United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File Number 0-23212
Telular Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
647 North Lakeview Parkway
Vernon Hills, Illinois
60061
(Address of principal executive offices)
(Zip Code)
(847) 247-9400
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the Registrant's common stock, par
value $.01, as of December 31, 2000, the latest practicable date, was
12,692,641 shares.
TELULAR CORPORATION
Index
Part I - Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 2000 (unaudited) and September 30, 2000 3
Consolidated Statements of Operations (unaudited)
Three Months Ended December 31, 2000 and
December 31, 1999 4
Consolidated Statement of Stockholders' Equity (unaudited)
Period from September 30, 2000 to December 31, 2000 5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended December 31, 2000 and
December 31, 1999 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Recent Sales
of Unregistered Securities 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
Exhibit Index 19
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, September 30,
2000 2000
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 22,613 $ 20,527
Short term investment 62 147
Receivables:
Trade, net of allowance for doubtful accounts
of $104 and $104 at December 31, 2000
and September 30, 2000, respectively 7,707 6,771
Royalties due from related party 434 900
------------ ------------
8,141 7,671
Inventories, net 10,381 6,391
Prepaid expenses and other current asset 591 442
------------ ------------
Total current assets 41,788 35,178
Restricted cash 1,900 1,900
Property and equipment, net 4,192 4,266
Other assets:
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$1,952 and $1,822 at December 31, 2000 and
September 30, 2000, respectively 2,943 3,073
Deposits and other 151 169
------------ ------------
Total other assets 3,094 3,242
------------ ------------
Total assets $ 50,974 $ 44,586
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 7,124 $ 2,872
Related party 2,562 2,037
Accrued liabilities 3,459 2,098
------------ ------------
Total current liabilities 13,145 7,007
Long-term revolving line of credit 1,900 1,900
Commitments and contingencies 0 0
------------ ------------
Total Liabilities 15,045 8,907
------------ ------------
Stockholders' Equity:
Common stock; $.01 par value; 75,000,000 shares
authorized; 12,692,641 and 12,661,942 outstanding
at December 31, 2000 and September 30, 2000,
respectively 127 127
Additional paid-in capital 148,729 148,627
Deficit (112,629) (112,780)
Accumulated other comprehensive (loss) (298) (295)
------------ ------------
Total stockholders' equity 35,929 35,679
------------ ------------
Total liabilities and stockholders' equity $ 50,974 $ 44,586
============ ============
See accompanying notes
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended December 31,
2000 1999
----------- -----------
Net product sales $ 14,941 $ 8,849
Royalty and royalty settlement revenue 211 172
----------- -----------
Total revenue 15,152 9,021
Cost of sales 10,593 7,163
----------- -----------
4,559 1,858
Engineering and development expenses 1,577 1,272
Selling and marketing expenses 1,780 1,743
General and administrative expenses 1,094 1,068
Provision for doubtful accounts 0 25
Amortization 130 136
----------- -----------
Loss from operations (22) (2,386)
Other income, net 173 32
----------- -----------
Net income (loss) $ 151 $ (2,354)
=========== ===========
Less: Cumulative dividend on redeemable
preferred stock 0 (28)
----------- -----------
Net income (loss) applicable to common shares $ 151 $ (2,382)
=========== ===========
Net income (loss) per common share:
Basic $ 0.01 $ (0.21)
Diluted $ 0.01 $ (0.21)
=========== ===========
Weighted average number of
common shares outstanding:
Basic 12,678,988 11,318,007
Diluted 12,672,694 11,318,007
=========== ===========
See accompanying notes
Telular Corporation
Consolidated Statements of Stockholders' Equity
(In Thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Stockholder's
Stock Capital Deficit Income/(Loss) Equity
------ --------- ---------- ------------- -------------
Balance at September 30, 2000 $ 127 $ 148,627 $(112,780) $ (295) $ 35,679
Comprehensive income:
Net income for period from
October 1, 2000 to
December 31, 2000 0 0 151 0 151
Unrealized loss on investments 0 0 0 (3) (3)
----------
Comprehensive income 148
----------
Deferred compensation related
to stock options 0 35 0 0 35
Stock options exercised 0 61 0 0 61
Stock and warrants issued
in connection with services
and compensation 0 6 0 0 6
------ --------- ---------- ----------- ------------
Balance at December 31, 2000 $ 127 $ 148,729 $(112,629) $ (298) $ 35,929
====== ========= ========== =========== ============
See accompanying notes.
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended December 30,
2000 1999
---------- ----------
Operating Activities:
Net income (loss) $ 151 $ (2,354)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 347 476
Amortization 130 136
Inventory obsolescence expense 25 334
Provision for doubtful accounts 0 25
Compensation expense related to
stock options 35 34
Common stock issued for services
and compensation 6 93
Loss on sale of short term investment 65 0
Changes in assets and liabilities:
Trade receivables (936) 1,650
Related party receivables 466 84
Inventories (4,015) 1,855
Prepaid expenses, deposits and other (131) (136)
Trade accounts payable 4,252 (326)
Related party accounts payable 525 (699)
Accrued liabilities 1,361 (947)
---------- ----------
Net cash provided by operating activities 2,281 225
Investing Activities:
Proceeds from the sale of short term investment 17 0
Acquisition of property and equipment (273) (238)
---------- ----------
Net cash used in investing activities (256) (238)
---------- ----------
Financing Activities:
Proceeds from the issuance of common stock 61 142
---------- ----------
Net cash provided by financing activities 61 142
---------- ----------
Net increase in cash and cash equivalents 2,086 129
Cash and cash equivalents, beginning of period 20,527 9,972
---------- ----------
Cash and cash equivalents, end of period $ 22,613 $ 10,101
========== ==========
See accompanying notes
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Unaudited, dollars in thousands, except share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three
months ended December 31, 2000, are not necessarily indicative of the
results that may be expected for the full fiscal year ending
September 30, 2001. For further information, refer to the
consolidated financial statements and the footnotes included in the
Annual Report on Form 10-K for the fiscal year ended September 30, 2000.
2. Inventories
The components of inventories consist of the following (000's):
December 31, September 30,
2000 2000
(unaudited)
Raw materials $ 6,419 $ 2,770
Finished goods 4,176 3,832
10,595 6,602
Less: Reserve for obsolescence 214 211
$ 10,381 $ 6,391
3. Revolving Line of Credit
On January 7, 2000, the Company entered into a Loan and Security
Agreement with Wells Fargo Business Credit Inc. (Wells) to provide a
revolving credit facility with a loan limit of $5,000 (the Loan). In
accordance with the agreement, 100% of the outstanding amount of the
Loan is collaterized with restricted cash. At December 31, 2000, the
Company had approximately $1,900 of available borrowings under the
Loan, of which $1,900 was outstanding. Under the Loan, the Company is
restricted from making dividend payments. The Loan matures on January
7, 2003, and carries interest at the bank's prime rate. To reduce
applicable financing fees, the Company issued 50,000 shares of Common
Stock Warrants to Wells. The Warrants have a strike price of $16.29
per share and expire on January 6, 2005. The value of the Warrants
was accounted for as deferred financing costs, and was recorded at
the fair value of the financing fees of $195. The deferred financing
costs are included in other assets and are being amortized over the
life of the Loan.
4. Redeemable Preferred Stock and Preferred Stock
During the year ending September 30, 1997, the Company issued 20,000
shares of Series A Convertible Preferred Stock (the "Redeemable
Preferred Stock") for $18,375, which is net of issuance costs of
$1,200. The Redeemable Preferred Stock includes the equivalent of a
5% annual stock dividend.
As of September 30, 1999, 8,650 shares of Redeemable Preferred Stock
had been converted into 1,583,865 shares of Common Stock. On October
15, 1999, the final 11,350 shares of Redeemable Preferred Stock
automatically converted into 2,146,540 shares of Common Stock (the
Mandatory Conversion). On October 18, 1999, the previous holders of
the Redeemable Preferred Stock notified the Company that they
disagree with the conversion formula the Company used to process the
Mandatory Conversion. In Form SC-13G filings with the Securities and
Exchange Commission in October and December 1999, certain of the
previous holders noted that based upon their interpretation of
Mandatory Conversion formula, the holders were entitled to an
aggregate of 4,247,834 additional shares of the Company's Common
Stock. The Company has not received any further claim or
communication from the previous holders. The Company believes that it
processed the conversion correctly and that the claim by previous
holders of Redeemable Preferred Stock is unfounded.
On December 31 and September 30, 2000, the Company had 21,000 shares
of $0.01 par value Redeemable Preferred Stock authorized and none
outstanding.
The Company also had 9,979,000 shares of $0.01 par value Preferred
Stock authorized and none outstanding on December 31 and September
30, 2000.
5. Issuance of Common Stock
On March 3, 2000, the Company issued 444,444 shares of Common Stock
for $9,533 which is net of issuance costs of $467, including $100 of
Common Stock issued to the Company's placement agent. The Common
Stock was issued to investors under the provisions of Regulation D of
the United States Securities Act of 1933, as amended. In connection
with this financing, the Company issued 358,407 shares of Common
Stock Warrants to investors and the placement agent. The Common
Stock Warrants have strike prices which range from $12.27 to $31.56
per share and expire during the period from March 2, 2005 through
April 11, 2005. The fair value of these Common Stock Warrants of
$2,264 was determined using the Black-Scholes method and had no net
effect on the Company's equity.
6. Segment Disclosures
The Company, which is organized on the basis of products and
services, has two reportable business segments, Fixed Wireless
Terminals and Security Products. The Company designs, develops,
manufactures and markets both fixed wireless terminals and security
products. Fixed wireless terminals bridge wireline telecommunications
customer premises equipment with cellular-type transceivers for use
in wireless communication networks. Security products provide
wireless backup systems for commercial and residential alarm systems.
Export sales of fixed wireless terminals represent 87% and 89% of
total fixed wireless net product sales for the first quarter of
fiscal year 2001 and 2000, respectively.
Export sales of security products were insignificant for the first
quarter of fiscal year 2001 and 2000.
Summarized below are the Company's segment revenue and operating
profit (loss) by reportable segment:
Period ending December 31,
2000 1999
Revenue
Fixed Wireless Terminals $ 12,400 $ 6,291
Security Products 2,752 2,730
$ 15,152 $ 9,021
Operating Profit (Loss)
Fixed Wireless Terminals $ 470 $ (1,851)
Security Products (517) (535)
$ (47) $ (2,386)
For the three months ended December 31, 2000, one customer located in
Mexico, accounted for 70% of the fixed wireless terminal net product
sales and two customers, located in the USA accounted for 18% and 14%
respectively, of the security products net product sales. For the
three months ended December 31, 1999, two customers located in
Dominican Republic and Mexico accounted for 39% and 15% respectively,
of fixed wireless terminal net product sales and two customers, both
located in the USA, accounted for 21% and 20% respectively, of the
security products net product sales.
7. Earnings Per Share
Basic and diluted net income (loss) per common share are computed
based upon the weighted-average number of shares of common stock
outstanding. Common shares issuable upon the exercise of options,
warrants and redeemable preferred stock are not included in the per
share calculations if the effect of their inclusion would be anti-
dilutive.
There was no difference in the numerators used in the calculation of
basic and diluted net income (loss) per common share.
Following is a reconciliation of the denominators of basic and
diluted net income (loss) per common share:
Three Months Ended December 31,
2000 1999
Weighted average number of
common shares outstanding
Basic 12,678,988 11,318,007
Effect of dilutive employee stock options 83,706 0
Diluted 12,762,694 11,318,007
8. Subsequent Event - Related Party Transaction
In 1999, the Company entered into a five year OEM distribution
agreement (the Agreement) whereby the Company distributes Code
Division Multiple Access (CDMA) fixed wireless terminals made by
Motorola. Motorola's fixed wireless terminals utilize the Company's
technology and Motorola pays the Company a royalty on each unit it
sells to customers other than the Company. The Company agreed to
reduce its royalty for the Motorola products in exchange for the
Agreement.
In July 2000, Motorola advised the Company of its intention to exit
the wireless local loop business and in connection therewith
discontinue production of its CDMA fixed wireless terminals. Since
Motorola will be unable to fulfill its obligations under the
Agreement, in January 2001, Motorola and the Company reached
agreement whereby Motorola has paid the Company $5,000 of additional
royalties and the Agreement is terminated. Motorola has further
agreed to terminate an Option Agreement that it held which entitled
Motorola to sublicense the Company's technology to a third party, and
to continue to sell to the Company CDMA fixed wireless terminals on
an as available basis. The Company has further agreed to release its
claims on Motorola for unpaid royalties, including royalties for
previous sales of CDMA fixed wireless terminals in Brazil, and for
royalties applicable to a limited number of units of Motorola's
remaining inventory of CDMA fixed wireless terminals before the close
out of production (See Item 2 Outlook for further discussion).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, develops, manufactures and markets products based on
its proprietary interface technologies, which provide the capability to
bridge wireline telecommunications customer premises equipment (CPE) with
cellular-type transceivers for use in wireless communication networks in
the Cellular and PCS bands. Applications of the Company's technology
include fixed wireless telecommunications as a primary access service where
wireline systems are unavailable, unreliable or less economical, as well as
wireless backup systems for wireline telephone systems and wireless
security and alarm monitoring signaling. The Company's principal product
lines are: PHONECELLr, a line of fixed wireless terminals (FWTs), and
TELGUARDr, a line of cellular alarm transmission systems.
Currently, the Company is devoting a substantial portion of its resources
to international market development, extension of its core product line to
new wireless standards, expansion, protection and licensing of its
intellectual property rights and development of underlying radio
technology.
The Company's operating expense levels are based in large part on
expectations of future revenues. If anticipated sales in any quarter do not
occur as expected, expenditure and inventory levels could be
disproportionately high, and the Company's operating results for that
quarter, and potentially for future quarters, could be adversely affected.
Certain factors that could significantly impact expected results are
described in Cautionary Statements Pursuant to the Securities Litigation
Reform Act that is set forth in Exhibit 99 to the Company's Form 10-K.
Results of Operations
First quarter fiscal year 2001 compared to first quarter fiscal year 2000
Total Net Product Sales. Net product sales of $14.9 million for the three
months ended December 31, 2000 increased 69% compared to the same period last
year. Sales of PHONECELLr increased 105%, or $6.2 million, during the first
quarter of fiscal year 2001 compared to the same period of fiscal year 2000.
This increase was primarily the result of increased volume due to shipments of
desktop phones to Telcel, the largest wireless carrier in Mexico. Sales of
TELGUARDr products were unchanged during the first quarter of fiscal year 2001
compared to the same period last year.
Cost of sales. Cost of sales increased 48%, or $3.4 million, for the first
quarter of fiscal year 2001 compared to the first quarter of fiscal year 2000.
Cost of sales for the first quarter 2001 of $10.6 million, or 70% of total
revenue, compares to $7.2 million, or 79% of total revenue, for the first
quarter of fiscal year 2000. The increase in cost of sales during the first
quarter of fiscal year 2001 is primarily due to increased volume due to
shipments of desktop phones to Telcel. This added volume resulted in the nine
point improvement in cost of sales as a percent of total revenue for the first
quarter of fiscal year 2001 compared to the same period last year.
Engineering and Development Expenses. Engineering and development expenses
of $1.6 million for the first quarter of fiscal year 2001 increased
approximately 24%, or $0.3 million, from the same quarter of fiscal year
2000. The increase is primarily the result of added labor costs for the
development of additional Global System for Mobile Communication (GSM)
PHONECELLr fixed wireless terminals, including 1900 MHz models and models with
General Packet Radio Service (GPRS), as well as additional TELGUARDr products.
Other Income. Other income for the first quarter of fiscal year 2001
increased $0.1 million, compared to the same period during fiscal year
2000. The increase is primarily due to higher interest income, as a result
of larger average cash balances during the first three months of fiscal
year 2001 compared to the same period of fiscal year 2000.
Net income (loss). The Company recorded net income of $0.2 million for the
first quarter of fiscal year 2001 compared to a net loss of $2.4 million
for the first quarter of fiscal year 2000. Net income per share of $0.01
for the first quarter of fiscal year 2001 represents an increase of $0.22
per share when compared to the net loss per share of $0.21 for the first
quarter of fiscal year 2000.
Liquidity and Capital Resources
On December 31, 2000, the Company had $22.6 million in cash and cash
equivalents with a working capital surplus of $28.6 million.
The Company generated $2.3 million of cash from operations during the first
quarter of fiscal year 2001 compared to $0.2 million during the same period
of fiscal year 2000. The increase in cash from operations during the first
quarter of fiscal year 2001 is primarily due to a $2.0 million increase in
cash from earnings before non-cash items, such as depreciation and
amortization. Cash used for capital spending was $0.3 million during the
first quarter of fiscal year 2001, compared to $0.2 million during the
same period of fiscal 2000. Cash generated from financing activities of
$0.1 million for the first quarter of both fiscal year 2001 and 2000,
relates to proceeds from the issuance of common stock in connection with
the exercise of employee stock options.
On January 7, 2000, the Company entered into a Loan and Security Agreement
with Wells Fargo Business Credit Inc. (Wells) to provide a revolving credit
facility with a loan limit of $5.0 million (the Loan). In accordance with
the agreement, 100% of the outstanding amount of the Loan is collateralized
in cash. At December 31, 2000, the Company had approximately $1.9 million
of available borrowings under the Loan, of which $1.9 million was
outstanding. Under the Loan, the Company is restricted from making dividend
payments. The Loan matures on January 7, 2003, and carries interest at the
bank's prime rate. To reduce applicable financing fees, the Company issued
50,000 shares of Common Stock Warrants to Wells. The Warrants have a strike
price of $16.29 per share and expire on January 6, 2005. The value of the
Warrants was accounted for as deferred financing costs, and was recorded at
the fair value of the financing fees of $0.2 million. The deferred
financing costs are included in other assets and are being amortized over
the life of the Loan.
On March 3, 2000, the Company issued 444,444 shares of Common Stock for
$9.5 million which is net of issuance costs of $0.5 million, including $0.1
million of Common Stock issued to the Company's placement agent. The Common
Stock was issued to investors under the provisions of Regulation D of the
United States Securities Act of 1933, as amended. In connection with this
financing, the Company issued 358,407 shares of Common Stock Warrants to
investors and the placement agent. The Common Stock Warrants have strike
prices which range from $12.27 to $31.56 per share and expire during the
period from March 2, 2005 through April 11, 2005. The fair value of these
Common Stock Warrants of $2.3 million was determined using the Black-
Scholes method and had no net effect on the Company's equity.
Based upon its current operating plan, the Company believes its existing
capital resources will enable it to maintain its current and planned
operations. Cash requirements may vary and are difficult to predict given
the nature of the developing markets targeted by the Company. The amount of
royalty income from the Company's licensees is unpredictable, but could
have a significant impact on the Company's cash flow.
The Company requires its foreign customers to prepay, to obtain letters of
credit or to qualify for export credit insurance underwritten by third
party credit insurance companies prior to the Company making international
shipments. Also, to mitigate the effects of currency fluctuations on the
Company's results of operations, the Company conducts all of its
international transactions in U.S. dollars.
Outlook
The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ
materially.
Based upon observed trends, the Company believes that the market for FWTs
will experience substantial growth over the next five years. The Company
has identified significant near term opportunities in Argentina, Brazil,
China, India, Mexico, Spain, Turkey, the USA and Venezuela. Each of these
markets will develop at a different pace, and the sales cycle for these
regions are likely to be several months or quarters, but market indications
are positive. The Company is well positioned with a wide range of products
to capitalize on these market opportunities.
In 1999, the Company entered into a five year OEM distribution agreement
(the Agreement) whereby the Company distributes Code Division Multiple
Access (CDMA) fixed wireless terminals made by Motorola. Motorola's fixed
wireless terminals utilize the Company's technology and Motorola pays the
Company a royalty on each unit it sells to customers other than the
Company. The Company agreed to reduce its royalty for the Motorola products
in exchange for the Agreement.
In July 2000, Motorola advised the Company of its intention to exit the
wireless local loop business and in connection therewith discontinue
production of its CDMA fixed wireless terminals. Since Motorola will be
unable to fulfill its obligations under the Agreement, in January 2001,
Motorola and the Company reached agreement whereby Motorola has paid the
Company $5 million of additional royalties and the Agreement is terminated.
Motorola has further agreed to terminate an Option Agreement that it held
which entitled Motorola to sublicense the Company's technology to a third
party, and to continue to sell to the Company CDMA fixed wireless terminals
on an as available basis. The Company has further agreed to release its
claims on Motorola for unpaid royalties, including royalties for previous
sales of CDMA fixed wireless terminals in Brazil, and for royalties applicable
to a limited number of units of Motorola's remaining inventory of CDMA fixed
wireless terminals before the close out of production.
Based upon its current inventory of CDMA fixed wireless terminals,
Motorola's willingness to sell the Company CDMA fixed wireless terminals
outside of the Agreement, on an as-available basis, and other available
sources of supply, the Company believes that it can meet its customers'
demands for CDMA fixed wireless terminals. Meanwhile, the Company is
pursuing the license needed to develop and manufacture its own CDMA fixed
wireless terminals. The Company expects to make the CDMA fixed wireless
terminals available for sale in its fiscal year 2002.
Statements contained in this document, other than historical statements,
consist of forward-looking information. The Company's actual results may
vary considerably from those discussed in the "Outlook" section and
elsewhere in this document as a result of various risks and uncertainties.
For example, there are a number of uncertainties as to the degree and
duration of the Company's revenue momentum, which could impact the
Company's ability to be profitable as lower sales may likely result in
lower margins. In addition, product development expenditures, which are
expected to benefit future periods, are likely to have a negative impact on
near term earnings. Other risks and uncertainties, which are discussed in
Exhibit 99 to the Company's 10-K for the ended September 30, 2000, include
the risk that technological change could render the Company's technology
obsolete, ability to protect intellectual property rights in its products,
unfavorable economic conditions could lead to lower sales of products, the
risk of litigation, the Company's ability to develop new products, the
Company's dependence on contractors and Motorola, the Company's ability to
maintain quality control, the risk of doing business in developing markets,
the Company's dependence on research and development, the uncertainty of
additional funding, dilution of ownership to stockholders resulting from
financing activities, volatility of Common Stock price, the effects of
control by existing shareholders, intense industry competition and
uncertainty in the development of wireless service generally.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On March 2, 1998, the Company received 300,000 shares of ORA Electronics,
Inc. common stock ("ORA stock") in connection with the settlement of patent
litigation. ORA stock is traded on Nasdaq's Over The Counter (OTC) system.
Although ORA stock is subject to price fluctuations associated with all
securities that are traded on the OTC system, the Company has the right to
receive additional shares of ORA stock to ensure the fair market value of
the settlement consideration received in stock is equivalent to $1.5
million on February 1, 2002.
The Company frequently invests available cash and cash equivalents in short
term instruments such as: certificates of deposit, commercial paper and
money market accounts. Although the rate of interest paid on such
investments may fluctuate over time, each of the Company's investments is
made at a fixed interest rate over the duration of the investment. All of
these investments have maturities of less than 90 days. The Company
believes its exposure to market risk fluctuates for these investments is
not material as of December 31, 2000.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. Credit risks with respect to trade receivables are limited due
to the diversity of customers comprising the Company's customer base. The
Company generally receives irrevocable letters of credit that are confirmed
by U.S. banks to reduce its credit risk. Further, the Company purchases
credit insurance for all significant open accounts outside of the United
States. The Company performs ongoing credit evaluations and charges
uncollectible amounts to operations when they are determined to be
uncollectible.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On October 5, 2000, the Company filed suit against Vox 2, Inc., of
Northborough, Massachusetts which manufactures a cellular interface product
named the Vox Link. The Company has alleged infringement of its U.S.
Patents: 4,659, 096; 5,715,296; and 5,946,616, and seeks injunction, damages
and attorney fees and costs.
While no assurance can be given regarding the outcome of this and other
legal proceedings that arise in the ordinary course of business, the
Company believes that the final outcome of this matter will not have a
material effect on the Company's consolidated financial position or results
of operations. However, because of the nature and inherent uncertainties of
litigation, should the outcome of any legal actions be unfavorable, the
Company may be required to pay damages and other expenses, which could have
a material adverse effect on the Company's financial position and results
of operations.
Item 2. CHANGES IN SECURITIES AND RECENT SALES OF UNREGISTERED
SECURITIES
Changes in Securities
Under the terms of the Loan, the Company is prohibited from paying cash
dividends during the term of the Loan.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities made during the three months
ended December 31, 2000
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (listed by number according to Exhibit table of Item 601 in
Regulation S-K)
Number Description Reference
3.1 Certificate of Incorporation Filed as
Exhibit 3.1 to
Registration Statement
No. 33-72096 (the
Registration
Statement)
3.2 Amendment No. 1 to Certificate Filed as
of Incorporation Exhibit 3.2 to
the Registration
Statement
3.3 Amendment No. 2 to Certificate Filed as
of Incorporation Exhibit 3.3 to
the Registration
Statement
3.4 Amendment No. 3 to Certificate Filed as
of Incorporation Exhibit 3.4 to
Form 10-Q filed
February 16, 1999
3.5 Amendment No.4 to Certificate Filed as
of Incorporation Exhibit 3.5 to
Form 10-Q filed
February 16, 1999
3.6 By-Laws Filed as
Exhibit 3.4 to
the Registration
Statement
4.1 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
4.2 Loan agreement with Wells Filed as
Fargo Business Exhibit 4.5 to
Form 10-Q filed
February 14, 2000
4.3 Stock Purchase Warrant with Wells Filed as
Fargo Business Exhibit 4.6 to
Form 10-Q filed
February 14, 2000
10.1 Employment Agreement with Filed as Exhibit
Kenneth E. Millard 10.1 to Form 10-Q
filed August 14, 1996
10.2 Stock Option Agreement with Filed as Exhibit
Kenneth E. Millard 10.2 to Form 10-Q
filed August 14, 1996
10.3 Stock Purchase Agreement By Filed as Exhibit
and Among Telular Corporation 10.3 to Form 10-Q
and TelePath Corporation (which filed August 14, 1996
had changed its name to Wireless
Domain, Incorporated)
10.4 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
10.5 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996 (1)
10.6 Amendment No.1 dated September 24, Filed as Exhibit 10.7
1996 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999 (1)
10.7 Amendment No.2 dated April 30, 1999 Filed as Exhibit 10.8
to Option Agreement with Motorola to Form 10-Q filed
August 13, 1999 (1)
10.8 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration
Telular Corporation dated Statement
September 20, 1993
10.9 Patent Cross License Agreement Filed as Exhibit 10.12
between Motorola, Inc. and the to the Registration
Company, dated March 23, 1990 Statement (1)
and Amendments No. 1, 2 and
3 thereto
10.10 Amendment No. 4 to Patent Cross Filed as Exhibit 10.11
License Agreement between Motorola, to Form 10-Q filed
Inc. and the Company, dated August 13, 1999 (1)
May 3, 1999
10.11 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement (1)
10.12 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.13 Amendment No. 2 to Amended and Filed as Exhibit 10.5
Restated Shareholders Agreement, to the Form 10-Q filed
dated June 29, 1995 July 28, 1995
10.14 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated to the Registration
November 2, 1993 Statement
10.15 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, 1994 Statement
10.16 Securities Purchase Agreement dated Filed as Exhibit 99.1 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.17 Registration Rights Agreement dated Filed as Exhibit 99.3 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.18 Securities Purchase Agreement dated Filed as Exhibit 99.3 to
June 6, 1997, by and between Telular Registration Statement on
Corporation and purchasers of the Form S-3, Registration
Series A Convertible Preferred Stock No. 333-27915, as amended
by Amendment No. 1 filed
June 13, 1997, and
further Amended by
Amendment No. 2 filed
July 8, 1997 (Form S-3)
10.19 Registration Rights Agreement dated Filed as Exhibit 99.4 to
June 6, 1997, by and between Telular Form S-3
Corporation and purchasers of the
Series A Convertible Preferred Stock
10.20 Agreement and Plan of Merger by and Filed as Exhibit 10.21
among Wireless Domain Incorporated to Form 10-K filed
(formerly TelePath), Telular-WD (a December 19, 1998
wholly-owned subsidiary of Telular)
and certain stockholder of Wireless
Domain Incorporated
10.21 Common Stock Investment Agreement Filed as Exhibit 4.8 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000, as
amended by Amendment
No. 1 filed
April 28, 2000
10.22 Registration Rights Agreement Filed as Exhibit 4.9 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000, as
amended by Amendment
No. 1 filed
April 28, 2000
10.23 Employment Agreement with Daniel D. Filed as Exhibit 10.22
Giacopelli to Form 10-Q
filed February 13, 1998
10.24 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
for WAFU dated April 30, 1999 to form 10-Q filed
August 13, 1999 (1)
10.25 Settlement and Release of Claims Filed herewith (1)
Agreement with Motorola (1)
10.26 Agreement for the Purchase of Telular Filed as Exhibit 10.1
Fixed Telephony Digital Cellular to Form 8-K filed
Telephones Dated as of September 13, September 13, 2000 (1)
2000, among Telular Corporation,
Radiomovil DIPSA, S.A. de C.V., and
BrightStar de Mexico S.A. de C.V. (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant to the Filed as Exhibit 99 to
Securities Litigation Act of 1995 Form 10-K filed
December 27, 2000
(1) Certain portions of this exhibit have been omitted and filed
separately with the United States Securities and Exchange
Commission pursuant to a request for confidential treatment.
The omitted portions have been replaced by an * enclosed by
brackets ([*]).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
Telular Corporation
Date February 14, 2001 By: /s/ Kenneth E. Millard
Kenneth E. Millard
President &
Chief Executive Officer
Date February 14, 2001 /s/ Jeffrey L. Herrmann
Jeffrey L. Herrmann
Executive Vice President,
Chief Operating Officer
& Chief Financial Officer
Date February 14, 2001 /s/ Robert L. Zirk
Robert L. Zirk
Controller &
Chief Accounting Officer
Exhibit Index
Number Description Reference
3.1 Certificate of Incorporation Filed as
Exhibit 3.1 to
Registration Statement
No. 33-72096 (the
Registration
Statement)
3.2 Amendment No. 1 to Certificate Filed as
of Incorporation Exhibit 3.2 to
the Registration
Statement
3.3 Amendment No. 2 to Certificate Filed as
of Incorporation Exhibit 3.3 to
the Registration
Statement
3.4 Amendment No. 3 to Certificate Filed as
of Incorporation Exhibit 3.4 to
Form 10-Q filed
February 16, 1999
3.5 Amendment No.4 to Certificate Filed as
of Incorporation Exhibit 3.5 to
Form 10-Q filed
February 16, 1999
3.6 By-Laws Filed as
Exhibit 3.4 to
the Registration
Statement
4.1 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
4.2 Loan agreement with Wells Filed as
Fargo Business Exhibit 4.5 to
Form 10-Q filed
February 14, 2000
4.3 Stock Purchase Warrant with Wells Filed as
Fargo Business Exhibit 4.6 to
Form 10-Q filed
February 14, 2000
10.1 Employment Agreement with Filed as Exhibit
Kenneth E. Millard 10.1 to Form 10-Q
filed August 14, 1996
10.2 Stock Option Agreement with Filed as Exhibit
Kenneth E. Millard 10.2 to Form 10-Q
filed August 14, 1996
10.3 Stock Purchase Agreement By Filed as Exhibit
and Among Telular Corporation 10.3 to Form 10-Q
and TelePath Corporation (which filed August 14, 1996
had changed its name to Wireless
Domain, Incorporated)
10.4 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
10.5 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996 (1)
10.6 Amendment No.1 dated September 24, Filed as Exhibit 10.7
1996 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999 (1)
10.7 Amendment No.2 dated April 30, 1999 Filed as Exhibit 10.8
to Option Agreement with Motorola to Form 10-Q filed
August 13, 1999 (1)
10.8 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration
Telular Corporation dated Statement
September 20, 1993
10.9 Patent Cross License Agreement Filed as Exhibit 10.12
between Motorola, Inc. and the to the Registration
Company, dated March 23, 1990 Statement (1)
and Amendments No. 1, 2 and
3 thereto
10.10 Amendment No. 4 to Patent Cross Filed as Exhibit 10.11
License Agreement between Motorola, to Form 10-Q filed
Inc. and the Company, dated August 13, 1999 (1)
May 3, 1999
10.11 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement (1)
10.12 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.13 Amendment No. 2 to Amended and Filed as Exhibit 10.5
Restated Shareholders Agreement, to the Form 10-Q filed
dated June 29, 1995 July 28, 1995
10.14 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated to the Registration
November 2, 1993 Statement
10.15 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, 1994 Statement
10.16 Securities Purchase Agreement dated Filed as Exhibit 99.1 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.17 Registration Rights Agreement dated Filed as Exhibit 99.3 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.18 Securities Purchase Agreement dated Filed as Exhibit 99.3 to
June 6, 1997, by and between Telular Registration Statement on
Corporation and purchasers of the Form S-3, Registration
Series A Convertible Preferred Stock No. 333-27915, as amended
by Amendment No. 1 filed
June 13, 1997, and
further Amended by
Amendment No. 2 filed
July 8, 1997 (Form S-3)
10.19 Registration Rights Agreement dated Filed as Exhibit 99.4 to
June 6, 1997, by and between Telular Form S-3
Corporation and purchasers of the
Series A Convertible Preferred Stock
10.20 Agreement and Plan of Merger by and Filed as Exhibit 10.21
among Wireless Domain Incorporated to Form 10-K filed
(formerly TelePath), Telular-WD (a December 19, 1998
wholly-owned subsidiary of Telular)
and certain stockholder of Wireless
Domain Incorporated
10.21 Common Stock Investment Agreement Filed as Exhibit 4.8 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000, as
amended by Amendment
No. 1 filed
April 28, 2000
10.22 Registration Rights Agreement Filed as Exhibit 4.9 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000, as
amended by Amendment
No. 1 filed
April 28, 2000
10.23 Employment Agreement with Daniel D. Filed as Exhibit 10.22
Giacopelli to Form 10-Q
filed February 13, 1998
10.24 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
for WAFU dated April 30, 1999 to form 10-Q filed
August 13, 1999 (1)
10.25 Settlement and Release of Claims Filed herewith (1)
Agreement with Motorola (1)
10.26 Agreement for the Purchase of Telular Filed as Exhibit 10.1
Fixed Telephony Digital Cellular to Form 8-K filed
Telephones Dated as of September 13, September 13, 2000 (1)
2000, among Telular Corporation,
Radiomovil DIPSA, S.A. de C.V., and
BrightStar de Mexico S.A. de C.V. (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant to the Filed as Exhibit 99 to
Securities Litigation Act of 1995 Form 10-K filed
December 27, 2000
(1) Certain portions of this exhibit have been omitted and filed
separately with the United States Securities and Exchange
Commission pursuant to a request for confidential treatment.
The omitted portions have been replaced by an * enclosed by
brackets ([*]).