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 collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Sales to international distributors are recognized in the same manner. If title does not pass until the product reaches the customer’s delivery site, then recognition of revenue 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. There are no material special post shipment obligations or acceptance provisions that exist with any sales arrangements.
Raw material inventories are stated at the lower of cost (first-in, first-out method) or market. Finished goods and work-in-process are valued at average cost of production, which includes material, labor and manufacturing expenses.
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. If the financial condition of any of its customers were to decline, additional allowances might be required.
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. 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 the tax benefit from an uncertain position 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 tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
By adoption of ASC 740, the Company has analyzed its filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns. As of September 30, 2011 and December 31, 2010, the Company has identified its federal tax return, its state tax return in New Jersey and its foreign return in Germany as “major” tax jurisdictions, as defined, in which it is required to file income tax returns. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its condensed 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 periods ended September 30, 2011 and 2010.
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, 2010.
For the nine-months ended September 30, 2011 as compared to the corresponding period of the previous year, net sales increased to approximately $19,614,000 from approximately $17,928,000, an increase of approximately $1,686,000 or 9.4%. For the three-months ended September 30, 2011 as compared to the corresponding period of the previous year, net sales increased to approximately $7,065,000 from approximately $5,710,000, an increase of approximately $1,355,000 or 23.7%. The increases are primarily due a strong demand for the Company’s RF and microwave components for distributed antenna systems (“DAS”) and a general increase in order activity with government agencies and prime defense contractors.
Gross profit on net sales for the nine-months ended September 30, 2011 was approximately $9,001,000 or 45.9% as compared to approximately $8,455,000 or 47.2% of net sales for the nine-months ended September 30, 2010. Gross profit on net sales for the three-months ended September 30, 2011 was approximately $3,433,000 or 48.6% as compared to approximately $2,697,000 or 47.2% of net sales for the three-months ended September 30, 2010. Although gross profit dollars are higher for the nine-months ended September 30, 2011, as compared to the same period of the previous year, gross profit margins are lower primarily due to product mix, as the Company’s microwave component products typically provide lower margins than its test and measurement instruments. Additionally, during the nine-months ended September 30, 2011, the Company carried excess inventory in the amount of approximately $270,000 relating to a recently discontinued product line. This inventory was sold in its entirety at cost which negatively impacted gross profit. Further, during the nine-months ended September 30, 2011, the Company incurred severance costs relating to the implementation of a cost reduction plan which included several manufacturing employees. The severance amount paid to these manufacturing employees during the first quarter was approximately $73,000.
The Company’s 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 from an external site, in the factory or in the field. The Company can 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. Manufacturing overhead costs remained relatively consistent period over period. The Company continues to carefully monitor costs associated with material acquisition, manufacturing and production.
Operating expenses for the nine-months ended September 30, 2011 were approximately $7,792,000 or 40% of net sales as compared to approximately $7,863,000 or 44% of net sales for the nine-months ended September 30, 2010. Operating expenses are lower for the nine-months ended September 30, 2011 primarily due to a decrease in general and administrative expenses, offset by an increase in sales and marketing expenses and a slight increase in research and development expenses. Operating expenses for the three-months ended September 30, 2011 were approximately $2,734,000 or 39% of net sales as compared to approximately $2,737,000 or 48% of net sales for the three-months ended September 30, 2010. Operating expenses are slightly lower for the three-months ended September 30, 2011 primarily due to a decrease in sales and marketing expenses, offset by an increase in general and administrative expenses and a slight increase research and development expenses.
17
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The decrease in general and administrative expenses for the nine-months ended September 30, 2011 is primarily due to the reversal of a specific warranty accrual in the amount of $240,000 relating to product shipped in 2008, lower bonus accruals and a decrease in non-cash stock based compensation charges. The Company determined that there is a remote likelihood that any of these specific units will be returned and subsequently reversed the warranty accrual. Sales and marketing expenses were higher for the nine-months ended September 30, 2011 primarily due to severance paid to certain sales employees in connection with the cost reduction plan mentioned above, an increase in travel and related expenses, and higher, order-specific commissions paid to the Company’s external, non-employee sales representatives.
Interest income decreased by approximately $8,000 and approximately $11,000 for the three and nine-months ended September 30, 2011, respectively, as compared to the corresponding periods of the previous year. Interest income is derived from the Company’s cash investment account. Substantially all of the Company’s cash is invested in money market funds.
Other income, net of other non-operating expense, decreased by approximately $75,000 for the three-months ended September 30, 2011 as compared to the corresponding period of the previous year. For the nine-months ended September 30, 2011, other income, net of other non-operating expense, increased by approximately $50,000 as compared to the corresponding period of the previous year. The increase in other income for the nine-months ended September 30, 2011 is primarily due to a realized gain from the sale of an investment security during the period. Other income was partially offset by non-operating expense incurred during the three and nine-months ended September 30, 2011 for services relating to the ground water testing being performed at the former site of the Company’s subsidiary, Boonton. The Company has been testing the ground water in this site since 1982 in accordance with state regulations. The Company has hired a new environmental consultant to evaluate the results of the current remediation plan that has been in effect since 1982. The Company is diligently pursuing efforts to satisfy the requirements of the original plan and receive a new determination from the NJDEP. Management continues to be encouraged by recent test results which support improvements in ground water conditions over time.Overall data from recent testing in the Spring of 2011 indicates the continuation of a decreasing concentration trend at the site. The overall decrease supports the absence of a continuing source impacting ground water. The Company believes that its current practice and plan of groundwater testing will continue until an official notification from NJDEP is obtained and the Company is released from further obligations.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 any additional contamination is identified and the NJDEP requires additional remediation.
The income tax benefit for the three and nine-months ended September 30, 2011 includes an adjustment to deferred taxes of approximately $202,000 and approximately $561,000, respectively, based upon estimated realizable amounts of the utilization of operating loss carryforwards, offset by state income tax expense. For the three and nine-months ended September 30, 2010, income tax expense includes state income tax expense and an adjustment to federal income taxes recoverable, partially offset by an adjustment to deferred taxes of approximately $404,000 and approximately $539,000, respectively. The Company has recorded a net deferred tax benefit for federal tax purposes in connection with its disposition of Willtek. This tax benefit is expected to be realized in future periods as taxable income in those periods will be offset by net operating loss carryforwards. Management has provided a valuation allowance in the deferred tax asset resulting from these net operating loss carryforwards based upon the expected benefit to be realized from the future utilization of these carryforward losses. In evaluating the recoverability of the deferred tax asset, management projects actual taxable income over the next five years. Accordingly, the recorded amount of the deferred tax asset is subject to judgment by management and could differ from the actual benefit.
For the three-months ended September 30, 2011, the Company realized income from continuing operations of approximately $827,000 or $0.03 per share on a diluted basis, as compared to income from continuing operations of approximately $39,000 or $0.00 per share on a diluted basis for the three-months ended September 30, 2010, an increase of approximately $788,000. For the nine-months ended September 30, 2011, the Company realized income from continuing operations of approximately $1,713,000 or $0.07 per share on a diluted basis, as compared to income from continuing operations of approximately $657,000 or $0.03 per share on a diluted basis for the nine-months ended September 30, 2010, an increase of approximately $1,056,000. These increases were primarily due to the analysis mentioned above.
For the nine-months ended September 30, 2010, net loss from discontinued operations was approximately $1,743,000 or $0.07 per share on a diluted basis. The loss for the nine-months ended September 30, 2010 was primarily due to approximately $431,000 of a loss recognized on the sale of Willtek and approximately $1,312,000 of operating losses in Willtek for this nine-month period.
18
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the nine-months ended September 30, 2011, the Company realized net income of approximately $1,713,000 or $0.07 income per share on a diluted basis, as compared to a net loss of approximately $1,085,000 or $0.04 loss per share on a diluted basis for the corresponding period of the previous year, an increase of approximately $2,798,000. Net income was approximately $827,000 or $0.03 income per share on a diluted basis for the three-months ended September 30, 2011 as compared to net income of approximately $39,000 or $0.00 income per share on a diluted basis for the three-months ended September 30, 2010, an increase of approximately $788,000. The net income and loss fluctuation was primarily due to the impact of the divestiture of Willtek and the overall analysis above.
LIQUIDITY AND CAPITAL RESOURCES:
The Company’s working capital has increased by approximately $531,000 to approximately $23,164,000 at September 30, 2011, from approximately $22,633,000 at December 31, 2010. At September 30, 2011, the Company had a current ratio of 11.4 to 1, and a ratio of debt to tangible net worth of .2 to 1. At December 31, 2010, the Company had a current ratio of 8.1 to 1, and ratio of debt to tangible net worth of .2 to 1.
The Company had cash and cash equivalents of approximately $12,023,000 at September 30, 2011, compared to approximately $13,643,000 at December 31, 2010. In January 2011, the Company paid approximately $874,000 in disposition fees relating to the sale of Willtek which were recorded as accrued expenses in the Company’s consolidated balance sheet at December 31, 2010. Additionally, in 2011, the Company has to date repurchased approximately 824,000 shares of its outstanding common stock at a cost of approximately $567,000. The Company believes its current level of cash and cash equivalents is sufficient to fund the current operating, investing and financing activities.
The Company expects to realize tax benefits in future periods due to the available net operating loss carryforwards resulting from the disposition of Willtek 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.
The Company used cash for operating activities of approximately $667,000 for the nine-month period ending September 30, 2011. The primary use of this cash was due to an increase in inventory, a decrease in accounts payable, accrued expenses and other current liabilities, and an increase in accounts receivable, partially offset by a decrease in prepaid expenses and other assets.
The Company has historically been able to turn over its accounts receivable 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 used cash for operating activities, including discontinued operations, of approximately $3,465,000 for the nine-month period ending September 30, 2010. The primary use of this cash was due to a loss from operations as well as a decrease in accounts payable, accrued expenses and other current liabilities, and an increase in inventory, partially off-set by a decrease in prepaid expenses and other assets, and a decrease in accounts receivable.
Net cash used for investing activities for the nine-months ended September 30, 2011 was approximately $336,000. The use of these funds was for capital expenditures. Net cash provided by investing activities for the nine-months ended September 30, 2010 was approximately $2,450,000. The source of these funds was from proceeds relating to the disposition of Willtek, off-set by capital expenditures.
Cash used for financing activities for the nine-months ended September 30, 2011 was approximately $618,000. The use of these funds was for the acquisition of treasury stock, which was approved by the Company’s board of directors in 2010, and the periodic payments of a mortgage note. Cash used for financing activities for the nine-months ended September 30, 2010 was approximately $1,522,000. The use of these funds was for the re-payment of a bank loan and periodic payments of a mortgage note.
19
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company maintains a line of credit with its investment bank. The credit facility provides borrowing availability of up to 100% of the Company’s money market account balance and 99% of the Company’s short-term investment securities (U.S. Treasury bills) and, under the terms and conditions of the loan agreement, is fully secured by said money fund account and short-term investment holdings. Advances under the facility will bear interest at a variable rate equal to the London InterBank Offered Rate (“LIBOR”) in effect at time of borrowing. Additionally, there is no annual fee and any amount outstanding under the loan facility may be paid at any time in whole or in part without penalty. As of September 30, 2011, the Company had no borrowings outstanding under the facility and approximately $6,000,000 of borrowing availability.
The Company believes that its financial resources from working capital are adequate to meet its current needs. 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.
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.
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to Wireless Telecom Group, Inc., including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures are effective.
(b) Changes in Internal Controls over Financial Reporting
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified 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.
20
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 1A. RISK FACTORS |
| |
| The Company is not aware of any material changes from risk factors as previously disclosed in its Form 10-K for the year ended December 31, 2010. |
| |
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| |
| Issuer Purchases of Equity Securities |
| |
| The following table provides the number of shares purchased and average price paid per share during the quarter ended September 30, 2011, the total number of shares purchased as part of our publicly announced repurchase programs, and the maximum number of shares that may yet be purchased under our stock repurchase program at September 30, 2011. |
| | | | | | | | | | | |
| Period | | Total number
of shares
purchased (1) | | Average price
paid per
share ($) | | Total number
of shares
purchased as
part of publicly
announced
plans or
programs (1) | | Maximum number
of shares that may
yet be purchased
under the plans or
programs (2) | |
|
| |
| |
| |
| |
| |
|
| July 1, 2011 –
July 31, 2011 | | 41,711 | | $0.79 | | 41,711 | | 258,289 | |
|
| August 1, 2011 –
August 31, 2011 | | 47,027 | | $0.78 | | 47,027 | | 211,262 | |
|
| September 1, 2011 –
September 30, 2011 | | 33,596 | | $0.83 | | 33,596 | | 1,477,666 | |
| | |
| |
| |
| | | |
|
| Total | | 122,334 | | $0.80 | | 122,334 | | | |
| | | |
| |
| |
| | | |
| | | | |
| |
| (1) | | These purchases were made pursuant to the stock repurchase program approved by our Board of Directors on January 14, 2008 and announced on January 17, 2008 pursuant to which the Company may repurchase up to 5% of our common stock from time to time on the open market or in private transactions, including structured or accelerated transactions, on terms and conditions to be determined by the Company and its Board of Directors. The stock repurchase authorization does not have an expiration date and can be modified or discontinued at any time. |
| | | |
| (2) | | On September 8, 2011, announced on September 13, 2011, the Company's Board of Directors authorized a modification to the 2008 stock repurchase program. The authorization increased the number of shares allowed to be repurchased under the program by approximately 1,300,000 shares. |
| |
Item 3. DEFAULTS UPON SENIOR SECURITIES |
| |
| None. |
| |
Item 4. REMOVED AND RESERVED |
|
| |
Item 5. OTHER INFORMATION |
| |
| None. |
| |
Item 6. EXHIBITS |
| | | |
Exhibit No. | | Description | |
| |
| |
|
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) |
| | |
101 | | The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 14, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to the condensed consolidated financial statements. (1) |
| |
|
| |
(1) | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |
21
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 14, 2011 | /S/Paul Genova | |
|
| |
| Paul Genova |
| Chief Executive Officer |
| |
Date: November 14, 2011 | /S/Robert Censullo | |
|
| |
| Robert Censullo |
| Acting Chief Financial Officer |
22
EXHIBIT LIST
| | | |
Exhibit No. | | Description | |
| |
| |
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) |
| | |
101 | | The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 14, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to the condensed consolidated financial statements. (1) |
| |
|
| |
(1) | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |
23
