UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 


 

FORM 10-Q

 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended March 31, 2012

 

 

 

OR

 

 

o

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

 

(I.R.S. Employer

of Incorporation or Organization)

 

Identification No.)

25 Eastmans Road

 

 

Parsippany, New Jersey

 

07054

(Address of Principal Executive Offices)

 

(Zip Code)

(973) 386-9696
(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 o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (see the definitions of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

 

 

 

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of Common Stock outstanding as of May 11, 2012: 24,233,497


WIRELESS TELECOM GROUP, INC.

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page(s)

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1 — Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

Condensed Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

 

3

 

 

 

 

 

 

 

Condensed Statements of Operations for the Three Months Ended March 31, 2012 (unaudited) and 2011 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2012 (unaudited) and 2011 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Statement of Shareholders’ Equity for the Three Months Ended March 31, 2012 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Interim Condensed Financial Statements (unaudited)

 

7

 

 

 

 

 

 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

 

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

 

Item 4 — Controls and Procedures

 

21

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1 — Legal Proceedings

 

22

 

 

 

 

 

 

Item 1A – Risk Factors

 

22

 

 

 

 

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

 

 

 

Item 3 — Defaults upon Senior Securities

 

22

 

 

 

 

 

 

Item 4 – Mine Safety Disclosures

 

23

 

 

 

 

 

 

Item 5 — Other Information

 

23

 

 

 

 

 

 

Item 6 – Exhibits

 

23

 

 

 

 

 

Signatures

 

24

 

 

 

 

 

Exhibit Index

 

25

2



PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

March 31,
2012

 

December 31,
2011

 

 

 


 


 

 

 

(unaudited)

 

 

 

- ASSETS -

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,965,030

 

$

12,089,782

 

Accounts receivable - net of allowance for doubtful accounts of $135,206 and $122,535 for 2012 and 2011, respectively

 

 

4,318,554

 

 

4,670,630

 

Inventories

 

 

7,870,041

 

 

7,577,051

 

Deferred income taxes - current

 

 

1,752,288

 

 

1,761,429

 

Prepaid expenses and other current assets

 

 

162,807

 

 

319,690

 

 

 



 



 

TOTAL CURRENT ASSETS

 

 

27,068,720

 

 

26,418,582

 

 

 



 



 

PROPERTY, PLANT AND EQUIPMENT - NET

 

 

4,356,717

 

 

4,349,150

 

 

 



 



 

OTHER ASSETS:

 

 

 

 

 

 

 

Goodwill

 

 

1,351,392

 

 

1,351,392

 

Deferred income taxes - non-current

 

 

4,912,712

 

 

4,684,571

 

Other assets

 

 

898,858

 

 

898,265

 

 

 



 



 

TOTAL OTHER ASSETS

 

 

7,162,962

 

 

6,934,228

 

 

 



 



 

TOTAL ASSETS

 

$

38,588,399

 

$

37,701,960

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- LIABILITIES AND SHAREHOLDERS’ EQUITY -

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

821,120

 

$

841,582

 

Accrued expenses and other current liabilities

 

 

1,294,205

 

 

944,484

 

Current portion of mortgage payable

 

 

75,099

 

 

73,697

 

 

 



 



 

TOTAL CURRENT LIABILITIES

 

 

2,190,424

 

 

1,859,763

 

 

 



 



 

LONG TERM LIABILITIES:

 

 

 

 

 

 

 

Mortgage payable

 

 

2,609,906

 

 

2,629,215

 

 

 



 



 

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, 28,930,142 and 28,883,861 shares issued, respectively, 24,414,964 and 24,494,906 shares outstanding, respectively

 

 

289,302

 

 

288,839

 

Additional paid-in-capital

 

 

37,988,914

 

 

37,918,844

 

Retained earnings

 

 

4,342,883

 

 

3,687,019

 

Treasury stock at cost, 4,515,178 and 4,388,955 shares, respectively

 

 

(8,833,030

)

 

(8,681,720

)

 

 



 



 

TOTAL SHAREHOLDERS’ EQUITY

 

 

33,788,069

 

 

33,212,982

 

 

 



 



 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

38,588,399

 

$

37,701,960

 

 

 



 



 

See accompanying notes

3


WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

 


 

 

 

2012

 

2011

 

 

 


 


 

 

 

 

 

 

 

 

 

NET SALES

 

$

6,901,819

 

$

6,076,955

 

 

 

 

 

 

 

 

 

COST OF SALES

 

 

3,546,754

 

 

3,427,095

 

 

 



 



 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

3,355,065

 

 

2,649,860

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Research and development

 

 

599,466

 

 

524,784

 

Sales and marketing

 

 

1,072,616

 

 

1,193,807

 

General and administrative

 

 

1,131,768

 

 

633,637

 

 

 



 



 

TOTAL OPERATING EXPENSES

 

 

2,803,850

 

 

2,352,228

 

 

 



 



 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

551,215

 

 

297,632

 

 

 

 

 

 

 

 

 

OTHER (INCOME) EXPENSE

 

 

 

 

 

 

 

Interest expense - net

 

 

50,941

 

 

48,981

 

Other (income) - net

 

 

(59,838

)

 

(55,550

)

 

 



 



 

TOTAL OTHER (INCOME) EXPENSE

 

 

(8,897

)

 

(6,569

)

 

 



 



 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

560,112

 

 

304,201

 

 

 

 

 

 

 

 

 

(BENEFIT) FROM INCOME TAXES

 

 

(95,752

)

 

(81,351

)

 

 



 



 

 

 

 

 

 

 

 

 

NET INCOME

 

$

655,864

 

$

385,552

 

 

 



 



 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

$

0.03

 

$

0.02

 

 

 



 



 

 

 

 

 

 

 

 

 

DILUTED

 

$

0.03

 

$

0.02

 

 

 



 



 

See accompanying notes

4


WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 


 

 

 

2012

 

2011

 

 

 


 


 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

$

655,864

 

$

385,552

 

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

82,465

 

 

124,613

 

Stock compensation expense

 

 

70,533

 

 

21,401

 

Deferred income taxes

 

 

(219,000

)

 

(137,571

)

Provision for losses on accounts receivable

 

 

12,671

 

 

18,705

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

339,405

 

 

(91,961

)

Inventories

 

 

(292,990

)

 

(162,558

)

Prepaid expenses and other assets

 

 

156,290

 

 

71,699

 

Accounts payable, accrued expenses and other current liabilities

 

 

329,259

 

 

(1,134,891

)

 

 



 



 

Net cash provided by (used for) operating activities

 

 

1,134,497

 

 

(905,011

)

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Capital expenditures

 

 

(90,032

)

 

(122,145

)

 

 



 



 

Net cash (used for) investing activities

 

 

(90,032

)

 

(122,145

)

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Payments of mortgage note

 

 

(17,907

)

 

(16,607

)

Repurchase of treasury stock - 126,223 and 692,917 shares, respectively

 

 

(151,310

)

 

(457,326

)

 

 



 



 

Net cash (used for) financing activities

 

 

(169,217

)

 

(473,933

)

 

 



 



 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

875,248

 

 

(1,501,089

)

 

 

 

 

 

 

 

 

Cash and cash equivalents, at beginning of period

 

 

12,089,782

 

 

13,643,220

 

 

 



 



 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

12,965,030

 

$

12,142,131

 

 

 



 



 

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Taxes

 

$

3,146

 

$

1,470

 

 

 

 

 

 

 

 

 

Interest

 

$

50,977

 

$

52,277

 

See accompanying notes

5


WIRELESS TELECOM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional Paid
In Capital

 

Retained
Earnings

 

Treasury Stock

 

Total
Shareholders’
Equity

 

 

 


 


 


 


 


 

Balances at December 31, 2011

 

$

288,839

 

$

37,918,844

 

$

3,687,019

 

$

(8,681,720

)

$

33,212,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

655,864

 

 

 

 

655,864

 

Shares issued under restricted stock plan

 

 

463

 

 

(463

)

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

70,533

 

 

 

 

 

 

70,533

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(151,310

)

 

(151,310

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2012

 

$

289,302

 

$

37,988,914

 

$

4,342,883

 

$

(8,833,030

)

$

33,788,069

 

 

 



 



 



 



 



 

See accompanying notes

6


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 sheets as of March 31, 2012, the condensed consolidated statements of operations for the three-month periods ended March 31, 2012 and 2011, the condensed consolidated statements of cash flows for the three-month periods ended March 31, 2012 and 2011 and the condensed consolidated statement of shareholders’ equity for the three-month period ended March 31, 2012 have been prepared by the Company without audit. The condensed consolidated financial statements include the accounts of Wireless Telecom Group, Inc. and its wholly-owned subsidiaries Boonton Electronics Corporation (“Boonton”), Microlab/FXR (“Microlab”), WTG Foreign Sales Corporation and NC Mahwah, Inc., collectively the “Company”. All significant intercompany transactions and balances have been eliminated in consolidation.

 

 

 

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, 2011. Specific reference is made to that report since certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) have been condensed or omitted from this report.

 

 

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including inventory valuation, accounts receivable valuation, valuation of deferred tax assets and estimated fair values of stock options) and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

 

 

The results of operations for the three-month periods ended March 31, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year.

 

 

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

 

 

 

The Company maintains significant cash investments primarily with two financial institutions, which at times may exceed federally insured limits. The Company performs periodic evaluations of the relative credit rating of these institutions as part of its investment strategy.

 

 

 

Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large customer base. At March 31, 2012 and December 31, 2011, primarily all of the Company’s receivables pertain to the telecommunications industry.

 

 

 

The carrying amounts of cash and cash equivalents, trade receivables, other current assets and accounts payable approximate fair value due to the short-term nature of these instruments. At March 31, 2012, the fair value (estimated based upon expected cash outflows discounted at current market rates) and carrying value of the fixed rate mortgage payable amounted to $2,786,471 and $2,685,005, respectively.

7


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES (Continued)

 

 

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of bank and money market accounts.

 

 

 

The Company has evaluated subsequent events through the date the financial statements were issued and has determined that, other than the event described with respect to the forfeiture of restricted stock (see Note 7), there were no other subsequent events or transactions requiring recognition or disclosure in the condensed consolidated financial statements.

 

 

 

Certain prior period information has been reclassified to conform to the current period’s reporting presentation.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

 

 

 

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, “Guidance on Testing Goodwill for Impairment.” ASU 2011-08 gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. ASU 2011-08 will be effective for fiscal and interim reporting periods within those years beginning after December 15, 2011. The Company’s adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

 

 

 

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This update eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. This ASU is effective for the Company beginning January 1, 2012. The Company’s adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

 

 

 

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This standard amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This ASU is effective for financial periods beginning after December 15, 2011 and is to be applied prospectively. The Company’s adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

NOTE 3 – INCOME TAXES

 

 

 

The Company records deferred taxes in accordance with ASC 740, “Accounting for Income Taxes”. This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset and determines the necessity for a valuation allowance. The Company evaluates which portion, if any, will more likely than not be realized by offsetting future taxable income, taking into consideration any limitations that may exist on its use of its net operating loss carry-forwards.

8


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 3 – INCOME TAXES (Continued)

 

 

 

The components of deferred income taxes are as follows:


 

 

 

 

 

 

 

 

 

 

March 31,
2012

 

December 31,
2011

 

 

 


 


 

Deferred tax assets:

 

 

 

 

 

 

 

Uniform capitalization of inventory costs for tax purposes

 

$

208,949

 

$

199,782

 

Reserves on inventories

 

 

478,756

 

 

480,632

 

Allowance for doubtful accounts

 

 

54,082

 

 

49,014

 

Accruals

 

 

45,000

 

 

108,000

 

Tax effect of goodwill

 

 

(244,608

)

 

(218,932

)

Book depreciation over tax

 

 

16,820

 

 

27,643

 

Net operating loss carryforward

 

 

17,436,595

 

 

17,618,136

 

 

 



 



 

 

 

 

17,995,594

 

 

18,264,275

 

Valuation allowance for deferred tax assets

 

 

(11,330,594

)

 

(11,818,275

)

 

 



 



 

 

 

$

6,665,000

 

$

6,446,000

 

 

 



 



 


 

 

 

Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.

 

 

 

The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. As of March 31, 2012, the Company has identified its federal tax return and its state tax return in New Jersey as “major” tax jurisdictions, as defined, in which it is required to file income tax returns. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its condensed consolidated financial statements.

NOTE 4 - INCOME PER COMMON SHARE

 

 

 

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are calculated by using the weighted average number of shares of common stock outstanding and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method.


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 


 


 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

24,431,055

 

 

24,981,985

 

Potentially dilutive stock options

 

 

362,686

 

 

251,490

 

 

 



 



 

Weighted average common shares outstanding, assuming dilution

 

 

24,793,741

 

 

25,233,475

 

 

 



 



 


 

 

 

Common stock options are included in the diluted earnings per share calculation when the various option exercise prices are less than their relative average market price during the periods presented in this quarterly report. The number of options not included in diluted earnings per share, because the effects are anti-dilutive, was 1,985,982 and 2,262,177 for the three-months ended March 31, 2012 and 2011, respectively.

9


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 5 – INVENTORIES

 

 

 

Inventory carrying value is net of inventory reserves of $605,370 and $608,540 at March 31, 2012 and December 31, 2011, respectively.

 

 

 

Inventories consist of:


 

 

 

 

 

 

 

 

 

 

March 31,
2012

 

December 31,
2011

 

 

 


 


 

 

 

 

 

 

 

 

 

Raw materials

 

$

5,008,683

 

$

5,094,403

 

Work-in-process

 

 

1,148,491

 

 

831,129

 

Finished goods

 

 

1,712,867

 

 

1,651,519

 

 

 



 



 

 

 

$

7,870,041

 

$

7,577,051

 

 

 



 



 

NOTE 6 - GOODWILL

 

 

 

The Company reviews the goodwill of its subsidiary, Microlab, for impairment whenever events or changes in circumstances indicate that the carrying amount of this asset may not be recoverable, and also reviews Microlab’s goodwill annually in accordance with Accounting Standards Codification (ASC) 350, “Accounting for Business Combinations, Goodwill, and Other Intangible Assets.” The process of evaluating the potential impairment of goodwill is ongoing, subjective and requires significant judgment and estimates regarding future cash flows and forecasts. Goodwill represents the excess of the cost of an acquisition over fair value of net assets acquired. Testing for the impairment of goodwill involves a two step process. The first step of the impairment test requires the comparing of a reporting unit’s fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment.

 

 

 

In the second step, the impairment is computed by estimating the fair value of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit’s goodwill. As noted above, goodwill is attributable to one of the Company’s reporting units, Microlab.

 

 

 

In the fourth quarter of 2011, management performed their annual impairment test of goodwill which indicated that Microlab’s fair value was significantly in excess of its carrying value, therefore, there was no impairment recorded at March 31, 2012 and December 31, 2011.

 

 

 

The Company’s recent adoption of ASU 2011-08, “Guidance on Testing Goodwill for Impairment”, will affect how management approaches the annual testing of Microlab’s goodwill going forward. Management will perform a qualitative assessment prior to calculating the fair value of its reporting unit, Step 1 of the goodwill impairment test. If management determines, on the basis of qualitative factors, that the fair value of Microlab is more likely than not greater than its carrying amount, the two-step process described above will not be required.

NOTE 7 - ACCOUNTING FOR STOCK BASED COMPENSATION

 

 

 

The Company follows the provisions of ASC 718, “Share-Based Payment.” The Company’s results for the three-month periods ended March 31, 2012 and 2011 include share-based compensation expense totaling $70,533 and $21,401, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within operating expenses.

 

 

 

Stock option compensation expense relative to service-based options is the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period. Stock option compensation expense relating to performance-based options is the estimated fair value of options granted, recognized when stated performance targets are achieved, or expected to be achieved.

10


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 7 - ACCOUNTING FOR STOCK BASED COMPENSATION (Continued)

 

 

 

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For all performance-based options granted, the Company took into consideration guidance under ASC 718 and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of our shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. The estimated forfeiture rate included in the option valuation was zero.

 

 

 

The Company did not grant any stock options during either of the three-months ended March 31, 2012 or 2011. Additionally, no stock options were exercised, forfeited or canceled during either of the three-months ended March 31, 2012 or 2011. At March 31, 2012, the total number of stock option shares outstanding, which includes both service-based and performance-based options, was 2,348,667.

 

 

 

The following table represents our service-based stock options granted, exercised, forfeited and canceled during the first three months of 2012:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Exercise
Price per share

 

Weighted
Average
Remaining
Contractual
Term

 

 

 

 

 


 


 


 


 

Service-based Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

 

1,008,667

 

$

2.61

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Canceled/Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2012

 

 

1,008,667

 

$

2.61

 

 

2.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2012

 

 

1,008,667

 

$

2.61

 

 

2.5

 

 

 

 


 

 

 

The aggregate intrinsic value of service-based options outstanding and exercisable as of March 31, 2012 was $0.

 

 

 

The following table represents our performance-based stock options granted, exercised, forfeited and canceled during the first three months of 2012:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Exercise
Price per share

 

Weighted
Average
Remaining
Contractual
Term

 

 

 

 

 


 


 


 


 

Performance-based Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

 

1,340,000

 

$

0.92

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Canceled/Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2012

 

 

1,340,000

 

$

0.92

 

 

7.8

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 


 

 

 

The aggregate intrinsic value of performance-based options outstanding as of March 31, 2012 was $466,550. The aggregate intrinsic value of performance-based options exercisable as of March 31, 2012 was $0.

11


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 7 - ACCOUNTING FOR STOCK BASED COMPENSATION (Continued)

 

 

 

As of March 31, 2012, the Company’s service-based stock options have been fully amortized. The aggregate grant date fair value of performance-based stock options as of March 31, 2012 is $836,959. During the fourth quarter of 2011, management determined the performance conditions related to these options are probable to occur. Accordingly, the Company has recorded compensation expense in the amount of $49,233 for the three-months ended March 31, 2012. The remaining balance, or unamortized amount of $738,493, will continue to be expensed on a straight-line basis through December 31, 2015, the implicit service period. If management determines in future periods the achievement of performance conditions are probable to occur sooner than expected, the Company will accelerate the expensing of any unamortized balance as of that determination date.

 

 

 

On March 20, 2012, the Company’s Board of Directors awarded 25,620 and 20,661 shares of restricted common stock to its Chief Executive Officer and V.P. of Sales and Marketing, respectively. The shares were granted at the March 20, 2012 closing price of $1.21 per share. The shares issued from this grant were expected to vest on the one-year anniversary from the date of grant to which the associated compensation expense would have been recognized over the vesting period on a straight-line basis. Subsequently, on April 30, 2012, both aforementioned officers agreed to forfeit their shares.

 

 

 

On March 22, 2011, the Company’s Board of Directors awarded 50,000 shares of restricted common stock to its Chief Executive Officer. The shares were granted at the March 22, 2011 closing market price of $1.08 per share and have fully vested as of March 31, 2012. The total compensation expense recognized over the one-year vesting period was $54,000. On April 30, 2012, the Company’s Chief Executive Officer agreed to forfeit his shares.

 

 

 

A summary of the status of the Company’s non-vested restricted common stock as of March 31, 2012, and changes during the three-months ended March 31, 2012 are presented below:


 

 

 

 

 

 

 

 

Non-vested Shares

 

Number of Shares

 

Weighted Average
Grant Date
Fair Value

 


 


 


 

Non-vested at January 1, 2012

 

 

90,000

 

$

0.95

 

Granted

 

 

46,281

 

$

1.21

 

Vested

 

 

(50,000

)

($

1.08

)

 

 



 



 

Non-vested at March 31, 2012

 

 

86,281

 

$

1.01

 

 

 



 



 


 

 

 

As of March 31, 2012, total outstanding restricted stock previously granted by the Company consists of 90,000 vested shares and 86,281 non-vested shares.

 

 

 

As of March 31, 2012, the unearned compensation related to Company granted restricted stock is $63,800.

 

 

 

In April 2012, the Company became aware of a certain NYSE Amex (the “Exchange”) listing rule that was not followed with respect to 176,281 shares of restricted common stock granted to a number of the Company’s directors and officers between June 2010 and March 2012, which represents both vested and non-vested shares. Although such shares were approved by the Company’s Board of Directors and issued in accordance with all SEC rules and regulations, the shares of restricted common stock granted during these periods were not issued in accordance with all Exchange requirements. Consequently, on April 30, 2012, each individual granted restricted stock during this period agreed to forfeit his shares. The Company has formally submitted a new stock compensation plan to its shareholders to be approved and ratified at the Company’s Annual Meeting of Shareholders to be held on June 13, 2012. The Company’s Compensation Committee is currently contemplating the appropriate replacement award to be granted to each affected individual.

12


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 8 – SEGMENT INFORMATION: REGIONAL SALES

 

 

 

The Company, in accordance with ASC 280, “Disclosures about Segments of an Enterprise and Related Information”, has disclosed the following segment information:

 

 

 

The Company and its subsidiaries develop and manufacture various types of electronic test equipment. Historically, the operating businesses of the Company were aggregated into a single operating segment based on similar economic characteristics, products, services, customers, U.S. Government regulatory requirements, manufacturing processes and distribution channels. Based on how the Company currently manages and discusses its operations and the operations of its subsidiaries, the Company has revised its segment reporting to reflect two reportable segments, test and measurement and network solutions.

 

 

 

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company allocates resources and evaluates the performance of segments based on income or loss from operations, excluding interest, corporate expenses and other income (expenses).

 

 

 

Financial information by reportable segment for the three-months ended March 31, 2012 and 2011:


 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

 

 


 


 

Net sales by segment:

 

 

 

 

 

 

 

Test and measurement

 

$

3,561,033

 

$

3,449,831

 

Network solutions

 

 

3,340,786

 

 

2,627,124

 

 

 



 



 

Total consolidated net sales and net sales of reportable segments

 

$

6,901,819

 

$

6,076,955

 

 

 



 



 

 

 

 

 

 

 

 

 

Segment income:

 

 

 

 

 

 

 

Test and measurement

 

$

375,114

 

$

207,368

 

Network solutions

 

 

906,159

 

 

587,683

 

 

 



 



 

Income from reportable segments

 

 

1,281,273

 

 

795,051

 

 

 

 

 

 

 

 

 

Other unallocated amounts:

 

 

 

 

 

 

 

Corporate expenses

 

 

(730,058

)

 

(497,419

)

Interest and other income - net

 

 

8,897

 

 

6,569

 

 

 



 



 

 

 

 

 

 

 

 

 

Consolidated income before income tax (benefit)

 

$

560,112

 

$

304,201

 

 

 



 



 

Depreciation and amortization by segment:

 

 

 

 

 

 

 

Test and measurement

 

$

67,759

 

$

110,955

 

Network solutions

 

 

14,706

 

 

13,658

 

 

 



 



 

Total depreciation and amortization for reportable segments

 

$

82,465

 

$

124,613

 

 

 



 



 

 

 

 

 

 

 

 

 

Capital expenditures by segment:

 

 

 

 

 

 

 

Test and measurement

 

$

69,721

 

$

86,058

 

Network solutions

 

 

20,311

 

 

36,087

 

 

 



 



 

Total consolidated capital expenditures by reportable segment

 

$

90,032

 

$

122,145

 

 

 



 



 

 

 

 

 

 

 

 

 

Financial information by reportable segment as of March 31, 2012 and December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets by segment:

 

 

 

 

 

 

 

Test and measurement

 

$

12,693,060

 

$

12,969,693

 

Network solutions

 

 

6,265,309

 

 

6,126,776

 

 

 



 



 

Total assets for reportable segments

 

 

18,958,369

 

 

19,096,469

 

 

 

 

 

 

 

 

 

Corporate assets, principally cash and cash equivalents and deferred and current taxes

 

 

19,630,030

 

 

18,605,491

 

 

 

 

 

 

 

 

 

Total consolidated assets

 

$

38,588,399

 

$

37,701,960

 

 

 



 



 

13


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 8 – SEGMENT INFORMATION: REGIONAL SALES (Continued)

Net consolidated sales by region were as follows:

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 

2012

 

2011

 

 

 


 


 

Revenues by region

 

 

 

 

 

Americas

 

$

5,015,577

 

$

4,061,963

 

Europe, Middle East, Africa (EMEA)

 

 

1,178,382

 

 

1,548,266

 

Asia Pacific (APAC)

 

 

707,860

 

 

466,726

 

 

 



 



 

Total Revenues

 

$

6,901,819

 

$

6,076,955

 

 

 



 



 


 

 

 

Net sales are attributable to a geographic area based on the destination of the product shipment. The majority of shipments in the Americas are to customers located within the United States. For the three-months ended March 31, 2012 and 2011, sales in the United States amounted to $4,699,902 and $3,819,327, respectively. For the three-months ended March 31, 2012 and 2011, shipments to the EMEA region were not significantly concentrated in one country. Shipments to the APAC region were largely concentrated in China. For the three-months ended March 31, 2012 and 2011, sales in China amounted to $386,431 and $217,626, respectively.

 

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

 

 

The Company typically provides one-year warranties on all of its products covering both parts and labor. The Company, at its option, repairs or replaces products that are defective during the warranty period if the proper preventive maintenance procedures have been followed by its customers. Historically, warranty expense within the Company has been minimal. In 2009, there was a onetime increase of $240,000 in warranty costs due to the potential rework of specific product shipped in 2008. In the first quarter of 2011, the Company reversed the one-time warranty accrual as this product is no longer being produced at original specifications and management believes there is a remote likelihood that any units will be returned. This amount represented the maximum potential warranty related to these shipments.

 

 

 

The Company has a building lease agreement with its current landlord to remain at its principal corporate headquarters in Hanover Township, Parsippany, NJ through September 30, 2014. The minimum monthly rent payment for the remaining term of the lease will be approximately $29,000.

 

 

 

Following an investigation by the New Jersey Department of Environmental Protection (NJDEP) in 1982, of the waste disposal practices at a certain site formerly leased by Boonton, the Company put a ground water management plan into effect as approved by the NJDEP. Costs associated with this site are charged directly to income as incurred. The owner of this site has previously notified the Company that if the NJDEP investigation proves to have interfered with a sale of the property, the owner may seek to hold the Company liable for any resulting damages. Since May 1983, the owner has been on notice of this problem and has failed to institute any legal proceedings with respect thereto. While this does not bar the owner from instituting a suit, it is the opinion of the Company’s legal counsel that it is unlikely that the owner would prevail on any claim.

 

 

 

The Company is diligently pursuing efforts to satisfy the requirements of the original plan and receive a new determination from the NJDEP. Overall data from testing performed in the Spring of 2011 indicates the continuation of a decreasing concentration trend at the site. The overall decrease supports the absence of a continuing source impacting ground water. The Company believes that its current practice and plan of groundwater testing will continue until an official notification from NJDEP is obtained and the Company is released from further obligations. While management anticipates that the expenditures in connection with this site will not be substantial in future years, the Company could be subject to significant future liabilities and may incur significant future expenditures if further contaminants from Boonton’s testing are identified and the NJDEP requires additional remediation activities. Management is unable to estimate future remediation costs, if any, at this time. The Company will continue to be liable under the plan, in all future years, until such time as the NJDEP releases it from all obligations applicable thereto.

14


WIRELESS TELECOM GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)

 

 

 

The Company maintains a line of credit with its investment bank. The credit facility provides borrowing availability of up to 100% of the Company’s money market account balance and 99% of the Company’s short-term investment securities (U.S. Treasury bills) and, under the terms and conditions of the loan agreement, is fully secured by said money fund account and short-term investment holdings. Advances under the facility will bear interest at a variable rate equal to the London InterBank Offered Rate (“LIBOR”) in effect at time of borrowing. Additionally, under the terms and conditions of the loan agreement, there is no annual fee and any amount outstanding under the loan facility may be paid at any time in whole or in part without penalty. As of March 31, 2012, the Company had no borrowings outstanding under the facility and approximately $5,300,000 of borrowing availability. The Company has no current plans to borrow from this credit facility as it believes its present cash balances will adequately meet near-term working capital requirements.

 

 

 

Proprietary information and know-how are important to the Company’s commercial success. There can be no assurance that others will not either develop independently the same or similar information or obtain and use proprietary information of the Company. Certain key employees have signed confidentiality and non-compete agreements regarding the Company’s proprietary information.

 

 

 

The Company believes that its products do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future.

15


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Wireless Telecom Group, Inc., and its operating subsidiaries, (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 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.

In December 2011, the Company’s management reevaluated how it manages and discusses, both internally and with its board of directors, its operations and the operations of its subsidiaries Boonton and Microlab. Therefore, the Company has revised its segment reporting to reflect two reportable segments, test and measurement and network solutions. The test and measurement segment is comprised primarily of the operations of Boonton and Noisecom. The network solutions segment is comprised primarily of the operations of Microlab. Relative prior period information has been revised accordingly. The Company believes the revised segment reporting better reflects how its operating segments are managed and each segment’s performance is evaluated. Additional financial information on the Company’s reportable segments as of March 31, 2012 and December 31, 2011, as well as, for the three-months ended March 31, 2012 and 2011 is included in Note 8 to the Company’s condensed consolidated financial statements.

The financial information presented herein includes:
(i) Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and as of December 31, 2011 (ii) Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2012 (unaudited) and 2011 (unaudited) (iii) Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2012 (unaudited) and 2011 (unaudited) and (iv) Condensed Consolidated Statement of Shareholders’ Equity for the three-month period ended March 31, 2012 (unaudited).

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 or 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.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of the financial condition and results of operations are based upon the Company’s condensed 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.

16


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Share-Based Compensation

The Company follows the provisions of Accounting Standards Codification (ASC) 718, “Share-Based Payment”. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For any performance-based or service-based options granted, the Company takes into consideration guidance under ASC 718 and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of our shares using weekly price observations over an observation period of three years. The risk-free rate is based on the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. The estimated forfeiture rate included in the option valuation was zero.

Revenue Recognition

Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Sales to international distributors are recognized in the same manner. If title does not pass until the product reaches the customer’s delivery site, then recognition of revenue is deferred until that time. There are no formal sales incentives offered to any of the Company’s customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis. There are no material special post shipment obligations or acceptance provisions that exist with any sales arrangements.

Valuation of Inventory

Raw material inventories are stated at the lower of cost (first-in, first-out method) or market. Finished goods and work-in-process are valued at average cost of production, which includes material, labor and manufacturing expenses.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. A key consideration in estimating the allowance for doubtful accounts has been, and will continue to be, its customers’ payment history and aging of its accounts receivable balance. If the financial condition of any of its customers were to decline, additional allowances might be required.

Income Taxes

The Company records deferred taxes in accordance with ASC 740, “Accounting for Income Taxes”. This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and determines the necessity for a valuation allowance. The Company evaluates which portion, if any, will more likely than not be realized by offsetting future taxable income, taking into consideration any limitations that may exist on its use of its net operating loss carry-forwards.

Uncertain Tax Positions

Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.

17


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

By adoption of ASC 740, the Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. As of March 31, 2012 and December 31, 2011, the Company has identified its federal tax return and its state tax return in New Jersey as “major” tax jurisdictions, as defined, in which it is required to file income tax returns. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its condensed consolidated financial statements.

Based on a review of tax positions for all open years and contingencies as set out in the Company’s notes to the condensed consolidated financial statements, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740 during the periods ended March 31, 2012 and 2011.

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, 2011.

For the three-months ended March 31, 2012 as compared to the corresponding period of the previous year, net consolidated sales increased to approximately $6,902,000 from approximately $6,077,000, an increase of approximately $825,000 or 13.6%. This increase was primarily the result of continuing strong demand for the Company’s network solutions products for distributed antenna systems (“DAS”). The Company has experienced an increase in order activity due to commercial infrastructure development in support of the ongoing expansion and upgrade to DAS.

Net sales of the Company’s network solutions products for the three-months ended March 31, 2012 were approximately $3,341,000 as compared to approximately $2,627,000 for the three-months ended March 31, 2011, an increase of approximately $714,000 or 27.2%. Net sales of network solutions products accounted for approximately 48% and 43% of net consolidated sales for the three-month periods ended March 31, 2012 and 2011, respectively. The increase in sales was primarily due to the Company’s growing participation in DAS deployments through supply of its passive microwave components.

Net sales of the Company’s test and measurement products for the three-months ended March 31, 2012 were approximately $3,561,000 as compared to approximately $3,450,000 for the three-months ended March 31, 2011, an increase of approximately $111,000 or 3.2%. Net sales of test and measurement products accounted for approximately 52% and 57% of net consolidated sales for the three-months ended March 31, 2012 and 2011, respectively. The increase in sales was primarily due to increased volume related to the ongoing fulfillment of government contract orders, particularly the Company’s supply of peak power meters to the U.S. Navy.

Gross profit on net consolidated sales for the three-months ended March 31, 2012 was approximately $3,355,000 or 48.6% as compared to approximately $2,650,000 or 43.6% of net consolidated sales for the three-months ended March 31, 2011. Gross profit margins are higher for the three-months ended March 31, 2012 as compared to the same period of the previous year primarily due to higher revenue volume during the quarter ended March 31, 2012 and severance costs incurred during the first quarter of 2011 in the amount of approximately $73,000 relating to the implementation of a cost reduction plan which included several manufacturing employees. Additionally, during the quarter ended March 31, 2011, the Company carried excess inventory in the amount of approximately $270,000 relating to a recently discontinued product line. This inventory was sold in its entirety at cost which negatively impacted gross profit.

The Company’s products consist of several models with varying degrees of capabilities which can be customized to meet particular customer requirements. They may be incorporated directly into the electronic equipment concerned or may be stand alone components or devices that are connected to, or used in conjunction with, such equipment from an external site, in the factory or in the field. Prices of products range from approximately $100 to $100,000 per unit, with most sales occurring between approximately $2,000 and $35,000 per unit. The Company can experience variations in gross profit based upon the mix of these products sold as well as variations due to revenue volume and economies of scale. The Company will continue to rigidly monitor costs associated with material acquisition, manufacturing and production.

18


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating expenses for the three-months ended March 31, 2012 were approximately $2,804,000 or 41% of net consolidated sales as compared to approximately $2,352,000 or 39% of net consolidated sales for the three-months ended March 31, 2011. Operating expenses are higher for the three-months ended March 31, 2012 primarily due to an increase in general and administrative expenses of approximately $498,000 and an increase in research and development expenses of approximately $75,000, offset by a decrease in sales and marketing expenses of approximately $121,000.

The increase in general and administrative expenses for the three-months ended March 31, 2012 is primarily due to a higher bonus accrual of approximately $125,000 and an increase in non-cash stock based compensation charges of approximately $49,000. Additionally, a specific warranty accrual was reversed during the quarter ended March 31, 2011 in the amount of $240,000 relating to product shipped in 2008. The Company determined that there is a remote likelihood that any of these specific units will be returned and subsequently reversed the warranty accrual. Sales and marketing expenses were lower for the three-months ended March 31, 2012 primarily due to a decrease in travel and related expenses of approximately $40,000 and lower, order specific, commissions paid to the Company’s external, non-employee sales representatives of approximately $37,000. Additionally, severance was paid during the quarter ended March 31, 2011 to certain sales employees in the amount of approximately $28,000 in connection with the cost reduction plan mentioned above.

Interest income decreased by approximately $3,000 for the three-months ended March 31, 2012, as compared to the corresponding period of the previous year. Interest income is derived from the Company’s cash investment account. Substantially all of the Company’s cash is invested in money market funds.

Other income, net of other non-operating expense, increased by approximately $4,000 for the three-months ended March 31, 2012 as compared to the corresponding period of the previous year. The increase in other income for the three-months ended March 31, 2012 is primarily due to higher non-operating expense incurred during the three-months ended March 31, 2011 for services relating to the ground water testing being performed at the former site of the Company’s subsidiary, Boonton. The Company has been testing the ground water in this site since 1982 in accordance with state regulations. The Company is diligently pursuing efforts to satisfy the requirements of the original remediation plan, in effect since 1982, and receive a new determination from the NJDEP. Management continues to be encouraged by recent test results which support improvements in ground water conditions over time. Overall data from testing in the Spring of 2011 indicates the continuation of a decreasing concentration trend at the site. The overall decrease supports the absence of a continuing source impacting ground water. The Company believes that its current practice and plan of groundwater testing will continue until an official notification from NJDEP is obtained and the Company is released from further obligations. While management anticipates that the expenditures in connection with this site will not be substantial in future years, the Company could be subject to significant future liabilities and may incur significant future expenditures if any additional contamination is identified and the NJDEP requires additional remediation.

For the three-months ended March 31, 2012 and 2011, the Company realized a tax benefit of approximately $96,000 and approximately $81,000, respectively. For both periods, the tax benefit was primarily due to a decrease in the Company’s deferred tax asset valuation allowance, partially offset by a provision for state income taxes.

For the three-months ended March 31, 2012, the Company realized net income of approximately $656,000 or $0.03 income per share on a basic and diluted basis, as compared to net income of approximately $386,000 or $0.02 income per share on a basic and diluted basis for the corresponding period of the previous year, an increase of approximately $270,000. The increase was primarily due to the analysis mentioned above.

19


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 approximately $319,000 to approximately $24,878,000 at March 31, 2012, from approximately $24,559,000 at December 31, 2011. At March 31, 2012, the Company had a current ratio of 12.4 to 1, and a ratio of debt to tangible net worth of ..15 to 1. At December 31, 2011, the Company had a current ratio of 14.2 to 1, and ratio of debt to tangible net worth of .14 to 1.

The Company had cash and cash equivalents of approximately $12,965,000 at March 31, 2012, compared to approximately $12,090,000 at December 31, 2011. In January 2011, the Company paid approximately $874,000 in disposition fees relating to the sale in 2010 of its foreign subsidiary, Willtek Communications GmbH (“Willtek”). Additionally, in 2011, the Company repurchased approximately 1,293,000 shares of its outstanding common stock at a cost of approximately $1,135,000. During the quarter ended March 31, 2012, the Company has repurchased approximately 126,000 shares of its outstanding common stock at a cost of approximately $151,000. The Company believes its current level of cash and cash equivalents is sufficient to fund the current operating, investing and financing activities.

The Company expects to realize tax benefits in future periods due to the available net operating loss carryforwards resulting from the disposition of Willtek in 2010. Accordingly, future taxable income is expected to be offset by the utilization of operating loss carryforwards and as a result, will increase the Company’s liquidity as cash needed to pay Federal income taxes will be substantially reduced.

The Company realized cash from operating activities of approximately $1,134,000 for the three-month period ending March 31, 2012. The primary source of this cash was due to net income from operations for the quarter, as well as, a decrease in accounts receivable, an increase in accounts payable, accrued expenses and other current liabilities and a decrease in prepaid expenses and other assets, partially offset by an increase in inventory.

The Company has historically been able to turn over its accounts receivable approximately every two months. This average collection period has been sufficient to provide the working capital and liquidity necessary to operate the Company.

The Company used cash for operating activities of approximately $905,000 for the three-month period ending March 31, 2011. The primary use of this cash was due to a decrease in accounts payable, accrued expenses and other current liabilities, an increase in inventory and an increase in accounts receivable, partially off-set by a decrease in prepaid expenses and other assets.

Net cash used for investing activities for the three-months ended March 31, 2012 and 2011 was approximately $90,000 and approximately $122,000, respectively. The use of these funds was for capital expenditures.

Cash used for financing activities for the three-months ended March 31, 2012 was approximately $169,000. The use of these funds was for the acquisition of treasury stock and the periodic payments of a mortgage note. Cash used for financing activities for the three-months ended March 31, 2011 was approximately $474,000. The use of these funds was for the acquisition of treasury stock and the periodic payments of a mortgage note.

The Company maintains a line of credit with its investment bank. The credit facility provides borrowing availability of up to 100% of the Company’s money market account balance and 99% of the Company’s short-term investment securities (U.S. Treasury bills) and, under the terms and conditions of the loan agreement, is fully secured by said money fund account and short-term investment holdings. Advances under the facility will bear interest at a variable rate equal to the London InterBank Offered Rate (“LIBOR”) in effect at time of borrowing. Additionally, there is no annual fee and any amount outstanding under the loan facility may be paid at any time in whole or in part without penalty. As of March 31, 2012, the Company had no borrowings outstanding under the facility and approximately $5,300,000 of borrowing availability.

The Company believes that its financial resources from working capital are adequate to meet its current needs. However, should current global economic conditions deteriorate, additional working capital funding may be required which may be difficult to obtain due to restrictive credit markets.

20


ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

OFF-BALANCE SHEET ARRANGEMENTS

Other than contractual obligations incurred in the normal course of business, the Company does not have any off-balance sheet arrangements.

INFLATION AND SEASONALITY

The Company does not anticipate that inflation will significantly impact its business or its results of operations nor does it believe that its business is seasonal.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to Wireless Telecom Group, Inc., including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures are effective.

(b) Changes in Internal Controls over Financial Reporting

In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in our internal control over financial reporting that occurred during the first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

21


PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

 

 

 

The Company is not aware of any material legal proceeding against the Company or in which any of their property is subject.

Item 1A. RISK FACTORS

 

 

 

The Company is not aware of any material changes from risk factors as previously disclosed in its Form 10-K for the year ended December 31, 2011.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

 

 

Issuer Purchases of Equity Securities

 

 

 

The following table provides the number of shares purchased and average price paid per share during the quarter ended March 31, 2012, the total number of shares purchased as part of our publicly announced repurchase programs, and the maximum number of shares that may yet be purchased under our stock repurchase program at March 31, 2012.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total number of
shares
purchased (1)

 

Average price
paid per
share ($)

 

Total number
of shares
purchased as
part of publicly
announced
plans or
programs (1)

 

Maximum number
of shares that may
yet be purchased
under the plans or
programs (2)

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

January 1, 2012 –
January 31, 2012

 

 

53,811

 

$

1.17

 

 

53,811

 

 

954,309

 

 

 

February 1, 2012 -
February 29, 2012

 

 

20,000

 

$

1.17

 

 

20,000

 

 

934,309

 

 

 

March 1, 2012 -
March 31, 2012

 

 

52,412

 

$

1.19

 

 

52,412

 

 

881,897

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

126,223

 

$

1.18

 

 

126,223

 

 

 

 

 

 



 



 



 

 

 

 


 

 

 

 

 


 

 

 

 

(1)

These purchases were made pursuant to the stock repurchase program approved by our Board of Directors on January 14, 2008 and announced on January 17, 2008 pursuant to which the Company may repurchase up to 5% of our common stock from time to time on the open market or in private transactions, including structured or accelerated transactions, on terms and conditions to be determined by the Company and its Board of Directors. The stock repurchase authorization does not have an expiration date and can be modified or discontinued at any time.

 

 

 

 

(2)

On September 8, 2011, announced on September 13, 2011, the Company’s Board of Directors authorized a modification to the 2008 stock repurchase program. The authorization increased the number of shares allowed to be repurchased under the program by approximately 1,300,000 shares.

Item 3. DEFAULTS UPON SENIOR SECURITIES

          None.

22


PART II - OTHER INFORMATION (Continued)

Item 4. MINE SAFETY DISCLOSURES

Item 5. OTHER INFORMATION

          None.

Item 6. EXHIBITS

 

 

 

 

Exhibit No.

 

Description

 


 


 

 

 

 

 

31.1

 

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

 

 

31.2

 

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

 

 

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

 

 

101

 

The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 15, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to interim condensed consolidated financial statements. (1)


 

 

 


 

 

 

(1)

As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

23


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: May 15, 2012

/S/Paul Genova

 


 

Paul Genova

 

Chief Executive Officer

 

 

Date: May 15, 2012

/S/Robert Censullo

 


 

Robert Censullo

 

Acting Chief Financial Officer

24


EXHIBIT LIST

 

 

 

 

Exhibit No.

 

Description

 


 


 

 

 

 

31.1

 

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

 

 

31.2

 

Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Executive Officer)

 

 

 

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (Principal Financial Officer)

 

 

 

101

 

The following financial statements from Wireless Telecom Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 15, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations, (iii) condensed consolidated statements of cash flows, (iv) condensed consolidated statement of shareholders’ equity, and (v) the notes to interim condensed consolidated financial statements. (1)


 

 

 


 

 

(1)

As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

25