UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2005
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-11916
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WIRELESS TELECOM GROUP, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2582295
-------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
25 Eastmans Road
Parsippany, New Jersey 07054
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(Address of principal executive offices) (Zip Code)
(973) 386-9696
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Registrant's telephone number, including area code
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock - Par Value $.01 19,177,185
- ----------------------------- -------------------
Class Outstanding Shares
At November 9, 2005
WIRELESS TELECOM GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page(s)
Item 1 -- Consolidated Financial Statements:
Condensed Balance Sheets as of September 30, 2005
(unaudited) and December 31, 2004 3
Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 2005 and
2004 (unaudited) 4
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 (unaudited) 5
Notes to Interim Condensed Financial Statements
(unaudited) 6 - 9
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk 12
Item 4 -- Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings 13
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3 -- Defaults upon Senior Securities 13
Item 4 -- Submission of Matters to a Vote of Security Holders 13
Item 5 -- Other Information 13
Item 6 -- Exhibits 14
Signatures 15
Exhibit Index 16
2
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
SEPTEMBER 30, DECEMBER 31,
2005 2004
--------------- --------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 12,754,278 $ 15,783,816
Accounts receivable -- net of allowance for doubtful accounts of
$172,152 and $190,155 for 2005 and 2004, respectively 8,487,879 3,196,750
Inventories 9,198,002 6,780,445
Current portion of deferred tax asset 226,266 198,266
Prepaid expenses, taxes and other current assets 839,295 338,144
--------------- --------------
TOTAL CURRENT ASSETS 31,505,720 26,297,421
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT - NET 6,790,329 5,937,788
--------------- --------------
OTHER ASSETS:
Goodwill 22,235,576 1,351,392
Other intangible assets - net 14,000,000 -
Deferred tax asset 858,741 886,741
Other assets 2,266,643 933,526
--------------- --------------
TOTAL OTHER ASSETS 39,360,960 3,171,659
--------------- --------------
TOTAL ASSETS $ 77,657,009 $ 35,406,868
=============== ==============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 4,223,963 $ 1,915,707
Accrued expenses and other current liabilities 3,641,162 778,704
Current portion of mortgage payable 46,014 43,485
--------------- --------------
TOTAL CURRENT LIABILITIES 7,911,139 2,737,896
--------------- --------------
LONG TERM LIABILITIES:
Notes payable 6,515,391 -
Deferred income taxes 5,104,616 -
Mortgage payable 3,010,561 3,045,395
Deferred rent payable 169,413 144,745
Other long term liabilities 2,618,627 -
--------------- --------------
TOTAL LONG TERM LIABILITIES 17,418,608 3,190,140
--------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value, 75,000,000 shares authorized, 28,633,551
and 20,511,001 shares issued for 2005 and 2004, respectively, 25,583,851
and 17,461,301 shares outstanding for 2005 and 2004, respectively 286,335 205,110
Additional paid-in-capital 35,708,700 14,086,756
Retained earnings 24,020,465 22,888,395
Other comprehensive income 13,191 -
Treasury stock at cost, - 3,049,700 shares (7,701,429) (7,701,429)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 52,327,262 29,478,832
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,657,009 $ 35,406,868
=============== ==============
See accompanying notes
3
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
2005 2004 2005 2004
------------ ----------- ------------ ------------
NET SALES $12,463,164 $5,943,863 $24,474,017 $17,014,713
------------ ----------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales 5,810,587 2,768,500 11,477,014 7,719,619
Operating expenses 6,014,744 2,246,830 9,926,170 7,293,198
Interest (income) (57,668) (72,290) (234,365) (399,196)
Interest expense 57,912 58,708 174,346 176,691
Other (income) expense (36,758) (72,573) (145,016) 14,793
------------ ----------- ------------ ------------
TOTAL COSTS AND EXPENSES 11,788,817 4,929,175 21,198,149 14,805,105
------------ ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 674,347 1,014,688 3,275,868 2,209,608
PROVISION FOR INCOME TAXES 50,388 230,125 522,438 590,261
------------ ----------- ------------ ------------
NET INCOME $ 623,959 $ 784,563 $ 2,753,430 $ 1,619,347
============ =========== ============ ============
NET INCOME PER COMMON
SHARE:
BASIC $ 0.02 $ 0.05 $ 0.14 $ 0.09
============ =========== ============ ============
DILUTED $ 0.02 $ 0.05 $ 0.14 $ 0.09
============ =========== ============ ============
See accompanying notes
4
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
--------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,753,430 $ 1,619,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 726,162 349,271
Amortization of purchased intangibles 517,878 -
Deferred rent 24,668 24,668
Deferred income taxes 31,616 384,514
Accrued interest 59,988 -
Provision for losses on accounts receivable (18,003) (50,694)
Provision for warrenty and inventory reserves 189,803 -
Provision for pensions and similar obligations (65,077) -
Changes in assets and liabilities, net of effects from purchase of Willtek:
(Increase) in accounts receivable (2,038,471) (784,317)
Decrease (increase) in inventories 280,434 (467,141)
(Increase) decrease in prepaid expenses and other current assets (79,353) 160,895
(Decrease) in accounts payable and accrued expenses (1,314,661) (463,694)
(Decrease) in income taxes payable (10,394) (538,986)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,058,020 233,863
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (540,705) (775,192)
Proceeds from disposal of property, plant and equipment 47,282 -
Purchase of intangible assets (202,130) -
Costs associated with acquisition - net of cash acquired (2,000,817) (68,587)
------------ ------------
NET CASH (USED FOR) INVESTING ACTIVITIES (2,696,370) (843,779)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage note (32,305) (29,960)
Decrease from bank overdraft (3,525) -
Cash dividends paid (1,621,361) (1,541,845)
Proceeds from exercise of stock options/warrants 261,945 493,370
------------ ------------
NET CASH (USED FOR) FINANCING ACTIVITIES (1,395,246) (1,078,435)
------------ ------------
FOREIGN EXCHANGE RATE ADJUSTMENT 4,058 -
------------ ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (3,029,538) (1,688,351)
Cash and cash equivalents, at beginning of year 15,783,816 16,265,765
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $12,754,278 $14,577,414
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Taxes $ 364,903 $ 743,336
Interest $ 174,346 $ 176,691
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of Willtek Communications GmbH through the issuance of 8,000,000 shares of common stock
valued at $21,440,000
See accompanying notes
5
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
The condensed, consolidated balance sheet as of September 30, 2005 and the
condensed, consolidated statements of operations for the three and nine
month periods ended September 30, 2005 and 2004 and the condensed,
consolidated statements of cash flows for the nine month periods ended
September 30, 2005 and 2004 have been prepared by the Company without
audit. The consolidated financial statements include the accounts of
Wireless Telecom Group, Inc. and its wholly-owned subsidiaries Boonton
Electronics Corporation, Microlab/FXR, Willtek Communications GmbH, WTG
Foreign Sales Corporation and NC Mahwah, Inc.
In the opinion of management, the accompanying condensed consolidated
financial statements referred to above contain all necessary adjustments,
consisting of normal accruals and recurring entries, which are necessary to
present fairly the Company's results for the interim periods being
presented.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements included in its annual report on Form
10-K for the year ended December 31, 2004, which note is incorporated
herein by reference. Specific reference is made to that report for a
description of the Company's securities and the notes to financial
statements included therein, since certain information and footnote
disclosures normally included in financial statements in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted from this report.
The results of operations for the three and nine month periods ended
September 30, 2005 and 2004 are not necessarily indicative of the results
to be expected for the full year.
On July 1, 2005, the Company acquired Willtek Communications GmbH, a
limited liability corporation organized under the laws of Germany
("Willtek"), for the net purchase price of $24,331,881. The acquisition of
Willtek was recorded under the purchase method of accounting for financial
statement purposes. Willtek's Balance Sheets are included in the Condensed
Consolidated Balance Sheet at September 30, 2005, however are not included
at December 31, 2004. Willtek's results of operations and cash flows for
the three months ended September 30, 2005 are included in the Condensed
Consolidated Statements of Operations and Cash Flows, but their results of
operations and cash flows for the three and nine months ended September 30,
2004 are not included.
Certain prior years' information has been reclassified to conform to the
current year's reporting presentation.
NOTE 2 - INCOME PER COMMON SHARE
Income per common share is computed by dividing the net income by the
weighted average number of common shares and common equivalent shares
outstanding during each period. Shares re-acquired by the Company and
denoted as treasury stock are not included in this calculation. As
promulgated in SFAS 128 "Earnings Per Share" ("SFAS 128"), SFAS 128
requires the presentation of "basic" and "diluted" earnings per share on
the face of the income statement. Diluted earnings per share reflect
potential dilution from the exercise of securities into common stock.
NOTE 3 - SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2005, no shares were repurchased
by the Company under the stock repurchase program authorized by the Board
of Directors on November 27, 2000 and as amended on October 5, 2001.
6
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets". In accordance with SFAS No. 142, intangible assets, including
purchased goodwill, must be evaluated for impairment. Those intangible
assets that will continue to be classified as goodwill or as other
intangibles with indefinite lives are no longer amortized, but will be
tested for impairment periodically. During 2004, the goodwill relating to
the acquisition of Microlab/FXR was tested for impairment by an independent
valuation consulting firm for the year ended December 31, 2004. The
conclusion of the valuation was that this goodwill was not impaired under
SFAS No. 142 requirements for goodwill impairment testing. Additional
testing will be done at the end of this year and each year going forward to
continue to test for impairment of goodwill. On July 1, 2005, the goodwill
relating to the purchase of Willtek Communications was recorded based on a
preliminary valuation report. This goodwill is subject to potentially
material changes upon receipt of the final valuation upon Willtek. At the
end of each year going forward, additional testing will be performed to
determine any potential impairment of goodwill.
NOTE 5 - ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and has adopted the disclosure-only alternative of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure."
The following table illustrates the effect on net income and earnings per
share had compensation expense for the employee stock-based plans been
recorded based on the fair value method under SFAS No. 123:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net income:
As reported $ 623,959 $ 784,563 $ 2,753,430 $ 1,619,347
Less: stock based compensation
expense - net of tax 34,696 30,205 133,826 87,237
------------ ------------ ------------ ------------
Pro forma $ 589,263 $ 754,358 $ 2,619,604 $ 1,532,110
============ ============ ============ ============
Basic earnings per share:
As reported $ .02 $ .05 $ .14 $ .09
Pro forma .02 .04 .13 .09
Diluted earnings per share:
As reported $ .02 $ .05 $ .14 $ .09
Pro forma .02 .04 .13 .09
In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based
Payment". This Statement requires that the cost resulting from all
share-based transactions be recorded in the financial statements. The
Statement establishes fair value as the measurement objective in accounting
for share-based payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based payment
transactions with employees. The Statement also establishes fair value as
the measurement objective for transactions in which an entity acquires
goods or services from non-employees in share-based payment transactions.
The Statement replaces SFAS 123 "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25 "Accounting for Stock Issued to
Employees". The Company believes that this pronouncement, which is
effective for periods beginning after December 15, 2005, will not have a
material effect on its financial position.
7
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - ACQUISITION
The assets acquired and liabilities assumed in business combinations were
recorded on the Company's Consolidated Balance Sheets as of the respective
acquisition date based upon their estimated fair values at such date. The
results of operations of businesses acquired by the Company have been
included in the Company's Statements of Operations since their respective
date of acquisition. The excess of the purchase price over the estimated
fair values of the underlying assets acquired, including identifiable
intangible assets, and liabilities assumed was allocated to goodwill, which
will be subject to annual impairment review. In certain circumstances, the
allocations of the excess purchase price are based upon preliminary
estimates and assumptions. Accordingly, the allocations are subject to
revision when the Company receives final information, including appraisals
and other analyses. Revisions to the fair values, which may be significant,
will be recorded by the Company as further adjustments to the purchase
price allocations.
On July 1, 2005, the Company acquired all of the outstanding equity of
Willtek Communications GmbH, a limited liability corporation organized
under the laws of Germany ("Willtek"), in exchange for 8,000,000 shares of
WTT's common stock having an aggregate value of $21.4 million, based on a
closing sale price of $2.68 per share of WTT's common stock on July 1,
2005. Additionally, there were approximately $2.9 million in closing costs
related to the acquisition. The business combination has been accounted for
as a purchase in accordance with SFAS No. 141 allocating the purchase price
to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. The acquisition resulted in
approximately $20.9 million of goodwill. Intangible assets acquired of
approximately $14.5 million, consist of customer relationships, developed
technology, and trade name and trademarks, which are being amortized over
an average life of 6 years. For the quarter ended September 30, 2005, this
resulted in $500,000 of non-cash amortization expense, which affects the
Company's results of operations. Based on information currently available,
and subject to potential material changes upon receipt of the valuation in
accordance with SFAS No. 141 for Purchase Accounting, the unaudited pro
forma results, as if the purchase occurred on January 1, 2004, the
beginning of the earliest period presented, are shown in the following
table:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
------------ ------------ ------------- -------------
Net revenue $ 12,463,000 $ 12,468,000 $ 36,428,000 $ 35,908,000
============ ============ ============= =============
Net income (loss) $ 624,000 $ 120,000 $ (722,000) $ (2,096,000)
============ ============ ============= =============
Diluted income (loss) per common share $ 0.02 $ 0.01 $ (.03) $ (.08)
============ ============ ============= =============
NOTE 7 - SEGMENT INFORMATION: REGIONAL ASSETS AND SALES
The Company, in accordance with SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information", has disclosed the following segment
information:
Assets AS OF SEPTEMBER 30, 2005 As of December 31, 2004
- ------ ------------------------- ------------------------
United States $ 66,381,000 $ 35,407,000
Europe 11,276,000 -
------------------------- ------------------------
$ 77,657,000 $ 35,407,000
========================= ========================
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
Revenues by Region 2005 2004 2005 2004
- ------------------ ----------- ---------- ----------- -----------
Americas $ 5,699,000 $4,095,000 $14,542,000 $12,028,000
Europe 3,586,000 1,093,000 4,965,000 3,168,000
Asia 1,545,000 745,000 3,313,000 1,778,000
Other 1,633,000 11,000 1,654,000 41,000
----------- ---------- ----------- -----------
$12,463,000 $5,944,000 $24,474,000 $17,015,000
=========== ========== =========== ===========
8
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGINCIES
The Company's former Chief Executive Officer, Cyrill Damany, resigned on
September 1, 2005. The Company agreed to pay him severance of approximately
$100,000, which is accrued in the financial statements as of September 30, 2005.
This amount was paid at the end of October 2005.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
- ------------
Wireless Telecom Group, Inc., and its operating subsidiaries, Boonton
Electronics Corporation, Microlab/FXR and Willtek Communications GmbH, acquired
on July 1, 2005, (collectively, the "Company"), develop, manufacture and market
a wide variety of electronic noise sources, electronic testing and measuring
instruments including power meters, voltmeters and modulation meters, high-power
passive microwave components and handset production testers for wireless
products. The Company's products have historically been primarily used to test
the performance and capability of cellular/PCS and satellite communication
systems and to measure the power of RF and microwave systems. Other applications
include radio, radar, wireless local area network (WLAN) and digital television.
The financial information presented herein includes:
(i) Condensed Consolidated Balance Sheets as of September 30, 2005 and as of
December 31, 2004 (ii) Condensed Consolidated Statements of Operations for the
three and nine month periods ended September 30, 2005 and 2004 and (iii)
Condensed Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 2005 and 2004.
Willtek's Balance Sheets are included in the Condensed Consolidated Balance
Sheets at September 30, 2005, however are not included at December 31, 2004.
Willtek's results of operations and cash flows for the three months ended
September 31, 2005 are included in the Condensed Consolidated Statements of
Operations and Cash Flows, but their results of operations and cash flows for
the three and nine months ended September 30, 2004 are not included.
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts, including, without limitation, the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may be identified
by, among other things, the use of forward-looking terminology such as
"believes," "expects," "intends," "plans," "may," "will," "should,"
"anticipates" or "continues" or the negative thereof of other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. These statements are based on the Company's current expectations
of future events and are subject to a number of risks and uncertainties that may
cause the Company's actual results to differ materially from those described in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, product demand and development of competitive technologies in
our market sector, the impact of competitive products and pricing, the loss of
any significant customers, the effects of adoption of newly announced accounting
standards, the effects of economic conditions and trade, legal and other
economic risks, among others. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. These risks
and uncertainties are disclosed from time to time in the Company's filings with
the Securities and Exchange Commission, the Company's press releases and in oral
statements made by or with the approval of authorized personnel. The Company
assumes no obligation to update any forward-looking statements as a result of
new information or future events or developments.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CRITICAL ACCOUNTING POLICIES
- ------------------------------
Management's discussion and analysis of the financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses for each period. The following represents a summary of the
Company's critical accounting policies, defined as those policies that the
Company believes are: (a) the most important to the portrayal of its financial
condition and results of operations, and (b) that require management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently uncertain.
ALLOWANCES FOR DOUBTFUL ACCOUNTS
- -----------------------------------
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of any of its customers were to decline, additional
allowances might be required.
INCOME TAXES
- -------------
As part of the process of preparing the consolidated financial statements, the
Company is required to estimate its income taxes in each of the jurisdictions in
which it operates. The process incorporates an assessment of the current tax
exposure together with temporary differences resulting from different treatment
of transactions for tax and financial statement purposes. Such differences
result in deferred tax assets and liabilities, which are included within the
consolidated balance sheet. The recovery of deferred tax assets from future
taxable income must be assessed and, to the extent that recovery is not likely,
the Company establishes a valuation allowance. Increases in valuation
allowances result in the recording of additional tax expense. Further, if the
ultimate tax liability differs from the periodic tax provision reflected in the
consolidated statements of operations, additional tax expense may be recorded.
VALUATION OF LONG-LIVED ASSETS
- ---------------------------------
The Company assesses the potential impairment of long-lived tangible and
intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Changes in the operating strategy can
significantly reduce the estimated useful life of such assets.
RESULTS OF OPERATIONS
- -----------------------
The following discussion of our financial condition and results of operations
should be read in conjunction with our interim condensed consolidated financial
statements and the notes to those statements included in Part I, Item I of this
Quarterly Report on Form 10-Q and in conjunction with the consolidated financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2004.
For the nine months ended September 30, 2005 as compared to the corresponding
period of the previous year, net sales increased to $24,474,000 from $17,015,000
an increase of $7,459,000 or 43.8%. For the quarter ended September 30, 2005 as
compared to the corresponding period of the previous year, net sales increased
to $12,463,000 from $5,944,000, an increase of $6,519,000 or 109.6%. The
increases in the three and nine months ended September 30, 2005 are primarily
the result of the inclusion of Willtek's sales for the three month period ended
September 30, 2005, as well as an overall increase in sales activity in 2005,
related to an improved demand for Microlab's passive microwave components.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Gross profit on net sales for the nine months ended September 30, 2005 was
$12,997,000 or 53.1% as compared to $9,295,000 or 54.6% of net sales for the
nine months ended September 30, 2004. Gross profit on net sales for the quarter
ended September 30, 2005 was $6,653,000 or 53.4% as compared to $3,175,000 or
53.4% of net sales for the three months ended September 30, 2004. Gross profit
dollars are higher for the three and nine months ended September 30, 2005 than
in the same period for 2004 primarily due to the inclusion of Willtek's results
of operations for the three month period ended September 30, 2005 and an overall
increase in sales volume in 2005. There was no change in gross profit percentage
for the three months ended September 30, 2005 as compared to the same period for
2004. However, the gross profit percentage for the nine months ended September
30, 2005 was slightly lower than that of the same period for 2004 due to higher
manufacturing labor and direct overhead costs, and the product mix being sold
during this period being of a slightly lower margin. The Company can experience
variations in gross profit based upon the mix of products sold as well as
variations due to revenue volume and economies of scale. The Company continues
to carefully monitor costs associated with material acquisition, manufacturing
and production.
Operating expenses for the nine months ended September 30, 2005 were $9,926,000
or 40.6% of net sales as compared to $7,293,000 or 42.9% of net sales for the
nine months ended September 30, 2004. Operating expenses for the quarter ended
September 30, 2005 were $6,015,000 or 48.3% of net sales as compared to
$2,247,000 or 37.8% of net sales for the quarter ended September 30, 2004.
For the three months ended September 30, 2005 as compared to the same period of
the prior year, operating expenses increased in dollars by $3,768,000. This
increase is primarily due to the inclusion of Willtek's operating expenses for
the quarter ended September 30, 2005 of $3,742,000 and the estimated quarterly
non-cash amortization of intangible assets related to the acquisition of Willtek
of $500,000. These increases are partially offset by an overall reduction in
operating expenses across all business groups resulting from the Company's
implementation of an effective cost reduction plan and ongoing operational
synergies, including last year's consolidation of the Microlab facility to
Parsippany.
For the nine months ended September 30, 2005 as compared to the same period in
the prior year, operating expenses increased in dollars by $2,633,000. This
increase is primarily due to the inclusion of Willtek's operating expenses for
the three-month period ending September 30, 2005 of $3,742,000 and the estimated
quarterly non-cash amortization of intangible assets related to the acquisition
of Willtek of $500,000. These increases are partially offset by an overall
reduction in operating expenses across all business groups resulting from the
Company's implementation of an effective cost reduction plan and ongoing
operational synergies, including last year's consolidation of the Microlab
facility to Parsippany. Additionally, there was a one-time payout in the first
quarter of 2004 to the Company's former Chief Executive Officer of $685,000,
which increased operating expenses in 2004.
Interest income decreased by $15,000 and $165,000 for the three and nine months
ended September 30, 2005, respectively, as compared to the corresponding periods
of the previous year. These decreases were primarily due to lower returns in a
working capital management account, classified as cash equivalents, due to the
fact that they were highly liquid and readily convertible to cash and were
intended to be liquidated by the Company on a short-term basis.
For the three months ended September 30, 2005, other income decreased by
$36,000. This was primarily due to currency exchange losses related to the
inclusion of Willtek and decreased gains in the current year in the Company's
working capital management account. For the nine months ended September 30,
2005, other income increased by $160,000. This was primarily due to realized
losses of short-term bonds in the above-mentioned working capital management
account in the second quarter of 2004.
Net income increased to $2,753,000, or $.14 per share (diluted), for the nine
months ended September 30, 2005 as compared to $1,619,000, or $.09 per share
(diluted) for the nine months ended September 30, 2004. The Company realized net
income for the quarter ended September 30, 2005 of $624,000 or $.02 per share
(diluted) as compared to $785,000 or $.05 per share (diluted) for the three
months ended September 30, 2004. The explanation of these changes can be derived
from the analysis given above of operations for the three and nine month periods
ending September 30, 2005 and 2004, respectively.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The Company's working capital has increased by $35,000 to $23,595,000 at
September 30, 2005, from $23,560,000 at December 31, 2004. At September 30,
2005 the Company had a current ratio of 4.0 to 1, and a ratio of debt to net
worth of 0.48 to 1. At December 31, 2004 the Company had a current ratio of 9.6
to 1, and a ratio of debt to net worth of 0.20 to 1. In 2005, the Company's
current ratio was affected by current liabilities assumed and cash paid for the
acquisition of Willtek.
The Company realized cash provided by operations of $1,058,000 for the
nine-month period ending September 30, 2005. The primary source of these funds
was provided by net income of $2,753,000, a non-cash adjustment for depreciation
and amortization of $1,244,000 and a decrease in inventories of $280,000,
partially offset by an increase in accounts receivable of $2,038,000 and a
decrease in accounts payable and accrued expenses of $1,315,000.
The Company has historically been able to collect its account receivables
approximately every two months. This average collection period has been
sufficient to provide the working capital and liquidity necessary to operate the
Company. The Company continues to monitor production requirements and delivery
times while maintaining manageable levels of goods on hand.
Operating activities provided $234,000 in cash flows for the comparable period
in 2004. The source of these funds was primarily due to net income of
$1,619,000, deferred income taxes of $385,000 and a non-cash adjustment for
depreciation and amortization of $349,000, partially offset by an increase in
accounts receivable of $784,000, a decrease in income taxes payable of $539,000,
an increase in inventories of $467,000 and a decrease in accounts payable and
accrued expenses of $464,000.
Net cash used for investing activities for the nine months ended September 30,
2005 was $2,696,000. The primary use of these funds was costs associated with
the acquisition of Willtek, net of the cash acquired at July 1, 2005, of
$2,001,000 and capital expenditures of $541,000. For the nine months ended
September 30, 2004, net cash used for investing activities was $844,000. The
primary use of these funds was capital expenditures.
Net cash used for financing activities for the nine months ended September 30,
2005 was $1,395,000. The primary use of these funds was for dividends paid in
the amount of $1,621,000, partially offset by proceeds from the exercise of
stock options in the amount of $262,000. Net cash used for financing activities
in the same period of 2004 was $1,078,000. The primary use of these funds in
2004 was for dividends paid of $1,542,000, partially offset by proceeds from the
exercise of stock options in the amount of $493,000.
The Company anticipates that its resources provided by its cash flow from
operations will be sufficient to meet its financing requirements for at least
the next twelve-month period. This takes into consideration the cash
requirements relating to the acquisition of Willtek on July 1, 2005. The Company
does not believe it will need to borrow funds during the next twelve-month
period.
INFLATION AND SEASONALITY
- ---------------------------
The Company does not anticipate that inflation will significantly impact its
business or its results of operations nor does it believe that its business is
seasonal.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4 - CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Company's Chief Executive Officer and Chief Financial
Officer evaluated, with the participation of the Company's management, the
effectiveness of the Company's disclosure controls and procedures. Based on the
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
12
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceeding against the
Company or in which any of their property is subject.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 1, 2005, the Company issued 1,527,333 Shares and 6,472,667 Shares
of its Common Stock to Damany Holding GmbH and Investcorp Technology
Ventures, LP, respectively, in connection with the acquisition of Willtek
Communications GmbH ("Willtek"). See Note 6 - Willtek Acquisition for
information regarding the acquisition of Willtek. These issuances were made
in reliance upon an exemption from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) thereof.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1* Amended and Restated Stock Purchase Agreement, dated March 29,
2005, by and among Wireless Telecom Group, Inc., Investcorp
Technology Ventures, L.P., Damany Holding GmbH and Willtek
Communications GmbH.
10.1* Amended and Restated Loan Agreement, dated March 29, 2005, by
and among Investcorp Technology Ventures, L.P., Willtek
Communications GmbH and Wireless Telecom Group, Inc.
10.2** Shareholders' Agreement, dated as of July 1, 2005, among
Wireless Telecom Group, Inc., Investcorp Technology Ventures,
L.P. and Damany Holding GmbH.
10.3** Indemnification Escrow Agreement, dated as of July 1, 2005, by
and among Wireless Telecom Group, Inc., Investcorp Technology
Ventures, L.P., Damany Holding GmbH and American Stock Transfer &
Trust Company.
11.1 Computation of per share earnings
31.1 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 (Principal Executive Officer)
31.2 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 (Principal Financial Officer)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Executive Officer)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Financial Officer)
______________________
* Previously filed as an Exhibit to WTT's Current Report on Form 8-K, dated
March 29, 2005, and incorporated herein by reference.
** Previously filed as an Exhibit to WTT's Current Report on Form 8-K, dated
July 1, 2005, and incorporated herein by reference.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIRELESS TELECOM GROUP, INC.
----------------------------------
(Registrant)
Date: November 9, 2005 /S/Paul Genova
----------------------------------
Paul Genova
(Interim) Chief Executive Officer
Date: November 9, 2005 /S/Paul Genova
----------------------------------
Paul Genova
President, Chief Financial Officer
14
EXHIBIT LIST
Exhibit No. Description
- ----------- -----------
2.1* Amended and Restated Stock Purchase Agreement, dated March 29,
2005, by and among Wireless Telecom Group, Inc., Investcorp
Technology Ventures, L.P., Damany Holding GmbH and Willtek
Communications GmbH.
10.1* Amended and Restated Loan Agreement, dated March 29, 2005, by
and among Investcorp Technology Ventures, L.P., Willtek
Communications GmbH and Wireless Telecom Group, Inc.
10.2** Shareholders' Agreement, dated as of July 1, 2005, among
Wireless Telecom Group, Inc., Investcorp Technology Ventures,
L.P. and Damany Holding GmbH.
10.3** Indemnification Escrow Agreement, dated as of July 1, 2005, by
and among Wireless Telecom Group, Inc., Investcorp Technology
Ventures, L.P., Damany Holding GmbH and American Stock Transfer &
Trust Company.
11.1 Computation of per share earnings
31.1 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 (Principal Executive Officer)
31.2 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 (Principal Financial Officer)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Executive Officer)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(Principal Financial Officer)
______________________
* Previously filed as an Exhibit to WTT's Current Report on Form 8-K, dated
March 29, 2005, and incorporated herein by reference.
** Previously filed as an Exhibit to WTT's Current Report on Form 8-K, dated
July 1, 2005, and incorporated herein by reference.
15