FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended
June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
1-11916
WIRELESS TELECOM GROUP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2582295
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
East 64 Midland Avenue
Paramus, New Jersey 07652
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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
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the most recent practicable date.
Common Stock - Par Value $.01 17,152,298
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Class Outstanding Shares
At August 6, 1999
WIRELESS TELECOM GROUP, INC.
Table of Contents
Page(s)
PART I. FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements:
Condensed Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Condensed Statements of Operations for the Three and Six
Months Ended June 30, 1999 and 1998 (unaudited) 4
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (unaudited) 5
Notes to Interim Condensed Financial Statements (unaudited) 6 - 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings 10
Item 2 -- Changes in Securities 10
Item 3 -- Defaults upon Senior Securities 10
Item 4 -- Submission of Matters to a Vote of Security Holders 10
Item 5 -- Other Information 10
Item 6 -- Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11.1 12
Exhibit 27 13
2
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
JUNE 30, DECEMBER 31,
1999 1998
------------------------ ---------------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 23,907,876 $ 9,031,724
Accounts receivable--net of allowance for
doubtful accounts of $58,316 and $134,013 respectively 1,195,805 2,611,953
Inventories 1,317,758 7,862,143
Prepaid expenses and other current assets 29,100 1,109,495
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TOTAL CURRENT ASSETS 26,450,539 20,615,315
PROPERTY, PLANT AND EQUIPMENT - NET 683,236 2,875,426
OTHER ASSETS 4,001,307 631,458
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$ 31,135,082 $ 24,122,199
============= ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES
Accounts payable $ 635,350 $ 780,410
Accrued expenses and other current liabilities 1,959,486 195,784
Income tax payable 972,609 --
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TOTAL CURRENT LIABILITIES 3,567,445 976,194
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DEFERRED INCOME TAXES 306,610 306,610
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OTHER L/T LIABILITIES 177,776 --
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 17,702,298 issued 177,023 177,023
Additional paid-in-capital 6,631,061 6,631,061
Retained earnings 21,073,163 16,299,120
Treasury stock at cost 370,900 and 145,000 shares,
respectively (797,996) (267,809)
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27,083,251 22,839,395
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$ 31,135,082 $ 24,122,199
============= ============
The accompanying notes are an integral part of these financial statements.
3
WIRELESS TELECOM GROUP, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
NET SALES $ 1,765,695 $ 2,004,790 $ 3,309,419 $ 4,071,724
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 564,516 752,294 953,716 1,537,207
Operating expenses 546,795 713,044 1,043,776 1,325,773
Interest, dividend and other income (304,135) (91,488) (517,715) (191,397)
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 807,176 1,373,850 1,479,777 2,671,583
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAX 958,519 630,940 1,829,642 1,400,141
PROVISION FOR INCOME TAXES 323,424 223,618 651,270 501,847
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS 635,095 407,322 1,178,372 898,294
DISCONTINUED OPERATIONS (Note 1):
Income (Loss) from discontinued
operations--net of income taxes 26,002 (781,004) 8,020 (71,430)
Gain on sale of test equipment
business--net of income taxes 8,817 -- 3,587,651 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 669,914 $ (373,682) $ 4,774,043 $ 826,864
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE (Note 2):
BASIC
Continuing Operations $ .04 $ .02 $ .07 $ .05
Discontinued Operations -- (.04) .20 --
----------- ----------- ----------- -----------
$ .04 $ (.02) $ .27 $ .05
=========== =========== =========== ===========
DILUTED
Continuing Operations $ .04 $ .02 $ .07 $ .05
Discontinued Operations -- (.04) .20 --
----------- ----------- ----------- -----------
$ .04 $ (.02) $ .27 $ .05
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months
Ended June 30,
-----------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,774,043 $ 826,864
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 233,944 212,794
Deferred income taxes -- 11,982
Other Income (22,224) --
Provision for losses on accounts receivable 389,693 24,971
Gain on sale of discontinued division (5,595,451) --
Changes in assets and liabilities:
Decrease in accounts receivable 1,026,455 1,228,471
(Increase) decrease in inventories (116,467) 990,166
(Increase) decrease in prepaid expenses and other assets 968,763 (580,545)
(Decrease) in accounts payable and accrued expenses (182,909) (817,128)
Increase in income taxes payable 972,609 --
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Net cash provided by operating activities 2,448,456 1,897,575
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (170,823) (427,318)
Officer's life insurance 24,159 --
Proceeds from sale of discontinued division 17,230,730 --
Proceeds from covenant not to compete 200,000 --
Purchase of Noise Product line (2,500,000) --
Expenses related to disposal (1,826,182) --
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Net cash provided by (used in) investing activities 12,957,884 (427,318)
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CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -- (877,545)
Acquisition of treasury stock (530,188) --
Proceeds from exercise of stock options -- 208,978
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Net cash (used) for financing activities (530,188) (668,567)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 14,876,152 801,690
Cash and cash equivalents, at beginning of year 9,031,724 7,546,625
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 23,907,876 $ 8,348,315
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Taxes $ 1,438,500 $ 1,038,000
The accompanying notes are an integral part of these financial statements.
5
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
The condensed consolidated balance sheet as of June 30, 1999 and the
condensed consolidated statements of operations for the three and six month
periods ended June 30, 1999 and 1998 and the condensed consolidated
statements of cash flows for the six month periods ended June 30, 1999 and
1998 have been prepared by the Company without audit. The consolidated
financial statements include the accounts of Wireless Telecom Group, Inc.
and its wholly-owned subsidiary WTG Foreign Sales Corporation. WTG Foreign
Sales Corporation began operations as a subsidiary of the Company in
February 1996.
On March 11, 1999 the Company consummated the sale of all of its Wireless
Test Equipment Business to Telecom Analysis Systems, Inc., a New Jersey
corporation ("TAS"), for a purchase price of approximately $19 million
($1.5 million of which is held in escrow to secure certain obligations of
the Company under the Asset Purchase Agreement) pursuant to an Asset
Purchase Agreement, dated January 7, 1999, between the Company and TAS (the
"Asset Purchase Agreement"). Also, pursuant to the Asset Purchase
Agreement, the Company purchased TAS' products relating to single-function
noise generation (the "Noise Assets") for a purchase price of approximately
$2.5 million, and the Company and TAS entered into non-competition
agreements with the business associated with the respective products
purchased by each.
In the opinion of management, the accompanying condensed consolidated
financial statements referred to above contain all necessary adjustments,
consisting of normal accruals and recurring entries only, which are
necessary to present fairly the Company's results for the interim periods
being presented.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements included in its annual report on Form
10-K for the year ended December 31, 1998, which is incorporated herein by
reference. Specific reference is made to this report for a description of
the Company's securities and the notes to financial statements included
therein.
The results of operations for the three and six month periods ended June
30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - INCOME PER COMMON SHARE
Income per common share is computed by dividing the net income by the
weighted average number of common shares and common equivalent shares
outstanding during each period. The Company has adopted SFAS 128 "Earnings
Per Share" ("SFAS 128"), which has 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. Prior
period earnings per share data have been restated in accordance with
Statement 128.
6
NOTE 3 - REVOLVING CREDIT LINE
The Company had an agreement with its bank which provided for an unsecured
line of credit in the amount of $7,000,000 with interest at the bank's
prime rate. This agreement expired on September 30, 1998 and was not
renewed.
NOTE 4 - DIVIDENDS
The Company paid cash dividends aggregating $.05 per share of Common Stock,
for the year ending December 31, 1998.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Wireless Telecom Group, Inc., a New Jersey corporation (the "Company"),
develops, manufactures and markets a wide variety of electronic noise sources,
and in addition, until March 11, 1999, test instruments for the wireless
telecommunication industry. The Company's products have historically been
primarily used to test the performance and capability of cellular/PCS and
satellite communications systems. Other applications include radio, radar,
wireless local area network (WLAN) and digital television. On March 11, 1999,
the Company consummated the sale of all its Wireless Test Equipment Business to
Telecom Analysis Systems, Inc., a New Jersey corporation ("TAS"), for a purchase
price of approximately $19 million ($1.5 million of which is held in escrow to
secure certain obligations of the Company under the Asset Purchase Agreement)
pursuant to an Asset Purchase Agreement, dated January 7, 1999, between the
Company and TAS (the "Asset Purchase Agreement"). Also, pursuant to the Asset
Purchase Agreement, the Company purchased TAS' products relating to the
single-function noise generation (the "Noise Assets") for a purchase price of
approximately $2.5 million, and the Company and TAS entered into non-competition
agreements with the businesses associated with the respective products purchased
by each.
The financial information as regards continuing operations presented
herein includes:
(i) Condensed consolidated balance sheets as of June 30, 1999 and as of December
31, 1998 (ii) Condensed consolidated statements of operations for the three and
six month periods ended June 30, 1999 and 1998 and (iii) Condensed consolidated
statements of cash flows for the six month periods ended June 30, 1999 and 1998.
OPERATIONS
For the six months ended June 30, 1999 as compared to the corresponding period
of the previous year, net sales decreased to $3,309,419 from $4,071,724 a
decrease of $762,305 or 18.7%. For the quarter ended June 30, 1999 as compared
to the corresponding period of the previous year, net sales decreased to
$1,765,695 from $2,004,790 a decrease of $239,095 or 11.9%. This decrease was
due to the timing of shipments and product mix.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The Company's gross profit on net sales from continuing operations for the six
months ended June 30, 1999 was $2,355,703 or 71.2% as compared to $2,534,517 or
62.2% for the six months ended June 30, 1998. Gross profit on net sales from
continuing operations for the quarter ended June 30, 1999 was $1,201,179 or
68.0% as compared to $1,252,496 or 62.5% for the three months ended June 30,
1998. 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 six months ended June 30, 1999 were $1,043,776 or
31.5% of net sales as compared to $1,325,773 or 32.6% of net sales for the six
months ended June 30, 1998. Operating expenses for the quarter ended June 30,
1999 were $546,795 or 31.0% of net sales as compared to $713,044 or 35.6% of net
sales for the quarter ended June 30, 1998.
For the three and six months ended June 30, 1999 as compared to the same periods
of the prior year, operating expenses decreased in dollars by $166,249 and
$281,997, respectively. This decrease is primarily due to controlled
expenditures for research and development, advertising and selling, and
commission expenses.
Interest, dividend and other income increased by $326,318 for the six months
ended June 30, 1999 and by $212,647 for the quarter ended June 30, 1999. This
increase was due to a higher average investment balance during 1999 as a result
of the increase in cash from the sale of assets described above.
Net income from continuing operations increased to $1,178,372, or $.07 per
share, for the six months ended June 30, 1999 as compared to $898,294, or $.05
per share for the six months ended June 30, 1998. The Company realized net
income from continuing operations for the quarter ended June 30, 1999 of
$635,095 or $.04 per share as compared to net income from continuing operations
of $407,322 or $.02 per share for the three months ended June 30, 1998. The
explanation of these changes can be derived from the analysis given above of
operations for the three and six month periods ending June 30, 1999 and 1998,
respectively.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital has increased by $3,243,973 to $22,883,094 at June
30, 1999, from $19,639,121 at December 31, 1998. At June 30, 1999 the Company
had a current ratio of 7.4 to 1, and a ratio of debt to net worth of less than
.2 to 1. At December 31, 1998 the Company had a current ratio of 21.1 to 1, and
a ratio of debt to net worth of less than .1 to 1.
The Company realized cash provided by operations of $2,448,456 for the six month
period ending June 30, 1999. This increase was primarily due to cash provided by
net income of $4,774,043, a reduction of outstanding receivables of $1,026,455,
a reduction of prepaid expenses of $968,763 and an increase in income taxes
payable of $972,609 which was offset by a gain in the sale of discontinued
operations of $5,595,451.
The Company has historically been able to turn over its accounts receivable
approximately every two months. This average collection period has been
sufficient to provide the working capital and liquidity necessary to operate the
Company. The Company continues to monitor production requirements and delivery
times while maintaining manageable levels of goods on hand.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Operating activities provided $1,897,575 in cash flow for the comparable six
month period in 1998. Cash provided by net income of $826,864, a reduction of
outstanding receivables of $1,228,471 and a reduction of inventory of $990,166
was offset by an increase in prepaid expenses of $580,545 and a decrease in
accounts payable of $817,128.
Net cash provided by investing activities for the six months ended June 30, 1999
was $12,957,884. In 1999, the Company realized proceeds of $17,230,730 from the
sale of its Wireless Test Equipment Business partially offset by $2,500,000 for
the purchase of the Noise Product Line from Telecom Analysis Systems, and
$1,826,182 for expenses relating to the disposal of the Wireless Test Equipment
Business. For the six months ended June 30, 1998 net cash used for investing
activities was $427,318. In 1998, these funds were used for capital
expenditures.
Net cash used for financing activities for the six month periods ending June 30,
1999 and 1998 was $530,188 and $668,567, respectively. The Company reacquired
shares of its common stock in the open market during the second quarter of 1999.
For the six months ended June 30, 1998, the payment of quarterly cash dividends
was the primary use of these funds. These cash outlays were partially offset by
proceeds from the exercise of stock options.
During 1998, the Company declared quarterly cash dividends aggregating $877,545
or $.05 per common share.
The Company believes that its financial resources from working capital provided
by operations are adequate to meet current requirements.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly impact its
business nor does it believe that its business is seasonal.
IMPACT OF THE YEAR 2000 ISSUE
The Company is in the process of assessing its information technology ("IT") and
non-IT computer systems and operations to identify and determine the extent to
which any such systems will be susceptible to potential malfunctions as a result
of the Year 2000 ("Y2K") problem. The Y2K problem arose because many existing
computer programs use only the last two digits to refer to a particular year,
rather than four. Therefore, these computer programs do not properly recognize a
year that begins with "20" instead of the familiar "19". Any of the Company's
systems utilizing such last two-digit system to refer to a particular year may
not recognize the year 2000; but rather, assume the year to be 1900. This could
potentially result in major system failures or miscalculations, causing
disruption of operations, including, but not limited to, a temporary inability
to process transactions, billing and customer service or to engage in normal
business activities.
The Company is currently upgrading its computer systems and operations to ensure
that all such systems are, or will be prior to January 1, 2000, Y2K compliant.
The Company estimates that it will incur aggregate costs of $60,000 for such
upgrade, of which the Company has incurred $40,000 to date. Such costs will be
borne out of the Company's general working capital funds. There can be no
assurance, however, the Company will achieve full Y2K compliance before the end
of 1999 or that such costs will not increase.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In addition to assessing its own computer systems and operations, the Company
is currently conducting an external review of its vendors and suppliers.
However, the Company does not believe that its relationship with any one vendor
or supplier is material to the extent that such party's Y2K noncompliance
would have a material adverse effect on the Company's business and operations.
Notwithstanding, the Company may experience problems to the extent that a large
number of its suppliers or vendors are not Y2K compliant, and there can be no
assurance that such problems would not have a material adverse effect on the
Company.
Although the Company anticipates, although there can be no assurance, that its
computer systems and operations will be fully Y2K compliant by the end of 1999,
the Company does not currently have any contingency plans in the event such
systems and operations are not, and there can be no assurance that any effective
contingency plans will be developed or implemented. A failure of the Company
to effectively upgrade its computer systems to become Y2K compliant before the
end of 1999 could have a material adverse effect on the Company's business,
financial position and results of operations. The most reasonably likely worst
case scenario would be a systems failure beyond the control of the Company from
operating its business. The Company believes that such a failure would likely
lead to lost revenues, increased operating costs, loss of customers or other
business interruptions of a material nature.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Part II - Item 1. Legal Proceedings included in the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K: Not Applicable.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIRELESS TELECOM GROUP, INC.
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(Registrant)
Date: July 30, 1999 /s/ Edward Garcia
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Edward Garcia
Chairman and Chief Executive Officer
Date: July 30, 1999 /s/ Demir Richard Eden
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Demir Richard Eden
Acting Chief Financial Officer
11