UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2004
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-11916
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WIRELESS TELECOM GROUP, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2582295
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Eastmans Road
Parsippany, New Jersey 07054
- ---------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(201) 261-8797
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Registrant's telephone number, including area code
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
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 is an accelerated filer (as
defined on Exchange Act Rule 12b-2). YES ___ NO _X_
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock - Par Value $.01 17,353,801
- ------------------------------ -------------------------
Class Outstanding Shares
At November 5, 2004
WIRELESS TELECOM GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page(s)
Item 1 -- Consolidated Financial Statements:
Condensed Balance Sheets as of September 30, 2004
(unaudited) and December 31, 2003 3
Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 2004 and 2003 (unaudited) 4
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 2004 and 2003 (unaudited) 5
Notes to Interim Condensed Financial Statements (unaudited) 6 - 8
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
Item 3 -- Quantitative and Qualitative Disclosures About Market
Risk 12
Item 4 -- Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings 13
Item 2 -- Changes in Securities 13
Item 3 -- Defaults upon Senior Securities 13
Item 4 -- Submission of Matters to a Vote of Security Holders 13
Item 5 -- Other Information 13
Item 6 -- Exhibits 13
Signatures 14
Exhibit Index 15
2
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------------ ------------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 14,577,414 $ 16,265,765
Accounts receivable -- net of allowance for doubtful accounts of
$124,705 and $175,399 for 2004 and 2003, respectively 3,911,091 3,076,080
Inventories 6,370,332 5,903,191
Current portion of deferred tax asset 264,227 264,880
Prepaid expenses, taxes and other current assets 543,339 665,366
------------------ ------------------
TOTAL CURRENT ASSETS 25,666,403 26,175,282
------------------ ------------------
PROPERTY, PLANT AND EQUIPMENT - NET 5,957,252 5,528,931
------------------ ------------------
OTHER ASSETS:
Goodwill 1,351,392 1,351,392
Deferred tax asset - 383,861
Other assets 212,063 184,745
------------------ ------------------
TOTAL OTHER ASSETS 1,563,455 1,919,998
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TOTAL ASSETS $ 33,187,110 $ 33,624,211
================== ==================
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 692,063 $ 1,256,672
Accrued expenses and other current liabilities 468,352 367,437
Current portion of mortgage payable 42,674 40,329
Income taxes payable - 538,986
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,203,089 2,203,424
------------------ ------------------
LONG TERM LIABILITIES:
Mortgage payable 3,056,575 3,088,880
Deferred rent payable 136,523 111,855
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TOTAL LONG TERM LIABILITIES 3,193,098 3,200,735
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value, 75,000,000 shares authorized, 20,273,501
and 19,992,378 issued for 2004 and 2003, respectively 202,735 199,924
Additional paid-in-capital 13,591,415 13,100,857
Retained earnings 22,698,202 22,620,700
Treasury stock at cost, - 3,049,700 shares (7,701,429) (7,701,429)
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 28,790,923 28,220,052
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,187,110 $ 33,624,211
================== ==================
See accompanying notes
3
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-----------------------------------------------------------------------------
2004 2003 2004 2003
---------- ---------- ----------- -----------
NET SALES $5,943,863 $5,187,062 $17,014,713 $14,175,678
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,768,510 2,371,621 7,719,629 6,893,014
Operating expenses 2,246,820 1,903,261 7,293,188 5,840,457
Interest and other income (144,863) (126,502) (384,403) (469,282)
Interest expense 58,708 59,447 176,691 178,866
---------- ---------- ----------- -----------
TOTAL COSTS AND EXPENSES 4,929,175 4,207,827 14,805,105 12,443,055
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,014,688 979,235 2,209,608 1,732,623
PROVISION FOR INCOME TAXES 230,125 332,458 590,261 600,377
---------- ---------- ----------- -----------
NET INCOME $ 784,563 $ 646,777 $ 1,619,347 $ 1,132,246
========== ========== =========== ===========
NET INCOME PER COMMON
SHARE:
BASIC $ 0.05 $ 0.04 $ 0.09 $ 0.07
========== ========== =========== ===========
DILUTED $ 0.05 $ 0.04 $ 0.09 $ 0.07
========== ========== =========== ===========
See accompanying notes
4
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months
Ended September 30,
-------------------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,619,347 $ 1,132,246
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 349,271 345,651
Deferred rent 24,668 -
Deferred income taxes 384,514 -
Provision for losses on accounts receivable (50,694) 10,848
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (784,317) 169,078
(Increase) in inventories (467,141) (103,001)
Decrease in prepaid expenses and other current assets 122,028 120,719
Decrease in other assets 12,031 -
(Decrease) increase in accounts payable and accrued expenses (463,694) 1,324
(Decrease) increase in income taxes payable (538,986) 218,023
------------ ------------
Net cash provided by operating activities 207,027 1,894,888
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (775,192) (216,880)
Costs associated with potential acquisition (68,587) -
Cash surrender value - officer's life insurance 33,940 -
Increase in real estate escrow (7,104) (7,104)
------------ ------------
Net cash (used for) investing activities (816,943) (223,984)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage note (29,960) (27,785)
Acquisition of treasury stock - (105,711)
Cash dividends paid (1,541,845) (1,013,478)
Proceeds from exercise of stock options/warrants 493,370 189,000
------------ ------------
Net cash (used for) financing activities (1,078,435) (957,974)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,688,351) 712,930
Cash and cash equivalents, at beginning of year 16,265,765 15,523,180
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 14,577,414 $ 16,236,110
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Taxes $ 743,336 $ 154,259
Interest $ 176,691 $ 178,866
See accompanying notes
5
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
The condensed, consolidated balance sheet as of September 30, 2004 and the
condensed, consolidated statements of operations for the three and nine
month periods ended September 30, 2004 and 2003 and the condensed,
consolidated statements of cash flows for the nine month periods ended
September 30, 2004 and 2003 have been prepared by the Company without
audit. The consolidated financial statements include the accounts of
Wireless Telecom Group, Inc. and its wholly-owned subsidiaries Boonton
Electronics Corporation, Microlab/FXR, WTG Foreign Sales Corporation and NC
Mahwah, Inc.
In the opinion of management, the accompanying condensed consolidated
financial statements referred to above contain all necessary adjustments,
consisting of normal accruals and recurring entries, which are necessary to
present fairly the Company's results for the interim periods being
presented.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements included in its annual report on Form
10-K for the year ended December 31, 2003, which note is incorporated
herein by reference. Specific reference is made to that report for a
description of the Company's securities and the notes to financial
statements included therein, since certain information and footnote
disclosures normally included in financial statements in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted from this report.
The results of operations for the three and nine month periods ended
September 30, 2004 and 2003 are not necessarily indicative of the results
to be expected for the full year.
Certain prior years' information has been reclassified to conform to the
current year's reporting presentation.
NOTE 2 - INCOME PER COMMON SHARE
Income per common share is computed by dividing the net income by the
weighted average number of common shares and common equivalent shares
outstanding during each period. As promulgated in SFAS 128 "Earnings Per
Share" ("SFAS 128"), SFAS 128 requires the presentation of "basic" and
"diluted" earnings per share on the face of the income statement.
NOTE 3 - SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2004, no shares were repurchased
by the Company, under the stock repurchase program authorized by the Board
of Directors on November 27, 2000 and as amended on October 5, 2001.
6
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets". In accordance with SFAS No. 142, intangible assets, including
purchased goodwill, must be evaluated for impairment. Those intangible
assets that will continue to be classified as goodwill or as other
intangibles with indefinite lives are no longer amortized, but will be
tested for impairment periodically. During 2003, the goodwill relating to
the acquisition of Microlab/FXR was tested for impairment by an independent
valuation consulting firm for the year ended December 31, 2003. The
conclusion of the valuation was that this goodwill was not impaired under
Statement of Financial Accounting Standards No. 142 requirements for
goodwill impairment testing. Additional testing will be done at the end of
this year and each year going forward to continue to test for impairment of
goodwill.
NOTE 5 - ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and has adopted the disclosure-only alternative of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure."
The following table illustrates the effect on net income and earnings per
share had compensation expense for the employee stock-based plans been
recorded based on the fair value method under SFAS No. 123:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income:
As reported $784,563 $646,777 $1,619,347 $1,132,246
Pro forma 754,358 636,944 1,532,110 1,015,341
Basic earnings per share:
As reported $.05 $.04 $.09 $.07
Pro forma .04 .04 .09 .06
Diluted earnings per share:
As reported $.05 $.04 $.09 $.07
Pro forma .04 .04 .09 .06
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company's former CEO, who resigned in March 2004, is now employed by
the Company as an outside engineering consultant on a week-to-week basis.
The Company has agreed to pay this former CEO at a weekly rate of $1,600
for a minimum of 20 hours per week. This verbal agreement can be terminated
at any time.
7
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 7 - SUBSEQUENT EVENT
On October 5, 2004, Wireless Telecom Group, Inc., a New Jersey corporation
("WTT"), entered into a stock purchase agreement (the "Purchase Agreement")
with Willtek Communications GmbH, a limited liability corporation organized
under the laws of Germany ("Willtek"), Damany Holding GmbH, a limited
liability corporation organized under the laws of Germany and the owner of
approximately 20% of Willtek's outstanding capital stock ("Damany"), and
Investcorp Technology Ventures LP, a limited partnership organized under
the laws of the Cayman Islands and the owner of approximately 80% of
Willtek's outstanding capital stock ("Investcorp", together with Damany,
the "Willtek Shareholders"), pursuant to which WTT has agreed to acquire
all of the outstanding capital stock of Willtek from the Willtek
Shareholders. As a result of the proposed acquisition, Willtek will become
a wholly-owned subsidiary of WTT. Willtek, based in Ismaning, Germany, is a
leading provider of solutions that enable manufacturers and operators of
wireless communications devices to test mobile phones, air interface, and
base stations of cellular networks. Willtek's product range includes
high-speed, state-of-the-art test and measurement solutions for handsets
and wireless devices, as well as for radio frequencies and network testing
tasks.
Under the terms of the Purchase Agreement, WTT will purchase all of the
outstanding capital stock of Willtek in exchange for an aggregate purchase
price of $7,000,000 in cash and 8,000,000 shares of WTT common stock, par
value $0.01 per share (the "Purchase Price"), 1,000,000 of which shares
will be deposited into an escrow account at the closing of the acquisition
for a period of one year to secure the indemnification obligations of the
Willtek Shareholders under the Purchase Agreement, and the assumption of
certain existing liabilities and obligations valued at $4.8 million. Based
on the $2.40 closing price per share of WTT common stock on October 4, 2004
on the American Stock Exchange, the value of the Purchase Price for the
proposed acquisition is approximately $26.2 million. The Purchase Agreement
does not provide for an adjustment in the number of shares of WTT common
stock to be issued to the Willtek Shareholders in the acquisition in the
event of a fluctuation in the market value of WTT common stock. Giving
effect to the proposed acquisition, the Willtek Shareholders would own
approximately 32% of the outstanding shares of WTT common stock.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
- ------------
Wireless Telecom Group, Inc., and its operating subsidiaries, Boonton
Electronics Corporation and Microlab/FXR (collectively, the "Company"), develop,
manufacture and market a wide variety of electronic noise sources, electronic
testing and measuring instruments including power meters, voltmeters and
modulation meters and high-power passive microwave components. The Company's
products have historically been primarily used to test the performance and
capability of cellular/PCS and satellite communication systems and to measure
the power of RF and microwave systems. Other applications include radio, radar,
wireless local area network (WLAN) and digital television.
The financial information presented herein includes: (i) Condensed Consolidated
Balance Sheets as of September 30, 2004 and as of December 31, 2003 (ii)
Condensed Consolidated Statements of Operations for the three and nine month
periods ended September 30, 2004 and 2003 and (iii) Condensed Consolidated
Statements of Cash Flows for the nine month periods ended September 30, 2004 and
2003.
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this Quarterly Report on Form 10-Q 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 involve risks and
uncertainties. These statements are based on the Company's current expectations
of future events and are subject to a number of risks and uncertainties that may
cause the Company's actual results to differ materially from those described in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, product demand and development of competitive technologies in
our market sector, the impact of competitive products and pricing, the loss of
any significant customers, the effects of adoption of newly announced accounting
standards, the effects of economic conditions and trade, legal and other
economic risks, among others. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. These risks
and uncertainties are disclosed from time to time in the Company's filings with
the Securities and Exchange Commission, the Company's press releases and in oral
statements made by or with the approval of authorized personnel. The Company
assumes no obligation to update any forward-looking statements as a result of
new information or future events or developments.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Management's discussion and analysis of the financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts 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 its 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.
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. If the
financial condition of any of its customers were to decline, additional
allowances might be required.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
INCOME TAXES
- ------------
As part of the process of preparing the consolidated financial statements, the
Company is required to estimate its income taxes in each of the jurisdictions in
which it operates. The process incorporates an assessment of the current tax
exposure together with temporary differences resulting from different treatment
of transactions for tax and financial statement purposes. Such differences
result in deferred tax assets and liabilities, which are included within the
consolidated balance sheet. The recovery of deferred tax assets from future
taxable income must be assessed and, to the extent that recovery is not likely,
the Company establishes a valuation allowance. Increases in valuation allowances
result in the recording of additional tax expense. Further, if the ultimate tax
liability differs from the periodic tax provision reflected in the consolidated
statements of operations, additional tax expense may be recorded.
VALUATION OF LONG-LIVED ASSETS
- ------------------------------
The Company assesses the potential impairment of long-lived tangible and
intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Changes in the operating strategy can
significantly reduce the estimated useful life of such assets.
RESULTS OF OPERATIONS
- ---------------------
The following discussion of our financial condition and results of operations
should be read in conjunction with our interim condensed consolidated financial
statements and the notes to those statements included in Part I, Item I of this
Quarterly Report on Form 10-Q and in conjunction with the consolidated financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2003.
For the nine months ended September 30, 2004 as compared to the corresponding
period of the previous year, net sales increased to $17,015,000 from
$14,176,000, an increase of $2,839,000 or 20.0%. For the quarter ended September
30, 2004 as compared to the corresponding quarter of the previous year, net
sales increased to $5,944,000 from $5,187,000, an increase of $757,000 or 14.6%.
The increases in the three and nine months ended September 30, 2004 are
primarily the result of increased sales activity of the Boonton peak power meter
instruments over the last year, as well as a general economic improvement in the
test and measurement industry for all of the Company's product lines.
Gross profit on net sales for the nine months ended September 30, 2004 was
$9,295,000 or 54.6% as compared to $7,283,000 or 51.4% of net sales for the nine
months ended September 30, 2003. Gross profit on net sales for the quarter ended
September 30, 2004 was $3,175,000 or 53.4% as compared to $2,815,000 or 54.3% of
net sales for the three months ended September 30, 2003. Gross profit is higher
for the nine months ended September 30, 2004 than in the same period for 2003
primarily due to higher sales volume and lower manufacturing labor and direct
overhead costs. Additionally, the Company completed its consolidation into one
facility in the third quarter of 2004, thus lowering duplicate overhead costs.
Gross profit dollars are higher for the three months ended September 30, 2004
than in the same period for 2003 primarily due to the explanation above.
However, the gross profit percentage for the three months ended September 30,
2004 was slightly lower than that of the same period for 2003 due to the product
mix being sold during this period being of a slightly lower margin. The Company
can experience variations in gross profit based upon the mix of products sold as
well as variations due to revenue volume and economies of scale. The Company
continues to carefully monitor costs associated with material acquisition,
manufacturing and production.
Operating expenses for the nine months ended September 30, 2004 were $7,293,000
or 42.9% of net sales as compared to $5,840,000 or 41.2% of net sales for the
nine months ended September 30, 2003. Operating expenses for the quarter ended
September 30, 2004 were $2,247,000 or 37.8% of net sales as compared to
$1,903,000 or 36.7% of net sales for the quarter ended September 30, 2003.
For the three months ended September 30, 2004 as compared to the same period of
the prior year, operating expenses increased in dollars by $344,000. This
increase is primarily due to an increase in commission expense of $142,000, an
increase in amortization expense of $58,000 relating to a licensing agreement
entered into by the Company, an increase in administrative wages of $50,000, an
increase in administrative expenses in connection with the Microlab relocation
of $49,000 and an increase in travel and entertainment expenses of $27,000. For
the nine months ended September 30, 2004 as compared to the same period in the
prior year,
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
operating expenses increased in dollars by $1,453,000. This increase is
primarily due to a one-time payout to the Company's former Chief Executive
Officer of $685,000, an increase in commissions expense of $414,000, an increase
in amortization expense of $173,000 relating to a licensing agreement entered
into by the Company, an increase in administrative wages of $90,000, an increase
in travel and entertainment expenses of $69,000, an increase in advertising
expense of $63,000, partially offset by a decrease in research and development
expense of $67,000.
Interest and other income decreased by $85,000 for the nine months ended
September 30, 2004. This decrease was primarily due to realized losses in a
working capital management account, classified as cash equivalents, due to the
fact that they were highly liquid and readily convertible to cash, and were
intended to be liquidated by the Company on a short-term basis.
Net income increased to $1,619,000, or $.09 per share (diluted), for the nine
months ended September 30, 2004 as compared to $1,132,000, or $.07 per share
(diluted) for the nine months ended September 30, 2003. The Company realized net
income for the quarter ended September 30, 2004 of $785,000 or $.05 per share
(diluted) as compared to $647,000 or $.04 per share (diluted) for the three
months ended September 30, 2003. The explanation of these changes can be derived
from the analysis given above of operations for the three and nine month periods
ending September 30, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
The Company's working capital has increased by $491,000 to $24,463,000 at
September 30, 2004, from $23,972,000 at December 31, 2003. At September 30, 2004
the Company had a current ratio of 21.3 to 1, and a ratio of debt to net worth
of 0.15 to 1. At December 31, 2003 the Company had a current ratio of 11.9 to 1,
and a ratio of debt to net worth of 0.19 to 1.
The Company realized cash provided by operations of $207,000 for the nine month
period ending September 30, 2004. The primary source of these funds was provided
by net income of $1,619,000, a non-cash adjustment for deferred income taxes of
$385,000, and a non-cash adjustment for depreciation and amortization of
$349,000, partially offset by an increase in accounts receivable of $784,000, a
decrease in income taxes payable of $539,000, an increase in inventories of
$467,000, and a decrease in accounts payable and accrued expenses of $439,000.
The Company's former CEO, who resigned in March 2004, is now employed by the
Company as an outside engineering consultant on a week-to-week basis. The
Company has agreed to pay this former CEO at a weekly rate of $1,600 for a
minimum of 20 hours per week. This verbal agreement can be terminated at any
time. Mr. Terence McCoy was brought in as the Company's CEO and director
following Mr. Garcia's resignation. Mr. McCoy resigned effective July 9, 2004
and no longer serves as an officer or a director of the Company.
The Company has historically been able to collect its account receivables
approximately every two months. This average collection period has been
sufficient to provide the working capital and liquidity necessary to operate the
Company. The Company continues to monitor production requirements and delivery
times while maintaining manageable levels of goods on hand.
Operating activities provided $1,895,000 in cash flows for the comparable period
in 2003. The source of these funds was primarily due to cash provided by net
income of $1,132,000, a non-cash adjustment for depreciation and amortization of
$346,000, an increase in income taxes payable of $218,000, a decrease in
accounts receivable of $169,000 and a decrease in prepaid expenses and other
current assets of $121,000, partially offset by an increase in inventories of
$103,000.
Net cash used for investing activities for the nine months ended September 30,
2004 was $817,000. The primary use of these funds was capital expenditures of
$775,000. For the nine months ended September 30, 2003, net cash used for
investing activities was $224,000. The primary use of these funds was capital
expenditures of $217,000.
Net cash used for financing activities for the nine months ended September 30,
2004 was $1,078,000. The primary use of these funds was for dividends paid in
the amount of $1,542,000, partially offset by proceeds from the exercise of
stock options in the amount of $493,000. Net cash used for financing activities
in the same
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
period of 2003 was $958,000. The primary use of these funds in 2003 was for
dividends paid in the amount of $1,013,000 and the acquisition of treasury stock
in the amount of $106,000, partially offset by proceeds from the exercise of
stock options in the amount of $189,000.
The Company anticipates that its resources provided by its cash flow from
operations will be sufficient to meet its financing requirements for at least
the next twelve-month period. The Company does not believe it will need to
borrow funds during the next twelve-month period.
INFLATION AND SEASONALITY
- -------------------------
The Company does not anticipate that inflation will significantly impact its
business or its results of operations nor does it believe that its business is
seasonal.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivatives and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This standard is effective for contracts entered into or
modified after June 30, 2003. This standard had no impact on the Company's
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
with Characteristics of Both Liabilities and Equity." This standard requires
that certain financial instruments embodying an obligation to transfer assets or
to issue equity securities be classified as liabilities. It is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is generally effective July 1, 2003. This standard had no impact on the
Company's financial statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has a credit facility with its major bank for the express purpose of
purchasing components from an Asian supplier under a letter of credit. The
Company has paid for the components received thus far during 2004. Should the
Company not make payment directly, the credit facility would be utilized. The
credit facility bears interest based on interest rates tied to the prime rate,
which may fluctuate over time based on economic conditions.
ITEM 4 - CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Company's Chief Executive Officer and Chief Financial
Officer evaluated, with the participation of the Company's management, the
effectiveness of the Company's disclosure controls and procedures. Based on the
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
12
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceeding against the
Company or in which any of their property is subject.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
11.1 Computation of per share earnings
31.1 Certification Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002 (Principal Executive Officer)
31.2 Certification Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002 (Principal Financial Officer)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Executive Officer)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Financial Officer)
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIRELESS TELECOM GROUP, INC.
--------------------------------
(Registrant)
Date: November 5, 2004 /S/Karabet Simonyan
--------------------------------
Karabet Simonyan
Chief Executive Officer
Date: November 5, 2004 /S/Paul Genova
--------------------------------
Paul Genova
President, Chief Financial Officer
14
EXHIBIT LIST
11.1 Computation of per share earnings
31.1 Certifications Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002 (Principal Executive Officer)
31.2 Certifications Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002 (Principal Financial Officer)
32.1 Certifications Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002 (Principal Executive Officer)
32.2 Certifications Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002 (Principal Financial Officer)
15