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 June 30, 2005__________________________________
or
[ ] 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
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Eastmans Road
Parsippany, New Jersey 07054
- --------------------------------------- ------
(Address of principal executive offices) (Zip Code)
(201) 261-8797
--------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES _X_ NO ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined on Exchange Act Rule 12b-2).
YES ___ NO _X_
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock - Par Value $.01 25,580,351
- ------------------------------ ------------------
Class Outstanding Shares
At August 12, 2005
WIRELESS TELECOM GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page(s)
Item 1 -- Consolidated Financial Statements:
Condensed Balance Sheets as of June 30, 2005 (unaudited)
and December 31, 2004 3
Condensed Statements of Operations for the Three and Six Months
Ended June 30, 2005 and 2004 (unaudited) 4
Condensed Statements of Cash Flows for the Six Months
Ended June 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 -
JUNE 30, DECEMBER 31,
2005 2004
------------- -------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 15,781,727 $ 15,783,816
Accounts receivable -- net of allowance for doubtful accounts of
$203,750 and $190,155 for 2005 and 2004, respectively 3,358,571 3,196,750
Inventories 6,759,426 6,780,445
Current portion of deferred tax asset 226,266 198,266
Prepaid expenses, taxes and other current assets 332,231 338,144
------------- -------------
TOTAL CURRENT ASSETS 26,458,221 26,297,421
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - NET 5,950,392 5,937,788
------------- -------------
OTHER ASSETS:
Goodwill 1,351,392 1,351,392
Deferred tax asset 858,741 886,741
Other assets 1,268,961 933,526
------------- -------------
TOTAL OTHER ASSETS 3,479,094 3,171,659
------------- -------------
TOTAL ASSETS $ 35,887,707 $ 35,406,868
============= =============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 1,254,384 $ 1,915,707
Accrued expenses and other current liabilities 745,832 778,704
Current portion of mortgage payable 45,155 43,485
------------- -------------
TOTAL CURRENT LIABILITIES 2,045,371 2,737,896
------------- -------------
LONG TERM LIABILITIES:
Mortgage payable 3,022,392 3,045,395
Deferred rent payable 161,190 144,745
------------- -------------
TOTAL LONG TERM LIABILITIES 3,183,582 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, 20,563,251
and 20,511,001 shares issued for 2005 and 2004, respectively, 17,513,551
and 17,461,301 shares outstanding for 2005 and 2004, respectively 205,633 205,110
Additional paid-in-capital 14,184,795 14,086,756
Retained earnings 23,969,755 22,888,395
Treasury stock at cost, - 3,049,700 shares (7,701,429) (7,701,429)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 30,658,754 29,478,832
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 35,887,707 $ 35,406,868
============= =============
See accompanying notes
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,
---------------------------- -----------------------------
2005 2004 2005 2004
---- ---- ---- ----
NET SALES $ 5,962,676 $ 5,584,405 $ 12,010,853 $11,070,850
------------ ----------- ------------ -----------
COSTS AND EXPENSES:
Cost of sales 2,896,775 2,555,970 5,666,427 4,951,119
Operating expenses 1,855,661 2,075,415 3,911,425 5,046,367
Interest (income) (108,389) (150,338) (176,696) (272,619)
Interest expense 58,116 58,898 116,434 117,983
Other (income) expense (70,407) 117,693 (108,258) 33,079
------------ ----------- ------------ -----------
TOTAL COSTS AND EXPENSES 4,631,756 4,657,638 9,409,332 9,875,929
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 1,330,920 926,767 2,601,521 1,194,921
PROVISION FOR INCOME TAXES 272,050 279,850 472,050 360,136
------------ ----------- ------------ -----------
NET INCOME $ 1,058,870 $ 646,917 $ 2,129,471 $ 834,785
============ =========== ============ ===========
NET INCOME PER COMMON
SHARE:
BASIC $ 0.06 $ 0.04 $ 0.12 $ 0.05
============ ========== ============ ===========
DILUTED $ 0.06 $ 0.04 $ 0.12 $ 0.05
============ ========== ============ ===========
See accompanying notes
4
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months
Ended June 30,
---------------------------------------
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,129,471 $ 834,785
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 251,838 220,863
Deferred rent 16,445 16,445
Provision for losses on accounts receivable 13,595 (42,353)
Changes in assets and liabilities:
(Increase) in accounts receivable (175,416) (39,873)
Decrease (increase) in inventories 21,020 (614,945)
Decrease (increase) in prepaid expenses and other current assets 1,370 (46,220)
(Decrease) in accounts payable and accrued expenses (887,695) (229,696)
Increase (decrease) in income taxes payable 193,500 (383,472)
------------ -------------
Net cash provided by (used for) operating activities 1,564,128 (284,466)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (262,843) (381,345)
Costs associated with acquisition (332,492) -
------------ ------------
Net cash (used for) investing activities (595,335) (381,345)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage note (21,333) (19,784)
Cash dividends paid (1,048,112) (1,025,112)
Proceeds from exercise of stock options/warrants 98,563 493,370
------------ ------------
Net cash (used for) financing activities (970,882) (551,526)
------------ ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,089) (1,217,337)
Cash and cash equivalents, at beginning of year 15,783,816 16,265,765
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 15,781,727 $ 15,048,428
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Taxes $ 276,500 $ 742,136
Interest $ 116,434 $ 117,983
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 June 30, 2005 and the
condensed, consolidated statements of operations for the three and six
month periods ended June 30, 2005 and 2004 and the condensed, consolidated
statements of cash flows for the six month periods ended June 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, 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 six month periods ended June
30, 2005 and 2004 are not necessarily indicative of the results to be
expected for the full year.
Certain prior years' information has been reclassified to conform to the
current year's reporting presentation.
NOTE 2 - INCOME PER COMMON SHARE
Income per common share is computed by dividing the net income by the
weighted average number of common shares and common equivalent shares
outstanding during each period. 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 six months ended June 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.
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 Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
------ ------ ------ ------
Net income:
As reported $1,058,870 $646,917 $2,129,471 $834,785
Less: stock based
compensation
expense - net of tax 54,071 30,205 99,130 57,032
---------- -------- ---------- --------
Pro forma $1,004,799 $616,712 $2,030,341 $777,753
========== ======== ========== ========
Basic earnings per share:
As reported $.06 $.04 $.12 $.05
Pro forma .06 .04 .12 .05
Diluted earnings per share:
As reported $.06 $.04 $.12 $.05
Pro forma .06 .04 .12 .04
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 - WILLTEK ACQUISITION/SUBSEQUENT EVENT
On October 5, 2004, Wireless Telecom Group, Inc., a New Jersey corporation
("WTT"), entered into a stock purchase agreement (the "Purchase Agreement")
with Willtek Communications GmbH, a limited liability corporation organized
under the laws of Germany ("Willtek"), Damany Holding GmbH, a limited
liability corporation organized under the laws of Germany and the owner of
approximately 20% of Willtek's outstanding capital stock ("Damany"), and
Investcorp Technology Ventures LP, a limited partnership organized under
the laws of the Cayman Islands and the owner of approximately 80% of
Willtek's outstanding capital stock ("Investcorp", together with Damany,
the "Willtek Shareholders"), pursuant to which WTT agreed to acquire all of
the outstanding capital stock of Willtek from the Willtek Shareholders.
Willtek, based in Ismaning, Germany, is a leading provider of solutions
that enable manufacturers and operators of wireless communications devices
to test mobile phones, air interface, and base stations of cellular
networks. Willtek's product range includes high-speed, state-of-the-art
test and measurement solutions for handsets and wireless devices, as well
as for radio frequencies and network testing tasks.
Under the terms of the Purchase Agreement, WTT will purchase all of the
outstanding capital stock of Willtek in exchange for an aggregate purchase
price of $7,000,000 in cash and 8,000,000 shares of WTT common stock, par
value $0.01 per share (the "Purchase Price"), 1,000,000 of which shares
will be deposited into an escrow account at the closing of the acquisition
for a period of one year to secure the indemnification obligations of the
Willtek Shareholders under the Purchase Agreement, and the assumption of
certain existing liabilities and obligations valued at $4.8 million. Based
on the $2.40 closing price per share of WTT common stock on October 4, 2004
on the American Stock Exchange, the value of the Purchase Price for the
proposed acquisition is approximately $26.2 million. The Purchase Agreement
does not provide for an adjustment in the number of shares of WTT common
stock to be issued to the Willtek Shareholders in the acquisition in the
event of a fluctuation in the market value of WTT common stock. Giving
effect to the proposed acquisition, the Willtek Shareholders would own
approximately 32% of the outstanding shares of WTT common stock.
On March 29, 2005, the Company, Willtek and the Willtek Shareholders
entered into an amended and restated stock purchase agreement (the "Amended
Purchase Agreement"), which modified the terms of the Original Purchase
Agreement. The terms were modified, in part, due to the operating results
of Willtek during the previous six months and the parties' desire to
conserve the Company's existing cash resources. Under the terms of the
Amended Purchase Agreement, the Original Purchase Price was reduced by
eliminating the $7.0 million cash component. The purchase price now
consists solely of 8,000,000 shares of the Company's common stock (the
"Purchase Price"). Based on the $2.69 closing price of a share of the
Company's common stock as reported on the American Stock Exchange on June
30, 2005, the dollar value of the Purchase Price was approximately $21.5
million. Based on the number of shares of the Company's common stock
outstanding on August 12, 2005, giving effect to the proposed acquisition,
the Willtek Shareholders would own in the aggregate approximately 31.3% of
the outstanding shares of the Company's common stock. As was the case with
the Original Purchase Agreement, the Amended Purchase Agreement does not
provide for an adjustment in the number of shares of the Company's common
stock to be issued to the Willtek Shareholders in the acquisition in the
event of a fluctuation in the market price of the Company's common stock.
On July 1, 2005, the Company consummated this transaction and acquired all
of the outstanding equity of Willtek GmbH for an approximate dollar value
of $21.5 million, or $2.69 a share. Additionally, there were approximately
$2.0 million in closing costs related to the acquisition. The business
combination will be 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
excess of total purchase price over the value of assets and liabilities at
closing, including identifiable intangible assets, will be allocated to
goodwill, which will be subject to annual impairment review. 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, 2005, are shown in the following table:
8
WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 - WILLTEK ACQUISITION/SUBSEQUENT EVENT (Continued)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
----------- ----------- ---------- ---------
Net revenue $11,096,000 $11,563,000 $23,965,000 $23,440,000
=========== =========== =========== ===========
Net (loss) $(872,000) $(483,000) $(1,346,000) $(2,216,000)
========= ========= =========== ===========
Diluted (loss) per
common share $(.03) $(.02) $(.05) $(.09)
===== ===== ===== =====
In connection with the closing of this acquisition, substantial changes
have been made to the composition of the Company's board of directors and
to its senior management team, including the appointment of Cyrille Damany,
Willtek's Chief Executive Officer, as the Company's new Chief Executive
Officer, and the appointment of two designees of Investcorp to the
Company's seven-member board of directors one of whom will be appointed
Chairman of the Board. Karabet "Gary" Simonyan will continue to serve on
the board as non-executive Vice Chairman of the Board. Paul Genova, the
Company's President and Chief Financial Officer, will continue as such and
report directly to Mr. Damany. Investcorp will continue to be entitled to
designate up to two individuals for nomination for election to the
Company's board of directors, provided Investcorp's level of beneficial
ownership of the Company's common stock continuously equals or exceeds
certain percentage thresholds.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
- ------------
Wireless Telecom Group, Inc., and its operating subsidiaries, Boonton
Electronics Corporation and Microlab/FXR (collectively, the "Company"), develop,
manufacture and market a wide variety of electronic noise sources, electronic
testing and measuring instruments including power meters, voltmeters and
modulation meters and high-power passive microwave components. The Company's
products have historically been primarily used to test the performance and
capability of cellular/PCS and satellite communication systems and to measure
the power of RF and microwave systems. Other applications include radio, radar,
wireless local area network (WLAN) and digital television.
The financial information presented herein includes: (i) Condensed Consolidated
Balance Sheets as of June 30, 2005 and as of December 31, 2004 (ii) Condensed
Consolidated Statements of Operations for the three and six month periods ended
June 30, 2005 and 2004 and (iii) Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 2005 and 2004.
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 six months ended June 30, 2005 as compared to the corresponding period
of the previous year, net sales increased to $12,011,000 from $11,071,000 an
increase of $940,000 or 8.5%. For the quarter ended June 30, 2005 as compared to
the corresponding period of the previous year, net sales increased to $5,963,000
from $5,584,000, an increase of $379,000 or 6.8%. The increases in the three and
six months ended June 30, 2005 are primarily the result of increased sales
activity in 2005, in particular the Noise Com components for certain existing
customers, in part, due to the Company's continuous efforts to publicize the
advantages and many applications of our products on a commercial basis.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Gross profit on net sales for the six months ended June 30, 2005 was $6,344,000
or 52.8% as compared to $6,120,000 or 55.3% of net sales for the six months
ended June 30, 2004. Gross profit on net sales for the quarter ended June 30,
2005 was $3,066,000 or 51.4% as compared to $3,028,000 or 54.2% of net sales for
the three months ended June 30, 2004. Gross profit dollars are higher for the
three and six months ended June 30, 2005 than in the same period for 2004
primarily due to higher sales volume. However, the gross profit percentage for
the three and six months ended June 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 six months ended June 30, 2005 were $3,911,000 or
32.6% of net sales as compared to $5,046,000 or 45.6% of net sales for the six
months ended June 30, 2004. Operating expenses for the quarter ended June 30,
2005 were $1,856,000 or 31.1% of net sales as compared to $2,075,000 or 37.2% of
net sales for the quarter ended June 30, 2004.
For the three months ended June 30, 2005 as compared to the same period of the
prior year, operating expenses decreased in dollars by $220,000. This decrease
is due to a decrease in office and related expenses of $84,000 as a result of
last year's consolidation of the Microlab facility to Parsippany. Additionally,
sales and marketing salaries decreased by $77,000 and sales and marketing
expenses decreased by $58,000 in an effort to reduce print advertising costs,
while continuing to generate higher sales levels. Decreases of $45,000 in
officers' salaries also accounted for the overall decrease in operating expenses
in the second quarter of 2005 vs. 2004.
For the six months ended June 30, 2005 as compared to the same period in the
prior year, operating expenses decreased in dollars by $1,135,000. This decrease
is primarily due to a one-time payout in the first quarter of 2004 to the
Company's former Chief Executive Officer of $685,000 and a decrease in office
and related expenses of $168,000 as a result of last year's consolidation of the
Microlab facility to Parsippany. Additionally, sales and marketing salaries
decreased by $131,000 and sales and marketing expenses decreased by $92,000 in
an effort to reduce print advertising costs, while continuing to generate higher
sales levels. Decreases of $86,000 and $23,000 in officers' salaries and
research and development expenses, respectively, also accounted for the overall
decrease in operating expenses in the second quarter of 2005 vs. 2004.
Interest income decreased by $42,000 and $96,000 for the three and six months
ended June 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.
Other income increased by $188,000 and $141,000 for the three and six months
ended June 30, 2005, respectively. 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 and increased gains in the current year.
Net income increased to $2,129,000, or $.12 per share (diluted), for the six
months ended June 30, 2005 as compared to $835,000, or $.05 per share (diluted)
for the six months ended June 30, 2004. The Company realized net income for the
quarter ended June 30, 2005 of $1,059,000 or $.06 per share (diluted) as
compared to $647,000 or $.04 per share (diluted) for the three months ended June
30, 2004. 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,
2005 and 2004, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The Company's working capital has increased by $853,000 to $24,413,000 at June
30, 2005, from $23,560,000 at December 31, 2004. At June 30, 2005 the Company
had a current ratio of 12.9 to 1, and a ratio of debt to net worth of 0.17 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.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The Company realized cash provided by operations of $1,564,000 for the six-month
period ending June 30, 2005. The primary source of these funds was provided by
net income of $2,129,000, a non-cash adjustment for depreciation and
amortization of $252,000 and an increase in income taxes payable of $194,000,
partially offset by a decrease in accounts payable and accrued expenses of
$888,000 and increase in accounts receivable of $175,000.
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 used $284,000 in cash flows for the comparable period in
2004. The use of these funds was primarily due to an increase in inventory of
$615,000, a decrease in income taxes payable of $383,000, and a decrease in
accounts payable and accrued expenses of $230,000, partially offset by net
income of $835,000, and a non-cash adjustment for depreciation and amortization
of $221,000.
Net cash used for investing activities for the six months ended June 30, 2005
was $595,000. The primary use of these funds was costs associated with the
acquisition of Willtek of $332,000 and capital expenditures of $263,000. For the
six months ended June 30, 2004, net cash used for investing activities was
$381,000. The primary use of these funds was capital expenditures.
Net cash used for financing activities for the six months ended June 30, 2005
was $971,000. The primary use of these funds was for dividends paid in the
amount of $1,048,000, partially offset by proceeds from the exercise of stock
options in the amount of $99,000. Net cash used for financing activities in the
same period of 2004 was $552,000. The primary use of these funds in 2004 was for
dividends paid of $1,025,000, 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/Subsequent Event for information regarding the
acquisition of Willtek. These issuances were made in reliance upon an
exception under 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
(a) The Registrant held its Annual Meeting of Stockholders on June 24,
2005. The following proposal was adopted by the votes indicated.
(b) (c) (1) Six directors were elected at the Annual Meeting to serve
until the Annual Meeting of Stockholders in 2006. The names of these
Directors and votes cast in favor of their election and shares
withheld are as follows:
NAME VOTES FOR VOTES WITHHELD % FOR
Paul Genova 14,841,946 2,095,643 87.63
Karabet "Gary" Simonyan 14,826,179 2,111,410 87.53
Henry L. Bachman 14,854,217 2,083,372 87.70
John Wilchek 14,571,572 2,366,017 86.03
Michael Manza 15,108,292 1,829,297 89.20
Andrew Scelba 15,093,590 1,843,999 89.11
(d) Proposals information:
Proposal (1) Approval of the acquisition of all the outstanding share
capital of Willtek Communications by our Company and the issuance of
8,000,000 shares of our common stock in connection with the
acquisition:
VOTES FOR VOTES AGAINST ABSTAINED NON-VOTED
7,074,397 3,650,235 308,595 5,904,362
Proposal (3) Adjournment of the annual meeting, if necessary, to
solicit additional proxies in favor of the acquisition and the
issuance of our common stock of the acquisition:
VOTES FOR VOTES AGAINST ABSTAINED NON-VOTED
11,905,747 3,889,693 1,142,149 -
Item 5. OTHER INFORMATION
None.
13
PART II - OTHER INFORMATION (Continued)
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.
14
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: August 12, 2005 /S/Cyrille Damany
---------------------------
Cyrille Damany
Chief Executive Officer
Date: August 12, 2005 /S/Paul Genova
----------------------------
Paul Genova
President, Chief Financial Officer
15
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.
16