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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-11916
WIRELESS TELECOM GROUP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2582295
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Eastmans Road,
Parsippany, New Jersey 07054
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(Address of principal executive offices) (Zip Code)
(201) 261-8797
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
none
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(Title of Class)
Indicate by check whether the registrant: (1) 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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/A or any
amendment to this Form 10-K [X]
The aggregate market value of Wireless Telecom Group, Inc. Common
Stock, $.01 par value, held by non-affiliates computed by reference to the
closing price as reported by AMEX on April 30, 2003: $41,022,746
Number of shares of Wireless Telecom Group, Inc. Common Stock, $.01
par value, outstanding as of April 30, 2003: 16,873,678
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DOCUMENTS INCORPORATED BY REFERENCE
Part IV - Certain exhibits listed in Prior filings made by the Company under
response to Item 15(a)(3) the Securities Act of 1933 and the
Securities Exchange Act of 1934.
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions 26
Item 14. Controls and Procedures 26
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
Signatures 29
The Company has amended the 10-K due to changes in Item 1. Business
discussion of Research and Development, Item 8. Financial Statements and
Supplementary Data, specifically in the footnote Research and Development Costs
in Note 1 - Description of Company and Summary of Significant Accounting
Policies, to the financial statements, Item 11. Executive Compensation, Item 12.
Security Ownership of Certain Beneficial Owners and Management, and Item 13.
Certain Relationships and Related Transactions. The changes in Items 1 and 8 are
to reflect the correct amount of Research and Development expenditures made in
2002. The previous disclosures understated the amount of the expenditures. The
correct amount of expenditures are included in the financial statements,
therefore, these revised disclosures had no impact in the financial statements.
The changes in Items 11, 12 and 13 are to include information previously
anticipated to be disclosed in the Proxy by April 30, 2003, but are included
herein. Though only these Items are being amended, the Company is refilling the
entire Form 10-K.
2
PART I
Item 1. Business
Wireless Telecom Group, Inc., a New Jersey corporation (the
"Company"), develops, manufactures and markets a wide variety of electronic
noise sources, passive microwave components and electronic testing and measuring
instruments including power meters, voltmeters and modulation meters. The
Company's products have historically been primarily used to test the performance
and capability of cellular/PCS and satellite communications 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 Company's
current operations are conducted through the Company and its wholly owned
subsidiaries Boonton Electronics Corp. ("Boonton") and Microlab/FXR.
On December 21, 2001, the Company acquired Microlab/FXR, a private
entity, for the net purchase price of $3,800,000 in cash. The acquisition of
Microlab/FXR was recorded under the purchase method of accounting for financial
statement purposes. Microlab/FXR's Balance Sheets are included in the
Consolidated Balance Sheets at December 31, 2002 and 2001. Microlab/FXR's
results of operations and cash flows for 2002 are included in the 2002
Consolidated Statements of Operations and Management's Discussion and Analysis
of Operations, but their results of operations and cash flows for 2001 are not
included in the Consolidated Statements of Operations or Management's Discussion
and Analysis of Operations.
Microlab/FXR designs and manufactures high-power, passive microwave
components for the wireless infrastructure market and for other commercial,
aerospace and military markets. The Company's products are used in microwave
systems, Universal Mobile Telecommunications Systems (UMTS), Personal
Communications Service (PCS) and cellular communications base stations,
television transmitters, avionic systems and medical electronics. Microlab/FXR
is one of the leaders in serving the needs of the in-building distributed
antenna system market, which facilitates seamless wireless coverage throughout
the insides of buildings and building complexes.
On July 7, 2000, a newly formed, wholly-owned subsidiary of the
Company, WTT Acquisition Corp., merged with and into Boonton, a public entity.
Each share of Boonton common stock was converted into .79 shares of the
Company's common stock with aggregated consideration totaling 1,885,713 shares
of Wireless common stock. The merger was accounted for as a pooling of interests
and accordingly, all periods prior to the merger were restated to include the
results of operations, financial position and cash flows of Boonton.
Market
Since the Company's incorporation in the State of New Jersey in 1985,
it has been primarily engaged in supplying noise source products and electronic
testing and measurement instruments to various customers. Approximately 74% of
the Company's sales in fiscal 2002 were derived from commercial applications.
The remaining sales (approximately 26%) were comprised of sales made to the
United States Government (particularly the armed forces) and prime defense
contractors.
Products
Noise source products are primarily used as a method of testing to
determine if sophisticated communications systems are capable of receiving the
information being transmitted. The widest application for the Company's noise
source products are as a reference standard in test instruments which measure
unwanted noise and interference in devices and components utilized in
communications equipment.
This is accomplished by comparing a noise source with known
characteristics to the unwanted noise found in the communications system being
tested. By generating a random noise signal, in combination with a live
transmission signal, a noise generator simulates real world signals and allows
the manufacturer to determine if its product is performing to specifications.
Noise source testing is often more cost-efficient, faster and more accurate than
alternative conventional methods using signal generators.
Coupled with other electronic devices, noise generators are also an
effective means of jamming, blocking and disturbing enemy radar and other
communications, as well as insulating and protecting friendly
3
communications. In the jamming mode, the Company's noise source products block
out or disrupt unwanted radar and radio transmissions generally without being
detected.
The Company's noise source products 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. Testing by the Company's noise source products assures that the
back-up receiver is always functional and ready should the communication using
the first receiver fail. The Company's noise source products can test satellite
communication receivers for video, telephone and data communications.
The Company also offers a line of broadband test equipment serving the
Cable Television and Cable Modem industries. Test instruments from the broadband
product line are measurement solutions for CATV equipment, Data-Over-Cable
("DOCSIS") and Digital TV.
The Company's noise source products range from relatively simple items
with no control mechanisms or auxiliary components to complex, automated
components containing computerized or microprocessor based controls.
The Company, through its Boonton Electronics subsidiary, designs and
produces electronic testing and measuring instruments including power meters,
voltmeters, capacitance meters, audio and modulation meters and VXI products.
These products measure the power of RF and microwave systems used by the
military and commercial sectors. Further, the Company's products are also used
to test terrestrial and satellite communications, radar, telemetry and personal
communication products. Recent models are microprocessor controlled and are
often used in computerized automatic testing systems. 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 Microlab/FXR subsidiary, designs and
manufactures high-power, passive microwave components for the wireless
infrastructure market and for other commercial, aerospace and military markets.
The Company's products are used in microwave systems, UMTS, PCS and cellular
communications base stations, television transmitters, avionic systems and
medical electronics. These types of products serve the needs of the in-building
distributed antenna systems market, which facilitates seamless wireless coverage
throughout the insides of buildings and building complexes.
The Company's products come in various sizes, styles and models with
varying degrees of capabilities and 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 $75,000 per unit, with most sales occurring between $1,000
and $7,500 per unit.
The Company's products have extended useful lives and the Company
provides for its noise and power products, recalibration services to ensure
their accuracy, for a fee, to its domestic and international customers, and also
calibrates test equipment manufactured by others. Such services accounted for
less than 5% of fiscal 2002 sales.
Marketing and Sales
As of March 14, 2003, the Company's in-house marketing and sales force
consisted of sixteen individuals. The Company attempts to promote the sale of
its products to customers and manufacturers' representatives through its product
literature, publication of articles, presentations at technical conferences,
direct mailings, trade advertisements and trade show exhibitions. The Company
believes that extensive advertising is a major factor in generating in-house
sales.
4
The Company's products are sold globally through its in-house sales
people and by over eighty non-exclusive manufacturers' representatives.
Generally, manufacturers' representatives do not stock inventories of the
Company's products. Manufacturers' representatives accounted for an aggregate of
60% and 40% of the Company's sales for the years ended December 31, 2002 and
2001, respectively. For the year ended December 31, 2002, no representative
accounted for more than 10% of total sales. One of the Company's representatives
accounted for approximately 10% of sales in 2001. The Company does not believe
that, although there can be no assurance, the loss of any or all of its
representatives would have a material adverse affect on its business.
The Company's relationship with its representatives is usually
governed by written contracts that either run for one year renewable periods
terminable by either party on 60 days prior notice or have indefinite lives
terminable by either party on 60 days prior notice. The contracts generally
provide for exclusive territorial and product representation, and prohibit the
handling of competing products. The Company continually reviews and assesses the
performance of its representatives and makes changes from time to time based on
such assessments.
The Company believes that educating its existing and potential
customers as to the advantages and applications of its products is a vital
factor in its continued success as is its commitment to rapid product
introductions and timely revisions to existing products. Management believes
that its products offer state-of-the-art performance combined with outstanding
customer and technical support. The Company has always placed great emphasis on
designing its products to be user-friendly.
Customers
Since its inception in 1985, the Company has sold its products to more
than 3,000 customers. The Company currently sells the majority of its products
to various commercial users in the communications industry. Other sales are made
to large defense contractors which incorporate the Company's products into their
products for sale to the U.S. and foreign governments, multi-national concerns
and Fortune 500 companies. In fiscal 2002, approximately 74% of sales were
derived from commercial applications. The remaining sales were comprised of
government and military applications.
For fiscal 2002, no one customer accounted for more than 10% of total
sales. The Company's largest customers vary from year to year. Accordingly,
while the complete loss of any large customer or substantial reduction of sales
to such customers could have a material adverse effect on the Company, the
Company has experienced shifts in sales patterns with such large companies in
the past without any material adverse effect. There can be no assurance,
however, that the Company will not experience future shifts in sales patterns
not having a material adverse effect on its business.
Export sales for fiscal 2002 were $7,093,000, or approximately 34% of
total sales. These sales were made predominantly to customers in Asia
($3,391,000 or 16% of total sales) and Europe ($3,047,000 or 15% of total
sales). In February 1996, the Company established a Foreign Sales Corporation
(FSC). The Company receives a federal tax deduction for a portion of its export
profits. As a result of foreign trade agreements entered into by the U.S.
government, the use of a FSC has been curtailed as of December 31, 2002, and as
such, the tax benefits generated by such an entity have been eliminated. The
Company, nevertheless, will continue to service its overseas customers. See Note
6 of Notes to the Financial Statements.
Research and Development
The Company currently maintains an engineering staff (fifteen
individuals as of March 14, 2003) whose duties include the improvement of
existing products, modification of products to meet customer needs and the
engineering, research and development of new products and applications. Expenses
for research and development involve engineering for improvements and
development of new products for commercial markets. Such expenditures include
the cost of engineering services and engineering-support personnel and were
$1,919,000 and $1,153,000 for the years ended December 31, 2002 and 2001,
respectively. See Note 1 of Notes to the Financial Statements.
5
Competition
The Company competes against many companies which utilize similar
technology to that of the Company, some of which are larger and have
substantially greater resources and expertise in financial, technical and
marketing areas than the Company. Some of these companies are Agilent
Technologies (formerly Hewlett-Packard), IFR, Rhode and Schwarz, Micronetics,
Anritsu, Aerial Facilities, M/A Com and Kathrein. 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 constantly re-evaluates its products for the purpose of
enhancing and improving them. The Company believes that these efforts, along
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 its products.
Backlog
The Company's backlog of firm orders was approximately $2,500,000 at
December 31, 2002, compared to approximately $4,200,000 at December 31, 2001.
Both amounts include orders at Microlab/FXR. It is anticipated that all of the
backlog orders will be filled during the current year. The stated backlog is not
necessarily indicative of Company sales 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. For example, its noise source diodes, a key component
in all of its noise source products, are made by third parties in accordance
with the Company's designs and specifications. The Company's inventory policy
stresses maintaining substantial raw materials in order to lessen its dependency
on third party suppliers and to improve its capacity to facilitate production.
However, shortages or delays of supplies may, in the future, have a material
adverse impact on the Company's operations. No third party supplier accounted
for more than 10% of the Company's total inventory purchases for fiscal 2002.
See Note 6 of Notes to the Financial Statements.
The Company is not party to any formal written contract 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.
The Company primarily produces its products by final and some
intermediate assembly, calibration and testing. Testing of products is generally
accomplished at the end of the manufacturing process and is performed in-house
as are all quality control processes. The Company utilizes modern equipment for
the design, engineering, manufacture, assembly and testing of its products.
Warranty and Service
The Company provides one-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. Repairs that are
necessitated by misuse of such products or are required outside the warranty
period are not covered by the Company's warranty. See Note 9 of Notes to the
Financial Statements.
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 plants, and the Company charges its customers a fee for
those service items that are not covered by warranty. Noise Com and Microlab/FXR
usually do not offer their customers any formal written service contracts.
Boonton Electronics offers its customers formal written service contracts for a
fee.
6
Product Liability Coverage
The testing of electronic communications equipment and the accurate
transmission of information entail a risk of product liability by customers and
others. Claims may be asserted against the Company by end-users of any of the
Company's products. The Company has maintained product liability insurance
coverage since August 1991. To date, the Company has not received or encountered
any formal claims for liability due to a defective or malfunctioning device made
by it. However, it is possible that the Company may be subject to such claims in
the future and corresponding litigation should one or more of its products fail
to perform or meet certain minimum specifications.
Intellectual Property
Proprietary information and know-how are important to the Company's
commercial success. The trademarks "Boonton", "Microlab/FXR", and "Ulab" were
registered in the United States Patent and Trademark Office. 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-competition 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.
Environmental Protection
The New Jersey Department of Environmental Protection (the "NJDEP")
had conducted an investigation in 1982 concerning disposal at a facility in New
Jersey previously leased by the Company's Boonton operations. Involved were
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 as
rapidly as NJDEP operating procedures permit. The above referenced activities
were conducted by Boonton prior to the acquisition of that entity in 2000.
The Company and the NJDEP have 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 at an estimated cost to the
Company of $300,000. The plan contemplates that the wells will be operated and
that soil and water samples will be taken and analyzed until such time (which
the Company is unable to predict) as contamination levels satisfactory to the
NJDEP are attained. Expenditures incurred by the Company during the year ended
December 31, 2002 in connection with the site amounted to approximately $18,000.
The Company estimates that expenditures in this regard during the year ending
December 31, 2003, including the costs of operating the wells and taking and
analyzing soil and water samples, will amount to approximately $20,000. See Note
9 of Notes to the Financial Statements.
Employees
As of March 14, 2003, the Company had 110 full-time employees,
including its officers, 65 of whom are engaged in manufacturing and repair
services, 14 in administration and financial control, 15 in engineering and
research and development, and 16 in marketing and sales.
None of its employees are covered by a collective bargaining agreement
or are represented by a labor union. The Company considers its relationship with
its employees to be satisfactory.
The design and manufacture of the Company's products require
substantial technical capabilities in many disparate disciplines, from mechanics
and computer science to electronics and mathematics. While the Company believes
that the capability and experience of its technical employees compares favorably
with other similar manufacturers, there can be no assurance that it can retain
existing employees or attract and hire the highly capable technical employees it
may need in the future on terms deemed favorable to the Company.
7
Item 2. Properties
In September 2002, the Company relocated its corporate headquarters
and noise generation operations to the 45,700 square foot facility occupied by
its Boonton Electronics subsidiary in Hanover Township, Parsippany, New Jersey.
The term of this lease agreement is for ten years beginning on October 1, 2001
and ending September 30, 2011. The lease also contains an option to terminate
effective September 30, 2006. The lease of the Company's previous headquarters
in Paramus, New Jersey was terminated on favorable terms.
The Company also leases a 23,100 square foot facility located in
Livingston, New Jersey. The term of the lease is for ten years beginning on
March 4, 1996 and ending on February 28, 2006. Either party may cancel the lease
as of the last day of February in any year by giving notice at least one year in
advance of the termination.
The Company also owns a 44,000 square foot facility located in Mahwah,
New Jersey. In November 2000, the Company entered into a lease agreement with an
unrelated third party for the entire facility. The triple net lease runs through
August 1, 2013 and the tenant has an option to purchase the property up through
August 1, 2012 during the lease term.
Item 3. Legal Proceedings
Reference is made to the discussion in Item 1 above regarding an
investigation by the NJDEP concerning certain discontinued practices of the
Company and their effect on the soil and ground water at a certain facility
formerly occupied by the Company. No administrative or judicial proceedings have
been commenced in connection with such investigation. The owner of the
Parsippany-Troy Hills facility has notified the Company, that if the
investigation proves to interfere with the sale of the property, it may seek to
hold the Company liable for any resulting damages. Since May 1983, the owner has
been on notice of this problem and has failed to institute any legal proceedings
with respect thereto. While this does not bar the owner from instituting a suit,
it is the opinion of the Company's legal counsel that it is doubtful that the
owner would prevail on any claim due to the fact that such a claim would be
barred by the statute of limitations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company has traded on the American Stock
Exchange under the name Wireless Telecom Group, Inc. (Symbol: WTT) since
September 12, 1994. 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
American Stock Exchange.
High Low
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2002 Fiscal Year
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1st Quarter $5.00 $2.84
2nd Quarter 3.33 2.03
3rd Quarter 2.20 1.55
4th Quarter 2.08 1.51
2001 Fiscal Year
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1st Quarter $3.38 $1.94
2nd Quarter 3.40 1.90
3rd Quarter 3.09 2.03
4th Quarter 3.04 2.20
On March 14, 2003, the closing price of the Common stock of the
Company as reported was $1.73. On March 14, 2003, the Company had 653
stockholders of record.
In May 2001, the Company reinstated a dividend policy. The table below
details quarterly dividends declared for the past two years.
Quarterly Dividends Per Share
-----------------------------
1st 2nd 3rd 4th
---- ---- ---- ----
2002 $.02 $.02 $.02 $.02
2001 $.00 $.00 $.02 $.02
It is the Company's present intention to maintain a quarterly dividend
policy.
9
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 2002,
2001, 2000, 1999 and 1998 was derived from the Company's financial statements
after restatement for the merger with Boonton Electronics Corporation (See Note
1 of Notes to Financial Statements). The Selected Statement of Operations Data
and the Selected Per Share Data for 2002 includes the results of Microlab/FXR.
The Selected Balance Sheet Data for 2002 and 2001 also includes the balances of
Microlab/FXR. The information set forth below is qualified in its entirety by
reference to, and should be read in conjunction with the financial statements
and related notes contained elsewhere in this Form 10-K.
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Selected Statement of Operations Data: 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net sales $20,747,707 $19,041,838 $18,450,518 $13,187,719 $13,141,774
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Income from continuing operations
before income taxes 2,590,768 3,279,271 3,362,702 2,992,768 1,844,267
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes 823,150 2,062,000 1,231,462 959,572 386,421
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Net income from continuing operations 1,767,618 1,217,271 2,131,240 2,033,196 1,457,846
- -------------------------------------------------------------------------------------------------------------------
Selected Per Share Data:
- -------------------------------------------------------------------------------------------------------------------
Net income from continuing operations per
common share - diluted $ .10 $ .07 $ .11 $ .11 $ .08
- -------------------------------------------------------------------------------------------------------------------
Shares used in computation of earnings per
share - diluted 17,340,264 18,046,498 19,724,188 19,327,264 19,434,173
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .08 $ .04 $ .00 $ .00 $ .05
- -------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data:
- -------------------------------------------------------------------------------------------------------------------
Working capital $23,510,803 $23,318,264 $27,553,331 $26,105,601 $24,002,494
Total assets 32,215,596 32,905,258 37,656,273 36,763,982 27,476,472
Total liabilities 4,328,638 4,798,158 5,273,235 6,647,373 2,605,820
Shareholders' equity 27,886,958 28,107,100 32,383,038 30,116,609 24,870,652
- -------------------------------------------------------------------------------------------------------------------
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This information is
presented after restatement for the merger with Boonton and the acquisition of
Microlab/FXR on December 21, 2001 (see Note 1 of Notes to Financial Statements).
Microlab/FXR's Balance Sheets are included in the Condensed Consolidated Balance
Sheets at December 31, 2002 and 2001. Microlab/FXR's results of operations and
cash flows for the year ended December 31, 2002 are included in the Condensed
Consolidated Statements of Operations and Cash Flows, but their results of
operations and cash flows for the year ended December 31, 2001 are not included.
This discussion should be read in conjunction with the financial statements and
notes thereto included elsewhere herein.
This report contains forward-looking statements and information that
is based on management's beliefs and assumptions, as well as information
currently available to management. When used in this document, the words
"anticipate," "estimate," "expect," "intend," and similar expressions are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on the Company's operating results are
fluctuations in the global economy, the degree and nature of competition, the
risk of delay in product development and release dates and acceptance of, and
demand for, the Company's products.
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. 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.
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.
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.
11
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
Year Ended December 31, 2002 Compared to 2001
Net sales for the year ended December 31, 2002 were $20,747,707 as
compared to $19,041,838 for the year ended 2001, an increase of $1,705,869 or
9%.
The Company's gross profit on net sales for the year ended December
31, 2002 was $9,883,828 or 47.6% as compared to $10,366,581 or 54.4% as reported
in the previous year. Gross profits and margins are lower in 2002 than in 2001
primarily due to lower gross margins at Microlab/FXR than at the other operating
units and proportionally higher fixed manufacturing costs. The Company can
experience variations in gross profit based upon the mix of product sales as
well as variations due to revenue volume and economies of scale. The Company
continues to rigidly monitor costs associated with material acquisition,
manufacturing and production.
Operating expenses for the year ended December 31, 2002 were
$7,184,913 or 34.6% of net sales as compared to $5,945,769 or 31.2% of net sales
for the year ended December 31, 2001. For the year ended December 31, 2002 as
compared to the prior year, operating expenses increased in dollars by
$1,239,144. The increase in amount and percentage are primarily due to the
acquisition of Microlab/FXR and the inclusion of their results.
In 2002 there was no impairment of goodwill, but in December 2001, the
Company identified certain conditions, including an overall weakness in the
telecommunications market relating to the noise generation product line, as
indicators of asset impairment. These conditions led to forecasted future
results that were substantially less than had originally been anticipated at the
time of acquisition. In accordance with the Company's policy, management
assessed the recoverability of goodwill using a cash flow projection based on
the remaining amortization period of twelve years. Based on this projection, the
cumulative cash flow over the remaining amortization period was insufficient to
recover the remaining unamortized goodwill. As a result, the Company recognized
full impairment of this goodwill and recorded a non-cash expense of $2,032,051
for the 2001 year. This impairment impacted the Company's income before taxes
for financial reporting purposes, but not for income tax purposes. Therefore,
the Company's effective tax rate in 2001 was substantially higher than usual
(see Note 8 of Notes to Financial Statements).
Interest, dividend and other income decreased by $998,657 for the year
ended December 31, 2002. The decrease was primarily due to a write down of an
investment in a non-affiliated company (see Note 3 of Notes to the Financial
Statements) and a decrease in interest rates during 2002.
Net income increased to $1,767,618 or $.10 per share on a diluted
basis, for the year ended December 31, 2002 as compared to $1,217,271 or $.07
per share on a diluted basis, for the year ended December 31, 2001. The
explanation of this increase can be derived from the operational analysis
provided above and the income tax impact of the goodwill impairment in 2001.
Results Of Operations
Year Ended December 31, 2001 Compared to 2000
Net sales for the year ended December 31, 2001 were $19,041,838 as
compared to $18,450,518 for 2000, an increase of $591,320 or 3.2%.
12
The Company's gross profit on net sales for the year ended December
31, 2001 was $10,366,581 or 54.4% as compared to $10,333,595 or 56.0% as
reported in the previous year. The Company can experience variations in gross
profit based upon the mix of product sales as well as variations due to revenue
volume and economies of scale. The Company continues to rigidly monitor costs
associated with material acquisition, manufacturing and production.
Operating expenses for the year ended December 31, 2001 were
$5,945,769 or 31.2% of net sales as compared to $7,324,773 or 39.7% of net sales
for the year ended December 31, 2000. For the year ended December 31, 2001 as
compared to the prior year, operating expenses decreased in dollars by
$1,379,004. In 2000, the Company experienced additional professional fees
associated with the merger of Boonton Electronics.
In December 2001, the Company identified certain conditions, including
an overall weakness in the telecommunications market relating to the noise
generation product line, as indicators of asset impairment. These conditions led
to forecasted future results that were substantially less than had originally
been anticipated at the time of acquisition. In accordance with the Company's
policy, management assessed the recoverability of goodwill using a cash flow
projection based on the remaining amortization period of twelve years. Based on
this projection, the cumulative cash flow over the remaining amortization period
was insufficient to recover the remaining unamortized goodwill. As a result, the
Company recognized full impairment of this goodwill and recorded a non-cash
expense of $2,032,051 for the 2001 year. This impairment impacted the Company's
income before taxes for financial reporting purposes, but not for income tax
purposes. Therefore, the Company's effective tax rate in 2001 was substantially
higher than usual (see Note 8 of Notes to Financial Statements).
Interest, dividend and other income decreased by $147,215 for the year
ended December 31, 2001. The decrease was primarily due to a decrease in
interest rates and principal during 2001.
Net income decreased to $1,217,271 or $.07 per share on a diluted
basis, for the year ended December 31, 2001 as compared to $2,131,240 or $.11
per share on a diluted basis, for the year ended December 31, 2000. The
explanation of this decrease can be derived from the operational analysis
provided above.
Liquidity and Capital Resources
The Company's working capital has increased by $192,539 to $23,510,803
at December 31, 2002, from $23,318,264 at December 31, 2001. At December 31,
2002, the Company had a current ratio of 20.6 to 1, and a ratio of debt to net
worth of .16 to 1. At December 31, 2001, the Company had a current ratio of 15.4
to 1, and a ratio of debt to net worth of .17 to 1.
Net cash provided from operations has allowed the Company to meet its
liquidity requirements, research and development activities and capital
expenditures. Operating activities provided $3,093,762 in cash for the year
ending December 31, 2002 compared to $2,706,679 and $890,609 in cash flows for
the years ending December 31, 2001 and 2000, respectively. For 2002, cash
provided by operations was primarily due to net income and a decrease in
inventory. Cash provided by operations was primarily due to net income and a
decrease in accounts receivable for 2001. For 2000, cash provided by operations
was primarily due to net income and a decrease in prepaid expenses and other
current 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.
Inventory levels declined in response to weakened demand. Inventory
continues to be monitored to balance anticipated production requirements while
maintaining manageable levels of goods on hand.
13
The Company is aware of a potential event that might impact its
liquidity in 2005, relating to the lease of the space it occupies in Hanover
Township, New Jersey. The ten year lease, which expires in 2011, provides for
the Company, at its option, to terminate on September 30, 2006 (see Note 9 of
Notes to Financial Statements). The exercise of this option requires one year
advance notice and the payment of $205,500. At this time, the Company does not
expect to exercise this option or have to pay this amount.
Net cash used for investing activities for 2002 amounted to $686,775
compared to $3,493,918 and $867,767 for the years ending December 31, 2001 and
2000, respectively. For the year ending December 31, 2002, the primary use of
cash was for capital expenditures. For the year ending December 31, 2001, the
primary use of this cash was for the purchase of Microlab/FXR. For the year
ending December 31, 2000, the purchase of a $500,000 investment in equity
securities of an unrelated entity and capital expenditures were the primary uses
of funds.
Net cash used for financing activities was $2,022,447, $5,525,377 and
$797,349 for the years ending December 31, 2002, 2001 and 2000, respectively. In
2002, the primary uses of this cash were for the payment of dividends and for
the acquisition of treasury stock. For 2001 and 2000, the principal use of cash
was for the acquisition of treasury stock. Cash outlays were partially offset by
proceeds from the exercise of stock options in 2002, 2001 and 2000.
For details of dividends paid in the year ended December 31, 2002 and
2001, refer to Item 5. It is the Company's present intention to maintain a
quarterly dividend policy.
The Company believes that its financial resources from working capital
provided by operations are adequate to meet its current needs.
Inflation and Seasonality
The Company does not anticipate that inflation will significantly
impact its business nor does it believe that its business is seasonal.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in a separate section of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
14
PART III
Item 10. Directors and Executive Officers of the Registrant
The current directors and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Edward Garcia (1)(2).............. 38 Chairman of the Board, Chief
Executive Officer and President
Marc Wolfsohn .................... 48 Chief Financial Officer
Bent Hessen-Schmidt............... 41 Executive Vice President, Marketing
Henry L. Bachman (4).............. 73 Director
John Wilchek (1)(4)............... 62 Director
Franklin H. Blecher (3)(4)........ 74 Director
Karabet 'Gary' Simonyan .......... 67 Director
Michael Manza..................... 67 Director
Andrew Scelba (3)................. 71 Director
- ----------
(1) Member of Stock Option Committee
(2) Trustee for Profit Sharing Plan
(3) Member of Compensation Committee
(4) Member of Audit Committee
All directors hold office until the next annual meeting of
shareholders or until their successors are elected and qualify. Executive
officers hold office until their successors are chosen and qualify, subject to
earlier removal by the Board of Directors.
Set forth below is a biographical description of each director and
executive officer of the Company based on information supplied by each of them.
Edward Garcia has served as Chairman of the Board, Chief Executive
Officer and President of the Company since January 1999. Prior to becoming
Chairman of the Board, Chief Executive Officer and President, Mr. Garcia had
served as Vice President of Operations since October 1995 and Executive Vice
President and Chief Operating Officer since August 1996. Mr. Garcia joined the
Company in 1990 and has served in various positions, including sales manager and
Chief Engineer.
Marc Wolfsohn joined the Company in November 2000 and has served as
the Company's Chief Financial Officer since March 2001. From 1996 to 1999, Mr.
Wolfsohn served as CFO of Good Stuff, LLC, a marketer, manufacturer and importer
of licensed toys. From 1994 to 1996, Mr. Wolfsohn was employed by Peter Brams
Design Division of JAC MEL, Inc. as a Vice President of Finance and has several
years of accounting and finance experience with other manufacturing and publicly
traded companies. Mr. Wolfsohn earned his New York State CPA while at Arthur
Andersen & Co. and has his BBA degree in Accounting from Baruch College (CUNY).
15
Bent Hessen-Schmidt rejoined the Company in June 2002 and serves as
the Company's Executive Vice President and Vice President of Marketing. Mr.
Hessen-Schmidt previously worked for the Company from 1988 to 1998, serving in
various positions leading up to Vice President of Sales and Marketing. From 1998
until 2002, Mr. Hessen-Schmidt was employed at SiGe Semiconductor, Inc. in
Ottawa, where he held various positions including Vice President of Sales,
Marketing and Business Development. Mr. Hessen-Schmidt has more than 20 years of
experience in Sales, Marketing and Engineering Management, 15 of which include
Test and Measurement. Mr. Hessen-Schmidt has a Masters degree in Electrical
Engineering from Denmark's Technical University.
Henry L. Bachman became a director of the Company in January 1999 and
has a 48 year career in the electronics industry. From 1951 to 1996, Mr. Bachman
served as Vice President of Hazeltine, a subsidiary of Marconi Aerospace Systems
Inc., Advanced Systems Division, on a full-time basis and currently provides
consulting services to them on a part-time basis. Mr. Bachman was President of
The Institute of Electrical and Electronics Engineers (IEEE). Mr. Bachman has a
Bachelor degree and Masters degree from Polytechnic University as well as
completed the Advanced Management Program at Harvard Sloan School of Management.
John Wilchek became a director of the Company in May 1993. He was the
founder, President, CEO and Chairman of Zenith Knitting Mills until his
retirement in 1991.
Franklin H. Blecher, Ph.D. became a director of the Company in
November 1994. In a distinguished thirty-seven year career with AT&T Bell
Laboratories, Dr. Blecher held several significant positions including Executive
Director of the Technical Information Systems Division from 1987 to 1989 and
Executive Director of the Integrated Circuit Design Division from 1982 to 1987
and previously Director of the Mobile Communications Laboratory. Dr. Blecher has
made significant contributions in the area of transistor design for computer
applications. He has also developed widely used telephone and cellular
transmission systems. His laboratory's work in the cellular field was used by
the FCC to establish standards for commercial cellular systems. Dr. Blecher
received his Ph.D. from New York Polytechnic University where he is presently a
member of the Corporate Board and is Past Chairman of the Engineering
Foundation.
Karabet 'Gary' Simonyan became a director of the Company in March
2002. Mr. Simonyan founded the Company in 1985. From 1985 until his official
retirement from the Company in 1997, Mr. Simonyan served in several capacities
including Chairman of the Board, Chief Executive Officer, President and
Director. From 1978 until he joined the Company, he worked for Micronetics,
Inc., a manufacturer of electronic products, in several capacities, including
President. From 1977 through 1978, he served as President of Laser Management
Associates, an electronics consulting firm, which he founded. Mr. Simonyan has a
Bachelor of Science degree in Applied Physics and has undertaken graduate
studies in electrical engineering and in business administration.
Michael Manza became a director of the Company in March 2002. From
1988 until his retirement in 1999, Mr. Manza was a Partner at M.J. Meehan & Co.,
served on its Management Committee, and was a Market Maker in stocks. From 1979
to 1988, Mr. Manza worked for L.F. Rothschild Unterberg Towbin as a Partner and
Managing Director. From 1952 until 1979, Mr. Manza worked for Josephthal & Co.
in several capacities including Partner and Manager. Mr. Manza received his
Bachelor's degree in Business from New York University and his Master's degree
in Finance from The New York Institute of Finance.
Andrew Scelba became a director of the Company in January 2003. In
1980, Mr. Scelba established ANR advertising, a technical agency specializing in
electronic and telecommunication accounts, servicing both national and
international accounts. In 1990, the name was changed to SSD&W. Mr. Scelba
served as President and later Chairman of the Board. In 2000, Mr. Scelba
retired, but continued to consult for the agency. Mr. Scelba has a Bachelor of
Science degree in Advertising and a MBA in Marketing from Fairleigh Dickenson
University.
16
Item 11. Executive Compensation
The following table sets forth, for the years ended December 31, 2002,
2001 and 2000, the annual and long-term compensation for the Company's Chief
Executive Officer and its most highly compensated executive officers whose
annual compensation exceeded $100,000 for the fiscal year ended December 31,
2002 (each, a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
Name and ------------------------------------- Securities All Other
Principal Position Year Salary Bonus Other Underlying Options Compensation (1)
- ------------------ ---- -------- -------- ----- ------------------ ----------------
Edward J. Garcia 2002 $202,208 $ 50,000 -- -- $8,953
-Chairman of the Board, CEO
and President (2) 2001 $174,343 $ 50,000(3) -- -- $8,291
2000 $160,406 $100,000(4) -- 300,000 $8,407
Marc Wolfsohn 2002 $ 99,662 -- -- -- $1,452
-Chief Financial Officer (5)
2001 $ 98,642 -- -- -- $ 950
2000 $ 8,940 $ 1,000 -- 60,000 --
- ----------
(1) Includes the total estimated value for the use of an automobile of $1,710,
$1,775, and $1,891 for fiscal years ended December 31, 2002, 2001 and 2000,
respectively for Mr. Garcia. Also includes the total premiums paid on
split-dollar life insurance for Mr. Garcia, Group Term Life and Accidental
Death and Dismemberment Insurance and the matching contribution to the
Wireless Telecom Group 401(k) Profit Sharing Plan for Messers, Garcia and
Wolfsohn.
(2) Mr. Garcia currently serves as the Company's Chief Executive Officer,
Chairman of the Board and President and has done so since January 1999.
From August 1996 to January 1999, Mr. Garcia served as Vice President and
since August 1996 as Chief Operating Officer.
(3) Granted to Mr. Garcia in recognition of the successful acquisition of
Microlab/FXR.
(4) Granted to Mr. Garcia in recognition of the successful acquisition of
Boonton Electronics Corporation.
(5) Mr. Wolfsohn currently serves as the Company's Chief Financial Officer and
has done so since March 2001.
17
OPTION GRANTS IN FISCAL YEAR 2002
Individual Grants
------------------------------------------------
Percent Of
Total
Options
Granted Potential Realizable Value At
Number of To Assumed Annual Rates Of
Securities Employees Exercise Stock Price Appreciation For
Underlying In Fiscal Of Base Option Term
Option/SARs Year Price Expiration -----------------------------
Name Granted (#) 2002(1) ($/Sh) Date 5% ($) 10% ($)
---- ----------- ---------- -------- ---------- ------ -------
Edward J. Garcia -- -- -- -- -- --
-Chairman of the
Board, CEO and
President
Marc Wolfsohn -- -- -- -- -- --
- Chief Financial
Officer
- ----------
(1) Based upon a total of 465,000 options granted to all employees and
consultants during fiscal year 2002, none of which were granted to Mr.
Garcia or Mr. Wolfsohn.
AGGREGATE OPTION EXERCISES IN THE
YEAR ENDED DECEMBER 31, 2002 AND OPTION VALUES
Number of Securities Value of Securities
Underlying Unexercised Underlying Unexercised
Shares Options In-the-Money Options at
Acquired At Fiscal Year End Fiscal Year End (1)
On Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Edward J. Garcia -- -- 390,667 129,333 $12,960 $3,240
-Chairman of the
Board, CEO and
President
Marc Wolfsohn -- -- 29,333 30,667 -- --
- Chief Financial
Officer
- ----------
(1) Based upon the closing market price of the Company's Common Stock ($1.89
per share) on December 31, 2002 minus the exercise price of the
in-the-money option, multiplied by the number of shares to which the
in-the-money option relates.
18
Employment Agreement
In January 2002, the Company amended the employment agreement dated August
1, 1999 by and between Edward J. Garcia and the Company. The amendment of the
employment agreement reflects a $25,000 increase in Mr. Garcia's annual base
compensation from $175,000 to $200,000 per year and extends the employment
agreement for an additional period of three (3) years. In all other material
respects, the employment agreement is the same as the agreement dated August 1,
1999 as described below.
Mr. Garcia will receive an annual bonus, the amount of which shall be
determined by the Board of Directors in their discretion. The employment
agreement provides that, in the event of termination of Mr. Garcia for good
reason, without cause, or in the case of Mr. Garcia's non-renewal, as such terms
are defined therein, Mr. Garcia shall be entitled to receive: (a) a lump sum in
an amount equal to three (3) years of his base annual salary; (b) benefits
coverage for him and his dependents, at the same level and at the same charges
as immediately prior to his termination, for a period of three (3) years
following his termination from the Company; (c) all accrued obligations, as
defined therein; (d) with respect to each incentive pay plan (other than stock
options or other equity plans) of the Company in which Mr. Garcia participated
at the time of termination, an amount equal to the amount that would have been
earned if he had continued employment for three (3) additional years; and (e)
with respect to stock options and other equity plans in which Mr. Garcia
participated at the time of termination, any stock options or restricted stock
that would vest or become non-forfeitable in the five (5) years after
termination. If Mr. Garcia is terminated by reason of disability, he shall be
entitled to receive, for three (3) years after such termination, his base annual
salary less any amounts received under a long term disability plan. If he is
terminated by reason of his death, his legal representatives shall receive the
balance of any remuneration due him. The term of the employment agreement is
three (3) years from the date of execution with a renewal period of two (2)
years, such renewal to occur automatically unless either the Company or Mr.
Garcia terminates the employment agreement upon six (6) months written notice.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Franklin H. Blecher
and Andrew Scelba.
Currently, none of such persons is an officer or employee of the Company or
any of its subsidiaries. During 2002, none of our executive officers served as a
director or member of a compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director or member of our Compensation Committee.
In January 2002, the Company paid a fee to GALEG, LLC for its services in
connection with the identification and acquisition of Microlab/FXR. The
information described above can be referred to in Item 13, Certain Relationships
and Related Transactions.
Board Compensation Committee Report on Executive Compensation
The Company strives to apply a uniform philosophy regarding compensation
for all of its employees, including the members of its senior management. This
philosophy is based upon the premise that the achievements of the Company result
from the combined and coordinated efforts of all employees working toward common
goals and objectives in a competitive, evolving market place.
The goals of the Company's compensation program are to align remuneration
with business objectives and performance, and to enable the Company to retain
and competitively reward executive officers who contribute to the long-term
success of the Company. The Company attempts to pay its executive officers
competitively in order that it will be able to retain the most capable people in
the industry. Information with respect to levels of compensation being paid by
comparable companies is obtained from various publications and surveys.
The Compensation Committee will evaluate the Company's compensation
policies on an ongoing basis to determine whether they enable us to attract,
retain and motivate key personnel. To meet these objectives, the Company may
from time to time increase salaries, award additional stock options or provide
other short and long-term incentive compensation to executive officers.
19
Mr. Edward J. Garcia has served as the Company's Chief Executive Officer,
President and Chairman of the Board of Directors since January 1999. In the
fiscal year ended December 31, 2002, Mr. Garcia received $202,208 in salary,
$50,000 in bonuses and $8,953 in other compensation. Mr. Garcia's compensation
for the 2002 fiscal year was based on his qualitative managerial efforts and
business ingenuity. See "Executive Compensation."
The Compensation Committee
- -Messrs. Franklin H. Blecher and Andrew Scelba
PERFORMANCE GRAPH
The graph below presents the yearly percentage change in the cumulative
total stockholder returns for the Company's Common Stock (WTT) compared with (i)
the American Stock Exchange Market Value Index and (ii) a peer group index of 57
companies selected on an industry basis. The graph assumes that the value of the
investment in the Company's Common Stock, the American Stock Exchange Market
Value Index and the peer group index each was $100 on December 31, 1997 and that
all dividends were reinvested. All of the indices include only companies whose
common stock has been registered under Section 12 of the Exchange Act, for at
least the time frame set forth in the graph.
The total shareholder returns depicted in the graph are not necessarily
indicative of future performance. The Performance Graph and related disclosure
shall not be deemed to be incorporated by reference in any filing by the Company
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates the graph and such disclosure
by reference.
FISCAL YEAR ENDING
---------------------------------------------
12/31 12/31 12/31 12/29 12/31 12/31
COMPANY/MARKET/INDEX 1997 1998 1999 2000 2001 2002
- -------------------- ----- ----- ----- ----- ----- -----
WIRELESS TELECOM GROUP, INC. 100 30 51 30 47 32
SIC CODE INDEX 100 108 172 155 103 39
AMEX MARKET INDEX 100 99 123 121 116 111
401(k) Profit Sharing Plan
The Company's 401(k) Profit Sharing Plan (the "PSP") is qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). The effective date of the PSP is January 1, 1991. This plan is
administered under a Trust of which Mr. Edward J. Garcia, the Company's Chief
Executive Officer, President and Chairman of the Board, is the Trustee. All
employees of the Company, who are 21 years or older, including its executive
officers, are eligible to participate in the PSP after six months of employment
with the Company.
Under the PSP, participating employees have the right to elect that their
contributions to this plan be made from reductions from their compensation paid
to them by the Company, up to 100% of their compensation per annum, not to
exceed $11,000 for 2002, per the IRS index and in compliance with GUST-EGTRRA.
Additionally, effective July 1, 2002, the plan allows certain eligible
participants to make additional pre-tax contributions to the plan up to $1,000
in 2002, if they meet the following requirements: They must be eligible to
participate in the plans' 401(k) arrangement, they must be at least age 50 or
older or will attain age 50 in 2002. These additional contributions known as
"catch-up" contributions are in compliance with the EGTRRA and cannot exceed the
maximum amount allowed under federal tax laws for that calendar year.
Participating employees are entitled to full distribution of their share of the
Company's contribution under this plan upon their death, total disability, when
they reach Normal Retirement Age (age 60) or when they reach Early Retirement
Age (age 55). If their employment is terminated earlier, their share of the
Company's contributions will depend upon their number of years of employment
with the Company.
20
All participating employees have the right to receive 100% of their own
contributions to the PSP upon any termination of employment. Apart from the
Company's and employees' contributions, they may receive investment earnings
relating to the funds in their account under this plan.
Benefits under the PSP are payable to eligible employees in a single lump
sum or in installments upon termination of their employment, although in-service
withdrawals are permitted under certain circumstances. If more than 60% of its
contributions are allocated to key employees, the Company will be compelled to
contribute 3% of their annual compensation to each participating non-key
employee's account for that year. If the Company terminates this plan,
participating employees are entitled to 100% of the Company's contributions
credited to their accounts. Company contributions to the plan for Fiscal 2002
and Fiscal 2001 aggregated $99,947 and $67,060, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the Company's
Common Stock owned as of April 30, 2003 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 director nominee and Named Executive Officer, and (iii) all
officers and directors as a group without naming them. Except as otherwise set
forth below, the address of each such person is c/o Wireless Telecom Group,
Inc., 25 Eastmans Road, Parsippany, New Jersey, 07054. 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 April 30, 2003, are deemed outstanding; however, such shares are not
deemed outstanding for purposes of computing the ownership percentage of any
other person. Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
Amount and Nature of
Names and Addresses Beneficial Ownership (1) Percentage Owned(2)
- --------------------------- ------------------------ -------------------
Edward J. Garcia (3) 465,667 2.8%
John Wilchek (4) 92,000 *
Franklin H. Blecher (5) 81,500 *
Henry Bachman (6) 65,000 *
Karabet "Gary" Simonyan (7) 40,000 *
Michael Manza (8) 20,000 *
Andrew Scelba (9) 0 *
Marc Wolfsohn (10) 29,533 *
Bent Hessen-Schmidt (11) 18,750 *
All officers and directors 812,450 4.8%
as a group (9 persons) (12)
FMR Corp.
82 Devonshire Street 1,389,600 8.2%
Boston, MA 02109 (13)
- ----------
* Less than one percent.
21
(1) Except as otherwise set forth in the footnotes below, all shares are
beneficially owned, and the sole voting and investment power is held by the
persons named.
(2) Based upon 16,873,678 shares of Common Stock outstanding as of the April
30, 2003 and 656 stockholders of record.
(3) Ownership consists of 75,000 shares of Common Stock and 390,667 shares of
Common Stock issuable upon the exercise of options exercisable within 60
days of April 30, 2003. Excludes an aggregate of 129,333 shares of Common
Stock issuable upon the exercise of options which are not exercisable
within 60 days of April 30, 2003.
(4) Ownership consists of 12,000 shares of Common Stock and 80,000 shares of
Common Stock issuable upon the exercise of options exercisable within 60
days of April 30, 2003. Excludes 20,000 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(5) Ownership consists of 21,500 shares of Common Stock and 60,000 shares of
Common Stock subject to options currently exercisable or exercisable within
60 days of April 30, 2003. Excludes 20,000 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(6) Ownership includes 1,000 shares of Common Stock and 64,000 shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of April 30, 2003. Excludes 16,000 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(7) Ownership includes 20,000 shares of Common Stock and 20,000 shares of
Common Stock subject to options currently exercisable or exercisable within
60 days of April 30, 2003. Excludes 60,000 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(8) Ownership includes 0 shares of Common Stock and 20,000 shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of April 30, 2003. Excludes 60,000 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(9) Ownership includes 0 shares of Common Stock and 0 shares of Common Stock
subject to options currently exercisable or exercisable within 60 days of
April 30, 2003. Excludes 80,000 shares of Common Stock issuable upon the
exercise of options not exercisable within 60 days of April 30, 2003.
(10) Ownership consists of 200 shares of Common Stock and 29,333 shares of
Common Stock subject to options currently exercisable or exercisable within
60 days of April 30, 2003. Excludes 30,667 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(11) Ownership consists of 0 shares of Common Stock and 18,750 shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of April 30, 2003. Excludes 56,250 shares of Common Stock issuable
upon the exercise of options not exercisable within 60 days of April 30,
2003.
(12) Ownership consists of 129,700 shares of the Company's Common Stock and
682,750 shares of Common Stock issuable upon the exercise of options
exercisable within 60 days of April 30, 2003. Excludes 472,250 shares of
Common Stock issuable upon the exercise of options not exercisable within
60 days of April 30, 2003.
(13) Based on information set forth in Schedule 13-G, dated December 31, 2002,
filed with the Commission on February 14, 2003.
Director Compensation
Director Fees. Directors who are not employees of the Company are
compensated for their services according to a standard arrangement authorized by
a resolution of the Board of Directors. Such directors are paid a retainer of
$2,000 for each meeting of the Board of Directors attended by such director.
Director and Officer Liability
New Jersey's Business Corporation Act permits New Jersey corporations to
include in their certificates of incorporation a provision eliminating or
limiting the personal liability of directors and officers of the corporation for
damages arising from certain breaches of fiduciary duty. The Company's
Certificate of Incorporation includes a provision eliminating the personal
liability of directors and officers to the Company and its stockholders for
damages to the maximum extent permitted by New Jersey law, including exculpation
for acts of omissions in violation of directors' and officers' fiduciary duties
of care. Under current New Jersey law, liability is not eliminated in the case
of a breach of a director's or officer's duty of loyalty (i.e., the duty to
refrain from transactions involving
22
improper conflicts of interest) to the Company or its stockholders, the failure
to act in good faith, the knowing violation of law or the obtainment of an
improper personal benefit. The Company's Certificate of Incorporation does not
have an effect on the availability of equitable remedies (such as an injunction
or rescissions) for breach of fiduciary duty. However, as a practical matter,
equitable remedies may not be available in particular circumstances. The Company
also has in effect under a policy effective April 1, 2003, and expiring on April
1, 2004, insurance covering all of its directors and officers against certain
liabilities and reimbursing the Company for obligations for which it occurs as a
result of its indemnification of such directors, officers and employees.
Stock Option Plans:
1995 Plan
Under the Company's 1995 Incentive Stock Option Plan (the "Plan") options
to purchase a maximum of 1,750,000 shares of Common Stock of the Company may be
granted to officers and other key employees of the Company. Options granted
under the Plan are intended to qualify as incentive stock options as defined in
the Internal Revenue Code (the "Code").
The Plan is administered by the Stock Option Committee which is composed of
two members of the Board up for election at the Meeting, Mr. Edward J. Garcia,
the Company's President, Chairman of the Board and Chief Executive Officer; and
Mr. Wilchek, a director. The purpose of the Plan is to ensure the retention of
existing personnel and key employees, to attract experienced and competent
individuals to the Company, to encourage proprietary interest in the Company,
and to provide additional incentive by permitting such individuals to
participate in the ownership of the Company. The criteria the Stock Option
Committee uses in granting options pursuant to the Plan is consistent with these
purposes.
Options granted under the Plan are exercisable for a period of up to 10
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that the
term of an incentive option granted under the Plan to a shareholder owning more
than 10% of the outstanding Common Stock may not exceed five years and its
exercise price may not be less than 110% of the fair market value of the Common
Stock on the date of the grant. The aggregate fair market value, as of the date
of grant, of the shares for which incentive options become exercisable for the
first time by an optionee during the calendar year may not exceed $100,000.
Options granted under the Plan to officers or employees of the Company may
be exercised only while the optionee is employed or retained by the Company or
within 30 days of the date of termination of the employment relationship.
However, options which are exercisable at the time of termination by reason of
death or permanent disability of the optionee may be exercised within three (3)
months of the date of termination of the employment relationship. Upon the
exercise of an option, payment may be made by cash or by any other means that
the Stock Option Committee determines. No option may be granted under the Plan
after February 19, 2005 on which date the Plan will expire. Options may be
granted only to such employees and officers of the Company as the Stock Option
Committee shall select from time to time in its sole discretion, provided that
only employees of the Company shall be eligible to receive incentive options.
The Stock Option Committee will, in its discretion, determine (subject to
the terms of the Plan) who will be granted options, the time or times at which
options shall be granted, and the number of shares subject to each option and
the manner in which options may be exercised. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and such other factors deemed relevant in accomplishing the
purpose of the Plan.
Under the Plan, the optionee has none of the rights of a shareholder with
respect to the shares issuable upon the exercise of the option until such shares
shall be issued upon such exercise. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date of
exercise, except as provided in the Plan. During the lifetime of the optionee,
an option shall be exercisable only by the optionee. No option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of decent and distribution.
23
The Board of Directors may amend or terminate the Plan except that
shareholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted to
reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3,
Section 422 or Section 162(m) of the Code. No action taken by the Board may
materially and adversely affect any outstanding option grant without the consent
of the optionee.
Federal Tax Consequences:
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of incentive options if granted
under the terms set forth in the Plan. Incentive option holders incur no regular
Federal income tax liability at the time of grant or upon exercise of such
option, assuming that the optionee was an employee of the Company from the date
the option was granted until 90 days before such exercise. However, upon
exercise, the Spread must be added to regular Federal taxable income in
computing the optionee's "alternative minimum tax" liability. An optionee's
basis in the shares received on exercise of an incentive stock option will be
the option price of such shares for regular income tax purposes. No deduction is
allowable to the Company for Federal income tax purposes in connection with the
grant or exercise of such option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the Plan. For instance, the
treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
2000 Plan
The 2000 Plan provides that options granted under such plan at the
discretion of the Committee may become exercisable in such number of cumulative
installments as the Committee may establish; provided, however, no option may be
exercisable until at least six months and one day from the date of grant.
However, in the case of Incentive Stock Options ("ISOs"), the exercise price
shall be no less than the fair market value of the Company's Common Stock on the
date of grant (110% in the case of stockholders owning more than 10% of the
Company's voting securities), and shall expire no later than the tenth (10th)
anniversary of the date of grant (the fifth (5th) anniversary in the case of
stockholders owning more than 10% of the Company's voting securities).
Generally, ISOs, to the extent such options are vested, may be exercised within
a period of (i) ninety (90) days in the event an optionee ceases to be an
employee of the Company, (ii) three (3) months if the optionee dies while in the
employ of the Company and (iii) one (1) year if the optionee becomes disabled
within the meaning of Section 22(e)(3) of the Code. Generally, Non-Qualified
Stock Options ("NQSOs"), to the extent such options are vested, will expire
immediately upon the termination of the optionee's employment with the Company;
provided, however, such termination is for cause or is otherwise attributable to
a breach by the optionee of an employment or confidentiality or not-disclosure
agreement. Notwithstanding, an NQSO, to the extent such options are vested, will
be exercisable within a period of (i) three (3) months if the optionee dies
while in the employ of the Company and (ii) one (1) year if the optionee becomes
disabled within the meaning of Section 22(e)(3) of the Code. Pursuant to the
2000 Plan
24
and in compliance with the Code, to the extent that the aggregate fair market
value, determined by the date or dates of grant, for which ISOs are first
exercisable by an optionee during any calendar year exceeds $100,000, such
options shall be treated as NQSOs.
Federal Tax Consequences
The following is a summary of the U.S. federal income tax consequences that
generally will arise with respect to options granted pursuant to the 2000 Plan
and with respect to the shares of Common Stock of the Company issuable upon the
exercise thereof.
ISOs.
In general, an optionee will not recognize regular income upon the grant or
exercise of an ISO. The basis of shares transferred to an optionee pursuant to
the exercise of an ISO is the price paid for such shares (i.e., the exercise
price). Instead, an optionee will recognize taxable income upon the sale of
Common Stock issuable upon the exercise of an ISO. Notwithstanding, the exercise
of an ISO may subject the optionee to the alternative minimum tax.
In general, the tax consequences of selling Common Stock issuable upon the
exercise of an ISO will vary with the length of time that the optionee holds
such Common Stock prior to such sale. An optionee will recognize long-term
capital gain or loss equal to the difference between the sale price of the
Common Stock and the exercise price if the optionee sells the Common Stock after
having had owned it for at least (i) two (2) years from the date the option was
granted (the "Grant Date") and (ii) one (1) year from the date the option was
exercised (the "Exercise Date").
However, an optionee will recognize ordinary compensation income and
capital gain (if the sale price is greater than exercise price) or loss (if the
sale price is less than the exercise price), if the optionee sells the Common
Stock issuable upon the exercise of an ISO prior to having had owned it for less
than (i) two (2) years from the Grant Date and (ii) one (1) year from the
Exercise Date. The capital gain or loss will be treated as long-term capital
gain or loss if the optionee has held the Common Stock for more than one (1)
year prior to the date of sale.
NQSOs.
As in the case of ISOs, an optionee will recognize no income tax upon the
grant of an NQSO. Unlike an ISO, however, an optionee exercising an NQSO will
recognize ordinary income tax equal to the excess of the fair market value of
the Company's Common Stock on the Exercise Date over the exercise price.
With respect to the Common Stock issuable upon the exercise of an NQSO, a
optionee generally will have a tax basis equal to the fair market value of the
stock on the Exercise Date. Upon the subsequent sale of Common Stock issuable
upon the exercise of an NQSO, an optionee will recognize a capital gain or loss,
assuming the stock was a capital asset in the optionee's hands, equal to the
difference between the tax basis of the Common Stock and the amount realized
upon disposition; provided, however, that the optionee has owned the Common
Stock for a period of one (1) year.
Tax Consequences to the Company
The grant of ISOs and NQSOs under the 2000 Plan will have no tax
consequences to the Company. Furthermore, in the case of ISOs, the Company will
not experience any tax consequences relating to the exercise of ISOs granted
under the 2000 Plan nor the exercise thereof. Notwithstanding, the Company
generally will be entitled to a business-expense deduction with respect to any
ordinary compensation income, including a Disqualifying Disposition or a Section
83(b) Election, upon the exercise of an NQSO; provided, however, that such
deduction will be subject to the limitation of Section 162(m) promulgated under
the Code.
25
Item 13. Certain Relationships and Related Transactions
In January 2002, the Company paid $140,000 to GALEG, LLC for its services
in connection with the identification and acquisition of Microlab/FXR. Mr.
Karabet "Gary" Simonyan and members of his immediate family are among the
members of GALEG, LLC. Mr. Simonyan is the Company's founder and past Chairman
of the Board, Chief Executive Officer and President. These services and
compensation all occured before Mr. Simonyan rejoined the Board as a Director in
March 2002.
Lazar Levine & Felix, LLP has been our independent auditors since 1991, and
the Board of Directors desires to continue to engage the services of this firm
for the fiscal year ending December 31, 2003. Accordingly, the Board of
Directors, upon the recommendation of the Audit Committee, has reappointed Lazar
Levine & Felix LLP to audit the Company and its subsidiaries financial
statements for fiscal year 2003 and to report on these financial statements.
Representatives of Lazar Levine & Felix LLP are expected to be present at
the annual meeting and will have the opportunity to make statements if they so
desire and to respond to appropriate questions from our stockholders.
Item 14. Controls and Procedures
(a) Based on their evaluation as of a date within 90 days of the
filing date of this Annual Report on Form 10-K/A, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act are effective to ensure
that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
(b) There were no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
26
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Operations for the Three Years in the
Period ended December 31, 2002
Consolidated Statements of Changes in Shareholders' Equity
for the Three Years in the Period ended December 31, 2002
Consolidated Statements of Cash Flows for the Three Years in the
Period ended December 31, 2002
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
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 Certificate of Incorporation, as amended (1)
3.2 Amended and Restated By-laws (1)
3.3 Amendment to the Certificate of Incorporation (2)
3.4 Amendment to the Certificate of Incorporation (3)
4.2 Form of Stock Certificate (1)
10.1 Summary Plan Description of Profit Sharing Plan of the
Registrant (1)
10.2 Incentive Stock Option Plan of the Registrant and related
agreement (1)
10.3 Amendment to Registrant's Incentive Stock Option Plan and
related agreement (3)
10.4 Form of Manufacturers Representative Agreement (1)
10.5 Lease between the Company and Paramus Parkway Building
Associates (4)
10.6 Asset Purchase Agreement, dated as of January 7, 1999, between
the Company and Telecom Analysis Systems, Inc.(5)
10.7 Non-Competition Agreement, dated March 11, 1999, between the
Company and Telecom Analysis Systems, Inc. relating to the
Test Equipment Assets (5)
10.8 Non-Competition Agreement, dated March 11, 1999, between the
Company and Telecom Analysis Systems, Inc. relating to the
Noise Assets (5)
10.9 Agreement and Plan of Reorganization dated March 2, 2000 among
the Company, WTT Acquisition Corp. and Boonton Electronics
Corp.(6)
27
10.10 Amendment No. 1 to the Agreement and Plan of Reorganization
dated April 28, 2000 among the Company, WTT Acquisition Corp.
and Boonton Electronics Corp.(7)
10.11 Wireless Telecom Group, Inc. 2000 Stock Option Plan (8)
10.12 Stock Purchase Agreement dated December 21, 2001, by and among
the Company, Microlab/FXR and Harry A. Augenblick (9)
10.13 Stock Purchase Agreement made as of December 21, 2001, by and
among the Company and Microlab/FXR Employees Stock Ownership
Plan (9)
10.14 Amended Employment Agreement dated as of January 25, 2002 by
and among Edward Garcia and the Company (10)
11.1 Computation of Per Share Earnings
23.1 Consent of Independent Auditors (Lazar Levine & Felix LLP)
included herein as Exhibit 23.1
99.1 Certification pursuant to 18 U.S.C. section 1350
99.2 Certification pursuant to 18 U.S.C. section 1350
- ----------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-18
(File No.33-42468-NY) and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 1994 and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 1995 and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 1996 and incorporated by reference herein.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
March 11, 1999, filed with the Commission on March 26, 1999 and
incorporated by reference herein.
(6) Filed as an exhibit to the Current Report on Form 8-K, dated March 2, 2000,
filed with the Securities and Exchange Commission on March 8, 2000.
(7) Filed as Annex B to the Company's Registration Statement on Form S-4/A,
filed on June 13, 2000 and incorporated by reference herein.
(8) Filed as Annex B to the Definitive Proxy Statement of the Company filed on
July 17, 2000 and incorporated by reference herein.
(9) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
December 21, 2001, filed with the Commission on January 4, 2002 and
incorporated by reference herein.
(10) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 2001 and incorporated by reference herein.
.
(b) No report on Form 8-K has been filed during the last quarter of the period
covered by this Report.
(c) See Item 15(a)(3), above.
(d) See Item 15(a)(2), above.
28
S I G N A T U R E S
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.
WIRELESS TELECOM GROUP, INC.
Date: April 30, 2003 By: /s/ Edward Garcia
-------------------------------------
Edward Garcia, Chairman of the Board,
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/ Edward Garcia Chairman of the Board, April 30, 2003
- -----------------------
Edward Garcia Chief Executive Officer
/s/ Marc Wolfsohn Chief Financial Officer April 30, 2003
- -----------------------
Marc Wolfsohn
/s/ John Wilchek Director April 30, 2003
- -----------------------
John Wilchek
/s/ Franklin H. Blecher Director April 30, 2003
- -----------------------
Franklin H. Blecher
/s/ Director
- -----------------------
Henry L. Bachman
/s/ Karabet Simonyan Director April 30, 2003
- -----------------------
Karabet Simonyan
/s/ Director
- -----------------------
Michael Manza
/s/ Director
- -----------------------
Andrew Scelba
/s/ Reed DuBow Controller April 30, 2003
- -----------------------
Reed DuBow
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Wireless Telecom Group, Inc.
Page(s)
-------
Independent Auditors' Report F-2
Consolidated Financial Statements:
Balance Sheets as of December 31, 2002 and 2001 F-3
Statements of Operations for the Three Years in the Period
Ended December 31, 2002 F-4
Statement of Changes in Shareholders' Equity for the Three
Years in the Period Ended December 31, 2002 F-5
Statements of Cash Flows for the Three Years in the Period
Ended December 31, 2002 F-6
Notes to Consolidated Financial Statements F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Wireless Telecom Group, Inc.
Parsippany, New Jersey
We have audited the accompanying consolidated financial statements of Wireless
Telecom Group, Inc. as listed in the index under item 15 in this Form 10-K as
well as the financial statement schedule listed in Part IV, Item 15(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wireless Telecom
Group, Inc. as of December 31, 2002 and 2001 and the results of its operations
and its cash flows for the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 7, 2003
F-2
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
December 31,
-------------------------
2002 2001
----------- -----------
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents $15,523,180 $15,138,640
Accounts receivable - net of allowance for doubtful accounts of
$175,838 and $113,950 for 2002 and 2001, respectively 3,087,983 2,867,538
Inventories 5,484,622 6,316,085
Current portion of deferred tax benefit (Note 8) 106,000 140,000
Prepaid expenses and other current assets 508,447 476,454
----------- -----------
TOTAL CURRENT ASSETS 24,710,232 24,938,717
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - NET (Notes 2 and 4) 5,573,316 5,499,540
----------- -----------
OTHER ASSETS:
Goodwill 1,351,392 1,351,392
Deferred tax benefit (Note 8) 386,956 364,927
Other assets (Note 3) 193,700 750,682
----------- -----------
TOTAL OTHER ASSETS 1,932,048 2,467,001
----------- -----------
TOTAL ASSETS $32,215,596 $32,905,258
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 692,383 $ 660,249
Accrued expenses and other current liabilities 469,645 760,868
Current portion of mortgage payable (Note 4) 37,401 34,686
Income taxes payable (Note 8) -- 164,650
----------- -----------
TOTAL CURRENT LIABILITIES 1,199,429 1,620,453
----------- -----------
LONG TERM LIABILITIES:
Mortgage payable (Note 4) 3,129,209 3,166,609
Other -- 11,096
----------- -----------
TOTAL LONG TERM LIABILITIES 3,129,209 3,177,705
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 9 and 10)
SHAREHOLDERS' EQUITY (Note 5):
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued -- --
and 19,807,677 shares issued for 2002 and 2001, respectively 198,754 198,077
Additional paid-in capital 12,904,589 12,792,657
Retained earnings 22,379,333 21,979,416
Treasury stock, at cost - 2,994,500 and 2,654,400 shares for 2002 and
2001, respectively (7,595,718) (6,863,050)
----------- -----------
27,886,958 28,107,100
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,215,596 $32,905,258
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
For the Year Ended December 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
NET SALES (Note 6) $20,747,707 $19,041,838 $18,450,518
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales (Note 6) 10,863,879 8,675,257 8,116,923
Selling, general and administrative expenses 7,184,913 5,945,769 7,324,773
Impairment of goodwill -- 2,032,051 --
Interest, dividends and other expense (income) (Note 3) 108,147 (890,510) (1,037,725)
Settlement of litigation (Note 10) -- -- 683,845
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 18,156,939 15,762,567 15,087,816
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,590,768 3,279,271 3,362,702
Provision for income taxes (Note 8) 823,150 2,062,000 1,231,462
----------- ----------- -----------
NET INCOME $ 1,767,618 $ 1,217,271 $ 2,131,240
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.10 $ 0.07 $ 0.11
Diluted $ 0.10 $ 0.07 $ 0.11
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 17,080,648 17,746,979 19,159,975
Diluted 17,340,264 18,046,498 19,724,188
The accompanying notes are an integral part of these financial statements.
F-4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
Additional Treasury
Common Paid-in Retained Stock
Stock Capital Earnings at Cost Total
-------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $195,880 $11,856,402 $19,335,162 $(1,270,835) $30,116,609
Stock options exercised 1,522 423,254 -- -- 424,776
Tax benefit of exercised stock options -- 130,000 -- -- 130,000
Purchase of treasury stock -- -- -- (759,201) (759,201)
Compensatory shares 415 339,199 -- -- 339,614
Net income -- -- 2,131,240 -- 2,131,240
-------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 197,817 12,748,855 21,466,402 (2,030,036) 32,383,038
Dividends - $.04 per share -- -- (704,257) -- (704,257)
Stock options exercised 260 43,802 -- -- 44,062
Purchase of treasury stock -- -- -- (4,833,014) (4,833,014)
Net income -- -- 1,217,271 -- 1,217,271
-------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 198,077 12,792,657 21,979,416 (6,863,050) 28,107,100
Dividends - $.08 per share -- -- (1,367,701) -- (1,367,701)
Stock options exercised 677 111,932 -- -- 112,609
Purchase of treasury stock -- -- -- (732,668) (732,668)
Net income -- -- 1,767,618 -- 1,767,618
-------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2002 $198,754 $12,904,589 $22,379,333 $(7,595,718) $27,886,958
======== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
For the Year Ended December 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,767,618 $ 1,217,271 $ 2,131,240
Adjustments to reconcile net income to net cash provided
by operating activities:
Impairment of goodwill -- 2,032,051 --
Non cash compensation -- -- 258,750
Depreciation and amortization 592,611 539,743 489,809
Deferred income taxes (benefit) 11,971 (294,492) 121,390
Provision for losses on accounts receivable 11,889 43,192 26,077
Write down of investment - other assets 499,000 -- --
Other income (11,096) (66,672) (66,672)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (232,334) 868,953 (1,108,897)
Decrease (increase) in inventory 831,463 (745,317) (1,806,808)
Decrease (increase) in prepaid expenses and other current assets 46,378 (259,019) 1,609,399
(Decrease) in accounts payable and accrued expenses (259,088) (779,681) (545,288)
Net cash provided by operating activities 3,093,762 2,706,679 890,609
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Microlab/FXR net of cash received of $2,965,125 -- (3,170,206) --
Purchase of investment - other assets (16,000) -- (500,000)
Capital expenditures (666,072) (315,159) (363,138)
Officers' life insurance (4,703) (8,553) (4,629)
----------- ----------- -----------
Net cash (used for) investing activities (686,775) (3,493,918) (867,767)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of mortgage note (34,687) (32,168) (28,022)
Payment of long term debt -- -- (215,932)
Related party loans -- -- (218,970)
Dividends paid (1,367,701) (704,257) --
Proceeds from exercise of stock options 112,609 44,062 424,776
Acquisition of treasury stock (732,668) (4,833,014) (759,201)
----------- ----------- -----------
Net cash (used for) financing activities (2,022,447) (5,525,377) (797,349)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 384,540 (6,312,616) (774,507)
Cash and cash equivalents, at beginning of year 15,138,640 21,451,256 22,225,763
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $15,523,180 $15,138,640 $21,451,256
=========== =========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Taxes $ 869,580 $ 2,397,853 $ 1,518,297
Interest $ 240,849 $ 243,367 $ 320,711
The accompanying notes are an integral part of these financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation:
Wireless Telecom Group, Inc. and Subsidiaries (the Company), develops
and manufactures a wide variety of electronic noise sources and
testing and measurement instruments, which it sells to customers
throughout the United States and worldwide through its foreign sales
corporation and foreign distributors to commercial and government
customers in the electronics industry. 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.
As a result of foreign trade agreements entered into by the U.S.
government, a company's ability to avail themselves of a FSC has been
removed as of December 31, 2002, and as such, the tax benefits
generated by such an entity have been eliminated. The U.S. government
has established new tax rules applicable to foreign sales, therefore
these tax benefits will no longer be available to the Company in 2003.
The Company, nevertheless, will continue to service its overseas
customers. See Note 6 of Notes to the Financial Statements.
On December 21, 2001, the Company acquired Microlab/FXR, a private
entity, for the net purchase price of $3,800,000 in cash. The
acquisition of Microlab/FXR is recorded under the purchase method of
accounting for financial statement purposes. The purchase price was
allocated to assets acquired and liabilities assumed based on
estimated fair market value at the date of acquisition while the
balance of $1,351,000 was recorded as goodwill on the accompanying
Consolidated Balance Sheet at December 31, 2001.
Microlab/FXR designs and manufactures high-power, passive microwave
components for the wireless infrastructure market and for other
commercial, aerospace and military markets. The Company's products are
used in microwave systems, Universal Mobile Telecommunications Systems
(UMTS), Personal Communications Service (PCS) and cellular
communications base stations, television transmitters, avionic systems
and medical electronics. Microlab/FXR is one of the leaders in serving
the needs of the in-building distributed antenna systems market, which
facilitates seamless wireless coverage throughout the insides of
buildings and building complexes.
The following pro forma results were developed assuming the
acquisition had occurred at the beginning of the earliest period
presented. Intercompany transactions would have been eliminated had
there been any, but there were none.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Organization and Basis of Presentation (Continued):
Unaudited Pro Forma Information For The Year Ended
December 31,
--------------------------------------------------
2001 2000
----------- -----------
Net Sales $26,179,930 $23,803,449
Net Income 1,552,890 2,557,280
Earnings Per Share:
Basic $ 0.09 $ 0.13
Diluted $ 0.09 $ 0.13
This unaudited pro forma information is not necessarily indicative of
the combined results that would have occurred had the acquisition
taken place on January 1, 2000, nor are they necessarily indicative of
results that may occur in the future.
On July 7, 2000, Wireless Telecom Group, Inc. ("Wireless") and Boonton
Electronics Corp. ("Boonton") closed on a merger under an agreement
dated March 2, 2000 and as amended on April 28, 2000. A newly formed,
wholly-owned subsidiary of the Company, WTT Acquisition Corp., merged
with and into Boonton, a public entity. Each share of Boonton common
stock was converted into .79 shares of the Company's common stock with
aggregate consideration totaling 1,885,713 shares of Wireless common
stock. This merger was accounted for as a pooling of interests and
accordingly, all periods prior to the merger were restated to include
the results of operations, financial position and cash flows of
Boonton. Boonton's fiscal year end was changed to December 31 to
conform to Wireless's year end.
There were no material adjustments required to conform the accounting
policies of the two companies. Certain accounts of Boonton were
reclassified to conform to the reporting practices of Wireless.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Use of Estimates:
In preparing financial statements in accordance with accounting
principles generally accepted in the United States of America,
management makes certain estimates and assumptions, where applicable,
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. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
Concentrations of Credit Risk and Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments
and accounts receivable.
The Company maintains significant cash investments primarily with
three financial institutions. The Company performs periodic
evaluations of the relative credit rating of these institutions as
part of its investment strategy.
Concentrations of credit risk with respect to accounts receivable are
limited due to the Company's large customer base. However, at December
31, 2002, primarily all of the Company's receivables do pertain to the
telecommunications industry.
The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, accounts payable and long term debt approximate
fair value.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
Cash and cash equivalents consist of bank and money market accounts
and commercial paper, all stated at cost, which approximates market
value. As of December 31, 2002 and 2001, the Company had approximately
$12,500,000 and $10,000,000 invested in commercial paper,
respectively.
Accounts Receivable:
The Company accounts for uncollectible accounts under the allowance
method. Potentially uncollectible accounts are provided for throughout
the year and actual bad debts are written off to the allowance in a
timely fashion.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Inventories:
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.
Inventories consist of:
December 31,
-----------------------
2002 2001
---------- ----------
Raw materials $4,204,838 $4,478,862
Work-in-process 332,506 784,058
Finished goods 947,278 1,053,165
---------- ----------
$5,484,622 $6,316,085
========== ==========
Fixed Assets and Depreciation:
Fixed assets are reflected at cost, less accumulated depreciation.
Depreciation and amortization are provided on a straight-line basis
over the following useful lives:
Building and improvements 39 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Transportation equipment 3-5 years
Leasehold improvements are amortized over the term of the lease.
Repairs and maintenance are charged to operations as incurred;
renewals and betterments are capitalized.
Intangible Assets:
Goodwill relative to the purchase of the noise generation product line
in 1999, aggregating $2,500,000, was amortized on a straight line
basis over 15 years. Amortization expense for the years ended December
31, 2001 and 2000 were $166,667 in each year. Accumulated amortization
as of December 31, 2001 and 2000, before impairment, aggregated
$467,949 and $301,282, respectively.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Intangible Assets (Continued):
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill to be
tested for impairment under certain circumstances, and written off
when impaired, rather than being amortized as previous standards
required. SFAS 142 is effective for fiscal years beginning after
December 15, 2001.
In December 2001, the Company identified certain conditions, including
an overall weakness in the telecommunications market relating to the
noise generation product line, as indicators of asset impairment.
These conditions led to forecasted future results that were
substantially less than had originally been anticipated at the time of
acquisition. In accordance with the Company's policy, management
assessed the recoverability of goodwill using a cash flow projection
based on the remaining amortization period of twelve years. Based on
this projection, the cumulative cash flow over the remaining
amortization period was insufficient to recover the remaining
unamortized goodwill. As a result, the Company recognized full
impairment of this goodwill and recorded a non-cash expense of
$2,032,051 for the 2001 year.
On December 21, 2001, the Company acquired Microlab/FXR (see Note 1 -
Organization and Basis of Presentation), which was recorded under the
purchase method of accounting for financial statement purposes. The
purchase price was allocated to assets acquired and liabilities
assumed based on estimated fair market value at the date of
acquisition while the balance of $1,351,000 was recorded as goodwill
on the accompanying Consolidated Balance Sheet at December 31, 2001.
In accordance with Statement of Financial Accounting Standards No.
142, this goodwill will not be amortized, but will be tested for
impairment periodically. During 2002 this goodwill was tested for
impairment by an independent valuation consulting firm for the
transition period and again for the year ended December 31, 2002. The
conclusions of both valuations were that this goodwill was not
impaired under the Statement of Financial Accounting Standards No. 142
requirements for goodwill impairment testing.
Revenue Recognition:
Revenue from product sales, net of trade discounts and allowances, 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.
Research and Development Costs:
Research and development costs are charged to operations when incurred
and are included in operating expenses. The amounts charged for the
years ended December 31, 2002, 2001 and 2000 were $1,918,593,
$1,152,985 and $1,124,392, respectively.
Advertising Costs:
Advertising expenses are charged to operations during the year in
which they are incurred and aggregated $492,070, $534,168 and $451,073
for the years ended December 31, 2002, 2001 and 2000, respectively.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Stock Based Compensation:
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock options
because the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" requires
use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense
is recognized (see Recent Accounting Pronouncements - SFAS No. 148,
below). See also Note 5.
Income Taxes:
The Company utilizes SFAS 109, "Accounting for Income Taxes" which
requires use of the asset and liability approach of providing for
income taxes. This statement requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company recognized the benefit of
Boonton's net operating loss carryforward applying a valuation
allowance which requires that the tax benefit be limited based on the
weight of available evidence and the probability that some portion of
the deferred tax asset will not be realized (see also Note 8).
Income Per Common Share:
The Company utilizes SFAS 128 "Earnings Per Share" ("SFAS 128"), which
changed the method for calculating earnings per share. SFAS 128
requires the presentation of "basic" and "diluted" earnings per share
on the face of the income statement. Income per common share is
computed by dividing net income by the weighted average number of
common shares and common equivalent shares outstanding during each
period.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Recent Accounting Pronouncements:
In April 2002, the FASB issued SFAS No. 145, "Rescission of Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 will generally require gains and losses on
extinguishment of debt to be classified as income or loss from
continuing operations rather than as extraordinary items. The Company
is required to adopt SFAS No. 145 in fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires
that costs associated with exit or disposal activities be recognized
when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 will apply to exit or disposal
activities initiated by the Company after fiscal 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment to
FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods for
transition to SFAS No. 123's fair value method of accounting for
stock-based compensation. As amended by SFAS No. 148, SFAS No. 123
also requires additional disclosure regarding stock-based compensation
in annual and condensed interim financial statements. The new
disclosure requirements are effective immediately and are reflected in
Note 5.
Reclassifications:
Certain prior years information has been reclassified to conform to
the current year's reporting presentation.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, consists of the following:
December 31 ,
-----------------------
2002 2001
---------- ----------
Building and improvements $3,557,186 $3,619,515
Machinery and equipment 2,881,906 2,487,957
Furniture and fixtures 551,745 592,839
Transportation equipment 115,318 115,318
Leasehold improvements 576,518 201,458
---------- ----------
7,682,673 7,017,087
Less: accumulated depreciation and amortization 2,809,357 2,217,547
---------- ----------
4,873,316 4,799,540
Add: land 700,000 700,000
---------- ----------
$5,573,316 $5,499,540
========== ==========
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 3 - OTHER ASSETS:
Other assets consist primarily of an investment in equity securities
of a non-affiliated company and security deposits relating to the
Company's leased properties. In early 2000, the Company invested
$500,000 in an investment bank focused on technology start-ups. In
December 2002 the investment was determined to be substantially
overvalued and a write down of $499,000 was recorded as an Other
expense. The Company does not have any other investments in equity
securities.
NOTE 4 - MORTGAGE PAYABLE:
In December 1999, the Company exercised its option to purchase a
facility, which was previously being leased, for a purchase price of
$4,225,000 (including land). At the time of closing, the Company
assumed the mortgage note, on this property, in the amount of
$3,263,510. This note bears interest at an annual rate of 7.45%,
requires monthly payments of principal and interest of $23,750 and
matures in August 2013.
Maturities of mortgage payable for the next five years are $37,401,
$40,329, $43,485, $46,889, and $50,559, respectively and $2,947,947
thereafter.
NOTE 5 - SHAREHOLDERS' EQUITY:
The Company paid quarterly cash dividends aggregating $1,367,701 and
$704,257 for the years ending December 31, 2002 and 2001,
respectively. No dividends were paid in 2000.
In June 1998, the Company retained J.W. Genesis as its financial
adviser. In connection with this appointment, the Company issued to
J.W. Genesis, warrants to acquire 250,000 shares of the Company's
common stock at a price of $3.0625 per share, the fair market value at
the date of issuance. These warrants expire in June 2003.
The Company's 1995 Incentive Stock Option Plan ("the Plan") has
authorized the grant of options, to purchase up to a maximum of
1,750,000 shares of common stock, to officers and other key employees.
Prior to 1995, the Company had established an Incentive Stock Option
Plan under which options to purchase up to 1,500,000 shares of common
stock were available to be granted to officers and other key
employees. All options granted have 10 year terms and vest and become
fully exercisable after a maximum of five years from the date of
grant.
During 2000, the stockholders approved the Company's 2000 Stock Option
Plan. The 2000 Plan provides for the grant of ISOs and NQSOs in
compliance with the Code to employees, officers, directors,
consultants and advisors of the Company who are expected to contribute
to the Company's future growth and success. 1,500,000 shares of Common
Stock are reserved for issuance upon the exercise of options under the
2000 Plan. All options granted have 10 year terms and vest and become
fully exercisable after a maximum of five years from the date of
grant.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 5 - SHAREHOLDERS' EQUITY (Continued):
A summary of stock activity, and related information for the years
ended December 31, follows:
Weighted Average
Options Exercise Price
--------- ----------------
Outstanding, December 31, 1999 1,255,400 $2.48
Weighted average fair value of options
granted during the year 1.69
Granted 1,110,260 2.58
Exercised (128,080) 3.22
Canceled (34,000) 1.94
---------
Outstanding, December 31, 2000 2,203,580 2.49
Weighted average fair value of options
granted during the year 2.41
Granted 147,000 2.69
Exercised (26,000) 1.69
Canceled (27,000) 2.63
---------
Outstanding, December 31, 2001 2,297,580 2.51
Weighted average fair value of options
granted during the year 2.51
Granted 465,000 2.31
Exercised (59,867) 1.88
Canceled (56,000) 2.50
---------
Outstanding, December 31, 2002 2,646,713 2.49
=========
Options exercisable:
December 31, 2000 272,680 2.95
December 31, 2001 821,031 2.78
December 31, 2002 1,234,955 $2.63
Exercise prices for options outstanding as of December 31, 2002 ranged
from $1.69 to $6.75. The weighted average remaining contractual life
of these options is seven years.
Equity Compensation Plans:
The following table summarizes information, as of December 31, 2002,
relating to equity compensation plans of the Company pursuant to which
grants of options or other rights to acquire shares may be granted
from time to time:
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 5 - SHAREHOLDERS' EQUITY (Continued):
EQUITY COMPENSATION PLAN INFORMATION
===============================================================================================
(a) (b) (c)
===============================================================================================
Number of securities Number of securities remaining
to be issued upon Weighted-average available for future issuance
exercise of exercise price of under equity compensation plans
Plan outstanding options, outstanding options, (excluding securities reflected in
Category warrants and rights warrants and rights column (a))
===============================================================================================
Equity
compensation
plans
approved by
security
holders (1) 2,646,713 $2.49 687,000
===============================================================================================
Equity
compensation
plans not
approved by
security
holders 0 0 0
===============================================================================================
Total 2,646,713 $2.49 687,000
===============================================================================================
(1) These plans include the Company's 1995 and 2000 Stock Option
Plans.
Pro forma information regarding net income and earnings per share is required by
FASB Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair values for these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2002, 2001 and 2000, respectively; risk-free interest rates of
3.5%, 4.5% and 5.2%, dividend yields of 2%, 2% and 0%; volatility factors of the
expected market price of the Company's common stock of 76%, 63% and 65%; and a
weighted average expected life of the options of seven years.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 5 - SHAREHOLDERS' EQUITY (Continued):
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of
its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The
Company's pro forma information follows:
2002 2001 2000
---------- ---------- ----------
Net income:
As reported $1,767,618 $1,217,271 $2,131,240
Pro forma 1,562,986 1,051,239 1,943,604
Basic earnings per share:
As reported $ .10 $ .07 $ .11
Pro forma .09 .06 .10
Diluted earnings per share:
As reported $ .10 $ .07 $ .11
Pro forma .09 .06 .10
NOTE 6 - OPERATIONAL INFORMATION AND EXPORT SALES:
Sales:
The Company's operations are in a single industry segment and involve
the manufacture of various types of electronic test equipment. All of
the Company's assets are domestic.
For the years ended December 31, 2002, 2001 and 2000, no customer
accounted for more than 10% of total sales.
In addition to its in-house sales staff, the Company uses various
manufacturers representatives to sell its products. For the year ended
December 31, 2002, no representative accounted for more than 10% of
total sales. For the years ended 2001 and 2000, one representative
accounted for 10% and 14% of total sales, respectively.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 6 - OPERATIONAL INFORMATION AND EXPORT SALES (Continued):
Export sales which are all transacted in US dollars, were
approximately 34%, 37% and 26% of total sales for the years ended
December 31, 2002, 2001 and 2000, respectively. Export sales by
geographic location are as follows:
2002 2001 2000
------------------------------------
Asia $3,391,000 $2,162,000 $1,845,000
Europe 3,047,000 3,074,000 2,527,000
Other 655,000 1,750,000 423,000
------------------------------------
$7,093,000 $6,986,000 $4,795,000
====================================
Purchases:
No third party supplier accounted for more than 10% of the Company's
total inventory purchases for 2002. One third party supplier accounted
for approximately 15% of the Company's total inventory purchases for
2001. No third party supplier accounted for more than 10% of the
Company's total inventory purchases for 2000.
NOTE 7 - 401(k) PROFIT SHARING PLAN:
During the year ended December 31, 1990, the Company adopted a
resolution to institute a 401(k) profit sharing plan effective January
1, 1991, to cover all eligible employees. Contributions to the plan
for the years ended December 31, 2002, 2001 and 2000 aggregated
$99,947, $70,548 and $71,396, respectively.
NOTE 8 - INCOME TAXES:
The components of income tax expense related to income are as follows:
December 31,
----------------------------------
2002 2001 2000
----------------------------------
Current:
Federal $553,887 $2,156,780 $ 962,390
State 193,263 496,890 225,929
Deferred:
Federal 57,000 (556,400) 34,514
State 19,000 (35,270) 8,629
----------------------------------
$823,150 $2,062,000 $1,231,462
==================================
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 8 - INCOME TAXES (Continued):
The following is a reconciliation of the maximum statutory federal tax
rate to the Company's effective tax rate:
December 31,
------------------------------
2002 2001 2000
-------- -------- --------
% of % of % of
Pre Tax Pre Tax Pre Tax
Earnings Earnings Earnings
-------- -------- --------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax net of federal tax benefit 5.4 5.6 5.3
Benefits from Foreign Sales Corporation (6.5) (0.6) (1.2)
Other, including research and development
credit (1.1) (1.2) (1.5)
Non deductible impairment charge 0.0 25.1 (0.0)
---- ---- ----
31.8% 62.9% 36.6%
==== ==== ====
The tax benefits associated with the disqualifying disposition of
stock acquired with incentive stock options during 2000 reduced taxes
payable for that year by $130,000. Such benefits were credited to
additional paid-in capital.
The components of deferred income taxes are as follows:
December 31,
------------------------
2002 2001
------------------------
Deferred tax assets:
Uniform capitalization of inventory costs for
tax purposes $ 37,927 $ 113,602
Allowances for doubtful accounts 100,338 47,858
Deferred costs 98,425 189,000
Tax effect of goodwill impairment 298,798 851,666
Net operating loss carryforward (Boonton Note 1) 541,034 781,492
---------- -----------
1,076,522 1,983,618
Valuation allowance for deferred tax assets (466,413) (1,362,891)
---------- -----------
610,109 620,727
Deferred tax liabilities:
Tax over book depreciation (75,829) (79,800)
Other (41,324) (36,000)
---------- -----------
Net deferred tax asset $ 492,956 $ 504,927
========== ===========
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Warranties:
The Company provides one year warranties on of all 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. The costs related to these warranties are not certain and
cannot be reasonably estimated. In addition, based upon past
experience, these costs have been minimal and therefore, no provision
for these costs has been made.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued):
Leases:
The Company leases a 45,700 square foot facility located in Hanover
Township, New Jersey, which is currently being used as its principal
corporate headquarters and manufacturing plant. The term of the lease
agreement is for ten years beginning on October 1, 2001 and ending
September 30, 2011. The lease also contains an option to terminate the
lease effective September 30, 2006.
The Company also leases a 23,100 square foot facility located in
Livingston, New Jersey, which is occupied by Microlab/FXR. The term of
the lease is for ten years beginning on March 4, 1996 and ending on
February 28, 2006. Either party may cancel the lease as of the last
day of February in any year by giving notice at least one year in
advance of the termination.
The Company is also responsible for its proportionate share of the
cost of utilities, repairs, taxes and insurance. The future minimum
lease payments are shown below:
2003 $ 508,640
2004 547,590
2005 572,750
2006 457,250
2007 439,863
Thereafter 1,805,150
----------
$4,331,243
==========
Rent expense for the years ended December 31, 2002, 2001 and 2000 was
$561,361, $567,439 and $689,751, respectively.
On July 14, 1998 the Company entered into a 15 year lease for a 44,000
square foot facility located in Mahwah, New Jersey. This new facility
was leased to serve as the headquarters and manufacturing plant for
one of the Company's divisions which was sold in 1999. In December
1999, the Company exercised its option to purchase this building (see
Note 4). In November 2000, the Company entered into an agreement to
lease this property to an unrelated third party. Rental income for
2002 was $379,219. This lease, which terminates in 2013, provides for
annual rental income of $379,219 throughout the lease term.
The Company leases certain equipment under operating lease
arrangements that are generally for 60-month terms. These operating
leases expire in various years through 2005. One of these leases may
be renewed at the end of three years. Future payments consist of the
following at December 31, 2002:
2003 $ 84,502
2004 60,886
2005 10,886
--------
$156,274
========
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued):
Environmental Contingencies:
Following an investigation by the New Jersey Department of
Environmental Protection (NJDEP) in 1982, of the waste disposal
practices at a certain site formerly leased by Boonton, the Company
put a ground water management plan into effect as approved by the
Department. Costs associated with this site are charged directly to
income as incurred. The owner of this site has notified the Company
that if the NJDEP investigation proves to have interfered with a sale
of the property, the owner may seek to hold the Company liable for any
loss it suffers as a result. However, corporate counsel has informed
management that, in their opinion, the lessor would not prevail in any
lawsuit filed due to the imposition by law of the statute of
limitations.
Costs charged to operations in connection with the water management
plan amounted to approximately $18,000 and $24,000 for the years ended
December 31, 2002 and 2001, respectively. The Company estimates the
expenditures in this regard for the fiscal year ending December 31,
2003 will amount to approximately $20,000. The Company will continue
to be liable under the plan in all future years until such time as the
NJDEP releases it from all obligations applicable thereto.
NOTE 10 - SETTLEMENT OF LITIGATION:
On March 15, 1999, a complaint was filed in the Superior Court of the
State of California for the County of Orange. The action was brought
by Mr. David Day, an individual; David Day d/b/a Day Test &
Measurement, as plaintiffs against Noise Com, Inc., a New Jersey
corporation; Wireless Telecom Group, Inc., a New Jersey corporation;
Telecom Analysis Systems, Inc., Bowthorpe PLC and Does 1 through 100,
inclusive as defendants. The action set forth several causes of
action, including breach of contract and fraud relating to an alleged
failure of the defendants to pay full commissions allegedly owed to
plaintiff.
On April 23, 1999, Wireless Telecom Group, Inc. d/b/a Noise Com
commenced an arbitration proceeding against Day Test and Measurements
("Day Test"), a plaintiff in the aforementioned California action. In
the arbitration, venued in New Jersey and brought under the rules of
the American Arbitration Association, Noise Com alleged that Day Test,
a former sales representative for Noise Com, failed to act with
diligence and loyalty in performing its duties as Noise Com's agent.
Also, the arbitration sought to resolve the dispute concerning the
commissions allegedly due Day Test.
On June 7, 2000, Wireless Telecom Group, Inc. d/b/a Noise Com settled
both the California action and the New Jersey action. The terms of the
settlement included, among other things, a payment from Noise Com to
David Day of $1,250,000. The Company had previously accrued
approximately $585,000 in connection with this matter and recorded an
additional cost of approximately $684,000 during the year ended
December 31, 2000.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Wireless Telecom Group, Inc.
NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of selected quarterly financial data from
continuing operations (in thousands, except per share amounts).
Quarter
---------------------------------
2002 1st 2nd 3rd 4th
---- ------ ------ ------ ------
Net sales $5,082 $5,541 $5,106 $5,019
Gross profit 2,245 2,628 2,396 2,615
Operating income 507 785 626 781
Net income 369 536 432 431
Diluted net income per share $ .02 $ .03 $ .03 $ .02
Quarter
----------------------------------
2001 1st 2nd 3rd 4th
---- ------ ------ ------ -------
Net sales $5,780 $5,335 $4,265 $ 3,662
Gross profit 3,175 2,725 2,467 1,999
Operating income (loss)(1)(2) 1,651 1,123 957 (1,342)
Net income (loss) 1,224 873 718 (1,598)
Diluted net income (loss) per share $ .07 $ .05 $ .04 ($.09)
(1) Net of goodwill impairment of $2,032 recognized in the fourth
quarter.
(2) Restated for reclassification of rental income.
F-22
WIRELESS TELECOM GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31,
Allowance for doubtful accounts:
Balance at
Beginning of Balance at
year Provisions Deductions end of year
------------ ---------- ---------- -----------
2002 $113,950 $61,888 $-- $175,838
2001 70,758 43,192 -- 113,950
2000 $ 44,681 $26,077 -- $ 70,758
Allowance for deferred tax valuation:
Balance at
beginning of Balance at
year Provisions Reductions end of year
------------ ---------- ---------- -----------
2002 $1,362,891 $ -- $(896,478) $ 466,413
2001 271,742 1,091,149 -- 1,362,891
2000 $ 301,936 -- $ (30,194) $ 271,742
F-23
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward Garcia, certify that:
1. I have reviewed this annual report on Form 10-K/A of Wireless Telecom Group,
Inc.;
2. Based on my knowledge, this annual 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 annual 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/Edward Garcia
--------------------------------------
Edward Garcia
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Wolfsohn, certify that:
1. I have reviewed this annual report on Form 10-K/A of Wireless Telecom Group,
Inc.;
2. Based on my knowledge, this annual 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 annual 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Marc Wolfsohn
--------------------------------------
Marc Wolfsohn
Chief Financial Officer
(Principal Financial Officer)
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as...............................'SS'