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HPON: WIRX CEO on The Wall Street Transcript ...

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THE WALL STREET TRANSCRIPT

Questioning Market Leaders For Long Term Investors

STEVE RADE - WIRELESS XCESSORIES GROUP INC (WIRX)

CEO Interview - published 08/30/2004

DOCUMENT # YAW605

STEVE RADE is President and Chief Executive Officer of Wireless
Xcessories Group, Inc. Mr. Rade founded the company in 1988. Prior to
that he was the leading independent agent of Comcast, the Philadelphia-
based airtime carrier.

Sector: communications equipment

TWST: Would you begin with a brief historical sketch of Wireless
Xcessories Group and give us a picture of the company at the present
time?


Mr. Rade: The company was incorporated in 1988 as Advanced Fox Cellular.
We began by selling vehicle antennas for cellphones and we designed the
first phone in a briefcase; it weighed 30 pounds and cost over $3,000.
As cellphones became more popular, the product line expanded to its
current 3,000 items. We sell replacement batteries, phone cases,
holsters, personal and in-vehicle hands free speakerphones, vehicle
power chargers and a host of fashion accessories. We are the only
company I know of that offers three distinctive product lines: a 'good,
better and best' choice for every taste. We went public in an IPO in
1996 along with two non-related companies or companies related
peripherally at best. We then realized that we wanted to focus on our
core ability, which was cellphone accessories. So in 2001 we changed our
name to the Wireless Xcessories Group and over the past few years we
have divested ourselves of all other entities. We now focus totally on
cellphone accessories, selling them to more than 2,000 dealers,
distributors, mass retailers and airtime carriers throughout the United
States and Canada. These customers have over 10,000 individual
locations. That pretty much sums up what we do.

TWST: What is the competitive landscape like?


Mr. Rade: There are, at most, 10 to 15 direct, meaningful competitors in
the United States, possibly one or two that have our capability and our
unique selling proposition ' which, we believe, separates us from all
competition. To get into this business requires a tremendous capability
for sourcing products in the Far East. It also requires the ability to
create custom packaging, provide marketing and sales training programs,
personalized packaging programs for a variety of different customers,
and to provide all the other value-added services that are a part of the
total package we offer. There is competition, but there are very, very
few companies that can offer the total package that we have created.

TWST: You mentioned value-added services.


Mr. Rade: Yes, we have the largest selection of value-added services of
any company in the United States, and we think this separates us from
everyone out there. I'll give you some examples from the catalog of
value-added free services that we send to every new customer. One of the
things we do is provide a Website for dealers which do not have their
own sites or which, if they do have their own site where they sell
wireless phones, we provide them with the ability to sell accessories.
It constantly has to be updated because so many new phones are
introduced during the course of a year that anything published today is
out of date 30 days from now. Once a dealer has our Website we become
their one-stop shopping source. We also offer countertop and
freestanding displays and wall posters for retail stores. We offer
customized or private-labeled e-mail blasts so that our dealers and
distributors can e-blast and market to their customers. We offer sales
training materials free of charge. Once a month we create an airtime
carrier compatibility chart. There are seven major carriers in the
United States, from Verizon and Cingular to Sprint and AT&T, and each of
these carriers offer so many different phones that no one has ever
created a single-source brochure of all the phones that are being
offered and the accessories that go with them. It's very confusing for
dealers and sales clerks in this industry, so we have created a brochure
for our customers to use in training their salespeople in what products
fit what phones. We have customized private-label price lists, which
allow all 3,000 of our items to be printed out under the customer's name
so that our product line can be presented as their own. We also do
customized catalogs for them and, as I previously mentioned, customized
retail packaging so that they can have their own private-label name on
the packaging that is displayed in their stores. In essence we can take
a retailer with no wireless experience, no Internet exposure and a store
with four blank walls and give them a full and complete accessory
presence in their marketplace.

TWST: What are some of the most interesting products that have been
coming along or will be coming along?


Mr. Rade: When it comes to new products, pretty much everything that's
out there are improvements over existing products. Our in house product
development team is focused on making products more functional,
fashionable and feature rich. For instance, everyone has a vehicle power
adaptor in their car to power up their cellphone. We have designed an
enhanced version which has an LED that changes color as the battery
reaches various states of charge and it has a glowing design to allow
improved vision at night when the vehicle is dark. When it comes to
hands-free headsets, we are designing the first Bluetooth hands-free
that converts from a headset to an over the ear configuration so that
the user has a choice of comfortable wearing options. For Blackberry
users, we have designed one of the first in-vehicle car kits in full
duplex with three mounting options. Our new Platinum Collection and
Industrial Strength line of accessories are examples of this enhancement
strategy. When design work is completed, we have the accessory produced
at our factories in China.

TWST: You have a facility in the Far East. Is it in Hong Kong?


Mr. Rade: We have a facility in Hong Kong that acts as a liaison to the
factories that we have in China. We do not own those factories; we
contract with them. We pay for the tooling molds, we own the designs '
and of course, we have the exclusive right to sell them in North and
South America.

TWST: Are most of your sales here in the States?


Mr. Rade: I'd say 90% plus are USA and 10% are in Canada. A small
portion is also the Caribbean.

TWST: What about China? Will there be an opportunity to sell in China?


Mr. Rade: No, there is no opportunity because China is the source of
manufacturing, and it's not feasible for us to have the sales force and
the infrastructure over there effectively sell products to local
dealers.

TWST: Will the Canadian or Caribbean portions increase at all?


Mr. Rade: Yes, we are looking to increase those areas as they gain more
penetration of their wireless population.

TWST: What are the key elements of your strategy for the next years?


Mr. Rade: There are two key components to our strategy. The first is our
2,000 plus customer base of mostly wireless dealers and distributors
which have more than 10,000 physical store locations, some with an
Internet presence. The second component is our belief that the wireless
concept includes not only communication devices such as phones, but
business devices like BlackBerry, Treo and Palm, as well as
entertainment devices such as the Apple I-Pod and Sony's new entry. We
are in the business of designing accessories for all types of wireless
devices, and we intend to educate our customers that they should not tie
their success only to phones. There is no reason the same consumer would
not visit their stores to buy all three devices. There is no competitor
I know that is actively promoting this convergence concept to wireless
dealers. We say to the store owner who only sells phones, either in his
store or the Internet, 'We will give you a Website featuring PDA and I-
Pod accessories and a small quantity of accessories for your stores on a
guaranteed sales basis; you have zero cost with no risk and all sales
constitute additional revenue.' The next product line we are planning to
add is GSM phones. Three of the largest airtime carriers ' Cingular, T-
Mobile and AT&T ' sell GSM technology phones through their dealer
agents. Our opportunity comes from the fact that these carriers lock the
phone internally so it can only operate on their system. They do this
because their only competitive edge is to have handset models their
competitors do not have. Our strategy is to sell the dealer unlocked GSM
phones which they can connect to any GSM carrier system; this benefits
the dealer because they can offer the customer a wider variety of
handset choices.

TWST: Will the selling of these handsets represent a big opportunity for
you?


Mr. Rade: It will give the dealers that are agents of GSM carriers one
more reason to buy from us; this will move us further ahead of our
competition. It will add incremental growth to our top and bottom line,
but issues of technical/repair support, secure storage in our warehouse,
and competitive pricing issues need to be addressed in order to launch
the program in early 2005.

TWST: What about challenges or problems looking ahead?


Mr. Rade: One challenge would be general economic conditions that could
have an effect on the number of new phones or replacement phones that
people buy. Accessories are highly dependent on the replacement of
handsets by the average consumer. For every handset that is replaced,
two to three accessories are purchased. So if economic conditions do not
remain as good as they have been, this could have a negative effect.
Another possibility is that manufacturers of phones do not introduce as
many handsets as they recently have. We do not think this is likely
because one, they are all locked into a battle for market share and two,
technology is moving so fast that every six months they add new features
to the handsets. Over the next few months there will be TV, radio, and
videophone availability on your handset and obviously cameras have been
the hot item this year. But there is a risk nevertheless because handset
growth through innovations are not within our control.

TWST: Could there be currency problems with China?


Mr. Rade: There are no currency problems. We buy everything in dollars
and everything is quoted in dollars. The dollar is the most stable
currency out there.

TWST: What would you reasonably expect Wireless Xcessories Group to look
like three years from now, and what would be the milestones along the
way for investors to be looking for?


Mr. Rade: One of our goals is to gain listing on the American Stock
Exchange in 2005. We just announced our second quarter results, which
were $0.07 a share, and there is no reason to think that our results
will not continue in a positive direction. Therefore, we believe our
stock price should grow to the point that we would qualify for listing
on the American Exchange; this would be a major milestone for us.
Another milestone would be the profitable introduction of the previously
mentioned handsets and PDA/I-Pod accessories into our product line. We
would expect this to have an immediate sales impact in the quarter
introduced, with continuing growth as our sales force begins to
aggressively promote these to dealers. Other milestones for growth would
really involve the addition of major, new accounts. For example, we are
looking to sign Amazon shortly. The addition of several large accounts
based on our modest current annualized sales volume of $15-$16 million,
would have a substantial impact on our sales growth percentage.

TWST: What are your thoughts about merging, acquiring, partnering, being
acquired, etc.?


Mr. Rade: We are considering the possibility of partnering with a
company on the West Coast in order to expand our capability to service
West Coast customers. At this time we are just doing fact finding and
considering possible alternatives; I am not in a position to predict an
outcome or timing.

TWST: Could you tell us about the backgrounds and the expertise of
yourself and one or two of your colleagues?


Mr. Rade: I started in the wireless industry when it began in 1984. My
wife and I became the first agents for the cellphone carrier in
Philadelphia. Over the past 20 years I have seen the industry grow from
its beginnings in which the cellphone was a three watt transceiver wired
into the trunk of your car, to the present time when handsets weigh as
little as four ounces and can function as a radio, TV, camera, GPS and
data device. The head of our purchasing department has been with us 10
years; our CFO, a CPA, has been with us for nine years. Most of our
management team has had a number of years of experience in the industry,
so we have a deep understanding of the industry and customer base.

TWST: How many employees do you have right now?


Mr. Rade: We have approximately 75 employees.

TWST: Do you feel that you could grow the top line pretty substantially
without having to add too many people?


Mr. Rade: Yes, we feel we have high leverage when it comes from sales
flowing down to the bottom line, because our overhead is essentially
covered. We have a 70,000-square-foot warehouse, we have enough people,
the computer systems are new, all of our infrastructure products,
computers, EDI, and phones are new, and new software was installed less
than a year ago. Due to these factors we feel we can grow substantially
without adding a lot of overhead.

TWST: I think I read that you can move your products very rapidly when
you get an order.


Mr. Rade: Generally 99% plus of the orders that are placed by 1 or 2
o'clock in the afternoon are shipped the same day. The other factor that
customers judge us on is how soon after the introduction of a handset
will we have the aftermarket accessories available for them to sell. We
generally can have them within three to four weeks.

TWST: Do you see any need to improve your capital structure?


Mr. Rade: We currently have more than enough money in the bank. There is
no reason whatsoever to borrow. The only event that could change that
would be an acquisition.

TWST: What are your feelings about acquisitions?


Mr. Rade: Again, if it were on the West Coast with the right complement
to our goals and strengths, we would definitely be interested.

TWST: Are you doing a lot of work at the present time to get your
message out to the investment community?


Mr. Rade: The Wall Street Transcript is the first organization that I
have spoken to in five years and it is the beginning of our program of
investor relations that will begin in earnest probably within the next
few weeks.

TWST: What will be the main things that you'll do in that regard?


Mr. Rade: We are, as we speak, researching the names of stock market
letter-writers and brokerage houses that specialize in micro-cap or
small cap companies. We are developing an investor package which is
ready for mailing, and in general we believe that telling our story is
not much different from selling one of our products ' a leather case or
a battery. We think we are quite capable of doing that with our own in-
house marketing people and our popularity within our industry.

TWST: What would be the three or four best reasons for the long-term
investor to take a very good look at Wireless Xcessories?


Mr. Rade: Reason one would be that the CEO owns over 25% of the stock
and has a vested interest in its growth. Reason number two is the
company has purchased back in the open market almost 20% of its stock in
the past three years, most of it this year. Third, we are a tremendous
value play in that as of the pricing of last week, we were selling at 7
times trailing 12-month earnings, three times annualized current cash
flow, sales growth was 36% for the six months ended June 30, and we have
only tapped into maybe 5% of the potential market for cellphone
accessories in the United States. 50% of the approximate current net
equity of our company is in cash, and our market capitalization is less
than one-third of sales. We have much higher profit margins than the
average distributor because we create our own product and therefore we
are not selling something that a third party made and is profiting from.
We have a very small float and very thinly traded shares, so that any
purchasing is going to create an up-trend in the price of our stock. We
have no debt. All of that added together makes us an exciting play for
the value-minded investor.

TWST: What occupies most of your own attention on a day-by-day basis?


Mr. Rade: My time is spent looking for ways to market our products more
professionally, looking for the biggest prospective customers in the
marketplace and how we can acquire them, and, of course, searching the
world market for the next blockbuster accessory.

TWST: Is there anything you would like to add, particularly with regard
to the company's long-term objectives?


Mr. Rade: Our long-term objective is to continue as a leader in the
growth of the accessory industry however it may evolve into the future,
so that maybe one day an Apple, a Blackberry, a Motorola or a major
company looks to acquire us for our design strengths, sourcing
abilities, and customer base. That is what I see as our future.

TWST: Thank you. (MC)


STEVE RADE
President & CEO
Wireless Xcessories Group, Inc.
1840 County Line Road
Huntington Valley, PA 19006
[phone]
[phone] - TOLL FREE
[phone] - FAX
www.wirexgroup.com

Copyright 2004 The Wall Street Transcript Corporation
All Rights Reserved


The Wall Street Transcript (TWST) interviews are published verbatim, and TWST does not in any way endorse or guarantee the accuracy of any information or opinions expressed herein and all opinions are subject to change without notice. Nothing herein constitutes a solicitation to buy or sell any securities. TWST interviews with CEOs or other senior executives may include "forward-looking statements", which are based on factors that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. TWST shall have no liability whatsoever for any trading losses arising out of use of this information. Copyright 2003 Wall Street Transcript Corporation. All Rights Reserved.