term debt | ||||||||
| Gain on sale of Microlab | ( | ) | ||||||
| Amortization of debt issuance fees | ||||||||
| Share-based compensation expense | ||||||||
| Deferred rent | ( | ) | ( | ) | ||||
| Deferred income taxes | ||||||||
| Provision for doubtful accounts | ( | ) | ||||||
| Inventory reserves | ||||||||
| Changes in assets and liabilities, net of divestiture: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Deferred revenue | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Net cash provided/(used) by operating activities | ( | ) | ||||||
| CASH FLOWS PROVIDED/(USED) BY INVESTING ACTIVITIES | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Deferred purchase price payment | ( | ) | ( | ) | ||||
| Divestiture of Microlab, net | ||||||||
| Net cash provided/(used) by investing activities | ( | ) | ||||||
| CASH FLOWS USED BY FINANCING ACTIVITIES | ||||||||
| Term loan repayments | ( | ) | ( | ) | ||||
| Acquisition of treasury stock | ( | ) | ||||||
| Payment of contingent consideration | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Shares withheld for employee taxes | ( | ) | ( | ) | ||||
| Net cash used by financing activities | ( | ) | ( | ) | ||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | ( | ) | ||||||
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| Cash and Cash Equivalents, at Beginning of Period | ||||||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements.
| 5 |
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, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net income/(loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Shares withheld for employee taxes | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Cumulative translation adjustment | - | |||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net income/(loss) | - | |||||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Cumulative translation adjustment | - | |||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| 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, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income/(loss) | - | |||||||||||||||||||||||||||
| Issuance of shares in connection with stock options exercised | ||||||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Shares withheld for employee taxes | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Cumulative translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income/(loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Issuance of restricted stock | ||||||||||||||||||||||||||||
| Share Repurchase | ( | ) | ( | ) | ||||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Cumulative translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
| 6 |
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 “second quarter(s)” or “three months” indicate the Company’s fiscal periods ended June 30, 2022 and June 30, 2021, and references to “year-end” indicate the fiscal year ended December 31, 2021.
| 7 |
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 six months ended June 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 and the conflict between Russia and Ukraine have negatively impacted regional and global economies, disrupted global supply chains 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.
No
one customer accounted for more than 10% of the Company’s consolidated revenue for the three months ended June 30, 2022. One customer
accounted for
One
customer accounted for
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.
| 8 |
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 June 30, 2022, the amount due for the Holzworth earnout was $
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 $
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 will be 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 $
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.
| 9 |
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 six months ended June 30, 2022 and 2021 (in thousands):
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Gain on divestiture, net of expenses | ||||||||||||||||
| Income from Discontinued Operations before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Income from Discontinued Operations, net of income taxes | $ | $ | $ | $ | ||||||||||||
The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2021:
| Current Assets | ||||
| Accounts receivable, net | $ | |||
| Inventories, net | ||||
| Total current assets | ||||
| Property, plant and equipment, net | ||||
| Goodwill | ||||
| Other non current assets | ||||
| Total non current assets | ||||
| Total assets | $ | |||
| Current liabilities | ||||
| Accounts payable | $ | |||
| Accrued expenses and other current liabilities | ||||
| Total current liabilities | $ | |||
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 six months ended June 30, 2021 and included in the consolidated statement
of cash flow was $
| 10 |
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 $
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 $
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 £
On
July 1, 2021, CommAgility executed a draw down of the maximum amount of £
As of June 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
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 $
Operating
lease costs for the three and six months ended June 30, 2022, were $
| 11 |
The following table presents information about the amount and timing of cash flows arising from the Company’s leases as of June 30, 2022:
| (in thousands) | June 30, 2022 | |||
| Maturity of Lease Liabilities | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted operating lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
| Balance sheet classification | ||||
| Current lease liabilities | $ | |||
| Long-term lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Other information | ||||
| Weighted-average remaining term (months) for operating leases | ||||
| Weighted-average discount rate for operating leases | % | |||
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
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. |
| 12 |
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 $
| 13 |
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 June 30, 2022 | Six Months Ended June 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Signal analyzers and power meters | ||||||||||||||||||||||||
| Signal processing hardware | ||||||||||||||||||||||||
| Software licenses | ||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total net revenues by geographic areas | ||||||||||||||||||||||||
| Americas | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| EMEA | ||||||||||||||||||||||||
| APAC | ||||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Three Months Ended June 20, 2021 | Six Months Ended June 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Signal analyzers and power meters | ||||||||||||||||||||||||
| Signal processing hardware | ||||||||||||||||||||||||
| Software licenses | ||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total net revenues by geographic areas | ||||||||||||||||||||||||
| Americas | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| EMEA | ||||||||||||||||||||||||
| APAC | ||||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 14 |
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 June 30, 2022, the Company’s net deferred tax asset of $
In
accordance with Accounting Standards Update (“ASU”) 2019-12 the Company recorded a tax benefit from continuing operations
of $
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.
| 15 |
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Potentially dilutive equity awards | ||||||||||||||||
| Weighted average common shares outstanding, assuming dilution | ||||||||||||||||
For the three and six months ended June 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 and , respectively. The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and is included in potentially dilutive equity awards in the chart above.
For the three and six months ended June 30, 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 . The number of shares issuable under the terms of the Holzworth earnout, if all paid in shares of common stock, is and is included in potentially dilutive equity awards in the chart above.
NOTE 9 – Inventories
Inventory
carrying value is net of inventory reserves of $
| Inventories consist of (in thousands): | ||||||||
| June
30, 2022 | December
31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total Inventory | $ | $ | ||||||
NOTE 10 – Accrued Expenses and Other Current Liabilities
As of June 30, 2022, and December 31, 2021 accrued expenses and other current liabilities consisted of the following (in thousands):
| 16 |
| June
30, 2022 | December
31 2021 | |||||||
| Holzworth earnout (Year 1 and Year 2) | $ | $ | ||||||
| Payroll and related benefits | ||||||||
| Accrued income taxes | ||||||||
| Accrued commissions | ||||||||
| Accrued professional fees | ||||||||
| Goods received not invoiced | ||||||||
| Sales and use and VAT tax | ||||||||
| Warranty reserve | ||||||||
| Accrued bonus | ||||||||
| Holzworth deferred purchase price | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
The Company’s results for the three months ended June 30, 2022 and 2021 include $ and $, respectively, related to stock based compensation expense. The Company’s results for the six months ended June 30, 2022 and 2021 include $ and $, 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 million shares of common stock. As of June 30, 2022, there are 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 , , and 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 $.
An employee grant of shares was issued on June 16, 2022, with a grant date per share value of $. The grant vests in equal installments over .
| 17 |
NOTE 12 – Reportable Segments
In
March 2022, the Company reorganized into
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:
| Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
| T&M | RBS | Total | T&M | RBS | Total | T&M | RBS | Total | T&M | RBS | Total | |||||||||||||||||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Segment profitability | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Corporate expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Other income/(expense) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) before taxes | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Tax provision/(benefit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) from continuing operations | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income from discontinued operations, net of tax | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and Amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
NOTE 13 – COMMITMENTS AND CONTINGENCIES
There have been no material changes in our commitments and contingencies and risks and uncertainties as of June 30, 2022, from that previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021.
On
May 4, 2022, the Board of Directors of the Company authorized up to $
NOTE 15 - SUBSEQUENT EVENTS
In
accordance with the Membership Purchase Interest Agreement, the Company and RF Industries, Ltd settled the final purchase price of the
transaction which was comprised primarily of a working capital adjustment. On August 1, 2022, the Company received $
| 18 |
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, 2021.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021
Net Revenues (in thousands)
| Three months ended June 30, | ||||||||||||||||||||||||
| Revenue | % of Revenue | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Test and measurement | $ | 5,489 | $ | 5,521 | 90.5 | % | 70.9 | % | $ | (32 | ) | -0.6 | % | |||||||||||
| Radio, baseband, software | 579 | 2,267 | 9.5 | % | 29.1 | % | (1,688 | ) | -74.5 | % | ||||||||||||||
| Total net revenues | $ | 6,068 | $ | 7,788 | 100.0 | % | 100.0 | % | $ | (1,720 | ) | -22.1 | % | |||||||||||
Net consolidated revenues decreased 22.1% due primarily to lower sales of our digital signal processing cards and lower software sales at our RBS segment. The lower digital signal processing revenue is due to the reduction in use of our hardware in our formerly largest customer’s product. The lower software revenue is the result, in part, of more volatile quarter to quarter revenue recognition patterns due to the timing, delivery and complexity of RBS projects. T&M revenues were flat with the prior year and were partially impacted by supply chain constraints, Covid lockdowns in China and general economic uncertainties which are delaying capital expenditure decisions by our customers.
Gross Profit (in thousands)
| Three months ended June 30, | ||||||||||||||||||||||||
| Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Test and measurement | $ | 3,170 | $ | 3,270 | 57.8 | % | 59.2 | % | $ | (100 | ) | -3.0 | % | |||||||||||
| Radio, baseband, software | 245 | 1,108 | 42.3 | % | 48.9 | % | (863 | ) | -77.9 | % | ||||||||||||||
| Total gross profit | $ | 3,415 | $ | 4,378 | 56.3 | % | 56.2 | % | $ | (963 | ) | -22.0 | % | |||||||||||
Consolidated gross profit declined 22.0% due to lower sales at our RBS segment. The T&M gross profit margin declined from the prior year due to product mix.
Operating Expenses (in thousands)
| Three months ended June 30, | ||||||||||||||||||||||||
| Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Research and development | $ | 1,126 | $ | 1,244 | 18.6 | % | 16.0 | % | $ | (118 | ) | -9.5 | % | |||||||||||
| Sales and marketing | 1,261 | 1,144 | 20.8 | % | 14.7 | % | 117 | 10.2 | % | |||||||||||||||
| General and administrative | 2,706 | 2,787 | 44.6 | % | 35.8 | % | (81 | ) | -2.9 | % | ||||||||||||||
| Total operating expenses | $ | 5,093 | $ | 5,175 | 83.9 | % | 66.4 | % | $ | (82 | ) | -1.6 | % | |||||||||||
| 19 |
Research and development expenses decreased 9.5% from the prior year due primarily to lower third party research and development expenses.
Sales and marketing expenses increased 10.2% due primarily to higher external commissions expense due to sales mix and increased sales and marketing travel and tradeshow expenses.
General and administrative expenses decreased 2.9% due primarily to lower intangible asset amortization expense as CommAgility intangible assets are fully amortized, lower headcount related expenses, and lower bad debt expense which were partially offset by higher stock compensation expense due to restricted share grants to employees and non-recurring merger, acquisition and divestiture expenses.
Gain/(Loss) on Extinguishment of Debt
The gain on extinguishment of debt in 2021 represents the forgiveness of our PPP Loan.
Other Income/(Expense)
Other income increased $49,000 primarily due to sublease income as a result of our sublease arrangement with RF Industries Ltd.
Interest Expense
Consolidated interest expense decreased $285,000 due to the termination of our Term Loan Facility and Credit Facility on March 1, 2022.
Taxes
Consolidated tax benefit increased $107,000 from the prior year period due to a higher estimated taxable loss from continuing operations before taxes.
Net loss from continuing operations
Consolidated net loss from continuing operations was $1.4 million for the three months ended June 30, 2022 as compared to net income of $1.1 million in the same period in the prior year due primarily to lower consolidated gross profit driven by lower RBS revenues and the gain on PPP loan forgiveness recognized in the prior year.
Net income from discontinued operations, net of tax
Net income from discontinued operations, net of tax in the three months ended June 30, 2021 is comprised of the results of Microlab of $964,000, net of tax provision of $552,000. There was no income from discontinued operations in the second quarter of 2022.
Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021
Net Revenues (in thousands)
| Six months ended June 30, | ||||||||||||||||||||||||
| Revenue | % of Revenue | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Test and measurement | $ | 11,548 | $ | 10,848 | 84.5 | % | 67.9 | % | $ | 700 | 6.5 | % | ||||||||||||
| Radio, baseband, software | 2,116 | 5,124 | 15.5 | % | 32.1 | % | (3,008 | ) | -58.7 | % | ||||||||||||||
| Total net revenues | $ | 13,664 | $ | 15,972 | 100.0 | % | 100.0 | % | $ | (2,308 | ) | -14.5 | % | |||||||||||
Net consolidated revenues decreased 14.5% due to lower sales of our digital signal processing cards and lower software sales at our RBS segment. The lower digital signal processing revenue is due to the reduction in use of our hardware in our formerly largest customer’s product. The lower software revenue is the result, in part, of more volatile quarter to quarter revenue recognition patterns due to the timing, delivery and complexity of RBS projects. This was partially offset by higher sales of customized noise sources at our T&M segment as compared to the prior year period.
| 20 |
Gross Profit (in thousands)
| Six months ended June 30, | ||||||||||||||||||||||||
| Gross Profit | Gross Profit % | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Test and measurement | $ | 6,678 | $ | 6,324 | 57.8 | % | 58.3 | % | $ | 354 | 5.6 | % | ||||||||||||
| Radio, baseband, software | 1,092 | 2,908 | 51.6 | % | 56.8 | % | (1,816 | ) | -62.4 | % | ||||||||||||||
| Total gross profit | $ | 7,770 | $ | 9,232 | 56.9 | % | 57.8 | % | $ | (1,462 | ) | -15.8 | % | |||||||||||
Consolidated gross profit declined 15.8% due to lower sales at our RBS segment. T&M gross profit increased 5.6% on higher volumes. T&M gross profit margin declined marginally due to product mix.
Operating Expenses (in thousands)
| Six months ended June 30, | ||||||||||||||||||||||||
| Operating Expenses | % of Revenue | Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Amount | Pct. | |||||||||||||||||||
| Research and development | $ | 2,285 | $ | 2,400 | 16.7 | % | 15.0 | % | $ | (115 | ) | -4.8 | % | |||||||||||
| Sales and marketing | 2,520 | 2,339 | 18.4 | % | 14.6 | % | 181 | 7.7 | % | |||||||||||||||
| General and administrative | 6,098 | 5,638 | 44.6 | % | 35.3 | % | 460 | 8.2 | % | |||||||||||||||
| Total operating expenses | $ | 10,903 | $ | 10,377 | 79.8 | % | 65.0 | % | $ | 526 | 5.1 | % | ||||||||||||
Research and development decreased 4.8% due primarly to lower third party research and development expenses and lower headcount costs at our RBS segment due to allocations to customer projects.
Sales and marketing expenses increased 7.7% due to higher external commissions due to sales mix and increased sales and marketing travel and tradeshow expenses.
General and administrative expenses increased 8.2% due primarily to higher stock compensation expense due to restricted share awards to employees and higher non-recurring expenses most notably related to the Microlab divestiture in the first quarter only partially offset by lower intangible asset amortization expense as CommAgility intangible assets are fully amortized and lower headcount related expenses.
Gain/(loss) on Extinguishment of Debt
The gain on extinguishment of debt in 2021 represents the forgiveness of the PPP loan. The loss on extinguishment of debt in 2022 is related to the write off of unamortized debt costs associated with our Term Loan Facility with Muzinich BDC and Credit Facility with Bank of America N.A. which were repaid in full and terminated on March 1, 2022.
Other Income/(Expense)
Other income increased $123,000 primarily due to sublease income because of our sublease arrangement with RF Industries Ltd. as well as higher gains on sales of assets.
Interest Expense
Consolidated interest expense decreased $405,000 due primarily to the termination of our Term Loan Facility and Credit Facility on March 1, 2022.
Taxes
Consolidated tax benefit increased $813,000 from the prior year period due to a higher estimated taxable loss from continuing operations before taxes.
| 21 |
Net income/(loss) from continuing operations
Consolidated net loss from continuing operations for the first half of 2022 was $2.8 million as compared to net income of $651,000 for the same period in the prior year. The loss from continuing operations in 2022 is primarily the result of lower gross profit driven by lower RBS revenue and margin, higher operating expenses and a loss on extinguishment of debt. This was only partially offset by higher other income, lower interest expense and a higher tax benefit recognized in the first half of the year.
Net income from discontinued operations, net of tax
Net income from discontinued operations, net of tax in the first half of 2022 is comprised of the pre divestiture net income of Microlab of $158,000 and the net gain on sale of Microlab of approximately $16.4 million net of tax provision of approximately $4.9 million.
Net income from discontinued operations, net of tax in the first half of 2021 is comprised of the results of Microlab of $1.3 million net of tax provision of $647,000.
LIQUIDITY AND CAPITAL RESOURCES
On March 1, 2022, the Company completed the divestiture of Microlab and received net proceeds of $22.8 million, of which, the Company used approximately $4.1 million and $600,000 to repay in full and terminate the Muzinich Term Loan Facility and Bank of America Credit Facility, respectively. As of March 31, 2022, the Company’s only debt obligation was the CIBLS loan in the U.K. which has an outstanding principal balance of $329,000 as of March 31, 2022 and is more fully described in Note 4 of the consolidated financial statements. The Company repaid in full the CIBLS loan on May 30,2022 and as of June 30, 2022 had zero debt obligations.
As of June 30, 2022, our consolidated cash balance was approximately $13.3 million. We expect our cash balance and cash generated from operations will be sufficient to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, including the fact that the Company will no longer benefit from the performance of the Microlab brand which historically accounted for a substantial portion of our consolidated revenue and that we will be entirely dependent on the RBS and T&M segments.
The Microlab divestiture will be treated as a sale of the assets and liabilities 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 in 2022 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. Accordingly, in the future, the Company could be subject to cash income taxes which is expected to reduce our liquidity. Additionally, CommAgility benefits from a research and development deduction which significantly reduces the cash needed to pay taxes in the UK.
The Company currently is pursuing possible strategic opportunities, including potential divestitures, acquisitions, mergers, or other activities, which may require significant use of the Company’s capital resources. The Company may incur costs as a result of such activities and such activities may affect the Company’s liquidity in future periods.
Operating Activities
Cash used by operating activities increased $5.9 million from the prior year period due to the loss from operations in the current year as well as an increase in working capital of $2.9 million. The increase in working capital was due primarily to an increase in accounts receivable driven by lower accounts receivable balances at December 31, 2021 and an increase in inventory stocking levels of hard to procure components.
Investing Activities
Cash provided by investing activities increased $22.7 million from the prior year period due to the net proceeds received related to the Microlab divestiture of $22.8 million.
| 22 |
Financing Activities
Cash used by financing activities increased $7.0 million due primarily to the full repayment of the Term Loan Facility on March 1, 2022 and share repurchases of $2.5 million in the second quarter of 2022.
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.
Critical Accounting Policies
There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 2021 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 and cash generated by operations will be sufficient to meet our liquidity needs for at least the next twelve months. Investors are cautioned that such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results, including, among others, the ongoing impact that the conflict in Ukraine and related sanctions have had and may continue to have on our business, supply chain, transportation costs, and our backlog; the impact that the evolving COVID-19 pandemic has had and may continue to have on our supply chain, human capital and the general economy in the future; the impact of inflation on our business and the economy in general, 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 which in some cases has been and may continue to be delayed because of the Ukraine crisis, COVID-19 and economic uncertainty in general ; the impact of the loss of any significant customers; the ability of our management to successfully implement our evolving business plan; the impact of competitive products and pricing; our abilities to protect our intellectual property rights and our ability to manage risks related to our information technology and cyber security as well as other risks and uncertainties set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.
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 six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as described in our 2021 Annual Report on Form 10-K.
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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, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share repurchase activity during the 13 week period ended June 30, 2022, summarized on a trade-date basis, was as follows (in thousands, except per share amounts):
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program | ||||||||||||
| March 31, 2022 - April 30, 2022 | — | $ | $ | |||||||||||||
| May 1, 2022 - May 31, 2022 | 1,683 | $ | 1.50 | 1,683 | $ | 1,525 | ||||||||||
| June 1, 2022 - June 30, 2022 | $ | $ | ||||||||||||||
| Total | 1,683 | 1,683 | ||||||||||||||
| (1) | The Board of Directors approved a share repurchase program on May 12, 2022 (the “Program”), authorizing the Company to purchase up to $4 million of its common shares as determined by management at its discretion. Share repurchases may be made in the open market or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing and volume of share repurchases are subject to market conditions, business conditions and applicable laws, and are at management’s discretion. The Program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time. The share repurchase authorization expires on December 31, 2022. See Note 14 in Part I, Item 1 of this Quarterly Report for additional information related to share repurchases. |
| (2) | Average price paid per share includes costs associated with the repurchases. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WIRELESS TELECOM GROUP, INC. | ||
| Dated: August 9, 2022 | By: | /s/ Timothy Whelan |
| Timothy Whelan | ||
| Chief Executive Officer | ||
| Dated: August 9, 2022 | By: | /s/ Michael Kandell |
| Michael Kandell | ||
| Chief Financial Officer |
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