2017 ANNUAL REPORT
Boonton CommAgility Microlab Noisecom
Message from the CEO
To our Shareholders,
In fiscal 2017, we made considerable progress advancing our vision of
enabling the wireless future. It was both a year of significant
transition as well as a year in which we began to realize returns from
the investments we have made since late-2016. We added a new
segment, Embedded Solutions, through our CommAgility acquisition.
improved our products, our go-to-market
We
strategy and our Executive Leadership team. We relaunched our
Vision, Mission and Core Values to focus on customer responsiveness,
growth orientation and peak performance. We encouraged measured
risk taking and empowerment coupled with heightened accountability,
new processes and new KPI’s.
invested and
Today, I reflect on the changes and investments we have made, their
impact on 2017, and the expectation for continued investments and
benefits in 2018 and beyond. 2018 will be a continuation of building a
business for sustained revenue growth and profitability improvements
for years ahead.
I continue to remain optimistic about the quality of the Company’s
brands, our employee’s expertise and work excellence, our high-
performance products, and our alignment to wireless growth trends
for continued improved revenue and cash flow performance for 2018.
Revenue Growth
2017 revenue increased 47% over 2016, driven by the CommAgility
acquisition and 16% organic growth
The Company reported 2017 revenue growth of 47%, which included
$9.6 million of revenue from our new segment, Embedded Solutions,
which is comprised of our CommAgility acquisition, and $5.1 million
of organic revenue growth from our Network Solutions and Test &
Measurement segments.
We are pleased with our CommAgility acquisition, which closed on
February 17, 2017 and was included in our 2017 operating results for
10 ½ months. CommAgility is an award-winning developer of
embedded signal processing and radio frequency modules, as well as
Long Term Evolution (“LTE”) physical layer/stack software, for 4G and
5G mobile network and related applications, including private LTE
network deployments, ground to air communications and satellite
communications. Their technology enables new market applications
and greater product differentiation to common customer segments.
The acquisition adds LTE software and embedded hardware design
expertise to our R&D teams and long-term product roadmap.
CommAgility also adds an adjacent business, which we believe
supports and expands the existing segments, accelerates our growth
opportunity, and indexes the Company to higher value products and
long-term trends.
We also generated organic revenue growth of $5.1 million in 2017
which included growth in each of our existing segments, Network Solu-
tions and Test & Measurement. Network Solutions revenue growth of
$2.9 million, or 14%, and Test & Measurement revenue growth of $2.3
million, or 20%, were driven by new product introductions, enhanced
customer order processing and an improved sales channel focus.
Together, these accomplishments reflect our investments and progress
in how we partner with our customers and the innovative solutions we
offer to the markets. In 2018, we will continue to strive for significant
product and channel enhancements to better serve our global
customers and address the demands of wireless communication growth,
network densification and the transition for 5G.
Profitability Improvements Ahead
Stable to improving gross margins, operating margins, and non-GAAP
Adjusted EBITDA margins
2017 results included both the costs and early benefits of lean
manufacturing improvements, an inventory impairment, customer portal
investments, operational automation and significant restructuring costs
relating to executive departures. The outcome of these initiatives is a
more efficient and leaner organization. We also experienced price
stability in our Test & Measurement segment, some price pressure in
our Network Solutions segment and the inclusion of higher margin
software solutions in our Embedded Solutions segment. When
consolidated, these developments resulted in gross margins of 41.8%
in 2017 as compared to 42% in 2016. Our net losses included
significant acquisition and integration related costs as well as a significant
tax charge related to the implementation of the new tax law. We are
particularly encouraged, however, by our improved 2017 Non-GAAP
Adjusted EBITDA metric of 7.7% of revenue from 0% in 2016.
As we look forward, we expect the same trends on pricing within our
segments. We also expect continued lean manufacturing and
automation benefits which should allow us to balance price pressures
and help maintain, or possibly even improve, gross margins in periods of
increasing volumes.
Overall, we believe we are well positioned to realize greater operational
leverage and scale with continued revenue growth and that our
profitability metrics will show improvements in 2018.
Our Future
We will continue
in high-growth activities, product
innovation and operational excellence for organic growth, and we
will continue evaluating strategic acquisitions
investing
Faster product development lifecycles, customer responsiveness and
product innovation continue to play an important role with our
customers across all segments. Demand for multi-function and
multi-form devices, small-cell network densification, millimeter wave
requirements and 5G readiness will intensify wireless connectivity
innovation. We expect to continue to invest in our future through
R&D, product roadmap enhancements and operational automation.
We also expect to continue to evaluate strategic acquisition
opportunities to drive growth, scale and operating leverage.
We remain committed to delivering a successful 2018 and enhancing
value for our shareholders, and we are dedicated to our mission of
providing quality and trusted solutions in the development, testing and
deployment of wireless communications. Thank you for your continued
support of Wireless Telecom Group.
Timothy Whelan, Chief Executive Officer
PDVUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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
(State or other jurisdiction of
incorporation or organization)
25 Eastmans Road,
Parsippany, New Jersey
(Address of principal executive offices)
Title of each class
Common Stock, par value $.01 per share
(973) 386-9696
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
none
(Title of Class)
22-2582295
(I.R.S. Employer
Identification No.)
07054
(Zip Code)
Name of each exchange
on which registered
NYSE American
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [X] No [ ]
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 and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.
See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of theExchange Act. (check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Do not check if a smaller reporting company
Smaller reporting company [X]
Emerging growth company [ ]
or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. [ ]
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
reported by NYSE American on June 30, 2017: $26,519,581
The aggregate market value of the registrants’ Common Stock, $.01 par value, held by non-affiliates and computed by reference to the closing price as
Number of shares of Wireless Telecom Group, Inc. Common Stock, $.01 par value, outstanding as of March 1, 2018: 22,866,883
TABLE OF CONTENTS
PART I
Page
Item 1.
Business ........................................................................................................................................................
3
Item 1A. Risk Factors ..................................................................................................................................................
8
Item 1B. Unresolved Staff Comments .........................................................................................................................
16
Item 2.
Properties ......................................................................................................................................................
16
Item 3.
Legal Proceedings ........................................................................................................................................
17
Item 4. Mine Safety Disclosures ...............................................................................................................................
17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...........................................................................................................................................
18
Item 6.
Selected Financial Data ................................................................................................................................
19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ......................
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....................................................................
27
Item 8.
Financial Statements and Supplementary Data ............................................................................................
27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
57
Item 9A. Controls and Procedures ...............................................................................................................................
57
Item 9B. Other Information .........................................................................................................................................
57
PART III
Item 10. Directors, Executive Officers and Corporate Governance ...........................................................................
58
Item 11. Executive Compensation ..............................................................................................................................
60
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ..........................................................................................................................................................
69
Item 13. Certain Relationships and Related Transactions, and Director Independence .............................................
70
Item 14. Principal Accountant Fees and Services .......................................................................................................
70
Item 15. Exhibits and Financial Statement Schedules ................................................................................................
71
Signatures ......................................................................................................................................................................
74
PART IV
2
Item 1. Business
Overview
PART I
Wireless Telecom Group, Inc., a New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the
“Company”), is a global designer and manufacturer of advanced radio frequency (“RF”) and microwave components, modules,
systems and instruments and currently markets its products and services worldwide under the Boonton, Microlab, Noisecom and
CommAgility brands. Serving the wireless, telecommunication, satellite, military, aerospace, and semiconductor industries, Wireless
Telecom Group products enable innovation across a wide range of traditional and emerging wireless technologies. With a unique set
of high-performance products including peak power meters, signal analyzers, signal processing modules, long term evolution (“LTE”)
physical layer (“PHY”) and stack software, power splitters and combiners, global positioning system (“GPS”) repeaters, public safety
monitors, noise sources, and programmable noise generators, Wireless Telecom Group supports the development, testing, and
deployment of wireless technologies around the globe. The majority of the Company’s products are primarily used by its customers in
relation to commercial infrastructure development in support of the expansion and upgrade to distributed antenna systems (“DAS”),
deployment of small cell technology and private LTE networks. In addition, the Company’s products are used to test the performance
and capability of cellular/personal communication system (“PCS”) and satellite communication systems and to measure the power of
radiofrequency and microwave systems. Other applications include radio, radar, wireless local area network and digital television.
The consolidated financial statements include 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. and CommAgility Limited. The corporate website address is www.wirelesstelecomgroup.com.
Noise Com, Inc., Boonton Electronics Corporation, Microlab/FXR and CommAgility Limited Ltd. are hereinafter referred to as
“Noisecom”, “Boonton”, “Microlab” and “CommAgility”, respectively.
Reportable Segments
The Company presents its operations in three reportable segments: (1) network solutions, (2) test and measurement and (3)
embedded solutions. The network solutions segment is comprised primarily of the operations of Microlab. The test and measurement
segment is comprised of the operations of Boonton and Noisecom. The embedded solutions segment is comprised of CommAgility.
Revenues by reportable segment for the years ended December 31, 2017 and 2016 were as follows (in thousands):
Network solutions
Test and measurement
Embedded solutions
2017
23,052
13,380
9,646
46,078
$
$
2016
$ 20,199
11,128
-
$ 31,327
Additional financial information on the Company’s reportable segments for each of the last two years is included in the
Company’s Notes to the consolidated financial statements (see Note 10, “Segment and Related Information”) included as part of this
annual report.
Market
Since the Company’s incorporation in the State of New Jersey in 1985, it has been primarily engaged in supplying noise
source components and instruments, electronic testing and measurement instruments, and RF passive components to customers. With
the CommAgility acquisition in February of 2017 the Company expanded to include the delivery of signal processing modules and the
delivery, implementation and configuration of LTE PHY and stack software. Approximately 85% of the Company’s consolidated
revenues in fiscal years 2017 and 2016 were derived from commercial customers. The remaining consolidated revenues
(approximately 15%) were comprised of revenues made to the United States government (particularly the armed forces) and prime
defense contractors.
Products
The Company, through its Microlab subsidiary, designs and manufactures a wide selection of RF passive components and
integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets, particularly for small cell
deployments, DAS, the in-building wireless solutions industry and radio base-station market. Microlab's passive RF components share
3
unique capabilities in the area of broadband frequency coverage, minimal loss and low passive intermodulation (“PIM”). Microlab
also offers active solutions sets including GPS repeaters and splitter solutions to assist in network timing for tunnels and in-building
wireless signaling.
Microlab product offerings include: small cell and neutral host DAS combiner solutions, hybrid couplers and hybrid matrices,
cross band couplers, attenuators, RF terminations, RF power splitters and diplexers, as well as RF combiners and broadband combiner
trays for small cell and in-building DAS deployments.
The Company, through its Boonton subsidiary, designs and produces electronic test and measurement equipment including
power meters, voltmeters, audio and modulation meters, portable passive intermodulation test equipment for field-based testing of
cellular transmission signals and accessory products. These products measure the power of RF and microwave systems used by the
military and commercial sectors like telecommunications.
Boonton products are also used to test terrestrial and satellite communications, radar and telemetry. Certain power meter
products are designed for measuring signals based on wideband modulation formats, allowing a variety of measurements to be made,
including maximum power, peak power, average power and minimum power.
The Company, through its Noisecom subsidiary, designs and produces noise generation equipment and instruments,
calibrated noise sources, noise modules and diodes. The Company’s noise components and instruments (noise source products) are
used as a method to provide wide band signals for sophisticated telecommunication and defense applications, and as a stable reference
standard for instruments and systems, including radar and satellite communications. Furthermore, noise sources can simulate
challenging signaling conditions in data and RF transmission systems. Examples are jitter testing for high speed data lines used in
modern computer architecture and signal to noise measurements to optimize wireless receivers and transmitters. Additionally, noise
sources are used for jamming RF signals, and blocking or disturbing enemy radar and other communications, as well as insulating and
protecting friendly communications.
Noise sources also are used in radar systems as part of built-in test equipment to continuously monitor the radar receiver and
in satellite communications where the use of back-up receivers are becoming more common as the demand for communication
availability and reliability is increasing. This test helps assure that the back-up receiver is functional and ready.
Boonton, Noisecom and Microlab products consist of several models with varying degrees of capabilities, which can be
customized to meet particular customer requirements. They may be incorporated directly into the electronic equipment concerned or
may be stand-alone components or devices that are connected to, or used in conjunction with, such equipment operating from an
external site, in the factory or in the field. Prices of products range from approximately $100 to $100,000 per unit, with most revenues
occurring between $2,000 and $35,000 per unit. Large integrated sales of the Company’s software in the Embedded solutions segment
can include customization requirements and embedded hardware requirements and can be sold as projects at prices over $1 million.
The Company may experience variations in gross profit based upon the mix of these products sold, as well as variations due to
revenue volume and economies of scale.
Boonton and Noisecom products have extended useful lives and the Company provides recalibration services for its
instrument products to ensure their accuracy to its domestic and international customers. CommAgiliy provides software
implementation and configuration professional services on complex LTE private network deployments. Services accounted for
approximately 9% and 4% of consolidated revenues for the years ended December 31, 2017 and 2016, respectively.
The Company, through its CommAgility subsidiary, supplies signal processing technology for network validation systems
supporting LTE and emerging 5G networks. Additionally, CommAgility licenses, implements and configures LTE PHY layer and
stack software for private LTE networks supporting satellite communications, the military and aerospace industries.
Management believes that across all of its subsidiaries and segments, its products offer state-of-the-art peak performance
combined with customized solution designs, and outstanding customer and technical support.
Marketing and Sales
The Company’s products are sold globally through our in-house sales force, industry-specific manufacturers’ representatives
and through a network of authorized distributors. The Company promotes the sale of its products through its website, product
literature, published articles, technical conference presentations, direct mailings, trade advertisements and trade show exhibitions.
4
The Company’s relationships with its manufacturers’ representatives and distributors are governed by written contracts that
either run for one-year renewable periods terminable by either party on 30 to 60 days prior notice or have indefinite lives terminable
by either party on 30 to 60 days prior notice. The contracts generally provide for territorial and product representation.
Customers and Sales by Geographic Areas
The Company currently sells the majority of its products to telecommunications service providers, systems integrators,
neutral host operators, distributors, large defense contractors, global technology and services companies and the U.S. and foreign
governments.
For the year ended December 31, 2017 one customer, Aeroflex Limited, accounted for 10.4% of total consolidated revenues.
For the year ended December 31, 2016 no one single customer accounted for more than 10% of consolidated revenues.
Regional consolidated revenues from operations for fiscal year 2017 were made to customers in the Americas ($33.4 million
or 72% of total consolidated revenues), Europe, Middle East and Africa ($9.5 million or 21% of total consolidated revenues) and Asia
Pacific ($3.1 million or 7% of total consolidated revenues).
Regional consolidated revenues from operations for fiscal year 2016 were made to customers in the Americas ($24.2 million
or 77% of total consolidated revenues), Europe, Middle East and Africa ($5.1 million or 16% of total consolidated revenues) and Asia
Pacific ($2.0 million or 7% of total consolidated revenues).
Research and Development
The Company currently maintains an engineering staff responsible for the improvement of existing products, design and
modification of existing products and of custom products with unique specifications to meet customer needs. The Company’s
engineering staff is also responsible for engineering, research and development of new products and applications. Research and
development costs were approximately $4.4 million and $4.0 million for the years ended December 31, 2017 and 2016, respectively.
Competition
We compete against many companies which utilize similar technology, some of which are larger and have substantially
greater resources and expertise in financial, technical and marketing areas than us. Some of these companies include Keysight
Technologies, Inc., Rohde & Schwarz GmbH & Co. KG, Anritsu Corporation, Kathrein, Commscope, Westell Technologies, Inc,
Qualcomm and Azcom. The Company competes by having a niche in several product areas where it capitalizes on its expertise in
manufacturing products with unique specifications.
The Company designs its products with special attention to making them user-friendly and re-evaluates its products for the
purpose of enhancing and improving them. The Company believes that these efforts, coupled with its willingness to adapt its products
to the particular needs of its customers and its intensive efforts in customer and technical support, are factors that add to the
competitiveness of our products.
Backlog
The Company’s consolidated backlog of firm orders to be shipped in the next twelve months was approximately $9.9 million
at December 31, 2017, compared to approximately $4.0 million at December 31, 2016. It is anticipated that the majority of the
backlog orders at December 31, 2017 will be filled during the current year. The stated backlog is not necessarily indicative of
Company revenues for any future period nor is a backlog any assurance that the Company will realize a profit from the orders.
Inventory, Supplies and Manufacturing
The Company purchases components, devices and subassemblies from a wide variety of sources. The Company’s
procurement policy requires maintaining adequate levels of raw materials inventory to minimize the Company’s production lead times
with third-party suppliers and to improve the Company’s capacity to expedite fulfillment of customer orders. Although the
procurement team focuses its efforts to work closely with its suppliers to avoid adverse effects of shortages or delays in delivery of
inventories, delays in the future may have an adverse impact on the Company’s operations. For the years ended December 31, 2017
and 2016, no one single third-party supplier accounted for 10% or more of the Company’s total consolidated inventory purchases.
5
The Company is not party to any long term contracts regarding the deliveries of its supplies and components. It generally
purchases such items pursuant to written purchase orders of both the individual and blanket variety. Blanket purchase orders usually
cover the purchase of a larger amount of items at fixed prices for delivery and payment on specific dates.
For Boonton and Noisecom products, the Company develops, designs, manufactures, assembles, calibrates and tests the
products at our facility in Parsippany, New Jersey. Testing of Boonton and Noisecom products is generally accomplished at the end of
the manufacturing process and is performed in-house, as are all quality control processes.
Approximately 40% of Microlab products are sourced from contract manufacturers based on Microlab designs or technical
and quality specifications with the remainder designed and manufactured by the Company in Parsippany, New Jersey. All Microlab
products are tested by the Company in Parsippany, New Jersey.
CommAgility hardware products are sourced from and tested by contract manufacturers based on CommAgility designs.
Software products are licensed to customers through a system that allows the customer to download the software once access has been
granted.
Warranty and Service
The Company typically provides one to three year warranties on all of its products covering both parts and labor. The
Company, at its option, repairs or replaces products that are defective during the warranty period if the proper preventive maintenance
procedures have been followed by its customers.
In cases of defective products the customer typically returns them to the Company’s facility. The Company’s service
personnel replace or repair the defective items and ship them back to the customer. Generally, all servicing is done at the Company’s
facility, and the Company charges its customers a fee for those service items that are not covered by warranty. The Company typically
does not offer their customers any formal written service contracts.
Product Liability Coverage
The testing of electronic communications equipment and the accurate transmission of information entail a risk of product
liability to the Company. Product liability claims could be asserted against the Company by end-users of any of the Company’s
products. The Company maintains product liability insurance coverage and no claims have been asserted for product liability due to a
defective or malfunctioning device in the past 5 years.
Intellectual Property
We believe that our intellectual property, including its methodologies, is critical to our success and competitive position. We
rely on a combination of U.S. and foreign patents, copyrights, trademarks and trade secrets, as well as confidentiality agreements to
establish and protect our proprietary rights. All employees are subject to the Company’s policies to ensure that all of the Company’s
intellectual property and business information are maintained in confidence. Key employees have signed non-disclosure and non-
competition agreements.
Regulation
Environmental
The Company’s operations are subject to various federal, state and local environmental laws, ordinances and regulations that
limit discharges into the environment, establish standards for the handling, generation, use, emission, release, discharge, treatment,
storage and disposal of, or exposure to, hazardous materials, substances and waste, and require cleanup of contaminated soil and
groundwater.
The New Jersey Department of Environmental Protection (the “NJDEP”) conducted an investigation in 1982 concerning
disposal at a facility previously leased by the Company’s Boonton operations. The focus of the investigation involved certain
materials formerly used by Boonton’s manufacturing operations at that site and the possible effect of such disposal on the aquifer
underlying the property. The disposal practices and the use of the materials in question were discontinued in 1978. The Company has
cooperated with the NJDEP investigation and has diligently pursued the matter to resolve it in accordance with applicable NJDEP
operating procedures. The above referenced activities were conducted by Boonton prior to our acquisition of that entity in 2000.
6
In 1982, Boonton and the NJDEP agreed upon a plan to correct ground water contamination at the site, located in the
township of Parsippany-Troy Hills, pursuant to which wells have been installed by Boonton. The plan contemplates that the wells will
be operated and that soil and water samples will be taken and analyzed until such time that contamination levels are satisfactory to the
NJDEP. In 2014, the Company received approval for a groundwater permit from the NJDEP to carry out the final remedial action
work plan and report. Under the final phase of the plan, there will be limited and reduced monitoring and testing as long as
concentrations at the site continue on a decreasing trend.
Expenditures incurred by the Company during the year ended December 31, 2017 and 2016 in connection with monitoring
and testing at the site amounted to approximately $1,000 and $18,000, respectively. While management anticipates that the
expenditures in connection with this site will not be substantial in future years, the Company could be subject to significant future
liabilities and may incur significant future expenditures if further contaminants from Boonton’s testing are identified and the NJDEP
requires additional remediation activities. Our estimate of future remediation costs is $41,000 through 2027 when we expect final
release from the NJDEP. The Company will continue to be liable under the plan, in all future years, until such time as the NJDEP
releases the Company from all obligations.
In December 2016, the Company and its subsidiary, Boonton, entered into an agreement with an insurance company to settle
prior disputes between the parties related to whether insurance policies were issued by a former insurer and whether they provided
coverage for expenses arising from the NJDEP environmental matter. Under the terms of the settlement agreement, the Company
received a payment in the amount of $485,000 for full and final settlement of any and all further insurance claims.
At this time, the Company believes that it is in material compliance with all environmental laws, does not anticipate any
material expenditure to meet current or pending environmental requirements, and generally believes that its processes and products do
not present any unusual environmental concerns. Besides the matter referred to above with the NJDEP, the Company is unaware of
any existing, pending or threatened contingent environmental liability that may have a material adverse effect on its ongoing business
operations.
Workplace Safety
The Company’s operations are also governed by laws and regulations relating to workplace safety and worker health. The
Company believes it is in material compliance with these laws and regulations and does not believe that future compliance with such
laws and regulations will have a material adverse effect on its results of operations or financial condition.
ITAR and Export Controls
The Company is subject to International Traffic in Arms Regulation, or ITAR. ITAR requires export licenses from the U.S.
Department of State for products shipped outside the U.S. that have military or strategic applications. Because some of the Company’s
products could have military or strategic applications, it must ensure its compliance with ITAR.
In addition, the Company is subject to the Export Administration Regulations, or EAR, which regulates the export of certain
“dual use” items and technologies and, in some instances, requires a license from the U.S. Department of Commerce in connection
with sales of the Company’s products.
Government Contracting Regulations
Because the Company has contracts with the federal government and its agencies, it may be subject to audit from time to time
of our compliance with government regulations by various agencies, including the Defense Contract Audit Agency, or DCAA. The
DCAA reviews the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the
contractor's purchasing, property, estimating, compensation and management information systems. The DCAA has the right to
perform audits on our incurred costs on all contracts on a yearly basis. The Company has not been subject to a DCAA audit in the past
5 years.
Other governmental agencies, including the Defense Securities Service and the Defense Logistics Agency, may also, from
time to time, conduct inquiries or investigations regarding a broad range of our activities.
Employees
As of March 1, 2018, the Company has 149 full time employees and 5 part time employees. The Company is not subject to
collective bargaining agreements in the United States or internationally and considers its relationship with its employees to be good.
7
Investor Information
The Company is subject to the disclosure requirements of the Securities Exchange Act of 1934, as amended (“Exchange
Act”). Therefore, the Company files periodic reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). Such reports, proxy statements and other information may be read and copied by visiting the Public Reference
Room of the SEC at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that
contains reports, proxy and information statements and other information regarding issuers that file electronically.
You can access financial and other information, including copies of our recent SEC filings, at the Company’s Investor
Relations page on its website. The address of the website is www.wirelesstelecomgroup.com. The Company makes available, free of
charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing
such material electronically or otherwise furnishing it to the SEC.
Item 1A. Risk Factors
Our business is dependent on capital spending on data and communication networks by customers or end users of our
products and reductions in such capital spending could adversely affect our business.
Our performance is dependent on customers’ or end users’ capital spending for constructing, rebuilding, maintaining or
upgrading data and communication networks, which can be volatile or hard to forecast. Capital spending in the communications
industry is cyclical and can be curtailed or deferred on short notice. A variety of factors affect the amount of capital spending, and,
therefore, our revenues and profits, including:
•
•
•
•
•
•
competing technologies;
timing and adoption of global rollout of new technologies, including 4G/LTE/5G;
customer specific financial or market conditions;
governmental budget levels and regulation;
demands for network services; and
acceptance of new services offered by our customers.
Our customers or the end users of our products may not purchase new equipment at levels we have seen in the past or expect
in the future. If our product portfolio and product development plans do not position us well to capture an increased portion of the
capital spending of customers, our revenue may decline. As a result of these issues, we may not be able to maintain or increase our
revenue in the future, and our business, financial condition, results of operations and cash flows could be materially adversely
affected.
We depend on a limited number of customers for a significant portion of our revenues. The loss of, or a significant decrease in
business from, these customers could seriously harm our financial condition and results of operations.
We currently derive and expect to continue to derive, a significant portion of our revenues from a limited number of
customers. On a segment basis, client concentration may be of even greater significance. Two customers account for approximately
50% and 30%, respectively, of the Embedded Solutions segment revenues for 2017. In addition, in our Test and Measurement
segment, we have two customers representing approximately 15% and 10%, respectively, of the 2017 revenues for that segment. And
in the Network Solutions segment, two customers account for 17% and 12%, respectively, of the 2017 revenues for that segment. The
loss of, or a significant decrease in, business from one or more of our more significant customers could seriously harm our financial
condition and results of operations. We expect to continue to depend upon some of these larger customers for a significant percentage
of our revenues.
The cyclicality of our end-user markets could harm our financial results.
Many of the end markets we serve, including but not limited to the commercial wireless market, have historically been
cyclical and have experienced periodic downturns. The factors leading to and the severity and length of a downturn are very difficult
to predict and there can be no assurance that we will appropriately anticipate changes in the underlying end markets we serve or that
any increased levels of business activity will continue as a trend into the future. If we fail to anticipate changes in the end markets we
serve, our business, results of operations and financial condition could be materially adversely affected. We are subject to fluctuations
in technology spending by existing and potential customers.
8
Our industry is highly competitive and if we are not able to successfully compete, we could lose market share and our revenues
could decline.
We operate in industries characterized by aggressive competition, rapid technological change, evolving technology standards
and short product life cycles. Current and prospective customers for our products evaluate our capabilities against the merits of our
direct competitors. We compete primarily on the basis of technology and performance. We also compete on price. Many of our
competitors utilize similar technologies to ours and have substantially greater resources and expertise in financial, technical and
marketing areas than we have. Our competitors may introduce products that are competitively priced, have increased performance or
functionality or incorporate technological advances that we have not yet developed or implemented.
To remain competitive, we must continue to develop, market and sell new and enhanced products at competitive prices,
which will require significant research and development expenditures. If we do not develop new and enhanced products or if we are
not able to invest adequately in our research and development activities, our business, financial condition and results of operations
could be negatively impacted.
Many of our competitors are substantially larger than we are, and have greater financial, technical, marketing and other
resources than we have. Many of these large enterprises are in a better position to withstand any significant reduction in capital
spending by customers in our markets. They often have broader product lines and market focus, and may not be as susceptible to
downturns in a single market. These competitors may also be able to bundle their products together to meet the needs of a particular
customer, and may be capable of delivering more complete solutions than we are able to provide. To the extent large enterprises that
currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would likely intensify.
We are exposed to risks associated with acquisitions and investments which could cause us to incur unanticipated costs and
liabilities and harm our business and results of operations.
In February 2017, we acquired all of the outstanding equity interests of CommAgility. In the future we may make
acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. Acquisitions and
investments involve numerous risks, including, but not limited to:
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difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of
acquired businesses;
diversion of management’s attention from other operational matters;
the potential loss of key employees of acquired businesses;
lack of synergy, or the inability to realize expected synergies, resulting from the acquisition;
implementation or remediation of controls, procedures and policies of the acquired company;
failure to commercialize purchased technology;
liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes,
escheat and tax and other known and unknown liabilities; and
the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results in future
periods.
If we are unable to address these difficulties and challenges or other problems encountered in connection with our
CommAgility acquisition in 2017 or any future acquisition or investment, we might not realize the anticipated benefits of that
acquisition or investment and we could incur unanticipated costs, liabilities or otherwise suffer harm to our business generally. The
difficulties and challenges of successful integration of any acquired company are increased when the integration involves companies
with operations or material vendors outside the United States. Consequently, we may not be able to integrate successfully our recent
acquisition or to achieve anticipated financial performance due to the physical location of the CommAgility business in the United
Kingdom.
To the extent that we pay the consideration for any future acquisitions or investments in cash or any potential earn outs, it
would reduce the amount of cash available to us for other purposes. Such payments also may increase our cash flow and liquidity risk
and could result in increased borrowings under our Credit Facility. See the Risk Factor titled “We have incurred indebtedness and may
incur additional indebtedness.” Future acquisitions or investments could also result in dilutive issuances of our equity securities or the
incurrence of debt, contingent liabilities, amortization expenses or impairment charges against goodwill or intangible assets on our
balance sheet, any of which could have a material adverse effect on our business, results of operations and financial condition.
Our future success depends on our ability to anticipate and to adapt to technological changes and develop, implement and
market product innovations.
9
Many of our markets are characterized by advances in information processing and communications capabilities that require
increased transmission speeds and greater bandwidth. These advances require ongoing improvements in the capabilities of our
products. However, we may not be successful in our ongoing improvement efforts if, among other things, our products:
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are not cost effective;
are not brought to market in a timely manner;
are not in accordance with evolving industry standards; or
fail to achieve market acceptance or meet customer requirements.
There are various competitive wireless technologies that could be a substitute for the products we sell. The failure to
successfully introduce new or enhanced products on a timely and cost-competitive basis or the inability to continue to market existing
products on a cost-competitive basis could have a material adverse effect on our results of operations and financial condition. In
addition, revenues from new products may replace revenues from some of our existing products, mitigating the benefits of new
product introductions and possibly resulting in excess levels of inventory.
Furthermore, we must make long-term investments and commit significant resources before knowing whether our
investments will eventually result in products that the market will accept. We must accurately forecast volumes, mix of products and
configurations that meet customer requirements, and we may not succeed. If we do not succeed, we may be left with inventories of
obsolete products or we may not have enough of some products available to meet customer demand, which could lead to reduced
revenues and higher expenses.
Our revenues are dependent in part on commercial upgrades of 4G and 5G wireless communications equipment, products and
services. Our business may be harmed, and our investments in our technologies may not provide us an adequate return if:
• LTE, a wireless standard, is not widely deployed or commercial deployment is delayed;
• wireless operators delay moving customers to 4G or 5G devices;
• wireless operators delay 4G or 5G deployments, expansions or upgrades;
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government regulators delay the reallocation of spectrum to allow wireless operators to upgrade to 4G or 5G, which will
restrict the expansion of 4G or 5G wireless connectivity;
• wireless operators are unable to drive improvements in 4G or 5G network performance and/or capacity;
• wireless operators and other industries using these technologies deploy other technologies; or
• wireless operators choose to spend their capital on their core network or limit their expenditures on radio access network
(RAN).
Our business is dependent on our ability to increase our share of components sold and to continue to drive the adoption of our
products and services into LTE, 4G and 5G wireless networks. If commercial deployment of our technologies, and upgrade of
subscribers to 4G or 5G wireless communications equipment, products and services using our technologies do not continue or are
delayed, our revenues could be negatively impacted, and our business could suffer.
Further, if we do not have competitively priced, market accepted products available to meet the wireless operators planned
roll-out of 5G wireless communications systems, we may miss a significant opportunity and our business, financial condition and
results of operations could be materially and adversely impacted.
Our future research and development projects might not be successful.
The successful development of telecommunications products can be affected by many factors. Products that appear to be
promising at their early phases of research and development may fail to be commercialized for various reasons, including the failure to
obtain the necessary regulatory approvals. There is no assurance that any of our future research and development projects will be
successful or completed within the anticipated time frame or budget or that we will receive the necessary approvals from relevant
authorities, customers, or prospective customers, for the production of these newly developed products, or that these newly developed
products will achieve commercial success. Even if such products can be successfully commercialized, they may not achieve the level
of market acceptance that we expect.
Dependence on contract manufacturing and outsourcing other portions of our supply chain might adversely affect our ability
to bring products to market and could damage our reputation.
As part of our efforts to streamline operations and to minimize costs, we outsource aspects of our manufacturing processes
and other functions and continue to evaluate additional outsourcing. If our contract manufacturers or other outsourcers fail to perform
their obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could
10
suffer. For example, during a market upturn, our contract manufacturers might be unable to meet our demand requirements, which
could preclude us from fulfilling our customers' orders on a timely basis. The ability of these manufacturers to perform is largely
outside of our control. Additionally, changing or replacing our contract manufacturers or other outsourcers could cause disruptions or
delays.
If our products do not perform as promised, we could experience increased costs, lower margins and harm to our reputation.
The failure of our products to perform as promised could result in increased costs, lower margins and harm to our reputation.
We may not be able to anticipate all of the possible performance or reliability problems that could arise with our existing or new
products, which could result in significant product liability or warranty claims. In addition, any defects found in our products could
result in a loss of revenues or market share, failure to achieve market acceptance, injury to our reputation, indemnification claims,
litigation, increased insurance costs and increased service costs, any of which could discourage customers from purchasing our
products and materially harm our business.
Shortages or delays of supplies for component parts could adversely affect our operating results until alternate sources can be
developed.
Our operations are dependent on the ability of suppliers to deliver quality components, devices and subassemblies in time to
meet critical manufacturing and distribution schedules. If we experience any constrained supply of component parts, such constraints,
if persistent, could adversely affect operating results until alternate sourcing can be developed. There could be an increased risk of
supplier constraints in periods where we are increasing production volume to meet customer demands. Volatility in the prices of these
component parts, an inability to secure enough components at reasonable prices to build new products in a timely manner in the
quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect our future
operating results.
The testing and use of electronic communications equipment and the accurate transmission of information entail a risk of
product liability claims being asserted by customers and third parties.
Claims may be asserted against us by end-users of any of our products for liability due to a defective or malfunctioning
device made by us, and we could be subject to corresponding litigation should one or more of our products fail to perform or meet
certain minimum requirements. Such a claim and corresponding litigation could result in substantial costs, diversion of resources and
management attention, termination of customer contracts and harm to our reputation.
We are subject to laws and regulations governing government contracts, and failure to address and comply with these laws
and regulations could harm our business by leading to a reduction in revenue associated with these customers and subjecting
us to civil and criminal penalties.
We have agreements relating to the sale of our products to U.S. government entities and, as a result, we are subject to various
statutes and regulations that apply to companies doing business with the U.S. government. The laws governing government contracts
differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that
are not applicable to private contracts. We are also subject to investigation for compliance with the regulations governing government
contracts. A failure to comply with these regulations might result in suspension of these contracts, or civil and criminal penalties.
We could be subject to significant costs related to environmental contamination from past operations, and environmental
contamination caused by ongoing operations could subject us to substantial liabilities in the future.
The Company’s operations are subject to various federal, state, local, and foreign environmental laws, ordinances and
regulations that limit discharges into the environment, establish standards for the handling, generation, use, emission, release,
discharge, treatment, storage and disposal of, or exposure to, hazardous materials, substances and waste, and require cleanup of
contaminated soil and groundwater.
In 1982, Boonton and the NJDEP agreed upon a plan to correct ground water contamination at a site previously leased by the
Company’s Boonton operations, pursuant to which wells have been installed by Boonton. The plan contemplates that the wells will be
operated and that soil and water samples will be taken and analyzed until such time that contamination levels are satisfactory to the
NJDEP. In 2014, the Company received approval for a groundwater permit from the NJDEP to carry out the final remedial action
work plan and report. Under the final phase of the plan, there will be monitoring and testing at the site. We cannot be assured that
concentrations of contaminants at the site will decrease.
11
The Company could be subject to significant future liabilities and may incur significant future expenditures if further
contaminants from Boonton’s testing are identified and the NJDEP requires additional remediation activities. Management estimates
that future remediation costs will be approximately $41,000 through 2027. The Company will continue to be liable under the plan, in
all future years, until such time as the NJDEP releases the Company from all obligations.
Certain of our products and our business are subject to ITAR, Export Administration Regulations, Foreign Corrupt Practices
Act and other U.S. and foreign government laws, regulations, policies and practices, and our failure to comply with such
regulations could adversely affect our business, results of operations and financial condition.
Our international revenues, for which we also use foreign representatives and consultants, are subject to U.S. laws,
regulations and policies, including the ITAR and the U.S. Foreign Corrupt Practices Act, or the FCPA, and other export laws and
regulations, as well as foreign government laws, regulations and procurement policies and practices which may differ from the U.S.
government regulations in this regard.
Compliance with the directives of the U.S. Department of State may result in substantial legal and other expenses and the
diversion of management time. In the event that a determination is made that we or any entity we have acquired has violated the ITAR
with respect to any matters, we may be subject to substantial monetary penalties that we are unable to quantify at this time, and/or
suspension or revocation of our export privileges and criminal sanctions, which may have a material adverse effect on our business,
results of operations and financial condition.
We can give no assurance that under either the ITAR or the EAR we will continue to be successful in obtaining the necessary
licenses and authorizations or that certain revenues will not be prevented or delayed due to compliance issues related to the ITAR or
the EAR.
We are also subject to, and must comply with, the FCPA and similar world-wide anti-corruption laws, including the U.K.
Bribery Act of 2010. These acts generally prohibit both us and our third party intermediaries from making improper payments to
foreign officials for the purpose of acquiring or retaining business or otherwise obtaining favorable treatment. We are required as well
to maintain adequate record-keeping and internal accounting practices to fully and accurately reflect our transactions. We operate in
many parts of the world that have experienced government corruption. In certain circumstances, the FCPA and our programs and
policies may conflict with local customs and practices. If we or any of our local intermediaries have failed to comply with the
requirements of the FCPA, governmental authorities in the United States could seek to impose severe criminal and civil penalties. The
assertion of violations of the FCPA or other anti-corruption laws could disrupt our business and have a material adverse effect on our
results of operations and financial condition.
We are subject to various other governmental regulations, compliance with which could cause us to incur significant expenses,
and if we fail to maintain satisfactory compliance with certain regulations, we could be forced to recall products and cease
their distribution, and we could be subject to civil or criminal penalties.
Our business is subject to various other significant international, federal, state and local regulations, including but not limited
to health and safety, packaging, product content and labor regulations. These regulations are complex, change frequently and have
tended to become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to
remedy violations of these regulations. Any failure by us to comply with applicable government regulations could also result in
cessation of our operations or portions of our operations, product recalls or impositions of fines and restrictions on our ability to carry
on or expand our operations.
The loss of key personnel could adversely affect our ability to remain competitive; our development of new and upgraded
products could be adversely impacted by our inability to hire or retain personnel with appropriate technical abilities.
We believe that the continued service of our executive officers will be important to our future growth and competitiveness.
However, other than the employment agreement we entered into with Mr. Whelan, Chief Executive Officer, we currently do not have
any other employment agreements with our executive officers. We cannot provide assurance that any named executive officer will
remain employed by us. Moreover, the design and manufacture of our products require substantial technical capabilities in many
disparate disciplines, from engineering, mechanics and computer science to electronics and mathematics. We believe that the
continued employment of key members of our technical and sales staffs will be important to us but, as with our executive officers, we
cannot assure you that they will remain employed by us.
Furthermore, our ability to research and develop new technologies and products, or upgraded versions of existing products,
will depend, in part, on our ability to hire personnel with knowledge and skills that our current personnel do not have. If we are unable
to hire or retain such qualified personnel, our revenues could be negatively impacted, and our business could suffer.
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We rely on manufacturer’s representatives to sell our products to key large accounts and the loss of a key manufacturers’
representative could have a material impact on our revenues
Our products are sold through a small in-house direct sales force as well as a network of industry specific manufacturers’
representatives that have established relationships with our largest customers. Our arrangements with our manufacturers’
representatives generally can be canceled by either party with advance written notice. The loss of a manufacturers’ representative
could result in a material decline in revenues.
Third parties could claim that we are infringing on their intellectual property rights which could result in substantial costs,
diversion of significant managerial resources and significant harm to our reputation.
The industries in which our company operates are characterized by the existence of a large number of patents and frequent
litigation based on allegations of patent infringement. From time to time, third parties may assert patent, copyright, trademark and
other intellectual property rights to technologies in various jurisdictions that are important to our business. Defending claims,
including claims without merit, requires allocation of resources, including personnel and capital, which could adversely impact our
results of operations. A successful claim of infringement against us could result in our being required to pay significant damages, enter
into costly license agreements, or stop the sale of certain products, which could adversely affect our net revenues, gross margins and
expenses and harm our future prospects.
We use specialized technologies and know-how to design, develop and manufacture our products. Our inability to protect our
intellectual property could hurt our competitive position, harm our reputation and adversely affect our results of operations.
We believe that our intellectual property, including its methodologies, is critical to our success and competitive position. We
rely on a combination of U.S. and foreign patent, copyright, trademark and trade secret laws, as well as confidentiality agreements to
establish and protect our proprietary rights. If we are unable to protect our intellectual property against unauthorized use by third
parties, our reputation among existing and potential customers could be damaged and our competitive position adversely affected.
Attempts may be made to copy aspects of our products or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to prevent misappropriation of our technology or deter others from developing similar technology.
Our strategies to deter misappropriation could be undermined if:
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the proprietary nature or protection of our methodologies is not recognized in the United States or foreign countries;
third parties misappropriate our proprietary methodologies and such misappropriation is not detected; and
competitors create applications similar to ours but which do not technically infringe on our legally protected rights.
If these risks materialize, we could be required to spend significant amounts to defend our rights and to divert critical
managerial resources. In addition, our proprietary methodologies could decline in value or our rights to them could become
unenforceable. If any of the foregoing were to occur, our business could be materially adversely affected.
We have incurred indebtedness and may incur additional indebtedness.
On February 16, 2017, we obtained an asset-based lending agreement with a bank. We may incur additional indebtedness in
the future.
The incurrence of this indebtedness, among other things, could:
• make it difficult to make payments on this indebtedness and our other obligations;
• make it difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements
or other purposes;
require the dedication of a substantial portion of any cash flow from operations to service for indebtedness, thereby reducing
the amount of cash flow available for other purposes, including capital expenditures; and
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete.
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The Company believes that its financial resources from working capital provided by operations are adequate to meet its
current needs. However, should current global economic conditions deteriorate, additional working capital financing might be required
which may be difficult to obtain due to restrictive credit markets.
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Restrictive covenants in the agreement governing our credit facility could restrict our ability to pursue business strategies.
The agreement governing our current credit facility limits our ability, among other things, to: incur additional secured
indebtedness; incur liens; pay dividends; enter into transactions with our affiliates; and sell assets. In addition, our credit facility
contains financial and other restrictive covenants that limit our ability to engage in activities that might be in our long term best
interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, investments and
acquisitions, and loans and other advances to affiliates. Our failure to comply with financial and other restrictive covenants could
result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding
borrowings or foreclosing on collateral pledged to them to secure the indebtedness.
Our business and operations could suffer in the event of security breaches.
Attempts by others to gain unauthorized access to information technology systems are becoming more sophisticated and are
sometimes successful. These attempts, which might be related to industrial or other espionage, include covertly introducing malware
to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate all security
incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. The
theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive
position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect
our business. To the extent that any security breach results in inappropriate disclosure of our customers’ or licensees’ confidential
information, we may incur liability as a result. In addition, we might be required to devote significant additional resources to the
security of our information technology systems.
We rely on our information technology systems to manage numerous aspects of our business and a disruption of these systems
could adversely affect our business.
Our information technology, or IT, systems are an integral part of our business. We depend on our IT systems for scheduling,
sales order entry, purchasing, materials management, accounting, and production functions. Our IT systems also allow us to ship
products to our customers on a timely basis, maintain cost-effective operations and provide a high level of customer service. Some of
our systems are not fully redundant, and our disaster recovery planning does not account for all eventualities. A serious disruption to
our IT systems could significantly limit our ability to manage and operate our business efficiently, which in turn could have a material
adverse effect on our business, results of operations and financial condition.
Environmental and other disasters, such as flooding, large earthquakes, hurricanes, volcanic eruptions or nuclear or other
disasters, or a combination thereof, may negatively impact our business.
Although we manufacture our products in New Jersey, we both source and ship our products globally. Environmental and
other disasters could cause disruption to our supply chain or impede our ability to ship product to certain regions of the world. There
can be no assurance that environmental and/or other such natural disasters will not have an adverse impact on our business in the
future.
Our operating results may suffer because of our exposure to foreign currency exchange rate fluctuations.
Substantially all of our sales contracts with our U.S. and international based customers provide for payment in U.S. dollars. A
strengthening of the U.S. dollar relative to other foreign currencies could increase the effective cost of our products to our
international customers as their functional currency is typically not the U.S. dollar. This could have a potential adverse effect on our
ability to increase or maintain average selling prices of our products to our foreign-based customers.
Our exposure to the currency fluctuations increased as a result of the acquisition of CommAgility. Our future revenue and
expenses may be subject to volatility due to exchange rate fluctuations that could result in foreign exchange gains and losses
associated with foreign currency transactions and the translation of assets and liabilities denominated in foreign currencies.
The success of our ability to grow revenues and develop relationships in Europe and Asia may be limited by risks related to
conducting business in European and Asian markets.
Part of our strategy is to increase revenues and build our relationships in European and Asian markets. Risks inherent in
marketing, selling and developing relationships in European and Asian markets include those associated with:
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economic conditions in European and Asian markets, including the impact of recessions in European and Asian economies
and fluctuations in the relative values of the U.S. dollar, the Euro and Asian currencies;
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taxes and fees imposed by European and Asian governments that may increase the cost of products and services;
greater difficulty in accounts receivable collection and longer collection periods;
seasonal reductions in business activities in some parts of the world;
laws and regulations imposed by individual countries and by the European Union, particularly with respect to intellectual
property, license requirements and environmental requirements; and
political and economic instability, terrorism and war.
In addition, European and Asian intellectual property laws are different than and might not protect our proprietary rights to
the same extent as do U.S. intellectual property laws, and we will have to ensure that our intellectual property is adequately protected
in foreign jurisdictions and in the United States. If we do not adequately protect our intellectual property rights, competitors could use
our proprietary technologies in non-protected jurisdictions and put us at a competitive disadvantage.
As a result of the acquisition of CommAgility, the Company increased its exposure to foreign markets and currencies
specifically in the United Kingdom (U.K.) and European Union (E.U.). Uncertainty related to the withdrawal of the U.K. from the
E.U. could negatively impact the global economy, particularly many important European economies. Given the lack of comparable
precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. will have and how such
withdrawal could affect us.
Our results of operations could be affected by changes in tax-related matters.
A number of factors could cause our tax rate to increase, including a change in the jurisdictions in which our profits are earned and
taxed; a change in the mix of profits from those jurisdictions; changes in available tax credits; changes in applicable tax rates; changes
in accounting principles. We have deferred tax assets on our balance sheet. Changes in applicable tax laws and regulations or in our
business performance could affect our ability to realize those deferred tax assets, which could also affect our results of operations.
Our stock price is volatile and the trading volume in our common stock is less than that of other larger companies in the
wireless and advanced communications industries.
The market price of our common stock has experienced significant volatility and may continue to be subject to rapid swings
in the future. From January 1, 2015 to March 1, 2018, the trading prices of our stock have ranged from $1.30 to $3.21 per share. There
are several factors which could affect the price of our common stock unrelated to our financial performance, including announcements
of technological innovations for new commercial products by us or our competitors, developments concerning propriety rights, new or
revised governmental regulation or general conditions in the market for our products, and the entrance of additional competitors into
our markets.
Although our common stock is listed for trading on the NYSE American, the trading volume in our common stock is less
than that of other, larger companies in the wireless and advanced communications industries. Traditionally, the trading volume of our
common stock has been limited. For example, for the 90 trading days ending on February 21, 2018, the average daily trading volume
was approximately 66,000 shares per day and ranged from between 3,600 shares per day and approximately 329,500 shares per day.
Furthermore, we only have 22,866,883 shares of common stock outstanding as of the date of this report. A public trading market
having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and
sellers of our common stock at any given time. Because of our limited trading volume, holders of our common stock may not be able
to sell quickly any significant number of such shares, and any attempted sales of a large number of our shares will likely have a
material adverse impact on the price of our common stock.
New Jersey corporate law may delay or prevent a transaction that stockholders would view as favorable.
We are subject to the New Jersey Shareholders’ Protection Act, which could delay or prevent a change of control of us. In
general, that Act prevents a shareholder owning 10% or more of a New Jersey public corporation’s outstanding voting stock from
engaging in business combinations with that corporation for five years following the date the shareholder acquired 10% or more of the
corporation’s outstanding voting stock, unless board approval is obtained prior to the time that the shareholder reaches the 10%
threshold.
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The Company is subject to compliance with the policies and procedures of the NYSE American with respect to continued
listing on the stock exchange and our failure to maintain our listing would make trades in our securities difficult for
shareholders.
In considering whether a security warrants continued trading and/or listing on the NYSE American Exchange, many factors
are taken into account, such as the degree of investor interest in the company, its prospects for growth, the reputation of its
management, the degree of commercial acceptance of its products, and whether its securities have suitable characteristics for auction
market trading. Thus, any developments which substantially reduce the size of a company, the nature and scope of its operations, the
value or amount of its securities available for the market, or the number of holders of its securities, might occasion a review of
continued listing by the Exchange. Moreover, events such as the sale, destruction, loss or abandonment of a substantial portion of a
company’s business, the inability to continue its business, steps towards liquidation, or repurchase or redemption of its securities, may
also give rise to such a review. The loss of our listing on the Exchange could have a material adverse effect on our shareholders’
ability to sell our shares or for others to purchase our shares. This could have an adverse effect on the market price of our stock.
We incur significant costs as a result of operating as a public company, and our management devotes substantial time to
compliance initiatives.
We have incurred and will continue to incur significant legal, accounting and other expenses as a public company, including
costs resulting from public company reporting obligations under the Exchange Act and regulations regarding corporate governance
practices. The listing requirements of the NYSE American require that we satisfy certain corporate governance requirements relating
to director independence, distributing annual and interim reports, stockholder meetings, stockholder approvals and voting, and
soliciting proxies. Our management and other personnel will need to devote a substantial amount of time to ensuring compliance with
all of these requirements.
If securities or industry analysts do not publish research or reports about our business or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock might be influenced by the research and reports that industry or securities analysts
publish about us or our business. If any analysts issue an adverse or misleading opinion regarding us, our business model, products or
stock performance, our stock price could decline.
Forward-Looking Statements
The statements contained in this Annual Report on Form 10-K that are not historical facts, including, without limitation, 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 may be identified by,
among other things, the use of forward-looking terminology such as “believes,” “expects,” “intends,” “plans,” “may,” “will,”
“should,” “anticipates” or “continues” or the negative thereof of other variations thereon or comparable terminology, or by discussions
of strategy that involves 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 are set forth above in this Item 1A and elsewhere in this
annual report on Form 10-K. 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. The Company assumes no obligation to
update any forward-looking statements as a result of new information or future events or developments.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company leases a 45,700 square foot facility located in Hanover Township, Parsippany, New Jersey, which is currently
being used as its principal corporate headquarters and manufacturing plant with respect to the Network Solutions and Test and
Measurement Segments. In May 2015, the Company and its landlord entered into a lease agreement to extend the lease term for its
principal corporate headquarters in New Jersey through March 31, 2023.
16
Pursuant to the Share Purchase Agreement dated February 17, 2017 the Company assumed leases for office space in
Leicestershire, England consisting of 4,900 square feet and Duisburg, Germany consisting of 7,446 square feet. The Leicestershire
lease expires in November 2020 and the Duisburg lease is renewable every 3 months.
The Company believes its properties are suitable and adequate for its current purposes.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The common stock of the Company is traded on the NYSE American under the name Wireless Telecom Group, Inc.
(Symbol: WTT). The following table sets forth the high and low sales prices of the Company’s common stock for the periods
indicated as reported on the NYSE American.
2017 Fiscal Year
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016 Fiscal Year
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
$1.99
$1.67
$1.67
$2.45
$1.70
$1.48
$1.96
$1.98
Low
$1.30
$1.35
$1.35
$1.48
$1.32
$1.23
$1.34
$1.52
On March 1, 2018, the closing price of the common stock of the Company as reported on the NYSE American was $2.13. On
March 1, 2018, the Company had 385 stockholders of record. These stockholders of record do not include beneficial owners whose
shares are held in “nominee” or “street name”.
The Company did not declare quarterly dividends for the past five years. Under the terms of the Credit Facility effective
February 16, 2017, the Company must meet certain conditions before paying a dividend including maintaining an excess availability
threshold and fixed coverage charge ratio, in each case as such items are defined in the Credit Facility. Further, dividends may not
exceed $1,000,000 in the aggregate during the term of the Credit Facility.
Recent Sales of Unregistered Securities
A portion of the purchase price for the acquisition of CommAgility on February 17, 2017 was paid to the sellers through the
issuance of 3,487,528 shares of the Company’s common stock, valued at approximately $6,250,000 based upon a 10 day volume
weighted average price for the Company shares of stock. The Company relied on an exemption from registration under the Securities
Act, as set forth in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, based upon (a) each
seller’s representation that it is an “accredited investor” within the meaning of Rule 501 under the Securities Act and that the shares
received by each seller were acquired for such seller’s own account, and not with a view to any distribution thereof, (b) appropriate
legends were affixed to the securities, and (c) because the transaction did not involve any public offering.
Issuer Purchases of Equity Securities
During the quarter ended December 31, 2017, the Company did not repurchase any shares under its stock repurchase
program. The maximum number of shares remaining eligible for repurchase under the plan as of December 31, 2017 was 200,706.
During the year ended December 31, 2017, the Company withheld 61,207 shares totaling $86,914 in market value to cover
taxes in connection with the exercise by one of the Company’s executive officers of a stock option granted under the Company’s
equity compensation plan.
18
Equity Compensation Plan Information
Set forth below is certain aggregated information with respect to the Company’s equity compensation plans.
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
2,420,000
-
2,420,000
$1.45
-
$1.45
Number of securities
remaining available for
future issuance under
equity compensation
plan (excluding
securities reflected in
the previous columns)
26,000
-
26,000
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company develops, manufactures and markets a wide variety of radio frequency and microwave noise sources,
electronic testing and measuring instruments including power meters, voltmeters and modulation meters and passive components for
wireless radio frequency conditioning. Additionally, the Company is a supplier of signal processing technology for network validation
systems, supporting LTE/4G and emerging 5G networks. The majority of the Company’s products are primarily used by its customers
in relation to commercial infrastructure development in support of the expansion and upgrade to distributed antenna systems,
deployment of small cell technology and private LTE networks. In addition, the Company’s products are used to test the performance
and capability of cellular/PCS and satellite communication systems and to measure the power of radiofrequency and microwave
systems. Other applications include radio, radar, wireless local area network and digital television.
Key 2017 Developments and Financial Results
Completed CommAgility acquisition on February 17, 2017 and creation of Embedded solutions segment.
Completed Bank of America financing that includes asset based revolver and term loan.
Revenue increase of 47% from prior year which includes Embedded solutions revenue as well as year-over-year increases in
Network solutions and Test and Measurement.
Backlog of $9.9 million as of December 31, 2017, an increase of $5.9 million from December 31, 2016.
Cash flow from operations of $1.4 million for the twelve months ended December 31, 2017.
$1.9 million inventory impairment expense recorded in second quarter of 2017 related to implementation of the Company’s
lean manufacturing initiative.
Net loss before taxes of $3.2 million due primarily to inventory impairment charge and mergers and acquisitions expenses
during 2017.
Tax provision of $1.2 million recorded in 2017 primarily as a result of the reduction of deferred tax assets due to tax rate
reduction under the Tax Cuts and Jobs Act of 2017.
The Company presents its operations in three reportable segments: (1) network solutions, (2) test and measurement and (3)
embedded solutions. The network solutions segment is comprised primarily of the operations of Microlab. The test and measurement
segment is comprised of the operations of Boonton and Noisecom. The embedded solutions segment is comprised of CommAgility.
The financial information presented herein includes: (i) Consolidated Balance Sheets as of December 31, 2017 and 2016; (ii)
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016; (iii) Consolidated
Statement of Changes in Shareholders’ Equity for the years ended December 31, 2017 and 2016; and (iv) Consolidated Statements of
Cash Flows for the years ended December 31, 2017 and 2016.
19
Critical Accounting Policies
Management’s discussion and analysis of the financial condition and results of operations are based upon the consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that
affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses for each period. The following represents a summary of the Company’s
critical accounting policies, defined as those policies that the Company believes are: (a) the most important to the portrayal of our
financial condition and results of operations, and (b) that require management’s most difficult, subjective or complex judgments, often
as a result of the need to make estimates about the effects of matters that are inherently uncertain. Estimates and assumptions are made
by management to assess the overall likelihood that an accounting estimate or assumption may require adjustment. While the
Company has generally not experienced significant deviations from our critical estimates in the past, it is reasonably possible that
these estimates may ultimately differ materially from actual results. See Note 1 in the Notes to the Consolidated Financial Statements
included elsewhere on Form 10-K for a description of all of our significant accounting policies.
Business Combinations
Business combinations are accounted under the acquisition method of accounting in accordance with Accounting Standards
Codification (“ASC”) 805, “Business Combinations” which requires assets acquired and liabilities assumed be recorded at their fair
values on the acquisition date. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The
fair values of the assets acquired and liabilities assumed are determined based upon management’s valuation and involves making
significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date. We use a measurement
period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair
value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than
one year from the acquisition date.
Revenue Recognition
Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred, provided
that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured. Delivery
is considered to have occurred when title and risk of loss have transferred to the customer. Revenues from international distributors
are recognized in the same manner. If title does not pass until the product reaches the customer’s delivery site, then revenue
recognition is deferred until that time. There are no formal sales incentives offered to any of the Company’s customers. Volume
discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis.
Standalone sales of software or software-related items are recognized in accordance with the software revenue recognition
guidance. For multiple deliverable arrangements that only include software items, the Company generally uses the residual method to
allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered items equals
the total arrangement consideration, less the fair value of the undelivered items. Where vendor-specific objective evidence of fair
value for the undelivered items cannot be determined, the Company generally defers revenue until all items are delivered and services
have been performed, or until such evidence of fair value can be determined for the undelivered items.
Software arrangements that require significant customization or modification of software are accounted for under percentage
of completion accounting. The Company uses the input method to measure of progress for arrangements accounted for under
percentage of completion accounting.
Valuation of Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase
business combination. Goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine
whether a quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we determine it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform additional quantitative tests to
determine the magnitude of any impairment.
As of December 31, 2017 the Company’s consolidated goodwill balance of $10.2 million is comprised of $1.4 million related
to the Microlab reporting unit and $8.8 million related to the CommAgility reporting unit. As of December 31, 2016 the Company’s
consolidated goodwill balance of $1.4 million related to the Microlab reporting unit. Management’s qualitative assessment performed
in the fourth quarters of 2017 and 2016 did not indicate any impairment of goodwill.
20
Intangible and Long-lived Assets
Intangible assets include patents, non-competition agreements, customer relationships and trademarks. Intangible assets with
finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to
seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an
impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-
lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. The estimated
useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence,
demand, competition and other economic factors, expectations regarding the future use of the asset, and our historical experience with
similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product
demand, market conditions, technological developments, economic conditions and competition. Intangible assets determined to have
indefinite useful lives are not amortized but are tested for impairment annually and more frequently if event occur or circumstances
change that indicate an asset may be impaired.
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 amount of deferred tax assets considered realizable is subject to adjustment in future periods if
estimates of future taxable income are changed.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental
changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in
2018. As a result, the Company re-measured its U.S. deferred tax assets at the new lower corporate income tax rate. The TCJA also
requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of the Company’s foreign
subsidiary as of December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of
earnings generated since inception by the relevant foreign subsidiary, as well as the amount of non-U.S. income taxes paid on such
earnings, in addition to potentially other factors. See note 12 to the Consolidated Financial Statements for a discussion of the impact
the TCJA.
Uncertain tax position
Under ASC 740, the Company must recognize and disclose uncertain tax positions only if it is more-likely-than-not that the
tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. The amounts
recognized in the financial statements attributable to such position, if any, are recorded if there is a greater than 50% likelihood of
being realized upon the ultimate resolution of the position.
The Company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns. As of
December 31, 2017 and 2016, the Company has identified its federal tax return and its state tax return in New Jersey as “major” tax
jurisdictions, as defined in ASC 740, in which it is required to file income tax returns. Additionally, as a result of the CommAgility
acquisition on February 17, 2017 the Company has identified the United Kingdom as “major” tax jurisdiction as of December 31,
2017. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions
requiring recognition or disclosure in its consolidated financial statements.
Based on a review of tax positions for all open years and contingencies as set out in the Company’s Notes to the consolidated
financial statements, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740 during the years ended
December 31, 2017 and 2016, and the Company does not anticipate that it is reasonably possible that any material increase or decrease
in its unrecognized tax benefits will occur within the next twelve months.
21
Stock-based compensation
The Company follows the provisions of ASC 718, “Compensation - Stock Compensation” which requires that compensation
expense be recognized based on the fair value of the stock awards. The fair value of the stock awards is equal to the fair value of the
Company’s stock on the date of grant. The fair value of options at the date of grant is estimated using the Black-Scholes option pricing
model. When options are granted, the Company takes into consideration guidance under ASC 718 and SEC Staff Accounting Bulletin
No. 107 (SAB 107) when determining assumptions. The expected option life is derived from assumed exercise rates based upon
historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected
volatility is based upon historical volatility of our shares using weekly price observations over an observation period that approximates
the expected life of the options. The risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for
periods similar to the expected option life. The Company accounts for forfeitures when they occur.
Management estimates are necessary in determining compensation expense for stock options with performance-based vesting
criteria. Compensation expense for this type of stock-based award is recognized over the period from the date the performance
conditions are determined to be probable of occurring through the date the applicable conditions are expected to be met. If the
performance conditions are not considered probable of being achieved, no expense is recognized until such time as the performance
conditions are considered probable of being met, if ever. Management evaluates whether performance conditions are probable of
occurring on a quarterly basis.
Inventories and Inventory Valuation
Inventories are stated at the lower of cost (average cost) or market. The Company reviews inventory for excess and
obsolescence based on best estimates of future demand, product lifecycle status and product development plans.
Allowances for doubtful accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. A key consideration in estimating the allowance for doubtful accounts has been, and will continue to be, our
customer’s payment history and aging of its accounts receivable balance.
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted cash flows
resulting from the use of the assets and their eventual disposition. Measurement of an impairment loss for long-lived assets that
management expects to hold for sale is based on the fair value of the assets. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell.
Comparison of the results of operations for the year ended December 31, 2017 with the year ended December 31, 2016
Net Revenues (in thousands)
Network solutions
Test and measurement
Embedded solutions
2017
$ 23,052
13,380
9,646
Twelve months ended December 31
Revenue
% of Revenue
Change
2016
2017
2016
Amount
$ 20,199
11,128
-
50.0%
29.0%
21.0%
64.5%
$ 2,853
35.5%
2,252
-
9,646
-
Pct.
14.1%
20.2%
Total net revenues
$ 46,078
$ 31,327
100.0%
100.0%
$ 14,751
47.1%
22
Net consolidated revenues for the year ended December 31, 2017 were $46.1 million as compared to $31.3 million for the
year ended December 31, 2016, an increase of $14.8 million or 47.1%. The year over year increase includes the Embedded solutions
segment which was acquired on February 17, 2017 and contributed $9.6 million in revenue for the period February 17, 2017 to
December 31, 2017 as well as $5.1 million of revenue increases in our Network solutions and Test and measurement segments.
Net revenues from the Company’s Network solutions products for the year ended December 31, 2017 were up 14.1% from
the prior year. Net revenues from Network solutions products accounted for 50.0% and 64.5% of net consolidated revenues for the
years ended December 31, 2017 and 2016, respectively. The increase in revenues in this segment was due to increased demand for the
Company’s passive radio frequency components and subassemblies, largely as a result of increased capital spending by domestic
wireless carriers and tower operators in capacity densification projects and small cell deployments.
Net revenues from the Company’s Test and measurement products for the year ended December 31, 2017 were up 20.2%
over the prior year period. Net revenues from Test and measurement products accounted for 29.0% and 35.5% of net consolidated
revenues for years ended December 31, 2017 and 2016, respectively. The increase in revenues was primarily due to an increase in
military and government spending as compared to the prior year.
Gross Profit (in thousands)
Network solutions
Test and measurement
Embedded solutions
Total gross profit
2017
$ 9,063
5,855
4,343
$ 19,261
Twelve months ended December 31
Gross Profit
Gross Profit %
Change
2016
2017
2016
Amount
$ 8,443
4,719
-
$ 13,162
39.3%
43.8%
45.0%
41.8%
41.8%
$ 620
42.4%
1,136
-
4,343
42.0%
$ 6,099
46.3%
Pct.
7.3%
24.1%
-
Gross Profit increased to $19.3 million resulting from increased revenues, including from CommAgility. The 2017 net gross
profit of 41.8% compares to 2016 net gross profit percentage of 42.0%. The Company’s gross profit on consolidated net revenues for
the year ended December 31, 2017 was negatively impacted by a non-cash inventory adjustment of $1.9 million recorded in the
second quarter of 2017. The adjustment was effected as a result of a review of inventory balances and net realizable value of the
inventory following the launch of the Company’s lean manufacturing initiative and the adoption of product lifecycle acceleration. The
lean manufacturing program focuses on inventory reductions, the minimization of product redesign for alternate use, and the
acceleration of the evaluation process of slow moving inventory for product redesign and repurpose. This, combined with the need to
focus manufacturing, operations and engineering efforts on the then increasing current order flow, dictated the significant write down
at the end of the second quarter. The inventory adjustments negatively impacted the Network solutions and Test and measurement
segments gross profit by $1.2 million and $0.7 million, respectively, for the year ended December 31, 2017. The impact of the
inventory adjustment was offset by the gross profit of the Embedded solutions segment which contributed $4.3 million to the overall
gross profit increase from the prior year as well as improved profitability in the Test and measurement segment due to higher sales of
products which have a high gross profit margin.
Operating Expenses
Consolidated operating expenses for the year ended December 31, 2017 were $22.2 million or 48.2% of consolidated net
revenues as compared to $15.7 million or 50.1% of consolidated net revenues for the year ended December 31, 2016. For the year
ended December 31, 2017 as compared to the prior year, consolidated operating expenses increased by $6.5 million or 41.6%.
Consolidated operating expenses were higher in the twelve months ended December 31, 2017 due to the inclusion of $4.1 million of
operating expenses associated with the Embedded solutions segment which was acquired on February 17, 2017 and included $0.9
million of amortization expense related to purchased intangibles. Additionally, operating expenses increased from the prior year due
to restructuring costs of $0.9 million resulting from executive departures, increased commission expense of $0.7 million attributable to
higher revenues, increased salaries and benefits of $0.6 million primarily in sales and marketing and general and administrative
functions, increased variable compensation of $0.4 million related to our 2017 bonus plan and an increase in integration costs and
mergers and acquisition costs of $0.6 million associated with the CommAgility acquisition. The increases were offset by a $0.3
million gain recognized in the fourth quarter of 2017 due to the reduction of the CommAgility contingent consideration liability as
well as reductions in third-party research and development costs of $0.4 million.
23
Other income/expense
Other income decreased $0.4 million due to an insurance settlement in the amount of $0.5 million that was recognized in the
fourth quarter of 2016 related to the Company’s groundwater remediation efforts at a facility previously leased by the Company’s
Boonton operations. The insurance settlement gain was offset in 2016 by related legal and monitoring costs.
Interest Expense
Interest expense was $0.3 million for the year ended December 31, 2017 comprised of $0.1 million of interest related to the
Company’s Credit Facility (see Note 3 to the Consolidated Financial Statements for a description of the Credit Facility) entered into
during 2017; $0.1 million of amortization of deferred financing costs; and $0.1 million of accretion expense on liabilities recorded in
purchase accounting.
Tax
Tax expense for the year ended December 31, 2017 was $1.2 million primarily as a result of reduction of our net deferred tax
asset largely driven by U.S. tax rate reductions due to the TCJA enacted in December 2017. The tax rate reductions as a result of
TCJA resulted in a $2.5 million reduction in our U.S. deferred tax assets for the year ended December 31, 2017. For the year ended
December 31, 2016, the Company recorded a tax benefit of $0.3 million primarily due to losses generated from the Company’s
operations.
Net Loss
For the year ended December 31, 2017, the Company realized a net loss of $4.5 million or $0.22 per share on a basic and
diluted basis as compared to a net loss of $1.8 million or $0.10 per share on a basic and diluted basis in 2016. The increase in net loss
from the prior year was due to the factors discussed above.
Liquidity and Capital Resources
We expect our existing cash balance, cash generated by operations and borrowings available under our new Credit Facility
(as described in Note 3 to the Consolidated Financial Statements ) to be our primary sources of short-term liquidity, and we believe
these sources will be sufficient to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash
requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
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 will increase the Company’s liquidity as cash needed to pay federal income
taxes will be substantially reduced.
Cash and cash equivalents decreased from $9.4 million at December 31, 2016 to $2.5 million primarily due to the cash used
for the CommAgility acquisition offset by cash generated by our operations and borrowings under our Credit Facility. As of
December 31, 2017, all of our cash and cash equivalents are held outside the United States. The asset based revolver under our Credit
Facility is secured by the Company’s U.S. assets. Income taxes have been provided on foreign earnings such that there would be no
significant income tax expense to repatriate the portion of this cash that is not required to meet operational needs of our international
subsidiary.
Operating Activities
Cash provided by operating activities was $1.4 million for the year ended December 31, 2017 as compared to cash provided
by operating activities of $0.6 million for the year ended December 31, 2016. The improvement was primarily due to higher adjusted
operating income in the Network solutions and Test and measurement segments as well as a result of the CommAgility acquisition.
This was offset by a reduction in cash generated from changes in operating assets and liabilities as compared to the prior year due to
increased accounts receivable due to higher revenues and a reduction in accounts payable and accrued expenses due to payments
associated with mergers and acquisition expenses as well as integration expenses.
24
Investing Activities
Cash used by investing activities was $10.4 million for the year ended December 31, 2017 and was primarily comprised of
cash used for the CommAgility acquisition of $9.4 million, net of cash acquired and capital expenditures of $0.9 million. For the year
ended December 31, 2016 cash used by investing activities was $0.8 million and was related to capital expenditures.
Financing Activities
Cash provided by financing activities was $2.0 million for the year ended December 31, 2017 as compared to cash used of
$0.2 million for the year ended December 31, 2016. During the year ended December 31, 2017 the Company received net proceeds of
$1.2 million from the asset based revolver and received $0.8 million from the term loan. Principal repayments of the term loan during
the year ended December 30, 2017 were $0.1 million. Additionally, the Company paid $0.2 million in debt issuance costs associated
with the new credit facility. During the year ended December 31, 2016 the Company paid $0.1 million related to a capital equipment
lease and $0.1 million related to the repurchase of common stock.
As disclosed in Note 3 to the Consolidated Financial Statements, on February 16, 2017 the Company entered into a Credit
Agreement which provided for a term loan in the aggregate principal amount of $0.8 million and an asset based revolving loan (the
“Revolver”), which is subject to a Borrowing Base Calculation (as defined in the New Credit Facility) of up to a maximum availability
of $9 million. The proceeds of the term loan and revolver were used to finance the acquisition of CommAgility. As of December 31,
2017, $1.2 million was outstanding on the asset based revolver. At March 1, 2018 the Company had excess availability under the
Revolver of $2.6 million.
On August 3, 2017 the Company entered into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which
amended the definition of EBITDA to exclude the non-cash inventory adjustment of $1.9 million recorded during the three months
ended June 30, 2017 and reduced the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66 1/3%.
As of December 31, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
Purchase obligations consist of inventory that arises in the normal course of business operations. Future obligations and
commitments as of December 31, 2017 consisted of the following:
Table of Contractual Obligations
(in thousands)
Payments by Year
Total
2018
2019
2020
2021
2022
Thereafter
Facility Leases
$ 2,584
$ 528
$ 511
$ 460
$ 474
$ 488
$ 123
Purchase Obligations
6,917
6,917
-
-
-
-
-
Operating and Equipment Leases
225
54
54
54
54
9
-
$ 9,726
$ 7,499
$ 565
$ 514
$ 528
$ 497
$ 123
The Company may pursue strategic opportunities, including potential acquisitions, mergers, divestitures 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. In order to fund such activities the Company may need to incur
additional debt or issue additional securities if market conditions are favorable. However, there can be no certainty that such funding
will be available in needed quantities or terms favorable to the Company.
The Company believes that its financial resources from working capital and availability under the asset based revolver are
adequate to meet its current needs. The Company expects the cash flow of CommAgility to fund the deferred purchase price and
contingent consideration liabilities. However, should current global economic conditions deteriorate, additional working capital
funding may be required which may be difficult to obtain due to restrictive credit markets.
25
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.
Recent Accounting Pronouncements Affecting the Company
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”).
ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A
goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the
carrying amount of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning
after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of January 1, 2017.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business”
(“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those
annual periods beginning after December 15, 2017, and early adoption is permitted. The Company will adopt this standard on January
1, 2018 and will apply the standard to any future business combinations.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-
15”), to address some questions about the presentation and classification of certain cash receipts and payments in the statement of cash
flows. The update addresses eight specific issues, including contingent consideration payments made after a business combination,
distribution received from equity method investees and the classification of cash receipts and payments that have aspects of more than
one class of cash flows. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material
impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting” (“ASU 2016-09”). Under ASU 2016-09, companies will no longer record excess tax
benefits and certain tax deficiencies in additional paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-
09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires
companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity.
Furthermore, ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for
the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An
employer with a statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the
amount of taxes owed using the maximum statutory rate in the employee’s applicable jurisdiction(s). ASU 2016- 09 requires a
company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation
as a financing activity on the statement of cash flows. Under current U.S. GAAP, it is not specified how these cash flows should be
classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1)
recognizing forfeiture awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate
when it is likely to change, as in currently required. The amendments of this ASU are effective for reporting periods beginning after
December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The adopted standard
did not have an impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which creates new accounting and reporting
guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the
balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or
operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising
from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to
help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new
standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting
period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is
in the process of evaluating the impact of ASU 2016-02 on its consolidated financial statements.
26
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of
goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date”, which defers the effective date by one year, with early adoption on the original effective date permitted. As a result, ASU 2014-
09 will be effective for annual and interim periods beginning after December 15, 2017. Entities have the option of two methods of
adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). Effective
January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method for all of its contracts.
The most significant impact of ASU 2014-09, relates to the Company’s accounting for software license agreements which
have multiple deliverables. For these arrangements, the Company will recognize revenue for each deliverable at a point in time when
control is transferred to the customer since each deliverable has stand-alone value and the criteria to establish Vendor Specific
Objective Evidence (“VSOE”) of fair value has been eliminated. Under the existing guidance the Company recognized revenue at the
delivery of the final software deliverable when VSOE did not exist for the undelivered element. Adoption of the new standard will
generally result in an acceleration of revenues recognized for certain multiple deliverable software license arrangements primarily in
the embedded solutions segment. These multiple deliverable arrangements represented less than 2% of total consolidated revenues for
the year ended December 31, 2017. Based on customer-specific contracts in effect at December 31, 2017, the Company expects to
recognize a cumulative effect adjustment of approximately $400 thousand to $425 thousand that increases retained earnings on the
consolidated balance sheet. The adjustment reflects revenue that would have been recognized in 2018. For the Company’s
Consolidated Balance Sheet, the adoption of ASU 2014-09 will result is some reclassifications among financial statement accounts,
but these reclassifications will not materially change the total amount of net assets at December 31, 2017.
The Company does not believe there are any other recently issued, but not yet effective accounting pronouncements, if
adopted, that would have a material effect on the accompanying consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance Sheets as of December 31, 2017 and 2016
Statements of Operations and Comprehensive Loss for the Two Years Ended December 31, 2017
Statement of Changes in Shareholders’ Equity for the Two Years Ended December 31, 2017
Statements of Cash Flows for the Two Years Ended December 31, 2017
Notes to Consolidated Financial Statements
Page
28
29
30
31
32
33
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Wireless Telecom Group, Inc.
To the Board of Directors and Shareholders
Wireless Telecom Group, Inc.
Parsippany, NJ
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Wireless Telecom Group, Inc. (the “Company”) as of December
31, 2017 and 2016, and the related consolidated statements of operations and comprehensive (loss), changes in shareholders’ equity
and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2006.
/s/PKF O’Connor Davies, LLP
New York, New York
March 12, 2018
28
CONSOLIDATED BALANCE SHEETS
Wireless Telecom Group, Inc.
(In thousands, except share amounts)
CURRENT ASSETS
Cash & cash equivalents
Accounts receivable - net of reserves of $44 and $11, respectively
Inventories - net of reserves of $1,856 and $1,549, respectively
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY PLANT AND EQUIPMENT - NET
OTHER ASSETS
Goodwill
Acquired intangible assets, net
Deferred income taxes
Other
TOTAL OTHER ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Short term debt
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
TOTAL CURRENT LIABILITIES
LONG TERM LIABILITIES
Long term debt
Other long term liabilities
Deferred tax liability
TOTAL LONG TERM LIABILITIES
COMMITMENTS AND CONTINGENCIES - see Note 14
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
Common stock, $.01 par value, 75,000,000 shares authorized, 33,868,252
and 29,786,224 shares issued, 22,772,167 and 18,751,346 shares outstanding
Additional paid in capital
Retained earnings
Treasury stock at cost, - 11,096,085 and 11,034,878 shares, respectively
Accumulated other comprehensive income
TOTAL SHAREHOLDERS' EQUITY
December 31
2017
December 31
2016
$ 2,458
9,041
6,526
4,733
$ 9,351
5,184
8,453
865
22,758
23,853
2,730
10,260
4,511
5,939
723
2,167
1,351
-
7,404
660
21,433
9,415
$ 46,921
$ 35,435
$ 1,335
4,109
2,894
629
$ -
2,987
673
-
8,967
3,660
494
1,590
767
2,851
-
69
-
69
-
-
339
47,494
7,176
(20,910)
1,004
298
40,562
11,669
(20,823)
-
35,103
31,706
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 46,921
$ 35,435
The accompanying notes are an integral part of these consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Wireless Telecom Group, Inc.
(In thousands, except share and per share amounts)
NET REVENUES
COST OF REVENUES
GROSS PROFIT
Operating Expenses
Research and development
Sales and marketing
General and administrative
Gain on change in fair value
of contingent consideration
Total Operating Expenses
Operating loss
Other income/(expense)
Interest expense
Loss before taxes
Tax Provision/(Benefit)
Net Loss
Other Comprehensive Loss
Foreign currency translation adjustments
Comprehensive Loss
Net Loss per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Twelve Months Ended
December 31
2017
$ 46,078
2016
$ 31,327
26,817
18,165
19,261
13,162
4,395
6,960
11,104
4,046
5,196
6,468
(253)
22,206
-
15,710
(2,945)
(2,548)
(5)
(296)
364
-
(3,246)
(2,184)
1,247
(352)
$ (4,493)
$ (1,832)
1,004
$ (3,489)
-
$ (1,832)
$ (0.22)
$ (0.22)
$ (0.10)
$ (0.10)
19,983,747
19,983,747
18,464,022
18,464,022
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.
The accompanying notes are an integral part of these consolidated financial statements.
30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Wireless Telecom Group, Inc.
(In thousands, except share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wireless Telecom Group, Inc.
(In thousands)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization
Amortization of debt issuance fees
Share-based compensation expense
Deferred rent
Deferred income taxes
Provision for (recovery of) doubtful accounts
Inventory reserves
Changes in assets and liabilities, net of acquisition
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other current liabilities
Net cash provided by operating activities
CASH FLOWS (USED) BY INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset disposal
Acquisition of business, net of cash acquired
Net cash (used by) investing activities
CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES
Revolver borrowings
Revolver repayments
Term loan borrowings
Term loan repayments
Debt issuance fees
Proceeds from exercise of stock options
Repayments of equipment lease payable
Repurchase of common stock - 42,995 shares
Shares withheld for employee taxes
Net cash provided/(used by) financing activities
Effect of exchange rate changes on cash and cash equivalents
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
For the Twelve Months
Ended December 31
2017
2016
$ (4,493)
$ (1,832)
1,747
68
536
23
1,395
33
1,357
(1,456)
1,713
(119)
(210)
809
1,403
503
-
699
36
(390)
(95)
439
362
(823)
(173)
1,873
25
624
(927)
7
(9,434)
(10,354)
(819)
-
-
(819)
58,420
(57,237)
760
(114)
(215)
437
-
-
(87)
1,964
94
(6,893)
-
-
-
-
-
-
(115)
(65)
-
(180)
-
(375)
Cash and cash equivalents, at beginning of period
9,351
9,726
CASH AND CASH EQUIVALENTS, AT END OF PERIOD
$ 2,458
$ 9,351
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest
Cash paid during the period for income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Capital expenditures
Equipment lease payable
$ 125
$ 68
$ -
$ 117
$ -
$ -
$ (42)
$ 42
The accompanying notes are an integral part of these consolidated financial statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Wireless Telecom Group, Inc., a New Jersey corporation, together with its subsidiaries (“we”, “us”, “our” or the “Company”),
is a global designer and manufacturer of advanced radio frequency (“RF”) and microwave components, modules, systems and
instruments and currently markets its products and services worldwide under the Boonton, Microlab, Noisecom and
CommAgility brands. Serving the wireless, telecommunication, satellite, military, aerospace, and semiconductor industries,
Wireless Telecom Group products enable innovation across a wide range of traditional and emerging wireless technologies.
With a unique set of high-performance products including peak power meters, signal analyzers, signal processing modules,
long term evolution (“LTE”) physical layer (“PHY”) and stack software, power splitters and combiners, global positioning
system (“GPS”) repeaters, public safety monitors, noise sources, and programmable noise generators, Wireless Telecom
Group supports the development, testing, and deployment of wireless technologies around the globe. The consolidated
financial statements include the accounts of Wireless Telecom Group, Inc., doing business as, and operating under the trade
name, Noise Com, Inc. (“Noisecom”), and its wholly owned subsidiaries including Boonton Electronics Corporation
(“Boonton”), Microlab/FXR (“Microlab”), Wireless Telecommunications Ltd. and CommAgility Limited (“CommAgility”).
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned
subsidiaries. The Consolidated Financial Statements have been prepared using accounting principles generally accepted in the
United States (“U.S. GAAP”) and include the results of companies acquired by the Company from the date of each
acquisition. All intercompany accounts and transactions have been eliminated in consolidation.
The Company presents its operations in three reportable segments: (1) Network solutions, (2) Test and measurement and (3)
Embedded solutions. The Network solutions segment is comprised primarily of the operations of Microlab. The Test and
measurement segment is comprised of the operations of Boonton and Noisecom. The Embedded solutions segment is
comprised of the operations of CommAgility.
Use of Estimates
The accompanying financial statements have been prepared in accordance with U.S. GAAP, which requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates. The most significant estimates and assumptions
include management’s analysis in support of inventory valuation, accounts receivable valuation, valuation of deferred tax
assets, intangible assets, estimated fair values of stock options and vesting periods of performance-based stock options and
restricted stock and estimated fair values of acquired assets and liabilities in business combinations.
Concentrations of Credit Risk, Purchases and Fair Value
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and
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.
For the year ended December 31, 2017 one customer, from the Embedded solutions segment, accounted for 10.4% of the
Company’s total consolidated revenues. At December 31, 2017, two customers exceeded 10% of consolidated gross accounts
receivable at 17.8% and 11.2%, respectively. At December 31, 2016, one customer represented 16% of the Company’s gross
accounts receivable balance.
For the years ended December 31, 2017 and 2016 no single third-party supplier accounted for 10% or more of the Company’s
total consolidated inventory purchases.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of three months or less at the date of purchase
to be cash equivalents. Cash and cash equivalents consist of operating accounts.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated
allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the
customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances
are charged off against the allowance when it is determined the receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost (average cost) or market value. Market value is based upon an estimated average
selling price reduced by estimated costs of completion, disposal and transportation. Reductions in inventory valuation are
included in cost of sales in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Finished
goods and work-in-process include material, labor and manufacturing expenses.
The Company reviews inventory for excess and obsolescence based on best estimates of future demand, product lifecycle
status and product development plans. The Company uses historical information along with these future estimates to reduce
the inventory cost basis. Subsequent changes in facts and circumstances do not result in the restoration or increase in that
newly established cost basis.
During the year ended 2017 the Company recorded inventory adjustments totaling $1,930 comprised of an increase to the
Company’s excess and obsolescence reserve of $1,121 and the write off of gross inventory of $809. The charge was effected
as a result of a review of inventory balances and net realizable value of the inventory following the launch of the Company’s
lean manufacturing initiative and the adoption of a strategic product plan focused on product lifecycle acceleration.
Inventory carrying value is net of inventory reserves of $1,856 and $1,549 as of December 31, 2017 and 2016, respectively.
Inventories consist of:
Raw materials
Work-in-process
Finished goods
December 31,
2017
$ 3,231
631
2,664
$ 6,526
December 31,
2016
$ 3,559
531
4,363
$ 8,453
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets generally consist of income tax receivables, prepaid insurance, prepaid maintenance
agreements and the short term portion of debt issuance costs. As of December 31, 2017, prepaid and other current assets
includes $3,599 contingent asset representing the fair value of consideration shares issued in connection with the
CommAgility acquisition (see Note 2) that are expected to be returned to the Company under the claw back provision of the
Share Purchase Agreement. Upon execution of the claw back provisions the Company will reduce prepaid expenses and other
current assets and shareholders’ equity by $3,599 and the share will no longer be considered outstanding.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Property, Plant and Equipment
Property, plant and equipment are reflected at cost, less accumulated depreciation. Depreciation and amortization are provided
on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives for the property, plant and
equipment are:
Machinery and computer equipment
Furniture and fixtures
Transportation equipment
3-8 years
5-7 years
4 years
Leasehold improvements are amortized over the shorter of the remaining term of the lease or the estimated economic life of
the improvement. Repairs and maintenance are charged to operations as incurred; renewals and betterments are capitalized.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase
business combination. Goodwill is evaluated for impairment annually by first performing a qualitative assessment to
determine whether a quantitative goodwill test is necessary. After assessing the totality of events or circumstances, if we
determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform
additional quantitative tests to determine the magnitude of any impairment.
The Company’s goodwill balance of $10,260 at December 31, 2017 relates to two of the Company’s reporting units,
Embedded solutions and Network solutions. The Company’s goodwill balance of $1,351 at December 31, 2016 relates to
Network solutions. Management’s qualitative assessment performed in the fourth quarters of 2017 and 2016 did not indicate
any impairment of goodwill as each reporting units fair value is estimated to be in excess of its carrying value.
Intangible and Long-lived Assets
Intangible assets include patents, non-competition agreements, customer relationships and trademarks. Intangible assets with
finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five
to seven years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the
estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated
fair value less costs to sell. The estimated useful lives of intangible and long-lived assets are based on many factors including
assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding
the future use of the asset, and our historical experience with similar assets. The assumptions used to determine the estimated
useful lives could change due to numerous factors including product demand, market conditions, technological developments,
economic conditions and competition. Intangible assets determined to have indefinite useful lives are not amortized but are
tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be
impaired.
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.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and
accrued liabilities, approximate fair value due to their relatively short maturities. The Company’s term loan and revolving
credit facility bear interest at a variable interest rate plus an applicable margin and, therefore, carrying amount approximates
fair value.
Contingent Consideration
Under the terms of the CommAgility Share Purchase Agreement (See Note 2) the Company may be required to pay additional
purchase price if certain financial targets are achieved for the years ending December 31, 2017 and December 31, 2018
(“CommAgility Earn-Out”). As of the acquisition date, the Company estimated the fair value of the contingent consideration
to be $754 (see Note 2) and the Company is required to reassess the fair value of the contingent consideration at each reporting
period.
The significant inputs used in this fair value estimate include gross revenues and Adjusted EBITDA, as defined, and scenarios
for the earn-out periods for which probabilities are assigned to each scenario to arrive at a single estimated outcome (Level 3).
The estimated outcome is then discounted based on the individual risk analysis of the liability. Although the Company
believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of
CommAgility or changes in the future, may result in different estimated amounts.
The contingent consideration is included in other long term liabilities in the accompanying Consolidated Balance Sheets. The
Company will satisfy this obligation with a cash payment to the sellers of CommAgility upon the achievement of the
respective milestone discussed above.
Revenue Recognition
Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred, provided
that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectability is reasonably assured.
Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenues from
international distributors are recognized in the same manner. If title does not pass until the product reaches the customer’s
delivery site, then revenue recognition is deferred until that time. There are no formal sales incentives offered to any of the
Company’s customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per
transaction basis.
Standalone sales of software or software-related items are recognized in accordance with the software revenue recognition
guidance. For multiple deliverable arrangements that only include software items, the Company generally uses the residual
method to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the
delivered items equals the total arrangement consideration, less the fair value of the undelivered items. Where vendor-specific
objective evidence (“VSOE”) of fair value for the undelivered items cannot be determined, the Company generally defers
revenue until all items are delivered and services have been performed, or until such evidence of fair value can be determined
for the undelivered items.
Software arrangements that require significant customization or modification of software are accounted for under percentage
of completion accounting. The Company uses the input method to measure progress for arrangements accounted for under
percentage of completion accounting.
Shipping and Handling
Freight billed to customers is recorded as revenue. The Company classifies shipping and handling costs associated with the
distribution of finished product to our customers as cost of sales.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where the local currency is the
functional currency, are translated from foreign currencies into U.S. dollars at period-end exchange rates while income and
expenses are translated at the weighted average spot rate for the periods presented. Translation gains or losses related to net
assets located outside the U.S. are shown as a component of accumulated other comprehensive income in the Consolidated
Statements of Shareholders’ Equity. Gains and losses resulting from foreign currency transactions, which are denominated in
currencies other than the Company’s functional currency, are included in the Consolidated Statements of Operations and
Comprehensive Loss.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is recorded directly to a separate section of shareholders’ equity in accumulated other
comprehensive income and primarily includes unrealized gains and losses excluded from the Consolidated Statements of
Operations and Comprehensive Loss. These unrealized gains and losses consist of changes in foreign currency translation.
Research and Development Costs
Research and development costs are charged to operations when incurred. The amounts charged to operations for the years
ended December 31, 2017 and 2016 were $4,395 and $4,046, respectively.
Advertising Costs
Advertising expenses are charged to operations during the year in which they are incurred and aggregated $87 and $150 for
the years ended December 31, 2017 and 2016, respectively.
Stock-Based Compensation
The Company follows the provisions of Accounting Standards Codification (“ASC”) 718, “Compensation – Stock
Compensation” which requires that compensation expense be recognized, based on the fair value of the stock awards. The fair
value of the stock awards is equal to the fair value of the Company’s stock on the date of grant. The fair value of options at the
date of grant was estimated using the Black-Scholes option pricing model. When performance-based options are granted, the
Company takes into consideration guidance under ASC 718 and SEC Staff Accounting Bulletin No. 107 (SAB 107) when
determining assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise
patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based
upon historical volatility of our shares using weekly price observations over an observation period that approximates the
expected life of the options. The risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for
periods similar to the expected option life. The Company accounts for forfeitures when they occur.
Management estimates are necessary in determining compensation expense for stock options with performance-based vesting
criteria. Compensation expense for this type of stock-based award is recognized over the period from the date the performance
conditions are determined to be probable of occurring through the implicit service period, which is the date the applicable
conditions are expected to be met. If the performance conditions are not considered probable of being achieved, no expense is
recognized until such time as the performance conditions are considered probable of being met, if ever. If the award is
forfeited because the performance condition is not satisfied, previously recognized compensation cost is reversed.
Management evaluates performance conditions on a quarterly basis.
Income Taxes
The Company records deferred taxes in accordance with ASC 740, “Accounting for Income Taxes”. This ASC 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.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of
net operating losses and determines the necessity for a valuation allowance. The Company evaluates which portion, if any, will
more likely than not be realized by offsetting future taxable income, taking into consideration any limitations that may exist on
its use of its net operating loss carry-forwards.
Under ASC 740, the Company must recognize and disclose uncertain tax positions only if it is more-likely-than-not the tax
position will be sustained on examination by the taxing authority, based on the technical merits of the position. The amounts
recognized in the financial statements attributable to such position, if any, are recorded if there is a greater than 50%
likelihood of being realized upon the ultimate resolution of the position. Based on the evaluations noted above, the Company
has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its consolidated
financial statements.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes
to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in
2018. As a result, the Company re-measured its U.S. deferred tax assets at the new lower corporate income tax rate. The
TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of the
Company’s foreign subsidiary as of December 31, 2017. To determine the amount of this transition tax, the Company must
determine the amount of earnings generated since inception by the relevant foreign subsidiary, as well as the amount of non-
U.S. income taxes paid on such earnings, in addition to potentially other factors. See Note 12 for a discussion of the impact
the TCJA.
Income (Loss) Per Common Share
Basic income (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by
dividing 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 and unvested restricted
shares. 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.
Weighted average common shares outstanding
Potentially dilutive stock options
Weighted average common shares outstanding,
assuming dilution
For the Years Ended December 31,
2017
2016
19,984
878
18,464
706
20,862
19,170
Common stock equivalents are included in the diluted income (loss) per share calculation only when option exercise prices are
lower than the average market price of the common shares for the period presented.
The weighted average number of options to purchase common stock not included in diluted loss per share, because the effects
are anti-dilutive, was 848 and 1,189 for 2017 and 2016, respectively.
Recent Accounting Pronouncements Affecting the Company
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, “Intangibles - Goodwill and
Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 removes the
requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will
now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of January 1, 2017.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business”
(“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim
periods within those annual periods beginning after December 15, 2017, and early adoption is permitted. The Company will
adopt this standard on January 1, 2018 and will apply the standard to any future business combinations.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-
15”), to address some questions about the presentation and classification of certain cash receipts and payments in the statement
of cash flows. The update addresses eight specific issues, including contingent consideration payments made after a business
combination, distribution received from equity method investees and the classification of cash receipts and payments that have
aspects of more than one class of cash flows. This standard will be effective for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the
adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting” (“ASU 2016-09”). Under ASU 2016-09, companies will no longer record
excess tax benefits and certain tax deficiencies in additional paid in capital (“APIC”). Instead, they will record all excess tax
benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated.
In addition, ASU 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize
them. ASU 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash
flows rather than as a financing activity. Furthermore, ASU 2016-09 will increase the amount an employer can withhold to
cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the
employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will
now be allowed to withhold shares with the fair value up to the amount of taxes owed using the maximum statutory rate in the
employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify the cash paid to a tax authority when
shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash
flows. Under current U.S. GAAP, it is not specified how these cash flows should be classified. In addition, companies will
now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture awards as they
occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as
is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016,
with early adoption permitted but all of the guidance must be adopted in the same period. The adopted standard did not have a
material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which creates new accounting and reporting
guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and
liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are
classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of
expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The
guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty
of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15,
2018, including interim periods within that reporting period, with early application permitted. The new standard is to be
applied using a modified retrospective approach. The Company is in the process of evaluating the impact of ASU 2016-02 on
its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU
2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of
goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or
services. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of
the Effective Date”, which defers the effective date by one year, with early adoption on the original effective date permitted.
As a result, ASU 2014-09 will be effective for annual and interim periods beginning after December 15, 2017. Entities have
the option of two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application
(modified retrospective method). Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified
retrospective method for all of its contracts.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The most significant impact of ASU 2014-09, relates to the Company’s accounting for software license agreements which
have multiple deliverables. For these arrangements, the Company will recognize revenue for each deliverable at a point in
time when control is transferred to the customer since each deliverable has stand-alone value and the criteria to establish
VSOE of fair value has been eliminated. Under the existing guidance the Company recognized revenue at the delivery of the
final software deliverable when VSOE did not exist for the undelivered element. Adoption of the new standard will
generally result in an acceleration of revenues recognized for certain multiple deliverable software license arrangements
primarily in the Embedded solutions segment. These multiple deliverable arrangements represented less than 2% of total
consolidated revenues for the year ended December 31, 2017. Based on customer-specific contracts in effect at December 31,
2017, the Company expects to recognize a cumulative effect adjustment of approximately $400 to $425 that increases retained
earnings on the Consolidated Balance Sheet. The adjustment reflects revenue that would have been recognized in 2018. For
the Company’s Consolidated Balance Sheet, the adoption of ASU 2014-09 will result is some reclassifications among
financial statement accounts, but these reclassifications will not materially change the total amount of net assets at December
31, 2017.
Management does not believe there are any other recently issued, but not yet effective accounting pronouncements, if adopted,
that would have a material effect on the accompanying consolidated financial statements.
NOTE 2 - ACQUISITION
On February 17, 2017, Wireless Telecommunications, Ltd. (the “Acquisition Subsidiary”), a company incorporated in England
and Wales which is a wholly owned subsidiary of Wireless Telecom Group, Inc., completed the acquisition of all of the issued
shares in CommAgility a company incorporated in England and Wales (the “Acquisition”) from CommAgility’s founders.
The Acquisition was completed pursuant to the terms of a Share Purchase Agreement, dated February 17, 2017, and entered
into by and among the Company, the Acquisition Subsidiary and the founders. The Company paid $11,318 in cash on
acquisition date and issued 3,488 shares of newly issued common stock (“Consideration Shares”) with an acquisition date fair
value of $6,000. The Company financed the cash portion of the transaction with proceeds from a term loan totaling $760,
proceeds from an asset based revolver totaling $1,098 and cash on hand of $9,460. Refer to Note 3 for additional details
regarding the financing arrangement entered into in connection with this transaction. In addition to the acquisition date cash
purchase price the sellers are to be paid an additional £2,000 (approximately $2,500 at acquisition date) in the form of deferred
purchase price payable beginning in March 2017 through January 2019 and are due an additional purchase price adjustment
based on working capital and cash levels delivered to the buyer as of February 17, 2017 (“Completion Cash Adjustment”).
Lastly, the sellers may earn up to an additional £10,000 (approximately $12,500 at the acquisition date) payment if certain
financial targets are achieved by CommAgility during calendar years 2017 and 2018.
Pursuant to the claw back provision of the Share Purchase Agreement, 2,093 of the Consideration Shares are subject to
forfeiture and return to the Company if (a) 2017 EBITDA, as defined, generated by CommAgility is less than £2,400; or (b)
2018 EBITDA, as defined, generated by CommAgility is less than £2,400 (in each case as determined by an audit of
CommAgility conducted by the accountants of the Acquisition Subsidiary in accordance with the terms of the Share Purchase
Agreement). The Company now estimates that the 2017 Adjusted EBITDA target will not be met; thus we believe all 2,093
Consideration shares will be forfeited. Accordingly, the Company recorded a contingent asset of $3,599 which represents the
fair value of the Consideration Shares as of acquisition date. This contingent asset is included in prepaid expenses and other
current assets in the Consolidated Balance Sheet as of December 31, 2017. Upon execution of the claw back provision
prepaid and other current assets and shareholders’ equity will be reduced by $3,599.
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.
While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition
date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.
During the twelve months ended December 31, 2017 the Company recorded measurement period adjustments related to the
completion of the valuation of intangible assets, contingent consideration, the contingent asset associated with the equity claw
back and deferred taxes. The Company incurred $1,290 of acquisition-related costs during the twelve months ended
December 31, 2017, which is included as part of general and administrative expense in the accompanying Consolidated
Statements of Operations and Comprehensive Loss. Since the acquisition date of February 17, 2017, CommAgility contributed
$9,646 of net sales to the Company for the twelve months ended December 31, 2017.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Various valuation techniques were used to estimate the fair value of assets acquired and the liabilities assumed which use
significant unobservable inputs, or Level 3 inputs as defined by the fair value hierarchy. Using these valuation approaches
requires the Company to make significant estimates and assumptions. The following table summarizes the allocation of the
purchase consideration to the fair value of assets acquired and liabilities assumed at the date of acquisition:
Cash at close
Equity issued at close
Amounts Recognized as
of Acquisition Date
Measurement Period
Adjustments
Amounts Recognized as
of Acquisition Date
(as adjusted)
$ 11,318
$ -
$ 11,318
6,000
-
6,000
Completion Cash Adjustment
1,382
-
1,382
Deferred Purchase Price
Contingent Consideration
2,515
-
2,515
2,700
(1,946)
754
Total Purchase Price
23,915
(1,946)
21,969
Cash
Accounts Receivable
Inventory
Intangible Assets
Contingent Asset
Other Assets
Fixed Assets
Accounts Payable
Accrued Expenses
Deferred Revenue
Deferred Tax Liability
Other Long Term Liabilities
4,567
-
4,567
2,267
(33)
2,234
1,126
(41)
1,085
9,658
(4,541)
5,117
-
3,599
3,599
168
-
168
304
-
304
(1,172)
(2)
(1,174)
(417)
-
(417)
(639)
-
(639)
(1,702)
867
(835)
(339)
-
(339)
Net Assets Acquired
13,821
(151)
13,670
Goodwill
$ 10,094
$ (1,795)
$ 8,299
Goodwill is calculated as the excess of consideration paid over the net assets acquired and represents synergies, organic
growth and other benefits that are expected to arise from integrating CommAgility into our operations. None of the goodwill
recorded in this transaction is expected to be tax deductible.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The following table summarizes the activity related to Contingent Consideration and Deferred Purchase Price for the twelve
months ended December 31, 2017:
Contingent
Consideration
Deferred Purchase
Price
Balance at Beginning of Period
$ -
$ -
Fair Value At Acquisition Date
2,700
2,515
Accretion of Interest
Payment
73
-
- (1,408)
Measurement Period Adjustment
(1,946)
Fair Value Adjustment
(253)
-
-
Foreign Currency Translation
56 123
Balance as of December 31, 2017
$ 630
$ 1,230
As of December 31, 2017, $780 of deferred purchase price is included in accrued expenses and other current liabilities on the
consolidated balance sheet. As of December 31, 2017, $630 of contingent consideration and $450 of deferred purchase price
is included in other long term liabilities on the consolidated balance sheet.
Pro Forma Information (Unaudited)
The following unaudited pro forma information presents the Company's operations as if the CommAgility acquisition and
related financing activities had occurred on January 1, 2016. The pro forma information includes the following adjustments (i)
amortization of acquired definite-lived intangible assets; (ii) interest expense incurred in connection with the New Credit
Facility (described in further detail in Note 3) used to finance the acquisition of CommAgility; and (iii) inclusion of
acquisition-related expenses in the earliest period presented. The pro forma combined statements of operations are not
necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed
date and are not intended to be a projection of future results.
Pro-forma results for the years ended December 31, 2017 and 2016 are presented below (in thousands, except per share
amounts):
(Unaudited)
Net Revenues
Net loss
Basic net loss per share
Diluted net loss per share
2017
$ 48,130
$ (1,843)
$ (0.09)
$ (0.09)
2016
$ 42,988
$ (2,848)
$ (0.14)
$ (0.14)
NOTE 3 - DEBT
Debt consists of the following:
Revolver at LIBOR Plus Margin
Term Loan at LIBOR Plus Margin
Total Debt
Debt Maturing within one year
Non-current portion of long term debt
December 31, 2017
$ 1,183
646
1,829
(1,335)
$ 494
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
In connection with the acquisition of CommAgility, the Company entered into a Credit Agreement with Bank of America,
N.A. (the “Lender”) on February 16, 2017 (the "New Credit Facility"), which provided for a term loan in the aggregate
principal amount of $760 (the "Term Loan") and an asset based revolving loan (the “Revolver”), which is subject to a
Borrowing Base Calculation (as defined in the New Credit Facility) of up to a maximum availability of $9,000 (“Revolver
Commitment Amount”). The borrowing base is calculated as 85% of Eligible accounts receivable and inventory, as defined,
subject to certain caps and limits. The borrowing base is calculated on a monthly basis. The proceeds of the term loan and
revolver were used to finance the acquisition of CommAgility.
In connection with the issuance of the New Credit Facility, the Company paid lender and legal fees of $215 which were
primarily related to the Revolver and are capitalized and presented as other current and non-current assets in the Consolidated
Balance Sheets. These costs are recognized as additional interest expense over the term of the related debt instrument using the
straight line method.
The Company must repay the Term Loan in installments of $38 per quarter due on the first day of each fiscal quarter
beginning April 1, 2017 and continuing until the term loan maturity date, on which the remaining balance is due in a final
installment. The future principal payments under the term loan are $152 in 2018 and $494 in 2019. The Term Loan and
Revolver are both scheduled to mature on November 16, 2019.
The Term and Revolving Loans bear interest at the LIBOR rate plus a margin. The margin on the outstanding balance of the
Company’s Term Loans and Revolving Loans were fixed at 3.50% and 3.00% per annum, respectively, through September 30,
2017. Thereafter, the margins were subject to increase or decrease by Lender on the first day of each of the Borrowers’ fiscal
quarters based upon the Fixed Charge Coverage Ratio (as defined in the New Credit Facility) as of the most recently ended
fiscal quarter falling into three levels. If the Company's Fixed Charge Coverage Ratio is greater than or equal to 1.25 to 1.00, a
margin of 3.25% and 2.75%, respectively, is added to LIBOR rate with a step up to 3.50% and 3.00%, respectively, if the ratio
is greater than or equal 1.00 to 1.00 but less than 1.25 to 1.00 and another step up to 3.75% and 3.25%, respectively, if the
ratio is less than 1.00 to 1.00. The Company is also required to pay a commitment fee on the unused commitments under the
Revolver at a rate equal to 0.50% per annum and early termination fee of (a) 2% of the Revolver Commitment Amount and
Term Loan if termination occurs before the first anniversary of the New Credit Facility or (b) 1% of the Revolver
Commitment Amount and Term Loan if termination occurs after the first anniversary of the New Credit Facility but before the
second anniversary of the New Credit Facility. The Company’s interest rate plus margin as of December 31, 2017 on the New
Credit Facility was 4.38% and 4.88% for the revolver and term loan, respectively.
The New Credit Facility is secured by liens on substantially all of the Company’s and its domestic subsidiaries’ assets
including a pledge of 66 2/3% of the equity interests in the Company’s Foreign Subsidiaries (as defined in the New Credit
Facility). The New Credit Facility contains customary affirmative and negative covenants for a transaction of this type,
including, among others, the provision of annual, quarterly and monthly financial statements and compliance certificates,
maintenance of property, insurance, compliance with laws and environmental matters, restrictions on incurrence of
indebtedness, granting of liens, making investments and acquisitions, paying dividends, entering into affiliate transactions and
asset sales. Events of default under the New Credit Facility include but are not limited to: failure to pay obligations when
due, breach or failure of any covenant, insolvency or bankruptcy, materially misleading representations or warranties,
occurrence of a Change in Control (as defined) or occurrence of conditions that have a Material Adverse Effect (as defined).
On August 3, 2017 the Company entered into Amendment No. 1 to the New Credit Facility, effective June 30, 2017, which
amended the definition of EBITDA to exclude the non-cash inventory adjustment of $1,930 recorded during the three months
ended June 30, 2017 and to reduce the pledge of equity interests in the Company’s Foreign Subsidiaries from 66 2/3% to 66
1/3%.
As of December 31, 2017, and the date hereof, the Company is in compliance with the covenants of the New Credit Facility.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 4 - GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following:
Beginning Balance
CommAgility Acquisition
Measurement Period Adjustments
Foreign Currency Translation
Ending Balance
Intangible assets consist of the following:
December 31, 2017
$ 1,351
10,094
(1,795)
610
$ 10,260
Gross Carrying
Amount
Accumulated
Amortization
Foreign Exchange
Translation
Net Carrying
Amount
Customer Relationships
$ 2,766
$ (494)
$ 178
$ 2,450
Patents
615
(109)
39
545
Non-Compete Agreements
1,107
(334)
69
842
Tradename
Total
629
-
45
674
$ 5,117
$ (937)
$ 331
$ 4,511
Amortization of acquired intangible assets was $937 for the twelve months ended December 31, 2017. Amortization of
acquired intangible assets is included as part of general and administrative expenses in the accompanying consolidated
statements of operations and comprehensive loss.
The estimated future amortization expense related to intangible assets is as follows as of December 31, 2017:
2018
2019
2020
2021
2022
Total
$ 1,122
1,122
776
726
91
$ 3,837
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, consist of the following as of December 31:
Machinery & Equipment
Furniture & Fixtures
Transportation Equipment
Leasehold Improvements
Gross property, plant and equipment
Less: accumulated depreciation
Net property, plant and equipment
2017
$ 7,268
2016
$ 6,392
383
2
1,121
8,774
6,044
$ 2,730
140
121
984
7,637
5,470
$ 2,167
Depreciation expense of $682 and $503 was recorded for the years ended December 31, 2017 and 2016, respectively.
NOTE 6 - OTHER ASSETS
Other assets consist of the following as of December 31:
Long term debt issuance costs
Deferred costs
Product demo assets
Security deposits
Other
Total
2017
$ 69
124
431
50
49
$ 723
2016
$ -
-
560
50
50
$ 660
Product demo assets are net of accumulated amortization expense of $1,129 and $1,001 as of December 31, 2017 and 2016,
respectively. Amortization expense related to demo assets was $128 and $133 in 2017 and 2016, respectively.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following as of December 31:
Deferred purchase price
Bonus
Payroll and related benefits
Commissions
Severance
Professional fees
Sales and use and VAT tax
Goods received not invoiced
Other
Total
2017
$ 780
360
594
331
244
109
98
73
305
$ 2,894
45
2016
$ -
-
93
130
-
195
113
10
132
$ 673
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
NOTE 8 - STOCK REPURCHASES (in thousands, except per share amounts)
During 2016 under the Company’s stock repurchase program, the Company repurchased 43 shares of its own common stock
pursuant to the program at an aggregate cost of $65, or $1.52 average cost per share. The 2016 repurchases were funded from
available cash. There were no repurchases of common stock under the stock repurchase program in 2017.
NOTE 9 - ACCOUNTING FOR SHARE BASED COMPENSATION
The Company follows the provisions of ASC 718. The Company’s results for the years ended December 31, 2017 and
December 31, 2016 include share-based compensation expense totaling $536 and $699, respectively. Such amounts have been
included in the consolidated statement of operations and comprehensive loss within operating expenses.
During the twelve months ended December 31, 2017 the Company reversed $473 and $119 in share-based compensation
expense for unvested stock options and restricted shares, respectively, that were forfeited as a result of employees exiting the
Company. The total shares forfeited were 113 restricted shares and 1,147 stock options. The Company had assumed a zero
forfeiture rate in prior periods.
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 restricted stock awards, non-qualified stock options and incentive stock options in
compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of
the Company who are expected to contribute to the Company's future growth and success. When originally approved, the
Initial 2012 Plan provided for the grant of awards relating to 2,000 shares of common stock, plus those shares still available
under the Company’s prior incentive compensation plan. In June 2014, the Company’s shareholders approved the Amended
and Restated 2012 Incentive Compensation Plan (the “2012 Plan”) allowing for an additional 1,658 shares of the Company’s
common stock to be available for future grants under the 2012 Plan. As of December 31, 2017, there were 26 shares available
for issuance under the 2012 Plan, including those shares available under the Company’s prior incentive compensation plan as
of such date.
All service-based options granted have ten-year terms from the date of grant and typically vest quarterly or annually and
become fully exercisable after a maximum of five years. However, vesting conditions are determined on a grant by grant basis.
Performance-based options granted have ten-year terms and vest and become fully exercisable when determinable
performance targets are achieved. Performance targets are agreed to, and approved by, the Company’s Compensation
Committee of the Board of Directors.
Under the 2012 Plan, options may be granted to purchase shares of the Company’s common stock exercisable only at prices
equal to or above the fair market value on the date of the grant.
The following summarizes the components of share-based compensation expense for the years ending December 31:
Service - based Restricted Common Stock
$ 230
$ 208
2017
2016
Performance-based Restricted Common Stock
Performance-based Stock Options
Service -based Stock Options
(62)
(235)
603
21
115
355
$ 536
$ 699
During the twelve months ended December 31, 2017 the Company reversed $473 and $119 in share-based compensation
expense related to stock option and restricted share forfeitures, respectively, that occurred in 2017. These forfeitures were
related to performance based stock options and restricted shares that were being amortized through 2020 related to employees
that left the Company in 2017. As of December 31, 2017, $569 of unrecognized compensation costs related to unvested stock
options is expected to be recognized over a remaining weighted average period of 2.8 years and $100 of unrecognized
compensation costs related to unvested restricted shares is expected to be recognized over a remaining weighted average
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
period of 0.6 years.
Restricted Common Stock Awards
A summary of the status of the Company’s non-vested restricted common stock, as granted under the Company’s approved
equity compensation plans, as of December 31, 2017, and changes during the twelve months ended December 31, 2017, are
presented below (in thousands, except per share amounts):
Non-vested Restricted Shares
Non-vested as of January 1
Granted
Vested and Issued
Forfeited
Non-vested as of December 31
2017
2016
Weighted
Average
Grant
Date Fair
Value
$1.52
$1.65
($1.73)
($1.77)
$1.64
Number
of Shares
244
150
(122)
(113)
159
Number
of Shares
Weighted
Average
Grant Date
Fair Value
187
188
(101)
(30)
244
$2.01
$1.38
$2.22
$1.33
$1.52
The following table summarizes the restricted common stock awards granted to certain directors and officers of the company
during the years ended December 31, 2017 and 2016 under the 2012 Plan (in thousands, except per share amounts):
2017
6/5/17 - Service Grant - BOD
2016
11/13/2016 - Service Grant - BOD
11/9/2016 - Service Grant - BOD
6/30/16 - Service Grant - CEO
6/8/16 - Service Grant - BOD
2016 Total
Fair
Market
Value per
Granted
Share
Vesting
$1.65
Next Annual Meeting - June 2018
$1.59
$1.64
$1.34
$1.33
Annual Meeting - June 2017
Annual Meeting - June 2017
Quarterly Vesting through June 2020
Annual Meeting - June 2017
Number
of
Shares
150
15
15
8
120
158
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Performance-Based Stock Option Awards
A summary of performance-based stock option activity, and related information for the year ended December 31, 2017
follows (in thousands, except per share amounts):
2017
Weighted
Average
Exercise Price
Options
2016
Options
Weighted Average
Exercise Price
Outstanding as of January 1
2,165
$1.32
1,965
$1.32
Granted
Exercised
Forfeited
Expired
-
-
200
$1.36
(550)
(1,010)
$0.75
$1.69
-
-
-
-
-
-
-
-
Outstanding as of December 31
605
$1.21
2,165
Exercisable at December 31
320
$0.95
1,090
$1.32
$0.96
The aggregate intrinsic value of performance-based stock options outstanding (regardless of whether or not such options are
exercisable) as of December 31, 2017 was $741 and the weighted average remaining contractual life was 5.0 years. The
aggregate intrinsic value of performance-based stock options exercisable as of December 31, 2017 was $474 and the
weighted average remaining contractual life was 2.3 years. The intrinsic value of options exercised during the twelve months
ended December 31, 2017 was $924.
The range of exercise prices of outstanding performance-based options at December 31, 2017 is $0.75 to $3.02 with a
weighted average remaining contractual life of 5.0 years and weighted average exercise price of $1.21 per share.
Under the terms of the performance-based stock option agreements, the awards will fully vest and become exercisable on the
date on which the Company’s Board of Directors shall have determined that specific financial performance milestones have
been met, provided the employee remains in the employ of the Company at such time; provided, however, upon a Change in
Control (as defined in the stock option agreements and the 2012 Plan), the stock options shall automatically vest as permitted
by the 2012 Plan. As of December 31, 2017, the Company has determined that the performance conditions on 285 options
granted in 2013 and later are probable of being achieved by the year ending 2021. The Company’s performance-based stock
options granted prior to 2013 (consisting of 320 options) are fully amortized.
Service-Based Stock Option Awards
A summary of service-based stock option activity and related information for the year ended December 31, 2017 follows (in
thousands, except per share amounts):
2017
2016
Weighted Average
Exercise Price
Options
Weighted Average
Exercise Price
Outstanding as of January 1
Granted
Exercised
Forfeited
Expired
Outstanding as of December 31
Options
1,198
845
(8)
(137)
(83)
1,815
$1.51
$1.68
$1.61
$1.47
$3.00
$1.53
523
$2.23
1,040
$1.41
-
(70)
$0.00
$1.33
(295)
$2.46
1,198
$1.51
$2.09
Exercisable at December 31
567
$1.38
181
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The aggregate intrinsic value of service-based stock options (regardless of whether or not such options are exercisable) as of
December 31, 2017 was $1,642 and the weighted average remaining contractual life was 8.9 years. The aggregate intrinsic
value of service-based stock options exercisable as of December 31, 2017 was $594 and the weighted average remaining
contractual life was 8.4 years. The intrinsic value of options exercised during the twelve months ended December 31, 2017
was $12.
The range of exercise prices of outstanding service-based options at December 31, 2017 is $0.75 to $3.75 with a weighted
average remaining contractual life of 8.9 years and weighted average exercise price of $1.53 per share.
The following table presents the assumptions used to estimate the fair value of stock option awards granted during the twelve
months ended December 31, 2017:
Number of
Options
(in thousands)
100
20
100
35
350
200
40
Option
Term
(in years)
4
4
4
4
1
4
4
Exercise
Price
Risk Free
Interest
Rate
$1.91
$1.92
$1.72
$1.38
$1.65
$1.65
$1.60
1.94%
1.87%
1.92%
1.80%
1.74%
1.74%
1.76%
Expected
Volatility
77.78%
77.88%
72.01%
68.93%
69.02%
69.02%
69.09%
Fair
Value at
Grant
Date
Expected
Dividend
Yield
$1.11
$1.11
$0.94
$0.73
$0.46
$0.87
$0.84
0
0
0
0
0
0
0
1/2/17 - Service Grant
1/12/17 - Service Grant
2/17 17 - Service Grant
5/22/17 - Service Grant
6/5/17 - Service Grant
6/5/17 - Service Grant
6/15/17 - Service Grant
NOTE 10 - SEGMENT AND RELATED INFORMATION
Financial information by segment
The operating businesses of the Company are segregated into three reportable segments: (i) Network solutions (ii) Test and
measurement and (iii) Embedded solutions. The network solutions segment is comprised primarily of the operations of the
Company’s subsidiary, Microlab. The test and measurement segment is comprised primarily of the Company’s operations of
the Noisecom product line and the operations of its subsidiary, Boonton. The embedded solutions segment is comprised of
the operations of CommAgility Limited which was acquired on February 17, 2017.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting
policies. The Company allocates resources and evaluates the performance of segments based on income or loss from
operations, excluding interest, corporate expenses and other income (expenses).
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Financial information by reportable segment as of and for the years ended December 31, 2017 and 2016 is presented below:
For the years ended December 31,
2016
2017
$ 23,052
13,380
9,646
$ 20,199
11,128
-
$ 46,078
$ 31,327
$ 2,935
431
374
3,740
$ 2,486
(248)
-
2,238
(6,685)
(301)
(4,786)
364
$ (3,246)
$ (2,184)
$ 297
393
1,057
$ 255
248
-
$ 1,747
$ 503
$ 426
300
201
$ 464
355
-
$ 927
$ 819
December 31,
2017
$ 10,442
6,163
21,733
38,338
December 31,
2016
$ 10,595
7,851
-
18,446
8,583
$ 46,921
16,989
$ 35,435
Net sales by segment:
Network solutions
Test and measurement
Embedded solutions
Total consolidated
net sales of reportable segments
Segment income:
Network solutions
Test and measurement
Embedded solutions
Income from reportable segments
Other unallocated amounts:
Corporate expenses
Other (expenses) income - net
Consolidated (loss) before
income tax provision (benefit)
Depreciation and amortization expense by segment:
Network solutions
Test and measurement
Embedded solutions
Total depreciation and amortization for
reportable segments
Capital expenditures by segment:
Network solutions
Test and measurement
Embedded solutions
Total consolidated capital expenditures by
reportable segment
Total assets by segment:
Network solutions
Test and measurement
Embedded solutions
Total assets for reportable segments
Corporate assets, principally cash and cash equivalents and
deferred income taxes
Total consolidated assets
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Regional Revenues
Net consolidated revenues from operations by region were as follows:
Sales by region
Americas
Europe, Middle East, Africa (EMEA)
Asia Pacific (APAC)
Total revenues
Twelve Months Ended
December 31
2017
2016
$ 33,440
$ 24,155
9,506
3,132
5,132
2,040
$ 46,078
$ 31,327
Net revenues are attributable to a geographic area based on the destination of the product shipment, which may not be the
final geographic destination of our international distributors’ end customer.
The majority of shipments in the Americas are to customers located within the United States. For the years ended December
31, 2017 and 2016, sales in the United States amounted to $31,924 and $23,269, respectively.
Shipments to the EMEA region for all reportable segments were largely concentrated in the UK, Israel and Germany. For the
year ended December 31, 2017 shipments to the UK, Germany and Israel amounted $5,634, $878 and $789, respectively. For
the year ended December 31, 2016, sales to the UK, Germany and Israel amounted to $769, $716 and $1,178, respectively.
The largest concentration of shipments in the APAC region is to China. For the years ended December 31, 2017 and 2016,
shipments to China amounted to $963 and $1,104, of all shipments to the APAC region, respectively. There were no other
shipments significantly concentrated in one country in the APAC region.
NOTE 11 - RETIREMENT PLAN
The Company has a 401(k) profit sharing plan covering all eligible U.S. employees. Company contributions to the plan for
the years ended December 31, 2017 and 2016 amounted to $255 and $378, respectively.
NOTE 12 - INCOME TAXES
On December 22, 2017, the United States enacted TCJA which instituted fundamental changes to the taxation of
multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. The
Company has recognized $1,247 net tax expense for the year ended 2017 which includes $2,481 deferred tax expense from
revaluing the Company’s deferred tax assets to reflect the new U.S. corporate tax rate. The TCJA also requires a one-time
transition tax on the mandatory deemed repatriation of the cumulative earnings of the Company’s foreign subsidiary as of
December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings
generated since inception by the relevant foreign subsidiary, as well as the amount of non-U.S. income taxes paid on such
earnings, in addition to potentially other factors. The Company’s earnings and profits from its foreign subsidiary under the
transition tax calculation is offset by net operating losses thus no transition tax is payable.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The components of income tax expense (benefit) related to income (loss) from operations are as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
Years Ended December 31,
2017
2016
$ (4)
22
(166)
1,672
(275)
(2)
$ 1,247
$ -
37
-
(340)
(49)
-
$ (352)
The following is a reconciliation of the maximum statutory federal tax rate to the Company’s effective tax relative to
operations:
Statutory federal income tax rate
Changes in tax rates
Permanent differences
Repatriation tax - new law
Change in valuation allowance
Research and development incentive
State income tax net of federal tax benefit
Foreign rate difference
Other
Total
Years Ended December 31,
2016
% of
Pre Tax
Earnings
2017
% of
Pre Tax
Earnings
(34.0) %
67.4
7.9
4.8
4.4
(6.7)
(3.5)
(1.5)
(0.4)
38.4 %
(34.0) %
-
6.9
-
11.9
-
1.7
-
(2.6)
(16.1) %
In 2017 the difference between the statutory and effective tax rate is primarily due to the change in tax rates under TCJA. In
2016 the difference between the statutory and the effective tax rate is primarily due to a change in valuation allowance and a
current provision for state income taxes, respectively.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The components of deferred income taxes are as follows:
Deferred tax assets:
Net operating loss carryforwards
Inventory
Research and development credit
Stock compensation
Other
Goodwill and intangible assets
Fixed assets
Gross deferred tax asset
Less valuation allowance
Net deferred tax asset
Years Ended December 31,
2016
2017
$ 11,979
909
648
165
108
(1,147)
(439)
12,223
(7,051)
$ 5,172
$ 12,559
786
-
-
184
(541)
(122)
12,866
(5,462)
$ 7,404
The Company has a domestic federal and state net operating loss carryforward at December 31, 2017 of approximately
$19,537 and $44,998, respectively, which expires in 2029. The Company also has a foreign net operating loss carryforward at
December 31, 2017 of approximately Euro 12,845 for German corporate tax and German trade tax purposes.
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 valuation allowances of $7,051 and $5,462 at December 31, 2017
and 2016, respectively, are primarily 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 amount of deferred tax
assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. As of
December 31, 2017, management believes that is more likely than not that the Company will fully realize the benefits of its
deferred tax assets associated with its domestic federal net operating loss carryforward.
The Company does not have any significant unrecognized tax positions and does not anticipate significant increase or
decrease in unrecognized tax positions within the next twelve months.
NOTE 13 – FAIR VALUE MEASUREMENTS
Fair value is defined by ASC 820 “Fair Value Measurement” as the price that would be received upon selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a
three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to
maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to
measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets and liabilities. This includes pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
Payment of a portion of the CommAgility purchase price is contingent on the achievement of certain financial targets for the
years ending December 31, 2017 and 2018. The Company estimated the fair value of contingent consideration at acquisition
date to be $754. During the three months ended the December 31, 2017 the Company reassessed the fair value of the
contingent consideration and recorded a gain in the amount of $253 as it was determined that the financial targets would not
be met for the year ended December 31, 2017. The significant inputs used in the fair value estimate include anticipated gross
revenues and Adjusted EBITDA, as defined, and scenarios for the earn-out periods for which probabilities are assigned to
each scenario to arrive at a single estimated outcome. The estimated outcome is then discounted based on individual risk
analysis of the liability which was 15% at December 31, 2017 and is expected to be paid in March 2019. As of December
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
31, 2017 the Company’s contingent consideration liability is $630 and is recorded in other long term liabilities on the
consolidated balance sheet. The contingent consideration liability is considered a Level 3 fair value measurement.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Warranties
The Company typically provides one to three year warranties on all of its products covering both parts and labor. The
Company, at its option, repairs or replaces products that are defective during the warranty period if the proper preventive
maintenance procedures have been followed by its customers.
Operating Leases
The Company leases a 45,700 square foot facility in Parsippany, New Jersey which has a term ending March 31, 2023 and is
currently being used as the Company’s principal headquarters and manufacturing plant. The Company is also responsible for
its proportionate share of the cost of utilities, repairs, taxes and insurance.
Monthly lease payments range from approximately $33 in year one to approximately $41 in year eight. Additionally, the
Company had available an allowance of approximately $300 towards alterations and improvements to the premises, which
expired on January 31, 2017. The Company used substantially all of the improvement allowance prior to its expiration. The
lease can be renewed at the Company’s option for one five-year period at fair market value to be determined at term
expiration.
Pursuant to the Share Purchase Agreement dated February 17, 2017 the Company assumed leases for office space in
Leicestershire, England consisting of 4,900 square feet and Duisburg, Germany consisting of 7,446 square feet. The
Leicestershire lease expires in November 2020 and the Duisburg lease is renewable every three months.
The future minimum facility lease payments are shown below:
2018
2019
2020
2021
2022
Thereafter
Total
$ 528
511
460
474
488
123
$ 2,584
Rent expense, inclusive of common area maintenance charges, for the years ended December 31, 2017 and 2016 was $796
and $585, respectively.
The Company leases certain equipment under operating lease arrangements. These operating leases expire in various years
through 2022. All leases may be renewed at the end of their respective leasing periods.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
The future minimum operating lease payments are shown below:
2018
2019
2020
2021
2022
Thereafter
Total
$ 54
54
54
54
9
-
$ 225
Environmental Contingencies
The Company’s operations are subject to various federal, state, local, and foreign environmental laws, ordinances and
regulations that limit discharges into the environment, establish standards for the handling, generation, use, emission, release,
discharge, treatment, storage and disposal of, or exposure to, hazardous materials, substances and waste, and require cleanup
of contaminated soil and groundwater.
The New Jersey Department of Environmental Protection (the “NJDEP”) conducted an investigation in 1982 concerning
disposal at a facility previously leased by the Company’s Boonton operations. The focus of the investigation involved certain
materials formerly used by Boonton’s manufacturing operations at that site and the possible effect of such disposal on the
aquifer underlying the property. The disposal practices and the use of the materials in question were discontinued in 1978.
The Company has cooperated with the NJDEP investigation and has been diligently pursuing the matter in an attempt to
resolve it in accordance with applicable NJDEP operating procedures. The above referenced activities were conducted by
Boonton prior to our acquisition of that entity in 2000.
In 1982, Boonton and the NJDEP agreed upon a plan to correct ground water contamination at the site, located in the
township of Parsippany-Troy Hills, pursuant to which wells have been installed by Boonton. The plan contemplates that the
wells will be operated and that soil and water samples will be taken and analyzed until such time that contamination levels
are satisfactory to the NJDEP. In 2014, the Company received approval for a groundwater permit from the NJDEP to carry
out the final remedial action work plan and report. Under the final phase of the plan, there will be limited and reduced
monitoring and testing as long as concentrations at the site continue on a decreasing trend.
Expenditures incurred by the Company during the year ended December 31, 2017 and 2016 in connection with monitoring
and testing at the site amounted to approximately $1 and $18, respectively. While management anticipates that the
expenditures in connection with this site will not be substantial in future years, the Company could be subject to significant
future liabilities and may incur significant future expenditures if further contaminants from Boonton’s testing are identified
and the NJDEP requires additional remediation activities. Our estimate of future remediation costs is $41 through 2027 when
we expect final release from the NJDEP. The Company will continue to be liable under the plan, in all future years, until
such time as the NJDEP releases the Company from all obligations.
In December 2016, the Company and its subsidiary, Boonton, entered into an agreement with an insurance company to settle
prior disputes between the parties related to whether insurance policies were issued by a former insurer and whether they
provided coverage for expenses arising from the NJDEP environmental matter. Under the terms of the settlement agreement,
the Company received a payment in the amount of $485 for full and final settlement of any and all further insurance claims.
At this time, the Company believes that it is in material compliance with all environmental laws, does not anticipate any
material expenditure to meet current or pending environmental requirements, and generally believes that its processes and
products do not present any unusual environmental concerns. Besides the matter referred to above with the NJDEP, the
Company is unaware of any existing, pending or threatened contingent environmental liability that may have a material
adverse effect on its ongoing business operations.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
(In thousands, unless otherwise noted)
Risks and Uncertainties
Proprietary information and know-how are important to the Company’s commercial success. There can be no assurance that
others will not either develop independently the same or similar information or obtain and use proprietary information of the
Company. Certain key employees have signed confidentiality and non-compete agreements regarding the Company’s
proprietary information.
The Company believes that its products do not infringe the proprietary rights of third parties. There can be no assurance,
however, that third parties will not assert infringement claims in the future.
The Company’s deferred tax asset is recorded at tax rates expected to be in existence when those assets are utilized. Should
the tax rates change materially in the future the amount of deferred tax asset could be materially impacted.
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data from operations (in thousands, except per share amounts).
2017
Net revenues
Gross Profit
Operating income (loss)
Net income (loss)
Quarter
1st
2nd
3rd
4th
$ 9,549
$ 11,933
$ 12,560
$ 12,036
4,333
(1,719)
3,344
(2,269)
6,113
782
5,471
261
(1,231)
(1,368)
653
(2,547)
Diluted net income (loss) per share
($0.06)
($0.07)
$0.03
($0.11)
2016
Net revenues
Gross Profit
Operating income (loss)
Net income (loss)
Quarter
1st
2nd
3rd
4th
$ 6,368
$ 7,610
$ 8,345
$ 9,004
2,720
(921)
3,339
(353)
3,823
268
3,280
(1,542)
(576)
(218)
121
(1,159)
Diluted net income (loss) per share
($0.03)
($0.01)
$0.01
($0.06)
56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 Act of 1934. Our
disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our
SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to
Wireless Telecom Group, Inc. 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) Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s
principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. GAAP. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2017, management assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,”
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment,
management determined that the Company maintained effective internal control over financial reporting as of December 31, 2017.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to the Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-
accelerated filers and smaller reporting companies from the auditor attestation requirement of Section 404 (b) of the Sarbanes-Oxley
Act.
(c) Changes in Internal Controls over Financial Reporting
We acquired CommAgility on February 17, 2017 and as of December 31, 2017 the operations of CommAgility have been
integrated into our overall system of internal control over financial reporting. There have been no changes in our internal control over
financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers of the Company
PART III
Set forth below are the names, ages and descriptions of the backgrounds, as of March 1, 2018, of each of the current
directors and executive officers of the Company. All directors are currently serving one year terms.
Name
Alan L. Bazaar
Joseph Garrity
Mitchell Herbets
Michael Millegan
Allan D.L. Weinstein
Timothy Whelan
Michael Kandell
Daniel Monopoli
Age
47
61
60
59
47
51
42
37
Position(s)
Chairman of the Board
Director
Director
Director
Director
Director, Chief Executive Officer
Chief Financial Officer and Secretary
Chief Technology Officer
Alan L. Bazaar became a director of the Company in June 2013 and was elected Chairman of the board of directors in April
2014. Mr. Bazaar is currently the Chief Executive Officer of Hollow Brook Wealth Management LLC, a position he has held since
November 2013, where he is responsible for firm-wide operations, investment research, and portfolio management. Mr. Bazaar has
served as a director of Hudson Global Inc. since June 2015 and a director of Sparton Corp. since May 2016. Mr. Bazaar served as a
director of LoJack Corporation from March 2015 until the completion of its sale in March 2016. Mr. Bazaar was formerly a director
of NTS, and served from December 2012 until the completion of its sale in June 2014. From 2004 until April 2008, Mr. Bazaar has
served as a director of Media Sciences International, Inc., which manufactured and distributed business color printer supplies and
industrial ink applications in the United States. From July 1999 until December 2009, Mr. Bazaar was a Managing Director and
Portfolio Manager at Richard L. Scott Investments, LLC where he co-managed the public equity portfolio and was responsible for all
elements of due diligence. Previously, Mr. Bazaar served as a director of Airco Industries, Inc., a privately held manufacturer of
aerospace products, and was employed by Arthur Andersen LLP in the Assurance and Financial Buyer’s Practices group and in the
Business Fraud and Investigation Services Unit. Mr. Bazaar received an undergraduate degree in History from Bucknell University
and a Master of Business Administration from the Stern School of Business at New York University. Mr. Bazaar is also a Certified
Public Accountant. The Company believes that Mr. Bazaar’s successful track record as an accomplished business leader with
significant experience as Chief Executive Officer and membership on public boards qualifies him to serve on the Company’s board of
directors.
Joseph Garrity became a director of the Company in July 2007. From 2011 to present, Mr. Garrity serves as the co-founder,
COO/CFO of Salem Global Partners, Inc., a strategic recruiting and consulting company serving the financial services industry. Mr.
Garrity served in various capacities from 1991 to 2005 including: Executive Vice President, Chief Financial Officer, Chief Operating
Officer and Director of 4 Kids Entertainment, a licensing company involved in film and television production, and a New York Stock
Exchange-listed company at the time. For more than six years prior to such time, Mr. Garrity was a Senior Audit Manager for Deloitte
& Touche LLP serving U.S. and multinational public companies. Mr. Garrity is a member of the board of directors of AGB Search,
Inc., a higher education executive search firm, and a trustee of the Central Harlem Initiative for Learning and Development and Saint
Michael’s College. Mr. Garrity has over 20 years of experience in executive financial management and is a CPA and a member of the
New York State Society of CPAs and the AICPA. Mr. Garrity received an undergraduate degree in economics from Saint Michael’s
College and a Master of Science in Accounting from Pace University. Mr. Garrity’s significant tenure as the chief financial officer of
a public company, as well as his financial background, qualifies him to serve on the Company’s board of directors and as a financial
expert on the Company’s audit committee.
Mitchell Herbets became a director of the Company in June 2015. Mr. Herbets serves as the Managing Principal of Herbets
Consulting LLC, a consulting company he formed in 2012. He currently serves as non-executive Chairman of Thales Defense and
Security, Inc., a global technology company that provides advanced technology equipment to the U.S. defense and federal technology
markets. From 2000 to 2010, Mr. Herbets served as the Chief Executive Officer and President of Thales. He joined Thales in 1987 and
served in a number of senior executive positions, including leadership roles in program management, engineering, and business
development prior to serving as Chief Executive Officer. Prior to joining Thales, Mr. Herbets' career included four years of service
with the U.S. Army with the final rank of Captain. He holds a Bachelor's degree in Electrical Engineering from Lehigh University and
a Master's in Business Administration from George Washington University. Mr. Herbets’ experience as a chief executive officer, in
58
addition to his significant technical expertise and background in the defense industry, qualifies him to serve on the Company’s board
of directors.
Michael Millegan became a director of the Company on November 13, 2016. Mr. Millegan was President of Verizon Global
Wholesale group, a business unit of Verizon Communications, where he focused on global carrier, wireless and cable company
network requirements from 2007 until his retirement in December 2013. During this time, he served as a member of the Verizon
Leadership Committee which focused on operational performance. Prior to that, Mr. Millegan was Senior Vice President/Market
President for Verizon’s Midwest Operations and Senior Vice President Enterprise/Wholesale business unit, which focused on over
300 large enterprise customers. Mr. Millegan also led the Logistics/Supply Chain business unit as the Senior Vice President from 2000
to 2004. Mr. Millegan served on the advisory board of FINSPHERE, a leader in mobile identity authentication enabling financial
institutions and mobile network operators to protect against credit card fraud. In addition, Mr. Millegan is an advisor to WINDPACT,
an innovative sports technology company developing protective gear to minimize sports related concussive head trauma. He holds a
Bachelor’s and Master’s degree in Business Administration from Angelo State University. Mr. Millegan’s experience as an executive
at Verizon and advisor to multiple technology companies qualifies him to serve on the Company’s board of directors.
Allan D.L. Weinstein became a director of the Company on November 9, 2016. Mr. Weinstein is the co-founder and
Managing Partner of Gainline Capital Partners LP., a private equity firm. Prior to co-founding Gainline in 2015, he was a Managing
Partner of CAI Private Equity, a private equity firm, which he joined in 2012. While at CAI, Mr. Weinstein served on the firm’s
Investment Committee and was a partner in CAI’s management company. Before joining CAI, Mr. Weinstein was a Managing
Director at New York-based private equity firm Lincolnshire Management, Inc., where he was employed for nearly 18 years. Mr.
Weinstein began his career with Fleet Bank, and he has served as a director or officer of numerous companies, including Allison
Marine, Bankruptcy Management Solutions and Shred-Tech Corporation as well as Chief Financial Officer of Credentials Services
International, Inc. He is currently on the Board of Directors of CSAT Solutions Holdings LLC, a reverse logistics company serving
the electronics sector. Mr. Weinstein has a Bachelor’s degree in History and Economics from Vassar College. Mr. Weinstein’s
experience in private equity and membership on boards of multiple companies qualifies him to serve on the Company’s board of
directors.
Timothy Whelan was appointed Chief Executive Officer of the Company effective June 30, 2016, and has served as a
director of the Company since March 2015. Before assuming the role of the Company’s CEO, Mr. Whelan was Managing Director of
Echo Financial Business Consulting Group, a privately held financial and operational consulting firm he co-founded in February 2014.
Mr. Whelan served as President and Chief Operating Officer of IPC Systems, Inc., a company that provides and services voice
communication systems for the financial services industry, from 2009 to 2013. Mr. Whelan served as Executive Vice President and
Chief Financial Officer of IPC Acquisition Corp./IPC Systems Holdings Corp. from 2001 to 2009 and also served as its Principal
Accounting Officer from 2001 to 2009. From July 2000 to December 2001, Mr. Whelan served as Divisional Chief Financial Officer
of Global Crossing’s Financial Markets division. From May 1999 to June 2000, Mr. Whelan served as Vice President of Finance at
IPC Information Systems, Inc. and IXnet. Mr. Whelan is a certified public accountant and previously worked for Ernst & Young from
1992 to 1999. He previously spent four years as a U.S. Naval Officer. Mr. Whelan has served as a director of Edgewater Technology,
Inc. since March 2016. He has a Bachelor of Science degree in Accounting from Villanova University. Mr. Whelan’s significant
tenure as a chief financial and chief operating officer, his experience managing all aspects of the financial management of a company,
as well as his experience in IT services, technology and telecommunications industries, qualifies him to serve on the Company’s board
of directors.
Michael Kandell was appointed to serve as Chief Financial Officer effective January 2, 2017. Prior to joining the Company,
Mr. Kandell worked at Avaya, Inc., a multinational technology company specializing primarily in unified communication and contact
center products and services, from 2010, most recently serving as Senior Director of Accounting. Prior to Avaya, Mr. Kandell worked
at Precision Partners, Inc., an advanced manufacturing and engineering services company, from 2006 to 2010 as assistant corporate
controller and, prior to that, from 1997 to 2004 at Ernst & Young LLP in various roles in the audit and assurance practice. He received
his Bachelor of Science degree in accounting from College of New Jersey. Mr. Kandell is a Certified Public Accountant.
Daniel Monopoli was appointed to serve as Chief Technology Officer effective June 30, 2017. Mr. Monopoli was most
recently General Manager of the Company’s Test and Measurement segment serving in that capacity since September 2015. Prior to
joining the Company Mr. Monopoli held various positions of increasing responsibility at Teledyne LeCroy, a leading provider of test
and measurement solutions in the telecommunications industry, from July 2002 to April 2015. Mr. Monopoli holds an MBA from
Columbia University, Master of Engineering in Electrical Engineering degree from Stevens Institute of Technology and a Bachelor of
Science in Electrical Engineering from Binghamton University.
There are no family relationships among any of the director nominees, current directors or executive officers of the
Company.
59
Code of Business Conduct and Ethics
The Company’s board of directors has adopted a Code of Business Conduct and Ethics (the “Code”) that outlines the
principles of legal and ethical business conduct under which the Company does business. The Code, which is applicable to all
directors, employees and officers of the Company, is available at the Company’s website at www.wirelesstelecomgroup.com. Any
substantive amendment or waiver of the Code may be made only by the Company’s board of directors or a committee of the board of
directors, and will be promptly disclosed to the Company’s shareholders on its website. In addition, disclosure of any waiver of the
Code will also be made by the filing of a Current Report on Form 8-K with the SEC in accordance with the requirements thereof.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and the holders of greater than 10% of our
common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers and directors
are required by SEC regulations to furnish us with copies of these reports. Based solely on a review of the copies of these reports
furnished to us and written representations from such executive officers, directors and shareholders with respect to the period from
January 1, 2017 through December 31, 2017, the Company believes that the Company’s executive officers, directors and greater than
10% beneficial owners have complied with all Section 16(a) filing requirements.
Audit Committee
The Company has a standing Audit Committee of the Board of Directors. The Company’s board of directors has adopted a
written charter for the Audit Committee which is available on the Company’s website at www.wirelesstelecomgroup.com.
The Audit Committee serves at the pleasure of the Company’s board of directors. The Audit Committee oversees the
accounting and financial reporting processes of the Company and audits of the financial statements of the Company. The Audit
Committee provides assistance to the Board of Directors with respect to its oversight of the integrity of the Company’s financial
statements, compliance with legal and regulatory requirements, independent auditor’s qualifications and independence and
performance.
The Audit Committee approves all engagements of any independent public accounting firm by the Company to render audit
or non-audit services. Our Audit Committee has the sole authority to approve the scope of the audit and any audit-related services as
well as all audit fees and terms. Our Audit Committee must pre-approve any audit and non-audit related services by our independent
registered public accounting firm. During our fiscal year ended December 31, 2017, no services were provided to us by our
independent registered public accounting firm other than in accordance with the pre-approval procedures described herein.
During the fiscal year ended December 31, 2017, the members of the Audit Committee were Messrs. Joseph Garrity (Chair),
Alan L. Bazaar and Allan D.L. Weinstein.
The Company’s board of directors determined that each of Messrs. Bazaar, Garrity and Weinstein met the independence
criteria set forth in the applicable rules of the NYSE American Exchange and the Securities and Exchange Commission, for audit
committee membership. The board of directors has also determined that all current members of the Audit Committee possess the level
of financial literacy required by applicable rules of the NYSE American Exchange and the SEC. The Company’s board of directors
has determined that Joseph Garrity is qualified as an “audit committee financial expert” as such term is defined in Item 407(d) of
Regulation S-K.
Item 11. Executive Compensation
Overview
The goal of our executive compensation program is the same as our goal for operating the Company: to create long-term
value for our shareholders. Toward this goal, we have designed and implemented our compensation programs for our named executive
officers to reward them for sustained financial and operating performance and leadership excellence, to align their interests with those
of our shareholders and to encourage them to remain with the Company for long and productive careers. Most of our compensation
elements simultaneously fulfill one or more of our performance, alignment and retention objectives. These elements consist of salary
and bonuses, equity incentive compensation, retirement and other benefits. In deciding on the type and amount of compensation for
each executive, we focus on both current pay and the opportunity for future compensation. We combine the compensation elements
for each executive in a manner we believe optimizes the executive’s contribution to the Company.
60
Compensation Objectives
Performance. Key elements of compensation that depend on the named executive officer’s performance include:
a discretionary cash bonus that is based on an assessment of his performance against pre-determined quantitative and
qualitative measures within the context of the Company’s overall performance; and
equity incentive compensation in the form of stock options and restricted stock, which are subject to vesting requirements
that depend on the executive or the Company meeting specific performance objectives and require continued service by the
executive with the Company.
Base salary and bonus are designed to reward annual achievements and be commensurate with the executive’s scope of
responsibilities, demonstrated leadership abilities, and management experience and effectiveness. Our equity incentive compensation
is focused on motivating and challenging each named executive officer to achieve superior, longer-term, sustained results.
Alignment. We seek to align the interests of the named executive officers with those of our investors by evaluating executive
performance on the basis of key financial measurements which we believe closely correlate to long-term shareholder value, including
revenue, operating profit, earnings per share, operating margins, return on total equity or total capital, cash flow from operating
activities, total shareholder return and adjusted earnings before interest, taxes, depreciation expense, amortization expense and other
non-recurring expenses (“Adjusted EBITDA”). We believe that our equity incentive compensation awards align the interests of the
named executive officers with the interests of our shareholders because we have structured the vesting of the awards to relate to
achieving specific performance objectives and the total value of the awards corresponds to stock price appreciation.
Retention. We attempt to retain our executives by using continued service as part of the vesting terms of our equity
compensation awards.
Implementing Our Objectives
Determining Compensation. Our Compensation Committee relies upon its judgment in making compensation decisions,
after reviewing the performance of the Company and carefully evaluating an executive’s performance during the year against
predetermined established goals, relating to leadership qualities, operational performance, business responsibilities, career with the
Company, current compensation arrangements and long-term potential to enhance shareholder value. Specific factors affecting
compensation decisions for the named executive officers include:
key financial measurements such as revenue, operating profit, earnings per share, operating margins, return on total equity or
total capital, cash flow from operating activities, total shareholder return and Adjusted EBITDA;
strategic objectives such as acquisitions, dispositions or joint ventures, technological innovation and globalization;
promoting commercial excellence by launching new or continuously improving products or services, being a leading market
player and attracting and retaining customers;
achieving specific operational goals for the Company, including improved productivity, simplification and risk management;
achieving excellence in their organizational structure and among their employees; and
supporting our values by promoting a culture of unyielding integrity through compliance with law and our ethics policies, as
well as commitment to community leadership and diversity.
We generally do not adhere to rigid formulas or react to short-term changes in business performance in determining the
amount and mix of compensation elements. We consider competitive market compensation paid by other companies, but we do not
attempt to maintain a certain target percentile within a peer group or otherwise rely on those data to determine executive
compensation. We incorporate flexibility into our compensation programs and in the assessment process to respond to and adjust for
the evolving business environment.
We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives.
Any apportionment goal is not applied rigidly and does not control our compensation decisions; we use it as another tool to assess an
executive’s total pay opportunities and whether we have provided the appropriate incentives to accomplish our compensation
objectives. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a
combination of cash and equity incentive awards. We also seek to balance compensation elements that are based on financial,
operational and strategic metrics, including elements intended to reflect the performance of our shares. We believe the most important
indicator of whether our compensation objectives are being met is our ability to motivate our named executive officers to deliver
superior performance and retain them to continue their careers with us on a cost-effective basis.
Role of Compensation Committee and CEO. The Compensation Committee of our board has primary responsibility for
overseeing the design, development and implementation of the compensation program for the CEO and the other named executive
officers. The Compensation Committee evaluates the performance of the CEO and recommends to all independent directors the CEO
compensation in light of the goals and objectives of the compensation program. The CEO and the Compensation Committee together
61
assess the performance of the other named executive officers and the Compensation Committee determines their compensation, based
on initial recommendations from the CEO. The other named executive officers do not play a role in their own compensation
determination, other than discussing individual performance objectives with the CEO.
Role of Compensation Consultants. We did not use the services of any compensation consultant in matters affecting senior
executive or director compensation in 2017 or 2016. However, we have engaged with compensation consultants in the past and either
the Company or the Compensation Committee may engage or seek the advice of compensation consultants in the future.
Equity Grant Practices. The exercise price of each stock option awarded to our named executive officers under our current
long-term equity incentive plan is the closing price of our stock on the date of grant. Scheduling decisions are made without regard to
anticipated earnings or other major announcements by the Company. We prohibit the re-pricing of stock options. Restricted stock
awards for our named executive officers and our stock option awards typically provide for vesting over a requisite service period or
when performance targets, pre-determined by our board are achieved. The vesting structure of our equity grants is intended to further
our goal of executive retention by providing an incentive to our senior executives to remain in our employ during the vesting period.
Potential Impact on Compensation from Executive Misconduct. If the board determines that an executive officer has
engaged in fraudulent or intentional misconduct, the board would take action to remedy the misconduct, prevent its recurrence, and
impose such discipline on the wrongdoers as it deems appropriate and permissible in accordance with applicable law. Discipline
would vary depending on the facts and circumstances, and may include, without limitation, (1) termination of employment,
(2) initiating an action for breach of fiduciary duty, and (3) if the misconduct resulted in a significant restatement of the Company’s
financial results, seeking reimbursement of any portion of performance-based or incentive compensation paid or awarded to the
executive that is greater than would have been paid or awarded if calculated based on the restated financial results. These remedies
would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
Measures Used to Achieve Compensation Objectives
Annual cash compensation
Base salary. Base salaries for our named executive officers depend on the scope of their responsibilities, their performance,
and the period over which they have performed those responsibilities. Decisions regarding salary increases take into account the
executive’s current salary and the amounts paid to the executive’s peers within and outside the Company. Base salaries are reviewed
approximately every 12 months, but are not automatically increased if the Compensation Committee believes that other elements of
compensation are more appropriate in light of the Company’s stated objectives. This strategy is consistent with the Company’s
primary intent of offering compensation that, in significant part, is contingent on the achievement of performance objectives.
Bonus. In April 2015, the Compensation Committee adopted an Officer Incentive Compensation Plan, or the Bonus Plan.
The Bonus Plan is an incentive program designed to (i) attract, retain and motivate the executives required to manage the Company,
(ii) promote the achievement of rigorous but realistic annual financial goals and (iii) encourage intensive fact-based business planning.
The Compensation Committee is authorized to interpret the Bonus Plan, establish, amend or rescind any rules and regulations relating
to the Bonus Plan and to make any other determinations that it deems necessary or desirable for the administration of the Plan.
Pursuant to the terms of the Bonus Plan, the Compensation Committee has the authority to select the Company’s employee’s
that are eligible to participate in the Bonus Plan, who are referred to as participants. Each participant will be assigned a target award
that is expressed (i) as a specified maximum bonus amount of cash, (ii) as a percentage of base salary as in effect on the first day of
the applicable fiscal year or (iii) in such other manner as determined by the Compensation Committee. The Bonus Plan affords the
Compensation Committee the full power and authority to establish the terms and conditions of any award and to waive any such terms
or conditions at any time.
The payment of a target award is conditioned on the achievement of certain performance goals established by the
Compensation Committee with respect to a participant. Bonuses paid under the Bonus Plan, if any, are based upon an annual
performance period, corresponding to each fiscal year. For each performance period, participants are eligible to receive a potential
bonus payment based on the participant’s and the Company’s achievement, respectively, of individual management objectives and
corporate financial performance elements. Under certain circumstances, the Compensation Committee is authorized to adjust or
modify the calculation of any performance goal set for a participant. Furthermore, the Compensation Committee determines the
amount of the award for the applicable performance period for each participant. Under the terms of the Bonus Plan, the Compensation
Committee also retains the right to reduce the amount of or totally eliminate an award to a participant if it determines that such a
reduction or elimination is appropriate.
Awards under the Bonus Plan, if any, will be distributed in lump sum cash payments following the Compensation
Committee’s determination of such award. All payments under the Bonus Plan are contingent on satisfactory service through the last
date of any applicable performance period, except as described in the Bonus Plan in the event of termination due to death, disability or
retirement.
62
Prior to the adoption of the Bonus Plan, the CEO reviews with the Compensation Committee the Company’s estimated full-
year financial results against the financial, strategic and operational goals established for the year, and the Company’s financial
performance in prior periods. After reviewing the final full year results, the Compensation Committee and the board of directors
approve total bonuses that were awarded from the maximum fund available based on the achievement of previously agreed to
management objectives and final full-year financial performance. If applicable, bonuses are paid in the months of February, March or
April following our December 31 fiscal year end.
The base salaries paid, and the annual bonuses awarded, to the named executive officers in 2017 and 2016 are shown in the
Summary Compensation Table below and are discussed in the footnotes and the section entitled “Compensation for the Named
Executive Officers in 2017 and 2016” following the Summary Compensation Table. See also the discussion below concerning the
terms of the employment agreement with our CEO, Timothy Whelan.
Equity Awards
The Company’s equity incentive compensation program is designed to recognize scope of responsibilities, reward
demonstrated performance and leadership, motivate future superior performance, align the interests of the executive with our
shareholders’ and retain the executives through the term of the awards. We consider the grant size and the appropriate combination of
stock options or restricted stock when making award decisions. Equity-based awards are made pursuant to the Company’s equity
incentive plans. Our current equity-based employee compensation plan, the 2012 Incentive Compensation Plan, which we refer to as
the 2012 Plan, was initially ratified by our shareholders in June 2012, and subsequently amended by the Company and ratified and
approved by our shareholders in 2014 to provide for additional shares of Common Stock for future grants under the plan. We regard
the 2012 Plan as a key retention tool. Retention serves as a very important factor in our determination of the type of award to grant and
the number of underlying shares that are granted in connection with an award.
The Compensation Committee considers cost to the Company in determining the form of award and, as a result, typically
grants stock options and restricted shares. In determining the size of an option or restricted stock grant to a named executive officer,
both upon initial hire and on an ongoing basis, our Compensation Committee considers competitive market factors, the size of the
equity incentive plan pool, cost to the Company, the level of equity held by other officers and individual contribution to corporate
performance. Although there is no set target ownership level for options or stock, the Compensation Committee recognizes that the
equity based component ensures additional focus by the named executive officers on stock price performance and enhances executive
retention. The exercise price of stock options is tied to the fair market value of our Common Stock on the date of grant and such
options typically vest either when performance targets, pre-determined by our board, are achieved, or over a requisite service period.
There is no set formula for the granting of awards to individual executives or employees. The number of options and shares
of restricted stock awarded may vary up or down from year-to-year.
Equity incentive compensation is based upon the strategic, operational and financial performance of the Company overall and
reflects the executives’ expected contributions to the Company’s future success. Existing ownership levels are not a factor in award
determination, as we do not want to discourage executives from holding significant amounts of our stock.
In 2017 three of our named executive officers received equity awards under the 2012 Plan. On January 2, 2017, Michael
Kandell was granted options to purchase 100,000 shares at an exercise price of $1.91 per share which vest in equal annual installments
over a period of 4 years or on the date on which a “Change of Control” (as defined in the Stock Compensation Agreements dated
January 2, 2017) of the Company is consummated. On June 5, 2017, Timothy Whelan was granted options to purchase 200,000
shares at an exercise price of $1.65 per share which vest in equal quarterly installments over a period of 4 years or on the date on
which a “Change of Control” (as defined in the Stock Compensation Agreements dated June 5, 2017). On June 15, 2017, Daniel
Monopoli was granted options to purchase 40,000 shares at an exercise price of $1.60 per share which vest in equal annual
installments over a period of 4 years or on the date on which a “Change of Control” (as defined in the Stock Compensation
Agreements dated June 15, 2017) of the Company is consummated.
On June 30, 2016 Timothy Whelan was granted 8,333 shares of restricted common stock in connection with his appointment
as the Company’s Chief Executive Officer. Additionally, on June 30, 2016, Mr. Whelan was granted options under the 2012 Plan to
purchase 400,000 shares at an exercise price of $1.34 per share. These restricted shares and options vest in sixteen equal quarterly
installments over a period of 4 years, or on the date on which a “Change of Control” (as defined in the Stock Compensation
Agreements dated June 30, 2016) of the Company is consummated.
We believe that the vesting schedules of the equity awards granted in 2016 and 2017 aids the Company in motivating and
retaining our Named Executive Officers, and provides shareholder value. See the footnotes to the Summary Compensation Table and
the section entitled “Compensation for the Named Executive Officers in 2017 and 2016” following the Summary Compensation Table
for further discussion regarding these equity compensation grants.
63
Employment Agreement with CEO
In connection with our retention of Timothy Whelan as Chief Executive Officer on June 30, 2016, the Company entered into
an employment Agreement with Mr. Whelan. The Employment Agreement has a term of one year with automatic renewals for
successive one-year periods, unless either the Company or Mr. Whelan gives notice that such party is electing to not extend the term.
Under the Employment Agreement, Mr. Whelan is entitled to an initial base salary of $275,000 per annum for his services as Chief
Executive Officer, which will be reviewed annually and may be adjusted by the Compensation Committee or the Board in their sole
discretion. For the calendar year ending December 31, 2016, in addition to his base salary, Mr. Whelan was entitled to receive a cash
incentive award of 50% of his base salary for meeting the performance targets determined by the Compensation Committee (the “2016
Annual Cash Bonus”). The Compensation Committee was also entitled to award the 2016 Annual Cash Bonus in an amount greater
than 50% of his base salary for performance at greater than target levels. The Employment Agreement provides that Mr. Whelan’s
cash incentive award will be pro-rated to reflect the period of his employment during 2016. For each calendar year thereafter, Mr.
Whelan will be eligible to receive an annual cash incentive award at the discretion of the Compensation Committee.
Under the Employment Agreement, Mr. Whelan is entitled to at least four weeks of paid vacation per annum and general
expense reimbursement for business and travel related expenses incurred in the performance of his duties. The Agreement provides
that Mr. Whelan is also be entitled to participate in such health, group insurance, welfare, pension, and other employee benefit plans,
programs and arrangements as are made generally available from time to time to senior executives of the Company.
If Mr. Whelan’s employment is terminated by the Company without cause, upon a change of control or by Mr. Whelan for
good reason (as such terms are defined in the Employment Agreement), in each case, subject to Mr. Whelan’s compliance with certain
conditions, the Employment Agreement provides that Mr. Whelan is entitled to: (i) severance in an amount equal to the sum of one
year of his salary as in effect immediately prior to the date of termination, which is payable in equal installments over a period of one-
year, (ii) the cash amount Mr. Whelan has earned as of the date of termination as determined by the Compensation Committee in good
faith, taking into account Mr. Whelan’s annual cash incentive award opportunity for the applicable year (the “Cash Bonus”), (iii)
extension of the post-termination exercise period for all outstanding stock options of the Company’s common stock held by Mr.
Whelan as of the date of his termination to the earlier of (a) the first anniversary of the date of termination, and (b) the date of
expiration of the respective option, during which post-termination period such options shall continue to vest in accordance with their
respective terms (to the extent not already fully vested) (the “Option Termination Benefits”), and (iv) his accrued salary and benefits
as of the date of termination.
In the event that Mr. Whelan’s employment terminates due to his death or disability, he and he and/or his estate or
beneficiaries (as the case may be) shall be entitled to (a) a single sum cash amount, payable on the 60th day following the date of
termination, in an amount equal to the Cash Bonus, (b) the Option Termination Benefits and (c) his accrued salary and benefits as of
the date of termination.
If Mr. Whelan’s employment is terminated by the Company for cause, by Mr. Whelan without good reason or upon
expiration of the term of the Employment Agreement, he is entitled only to his accrued salary and benefits as of the date of
termination.
On June 5, 2017, the Compensation Committee recommended, and the Board approved an extension of the Mr. Whelan’s
Employment Agreement for an additional four year term at a base annual salary of $325,000 and the issuance of an option to purchase
200,000 shares which will vest in sixteen equal quarterly installments over four years. For the calendar year ending December 31,
2017, in addition to his base salary, the Compensation Committee recommended, and the Board approved, a cash incentive award of
up to $200,000 upon attainment of performance targets determined by the Compensation Committee (the “2017 Annual Cash
Bonus”). The Compensation Committee (or the independent members of the Board) are also entitled to award the 2017 Annual Cash
Bonus in an amount greater than $200,000 for performance that exceeds the established targets.
Separation Agreement with Paul Genova
On May 22, 2017 the Company entered into a separation agreement with Paul Genova, President and Chief Operating Officer
in connection with Mr. Genova’s departure from the Company effective June 30, 2017. Pursuant to the separation agreement Mr.
Genova received a lump sum payment in the amount of $375,000, provided a general release of claims against the Company and its
affiliates and agreed to a non-compete and non-solicit through June 30, 2018. The separation agreement provided for the termination
of the severance agreement by and between the Company and Mr. Genova dated as of December 10, 2012.
Separation Agreement with Joseph Debold
On November 30, 2017 the Company entered into a Separation Agreement with Joseph Debold, Senior Vice President of
Global Sales and Marketing. Mr. Debold stepped down from his position as Senior Vice President of Global Sales and Marketing on
December 1, 2017. Pursuant to the separation agreement Mr. Debold received a lump sum payment in the amount of $243,750 in
64
January 2018, provided a general release of claims against the Company and its affiliates and agreed to a non-compete and non-solicit
through September 30, 2018.
Summary Compensation Table for 2017 and 2016
The following summary compensation table sets forth the total compensation paid or accrued for the fiscal years ended December 31,
2017 and 2016 to our “named executive officers,” as that term is defined in Item 402(m).
Name and Principal Position(s)
Timothy Whelan (1)
Chief Executive Officer
Year
2017
2016
Salary
($)
287,500
139,600
Bonus
($)
77,600(2)
--
Stock
Awards
($)
--
11,200(3)
Option
Awards
($)
173,386(4)
303,000(4)
All Other
Compensation
($)(5)
31,602
60,700 (6)
Total
($)
570,088
514,500
Michael Kandell
Chief Financial Officer and
Secretary
Joseph Debold
Senior Vice President of Global
Sales and Marketing
2017
2016
213,943
--
49,500(7)
--
2017
2016
250,000
250,000
10,000(9)
--
Daniel Monopoli
2017
207,269
47,500(11)
Chief Technology Officer
--
--
--
--
--
110,781(8)
--
27,593
--
401,817
--
--
--
349,151(10)
31,600
609,151
281,600
33,752(12)
36,768
325,289
______________
(1) Mr. Whelan was appointed Chief Executive Officer on June 30, 2016. Previous to that date, Mr. Whelan was not employed by the
Company but served as a member of the Board of Directors. He received $49,500 in compensation for board services in 2016. Mr.
Whelan’s salary in 2016 represents the amount paid in connection with his six months of service with the Company as CEO.
(2) This bonus was earned by Mr. Whelan earned under the 2017 Bonus Plan and accrued in 2017, pending substantial completion of
the 2017 financial statement audit and final compensation committee approval. The Compensation Committee approved the bonus
on March 6, 2018.
(3) This amount was calculated based on the grant date fair value of our Common Stock in accordance with FASB ASC Topic 718. In
2016 Mr. Whelan was awarded 8,333 shares of service-based restricted Common Stock. The calculated aggregate grant date fair
value of the service-based grant is approximately $11,200. In June of 2016 before being appointed Chief Executive Officer, Mr.
Whelan was granted 30,000 shares of service-based restricted Common Stock as a non-employee director. These shares were
forfeited upon being named Chief Executive Officer on June 30, 2016.
(4)
In 2017 and 2016, Mr. Whelan was awarded 200,000 and 400,000 shares of service-based stock options, respectively. These options
vest in sixteen equal quarterly installments over a four year period. The calculated aggregate grant date fair value of the service-
based grant is approximately $173,386 and $303,000 in 2017 and 2016, respectively. The grant date fair value of the options was
estimated using the Black-Scholes option pricing model. In June of 2016 before being appointed Chief Executive Officer, Mr.
Whelan was granted 70,000 shares of service-based stock options as a non-employee director. These options were forfeited upon
being named Chief Executive Officer on June 30, 2016.
(5) The amounts shown in this column include for each named executive officer the total estimated value of the use of a Company
automobile, the premium paid on group term life insurance and accidental death and dismemberment insurance, the employer
portion of medical, dental and vison benefits and the Company’s matching contribution under the Wireless Telecom Group, Inc.
401(k) Profit Sharing Plan.
(6) In addition to the amounts described in Note 4, this includes $49,500 in non-employee director fees Mr. Whelan received in 2016
prior to being named Chief Executive Officer.
(7) This bonus was earned by Mr. Kandell earned under the 2017 Bonus Plan and accrued in 2017, pending substantial completion of
the 2017 financial statement audit and final compensation committee approval. The Compensation Committee approved the bonus
on March 6, 2018.
(8)
In 2017, Mr. Kandell was awarded 100,000 shares of service-based stock options which vest in annual equal installments over a
four year period. The calculated aggregate grant date fair value of the service-based grant is approximately $110,781. The grant
date fair value of the options was estimated using the Black-Scholes option pricing model.
(9) This amount represents a discretionary bonus Mr. Debold earned in 2017 upon successful completion of the CommAgility
acquisition in February 2017.
(10) In addition to the amounts described in Note 5, this includes $243,750 in severance accrued under Mr. Debold’s separation
agreement and $70,000 earned in commissions during 2017.
65
(11) This amount represents a $10,000 discretionary bonus Mr. Monopoli earned in 2017 upon successful completion of the
CommAgility acquisition in February 2017 and a $37,500 bonus earned under the 2017 Bonus Plan and accrued in 2017, pending
substantial completion of the 2017 financial statement audit and final compensation committee approval. The Compensation
Committee approved the 2017 Bonus Plan bonus on March 6, 2018.
(12) In 2017, Mr. Monopoli was awarded 50,000 shares of service-based stock options which vest in annual equal installments over a
four year period. The calculated aggregate grant date fair value of the service-based grant is approximately $33,752. The grant date
fair value of the options was estimated using the Black-Scholes option pricing model.
Description of Bonus Awards for 2017
In early 2017, the Compensation Committee determined management objectives, or MBOs, for each of Messrs. Whelan,
Kandell and Monopoli and year-end financial performance targets for the Company in accordance with the Bonus Plan. Following the
completion of the fiscal year ended December 31, 2017, the Compensation Committee reviewed the 2017 performance of each of
those named executive officers and the Company, in relation to the various MBOs and financial performance targets. A component of
each named executive’s bonus performance target reflected achievement of the individual MBOs, generally subject to achievement of
minimum financial performance targets, and a portion was tied to the Company’s achievement of the financial performance targets.
The MBO bonus component, which represented 30% of each named executive officer’s 2017 target bonus amount, was based
on the Compensation Committee’s quantitative assessment of the named executive officer’s achievement of specific, agreed to, MBO
elements as established pursuant to the Bonus Plan. The financial performance bonus component of the 2017 bonus targets, which
represented 70% of each named executive officer’s 2017 target bonus amount, was based on the Company’s achievement of an
Adjusted EBITDA target established by the Compensation Committee with input from management. Upon review following the
fiscal year ended December 31, 2017, the Compensation Committee determined, subject to satisfactory completion of the 2017
financial statement audit and final Compensation Committee action, that the named executive officers would be awarded for partial
achievement of the MBO and financial performance components of the target 2017 bonus in the following amounts: Mr. Whelan:
$77,600 which represents approximately 39% of his 2017 bonus target; Mr. Kandell: $49,500 which represents approximately 50% of
his 2017 bonus target; and Mr. Monopoli: $37,500 which represents approximately 50% of his 2017 bonus target. Final approval of
the 2017 bonus amounts were contingent on final Compensation Committee action, which was taken on March 6, 2018.
In addition to the 2017 bonus, Mr. Monopoli was awarded a discretionary bonus in the amount of $10,000 for successful
completion of the CommAgility acquisition. This amount was paid in the first quarter of 2017.
Outstanding Equity Awards at Fiscal Year-End 2017
Option Awards
Stock Awards
Number of
securities
underlying
unexercised
options
(#)
exercisable
Number of
securities
underlying
unexercised
options
(#)
unexercisable
Name
Number of
securities
underlying
unexercised
unearned
options
(#)
unexercisable
Timothy Whelan
97,500(1)
32,500(2)
150,000(1)
250,000(2)
25,000(1)
175,000(2)
Michael Kandell
-- (4)
100,000 (5)
Daniel Monopoli
Joseph Debold
--
--
--
--
300,000(8)
--
50,000 (6)
10,000 (6)
40,000(6)
250,000(7)
--
66
Option
Exercise
Price
($)
$1.30
$1.34
$1.65
$1.91
$1.83
$1.92
$1.60
$1.77
$0.96
Option
Expiration
Date
11/19/2025
6/30/2026
6/5/2027
1/2/2027
9/8/2025
1/12/2027
6/15/2027
8/19/2023
4/15/2020
Equity
incentive
plan awards:
Number of
unearned
shares, units
or other
rights that
have not
vested
(#)
5,208(3)
--
Equity
incentive plan
awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
($)
$6,979
--
--
--
--
--
--
--
--
--
26,000(9)
$49,660
______________
(1) 130,000 options granted on 11/19/2015 during time as non-employee director which vest 1/12th each quarter thru 11/19/2018
(97,500 shares exercisable as of 12/31/17), 400,000 options granted on 6/30/2016 upon appointment as CEO which vest 1/16th each
quarter thru 6/30/2020 (150,000 shares exercisable as of 12/31/17) and 200,000 options granted on 6/5/17 which vest 1/16th each
quarter thru 6/30/2021 (25,000 shares exercisable as of 12/31/17).
(2) 32,500, 250,000 and 175,000 options unexercisable as of 12/31/2017 related to the 11/19/2015, 6/30/2016 and 6/5/2017 grants
described above in Note 1, respectively.
(3) 8,333 restricted shares granted on 6/30/16 which vest 1/16th each quarter thru 6/30/2020 (5,208 unvested as of 12/31/17).
(4) 100,000 options granted on 1/2/2017, which vest in equal annual installments over a four year period (no shares exercisable as of
12/31/17).
(5) 100,000 options unexercisable as of 12/31/2017 related to the 1/2/2017 grant described in Note 4.
(6) 50,000 options granted on 9/8/2015 which vest upon achievement of certain performance milestones, 10,000 and 40,000 options
granted on 1/12/2017 and 6/15/2017, respectively, which vest in equal annual installments over a four year period. No options
exercisable as of 12/31/2017.
(7) 250,000 options granted on 8/19/2013, which vest upon achievement of certain performance milestones.
(8) 300,000 options granted on 4/15/2010.
(9) Restricted shares granted on 8/19/2013, which vest upon achievement of certain performance milestones.
Option Exercises for 2017
None of the named executive officers exercised stock options during 2017.
Potential Payments upon Termination
Set forth below is a description of the employment and other similar agreements and arrangements which provide for
payment upon termination with the Company’s named executive officers.
Whelan Employment Agreement. As described above (“Employment Agreement with CEO”), the Company has an
employment agreement with Timothy Whelan, the Company’s CEO. That Employment Agreement provides for certain payments in
the event of Mr. Whelan’s termination by the Company without cause or by Mr. Whelan for “good reason”. Specifically, If Mr.
Whelan’s employment is terminated by the Company without cause, upon a change of control or by Mr. Whelan for good reason (as
such terms are defined in the Employment Agreement), in each case, subject to Mr. Whelan’s compliance with certain conditions, the
Employment Agreement provides that Mr. Whelan is entitled to: (i) severance in an amount equal to the sum of one year of his salary
as in effect immediately prior to the date of termination, which is payable in equal installments over a period of one-year, (ii) the cash
amount Mr. Whelan has earned as of the date of termination as determined by the Compensation Committee in good faith, taking into
account Mr. Whelan’s annual cash incentive award opportunity for the applicable year, (iii) extension of the post-termination exercise
period for all outstanding stock options of the Company’s common stock held by Mr. Whelan as of the date of his termination to the
earlier of (a) the first anniversary of the date of termination, and (b) the date of expiration of the respective option, during which post-
termination period such options shall continue to vest in accordance with their respective terms (to the extent not already fully vested),
and (iv) his accrued salary and benefits as of the date of termination.
Kandell Termination Agreement. Under the terms of Mr. Kandell’s offer of employment should Mr. Kandell’s employment
be terminated by the Company for a reason other than death, Disability or Cause, or should Mr. Kandell resign for Good Reason (as
defined in the Company’s 2012 Incentive Plan), then, subject to signing and not revoking a general release in a form acceptable to the
Company, Mr Kandell will be paid: (i) payment equal to 75% of his salary in effect at the time of termination payable in 9 semi-
monthly installments; (ii) the amount, in the good faith determination of the Board, earned as of his termination date, under the bonus
component of the then applicable bonus plan; and (iii) at the Company’s election either continuation of benefits, the extent permissible
under the applicable employee benefit plans in which he is a participant, for the 9 months after the termination date, or a lump sum
payment, in lieu of the continuation of some or all benefits, in an amount determined by the Board in its discretion.
Monopoli Termination Agreement. Under the terms of Mr. Monopoli’s offer of employment should Mr. Monopoli’s
employment be terminated by the Company for a reason other than death, Disability or Cause, or should Mr. Monopoli resign for
Good Reason (as defined in the Company’s 2012 Incentive Plan), then, subject to signing and not revoking a general release in a form
acceptable to the Company, Mr. Monopoli will be paid: (i) payment equal to 50% of his salary in effect at the time of termination
payable in 6 semi-monthly installments; (ii) the amount, in the good faith determination of the Board, earned as of his termination
date, under the bonus component of the then applicable bonus plan; and (iii) at the Company’s election either continuation of benefits,
the extent permissible under the applicable employee benefit plans in which he is a participant, for the 6 months after the termination
67
date, or a lump sum payment, in lieu of the continuation of some or all benefits, in an amount determined by the Board in its
discretion.
Change of Control. As discussed above under “Equity Awards” each of our named executive officers have been awarded
stock option grants that have vested or that will vest and will become immediately exercisable upon achievement of certain financial
metrics or the date on which a change of control of the Company occurs.
Director Compensation for 2017
Non-employee directors of the Company receive cash and equity compensation. Each non-employee director receives on or
about the date of the annual meeting of shareholders (i) an option to acquire 70,000 shares of common stock at an exercise price equal
to the closing price of the Company’s stock on the date of grant, which shall vest on the date of the next annual meeting of
shareholders of the Company; and (ii) a grant of 30,000 restricted shares of common stock which shall vest on the date of the next
annual meeting of shareholders. A non-employee director who is appointed to the board at a date other than the annual meeting will
be granted a pro-rata number of options (at an exercise price equal to the closing price on the date of grant) and restricted stock, each
of which shall fully vest on the date of the next annual meeting of shareholders. All such equity compensation shall be granted
pursuant to the 2012 plan.
In addition to the equity compensation set forth above, the board committees received cash compensation. Specifically, an
annual retainer for each non-employee director serving as a member of a committee as follows: Audit Committee - $4,000;
Compensation Committee - $4,000; and Nominations and Corporate Governance Committee - $2,500. Committee chairs received
cash compensation as follows: Audit Committee - $7,500; Compensation Committee - $7,500; and Nominations and Corporate
Governance Committee - $5,000. The Chairman of the Board received $10,000 annual cash compensation for his service as
Chairman.
The following summary compensation table sets forth the total compensation paid or accrued for the fiscal year ended
December 31, 2017 to our directors.
Alan L. Bazaar
Joseph Garrity
Mitchell Herbets
Michael Millegan
Allan D.L. Weinstein
______________
Fees Earned or
Paid in Cash
($)
$19,000
$10,000
$4,000
$8,500
$7,000
Stock
Awards
($) (a)
Option
($) Awards (b)
Total
($)
$49,500 $32,200
$100,700
$49,500
$49,500
$49,500
$49,500
$32,200
$91,700
$32,200
$85,700
$32,200
$90,200
$32,200
$88,700
(a) Represents the grant date fair value determined in accordance with ASC Topic 718 for the grants of Common Stock. In June
2017, the Company granted 30,000 shares of restricted Common Stock under the 2012 Plan to each of our directors. The
shares of restricted stock granted to the current directors will fully vest on the date of the Annual Shareholders Meeting in
June 2018, subject to each director remaining in office through such vesting date. The aggregate number of restricted shares
of common stock as of December 31, 2017 held by Mr. Garrity was 160,000 shares, Mr. Bazaar was 120,000 shares, Mr.
Herbets was 80,000 shares and the aggregate number of restricted shares held by each of Messrs. Weinstein and Millegan
was 45,000.
(b) The amounts reported in this column represent the grant date fair value our options in accordance with FASB ASC Topic
718. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. In June 2017 the
Company granted 70,000 options under the 2012 plan to each director that will fully vest on the date of the Annual
Shareholders Meeting in June 2018, subject to each director remaining in office through such vesting date. The aggregate
number of options as of December 31, 2017 held by each of Messrs. Bazaar and Garrity was 140,000, the aggregate number
of options held by each of Messrs. Weinstein and Millegan was 105,000, and the aggregate number of options held by Mr.
Herbets was 155,000.
68
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the Company’s Common Stock owned as of March 1, 2018 by (i)
each person who is known by the Company to beneficially own more than 5% of its outstanding Common Stock, (ii) each director and
each of the Company’s current named executive officers, and (iii) all executive officers and directors as a group without naming them.
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, shares of Common Stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after March 1, 2018, are deemed outstanding and included in both
the numerator and the denominator of the calculation of percentage ownership; however, such shares are not deemed outstanding for
purposes of computing the ownership percentage of any other person.
Amount and Nature of
Beneficial Ownership (1)
Percent of Class (2)
2,054,942
9.0%
200,000
134,500
50,000
50,000
441,519
42,500
2,500
321,970
3,297,931
1,859,597
*
*
*
*
1.9%
*
*
1.4%
13.9%
8.1%
1,726,693
7.6%
Name and Address of Beneficial Owner
Alan L. Bazaar (3)
Joseph Garrity
Mitchell Herbets
Michael Millegan
Allan D.L. Weinstein
Timothy Whelan (4)
Michael Kandell (5)
Daniel Monopoli
Joseph Debold (6)
All executive officers and directors as a group (10
persons) (7)
Hollow Brook Wealth Management, LLC (8)
E. Wayne Nordberg
Philip E. Richter
420 Lexington Avenue, Suite 2840
New York, NY 10170
Horton Capital Partners Fund, LP
Horton Capital Partners, LLC (9)
Horton Capital Management, LLC
Joseph M. Manko, Jr.
1717 Arch Street, Suite 3920
Philadelphia, PA 19103
______________
*
Less than one percent.
(1) Except as otherwise set forth in the footnotes below, all shares are directly beneficially owned, and the sole voting and
investment power is held by the persons named.
(2) Based upon 22,866,883 shares of Common Stock outstanding as of March 1, 2018.
(3) Mr. Bazaar has sole voting and dispositive power with respect to 195,345 shares. Beneficial ownership also includes
1,859,597 shares of common stock beneficially owned by Hollow Brook Wealth Management, LLC that are owned by its
investment advisory clients, with respect to which Mr. Bazaar shares voting and dispositive power. Mr. Bazaar serves as
Chief Executive Officer of Hollow Brook Wealth Management, LLC. Based on information set forth in a Schedule 13D/A
filed with the SEC on May 3, 2016. See footnote 8 below.
69
(4) Beneficial ownership includes 272,500 shares of Common Stock subject to options which are currently exercisable, 48,333
shares subject to options that will vest within 60 days and 120,686 shares of common stock.
(5) Beneficial ownership includes 17,500 shares of Common Stock.
(6) Beneficial ownership includes 21,970 shares of Common Stock and 300,000 shares of Common Stock subject to options.
(7)
Includes 1,859,597 shares reportedly owned by Hollow Brook Wealth Management, LLC, a company for whom Mr. Bazaar
serves as CEO. See note 3.
(8) Hollow Brook Wealth Management, LLC, Mr. Bazaar, Mr. Norberg and Mr. Richter share voting and dispositive power with
respect to such 1,859,597 shares (which are owned by investment advisory clients of Hollow Brook Wealth Management,
LLC). Based on information set forth in a Schedule 13D/A filed with the SEC on May 3, 2016.
(9) Horton Capital Partners, LLC, Horton Capital Management, LLC and Joseph M. Manko, Jr. share voting and dispositive
power with respect to such shares. Based on information set forth in a Schedule 13G/A, dated December 31, 2016 and filed
with the SEC on February 14, 2017.
Item 13. Certain Relationships and Related Transactions, and Director Independence
In accordance with the terms of the charter of our Audit Committee, the Audit Committee must review and approve the terms
and conditions of all related party transactions.
We have not entered into any transactions with any related parties over the last two fiscal years that require disclosure under
Item 404(d) of Regulation S-K promulgated by the SEC. If we were to do so in the future, any such transaction would need to be
approved by the Audit Committee. There are no family relationships among any of the Company’s directors or executive officers.
Item 14. Principal Accountant Fees and Services
PKF O’Connor Davies, LLP (“PKF”) has been the Company’s independent registered public accounting firm since October
19, 2006.
Fees Paid to Principal Accountants
Audit Fees
The aggregate fees billed by PKF (including PKF Cooper Parry Group Limited in the UK) for professional services and paid
for the annual audit and for the review of the Company’s financial statements included in the Company’s Annual Report on Form 10-
K for each of the fiscal years ended December 31, 2017 and 2016, and the Company’s Quarterly Reports on Form 10-Q for each of the
quarters for each of the fiscal years ended December 31, 2017 and 2016, was $193,020 and $152,000, respectively.
Audit-Related Fees
The aggregate audit-related fees billed by PKF (including PKF Cooper Parry Group Limited in the UK) during the fiscal
years ended December 31, 2017 and 2016 for professional services rendered for the audit of the Company’s 401(k) Plan and
consultation in connection with accounting related matters were approximately $48,980 and $21,000, respectively.
Tax Fees
The aggregate fees billed by PKF (including PKF Cooper Parry Group Limited in the UK) for all tax services, including
consultation in connection with tax compliance related matters, for the fiscal years ended December 31, 2017 and 2016, were
approximately $57,980 and $60,000, respectively.
All Other Fees
There were no fees billed by PKF for any other non-audit services for the fiscal years ended December 31, 2017 and 2016.
70
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)
(1)
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Loss for the Two Years ended December 31,
2017
Consolidated Statements of Changes in Shareholders’ Equity for the Two Years ended December 31,
2017
Consolidated Statements of Cash Flows for the Two Years ended December 31, 2017
Notes to Consolidated Financial Statements
(2)
All other schedules have been omitted because the required information is included in the financial
statements or notes thereto or because they are not required.
(3)
Exhibits
3.1
Restated Certificate of Incorporation of Wireless Telecom Group, Inc. (incorporated herein by reference to
Exhibit 3.1 to Wireless Telecom Group Inc.’s Annual Report on Form 10-K/A filed on April 22, 2005,
Commission File No. 1-11916)
3.2
Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.1 to Wireless Telecom
Group, Inc.’s Current Report on Form 8-K, filed on July 1, 2016, Commission File No. 011-11916)
10.1* Wireless Telecom Group, Inc. 2000 Stock Option Plan (incorporated herein by reference to Annex B to the
Definitive Proxy Statement of Wireless Telecom Group, Inc., filed with the SEC on July 17, 2000)
10.2* Amended and Restated Severance Agreement, dated December 10, 2012, between Wireless Telecom
Group, Inc. and Paul Genova (incorporated herein by reference to Exhibit 10.8 to Wireless Telecom Group,
Inc.’s Annual Report on Form 10-K, filed on April 1, 2013, Commission File No. 1-11916)
10.3* Severance Agreement, dated December 10, 2012, between Wireless Telecom Group, Inc. and Joseph
Debold (incorporated herein by reference to Exhibit 10.9 to Wireless Telecom Group, Inc.’s Annual Report
on Form 10-K, filed on April 1, 2013, Commission File No. 1-11916)
10.4* 2012 Incentive Compensation Plan of Wireless Telecom Group, Inc. (incorporated herein by reference to
Annex A to the Definitive Proxy Statement of Wireless Telecom Group, Inc., filed with the SEC on April
30, 2012)
10.5* Form of Restricted Stock Award Agreement under 2012 Incentive Compensation Plan (incorporated herein
by reference Exhibit 10.11 to Wireless Telecom Group, Inc.’s Annual Report on Form 10-K, filed on April
1, 2013, Commission file No. 1-11916)
10.6* Severance Agreement, dated June 14, 2013, between Wireless Telecom Group, Inc. and Robert Censullo
(incorporated herein by reference to Exhibit 10.1 to Wireless Telecom Group, Inc.’s Quarterly Report on
Form 10-Q, filed on August 14, 2013, Commission File No. 1-11916)
10.7* Form of Stock Option Agreement under the Wireless Telecom Group Inc.’s 2012 Incentive Compensation
Plan (incorporated herein by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s Quarterly Report
on Form 10-Q, filed on November 14, 2013, Commission File No. 1-11916)
71
10.8* Amended and Restated 2012 Incentive Compensation Plan of Wireless Telecom Group, Inc. (incorporated
herein by reference to Appendix A to Wireless Telecom Group Inc.’s Definitive Proxy Statement on
Schedule 14A, filed with the SEC on April 30, 2014)
10.9* Officer Incentive Compensation Plan of Wireless Telecom Group, Inc., dated April 22, 2015 (incorporated
herein by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s Current Report on Form 10-Q, filed
with the SEC on May 13, 2015)
10.10 Fifth Amendment to Lease Agreement, dated May 1, 2015 and retroactively effective as of April 1, 2015,
by and between Icon Keystone NJP III Owner Pool 4 NJ, LLC and Boonton Electronics Corporation
(incorporated herein by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s Current Report on
Form 8-K, filed on May 12, 2015, Commission File No. 001-11916)
10.11* Executive Employment Agreement, dated June 30, 2016, between Wireless Telecom Group, Inc. and
Timothy Whelan (incorporated herein by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s
Current Report on Form 8-K, filed on July 7, 2016, Commission File No. 001-11916)
10.12* Employment Letter Agreement, dated December 1, 2016, between Wireless Telecom Group, Inc. and
Michael Kandell (incorporated herein by reference to Exhibit 10.12 to Wireless Telecom Group, Inc.’s
Annual Report on Form 10-K, filed on March 20, 2017, Commission File No. 001-11916).
10.13* Letter Agreement, dated December 1, 2016, between Wireless Telecom Group, Inc. and Robert Censullo
(incorporated herein by reference to Exhibit 10.13 to Wireless Telecom Group, Inc.’s Annual Report on
Form 10-K, filed on March 20, 2017, Commission File No. 001-11916).
10.14 Settlement Agreement and Site Release, dated December 16, 2016, by and among Wireless Telecom
Group, Inc., Boonton Electronics Corp., WTT Acquisition Corp., Century Indemnity Company, as
successor to Insurance Company of North America and Federal Insurance Company (incorporated herein
by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on
December 22, 2016, Commission File No. 001-11916)
10.15* Separation Agreement and General Release, dated February 10, 2017, between Wireless Telecom Group,
Inc. and Robert Censullo (incorporated herein by reference to Exhibit 10.15 to Wireless Telecom Group,
Inc.’s Annual Report on Form 10-K, filed on March 20, 2017, Commission File No. 001-11916).
10.16 Share Purchase Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc.,
Wireless Telecommunications, Ltd., Edward De Salis Young, Paul Moakes, Simon Pack and Martin
Hollinshead (incorporated herein by reference to Exhibit 10.1 to Wireless Telecom Group Inc.’s Current
Report on Form 8-K, filed on February 21, 2017, Commission File No. 001-11916)
10.17 Registration Rights Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc.,
Edward De Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by
reference to Exhibit 10.2 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February
21, 2017, Commission File No. 001-11916)
10.18 Lock Up Agreement, dated February 17, 2017, by and among Wireless Telecom 8roup, Inc., Edward De
Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to
Exhibit 10.3 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017,
Commission File No. 001-11916)
72
10.19 Voting Agreement, dated February 17, 2017, by and among Wireless Telecom Group, Inc., Edward De
Salis Young, Paul Moakes, Simon Pack and Martin Hollinshead (incorporated herein by reference to
Exhibit 10.4 to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017,
Commission File No. 001-11916)
10.20 Loan and Security Agreement, dated February 16, 2017, Wireless Telecom Group, Inc. Boonton Electronic
Corporation, Microlab/FXR and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.5
to Wireless Telecom Group Inc.’s Current Report on Form 8-K, filed on February 21, 2017, Commission
File No. 001-11916)
10.21 Amendment No. 1 to Loan and Security Agreement by and among Wireless Telecom Group, Inc., Boonton
Electronic Corporation, Microlab/FXR and Bank of America, N.A. dated August 3, 2017 (incorporated
herein by reference to Exhibit 10.6 to Wireless Telecom Group’s Quarterly Report on Form 10-Q filed on
August 9, 2017, Commission File No. 001-11916).
10.22* Separation Agreement and General Release by and between Wireless Telecom Group, Inc. and Paul Steven
Genova dated May 22, 2017 (incorporated herein by reference to Exhibit 10.7 to Wireless Telecom Group,
Inc.’s Quarterly Report on Form 10-Q filed on August 9, 2017, Commission File No. 001-11916).
10.23* Amendment to Executive Employment Agreement by and between Wireless Telecom Group, Inc. and
Timothy Whelan dated June 9, 2017 (incorporated herein by reference to Exhibit 10.8 to Wireless Telecom
Group, Inc.’s Quarterly Report on Form 10-Q filed on August 9, 2017, Commission File No. 001-11916).
10.24* Separation Agreement and General Release by and between Wireless Telecom Group, Inc. and Joseph
Debold dated November 30, 2017.
21.1
List of subsidiaries
23.1
Consent of Independent Registered Public Accounting Firm (PKF O’Connor Davies, LLP)
31.1
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification pursuant to 18 U.S.C. section 1350
32.2
Certification pursuant to 18 U.S.C. section 1350
100.1 The following financial statements from Wireless Telecom Group, Inc.’s Annual Report on Form 10-K for
the year ended December 31, 2016, filed on March 20, 2017, formatted in Extensible Business Reporting
Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and
Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Changes
in Shareholders’ Equity, and (v) the notes to the consolidated financial statements. As provided in Rule
406T of Regulation S-T, this information is furnished and not filed for purposes of Securities 11 and 12 of
the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
_________________
*
Denotes a management contract or compensatory plan or arrangement.
73
Pursuant to the requirements of Section 13 or 15(d) 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.
S I G N A T U R E S
Date: March 12, 2018
WIRELESS TELECOM GROUP, INC.
By:
/s/ Timothy Whelan
Timothy Whelan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Alan L. Bazaar
Alan L. Bazaar
/s/ Timothy Whelan
Timothy Whelan
/s/ Michael Kandell
Michael Kandell
/s/ Joseph Garrity
Joseph Garrity
/s/ Mitchell Herbets
Mitchell Herbets
/s/ Michael Millegan
Michael Millegan
/s/ Allan D.L. Weinstein
Allan D.L. Weinstein
Chairman of the Board
March 12, 2018
Chief Executive Officer
March 12, 2018
Chief Financial Officer
March 12, 2018
Director
Director
Director
Director
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
74
Separation Agreement and General Release by and between Wireless Telecom Group, Inc. and Joseph Debold dated
EXHIBIT INDEX
Description
Exhibit
Number
10.24*
November 30, 2017.
21.1
List of subsidiaries
23.1
Consent of Independent Registered Public Accounting Firm (PKF O’Connor Davies, LLP)
31.1
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification pursuant to 18 U.S.C. section 1350
32.2
Certification pursuant to 18 U.S.C. section 1350
100.1
The following financial statements from Wireless Telecom Group, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed on March 20, 2017, formatted in Extensible Business Reporting Language (XBRL): (i)
consolidated balance sheets, (ii) consolidated statements of operations and comprehensive loss, (iii) consolidated
statements of cash flows, (iv) consolidated statement of changes in shareholders’ equity, and (v) the notes to the
consolidated financial statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed
for purposes of Securities 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
______________
*
Denotes a management contract or compensatory plan or arrangement.
75
SUBSIDIARIES OF WIRELESS TELECOM GROUP, INC.
Exhibit 21.1
ENTITY NAME
Boonton Electronics Corp.
Microlab/FXR
Wireless Telecommunications, Ltd.
COUNTRY OR STATE OF
INCORPORATION/FORMATION
New Jersey
New Jersey
United Kingdom and Wales
76
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-197578, No. 333-182819,
No. 333-59856 and No. 333-04893) pertaining to the Amended and Restated 2012 Incentive Compensation Plan, the 2000 stock
option plan and the 1995 stock option plan of our report dated March 12, 2018, on the consolidated financial statements of Wireless
Telecom Group, Inc. as of and for the years ended December 31, 2017 and 2016.
/s/ PKF O’Connor Davies, LLP
Exhibit 23.1
March 12, 2018
New York, NY
77
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Timothy Whelan, certify that:
1.
I have reviewed this annual report on Form 10-K 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(s) 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;
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
5.
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent function):
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.
Date: March 12, 2018
/s/ Timothy Whelan
Timothy Whelan
Chief Executive Officer, (Principal Executive Officer)
78
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Kandell, certify that:
1.
I have reviewed this annual report on Form 10-K 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(s) 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;
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent function):
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.
Date: March 12, 2018
/s/ Michael Kandell
Michael Kandell
Chief Financial Officer, (Principal Financial Officer)
79
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report on Form 10-K of Wireless Telecom Group, Inc. (the “Company”) for the year
ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy
Whelan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
1934, as amended; and
The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
(2)
operations of the Company.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
/s/ Timothy Whelan
Timothy Whelan
Chief Executive Officer, (Principal Executive Officer)
March 12, 2018
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C., § 1350, and is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing
of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to Wireless Telecom Group, Inc. and will be
retained by Wireless Telecom Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
80
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report on Form 10-K of Wireless Telecom Group, Inc. (the “Company”) for the year
ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael
Kandell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
1934, as amended; and
The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
(2)
operations of the Company.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
/s/ Michael Kandell
Michael Kandell
Chief Financial Officer, (Principal Financial Officer)
March 12, 2018
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C., § 1350, and is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing
of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to Wireless Telecom Group, Inc. and will be
retained by Wireless Telecom Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
81
Corporate Profile
Directors
Alan L. Bazaar
Chief Executive Officer of Hollow Brook Wealth
Management LLC
Joseph Garrity
Chief Operating Officer & Chief Financial Officer,
Annual Meeting
The Annual Meeting of the Stockholders will be held at 9:00 a.m. on
Tuesday June 5, 2018 at:
The Offices of Bryan Cave Leighton Paisner LLP
1290 Avenue of the Americas
New York, NY 10104
Salem Global Partners, Inc.
Mitchell Herbets
Managing Principal, Herbets Consulting LLC
Chairman of Thales Defense and Security, Inc.
Michael H. Millegan
Former President, Verizon Global Wholesale
Allan D. L. Weinstein
Managing Partner, Gainline Capital Partners LP
Timothy Whelan
Chief Executive Officer, Director
Officers
Timothy Whelan
Chief Executive Officer
Michael Kandell
Chief Financial Officer and Corporate Secretary
Dan Monopoli
Chief Technology Officer
Transfer Agent and Registrar
American Stock Transfer & Trust Company
Independent Accountants
PKF O’Connor Davies, LLP
Legal Counsel
Bryan Cave Leighton Paisner LLP, New York, NY
Exchange Listing
NYSE-American Symbol: WTT
A copy of the Annual Report on Form 10-K Report
as filed with the Securities and Exchange Commission
may be obtained without charge by written request
addressed to:
Michael Kandell
Chief Financial Officer and Corporate Secretary
Wireless Telecom Group, Inc.
25 Eastmans Road
Parsippany, NJ 07054
USA
Certifications
The Company has filed as exhibits to its Annual Report on Form 10-K
for the fiscal year ended December 31, 2017, the Chief Executive
Officer and Chief Financial Officer certifications required by Section
302 of the Sarbanes-Oxley Act of 2002. The Company has also filed
with the New York Stock Exchange the required annual Chief
Executive Officer certification as required by the New York Stock
Exchange Listed Company Manual.
25 Eastmans Rd
Parsippany, NJ
United States
Tel:+1 973 386 9696
Fax: +1 973 386 9191
www.wtcom.com
Follow us on:
WTGinnovation
Wireless Telecom Group
WTGinnovation
Wireless Telecom Group Inc.
25 Eastmans Rd
Parsippany, NJ 07054
United States
Tel: +1 973 386 9696
Fax: +1 973 386 9191
www.wtcom.com