<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998.
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)
<TABLE>
<S> <C>
Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 June 30, 1998, the latest practicable date, was 33,971,676 shares.
<PAGE> 2
TELULAR CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997 3
Consolidated Statements of Operations
Three Months Ended June 30, 1998 and
June 30, 1997 4
Consolidated Statements of Operations
Nine Months Ended June 30, 1998 and
June 30, 1997 5
Consolidated Statement of Stockholders' Equity
Period from September 30, 1997 to June 30, 1998 6
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998 and
June 30, 1997 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Recent Sales of Unregistered Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 20
Exhibit Index 21
</TABLE>
2
<PAGE> 3
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
--------- ---------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,754 $ 28,451
Receivables:
Trade, net of allowance for doubtful accounts of
$307 and $426 at June 30, 1998
and September 30, 1997, respectively 4,649 6,527
Related parties 733 4,670
--------- ---------
5,382 11,197
Inventories, net 9,927 9,431
Prepaid expenses and other current assets 1,323 500
--------- ---------
Total current assets 38,386 49,579
Property and equipment, net 4,926 3,611
Other assets:
Intangible assets, net 375 461
Goodwill 4,473 -
Investment in Affiliate - 3,851
Deposits and other 528 51
--------- ---------
5,376 4,363
--------- ---------
Total assets $ 48,688 $ 57,553
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 3,344 $ 3,764
Related parties 83 3,640
Accrued liabilities 2,436 3,142
--------- ---------
Total current liabilities 5,863 10,546
Commitments and contingencies - -
Redeemable Preferred Stock:
Series A convertible preferred stock, $.01 par value;
$17,645 and $20,386 liquidation preference at June 30, 1998
and September 30, 1997, respectively; 21,000 shares
authorized at June 30, 1998 and September 30, 1997;
16,706 shares and 20,000 shares issued and outstanding
at June 30, 1998 and September 30, 1997, respectively 18,116 21,308
Stockholders' equity:
Preferred stock, $.01 par value; 9,979,000 shares
authorized at June 30, 1998 and September 30, 1997;
none outstanding - -
Common stock; $.01 par value; 75,000,000 shares
authorized; 33,971,676 and 31,684,073 outstanding
at June 30, 1998 and September 30, 1997, respectively 346 322
Additional paid-in capital 117,228 111,143
Deficit (91,258) (84,159)
Treasury stock, 560,000 shares at cost (1,607) (1,607)
--------- ---------
Total stockholders' equity 24,709 25,699
--------- ---------
Total liabilities, redeemable preferred stock and stockholders' equity $ 48,688 $ 57,553
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
Net product sales to third parties $ 8,604 $ 5,237
Net product sales to related parties - 43
------------ ------------
Total net product sales 8,604 5,280
Royalty and royalty settlement revenue 53 164
------------ ------------
Total revenue 8,657 5,444
Cost of sales 6,675 4,750
------------ ------------
1,982 694
Engineering and development expenses 1,787 2,014
Selling and marketing expenses 1,562 1,004
General and administrative expenses 1,024 1,476
Provision for doubtful accounts 25 -
Amortization 236 103
------------ ------------
Loss from operations (2,652) (3,903)
Other income/(expense) 103 (70)
------------ ------------
Net loss $ (2,549) $ (3,973)
============ ============
Less: Amortization of preferred stock beneficial
conversion discount - (2,000)
Less: Cumulative dividend on redeemable preferred stock (222) -
Net loss applicable to common shares $ (2,771) $ (5,973)
============ ============
Basic and diluted net loss per common share $ (0.08) $ (0.19)
============ ============
Weighted average number of common shares outstanding 33,543,529 31,542,630
============ ============
</TABLE>
See accompanying notes
4
<PAGE> 5
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
Net product sales to third parties $ 30,970 $ 17,402
Net product sales to related parties - 17,676
------------ ------------
Total net product sales 30,970 35,078
Royalty and royalty settlement revenue 1,429 632
------------ ------------
Total revenue 32,399 35,710
Cost of sales 24,284 27,128
------------ ------------
8,115 8,582
Engineering and development expenses 6,245 4,741
Selling and marketing expenses 4,945 3,033
General and administrative expenses 3,308 4,340
Provision for doubtful accounts 75 230
Amortization 708 143
------------ ------------
Loss from operations (7,166) (3,905)
Other income/(expense) 758 (59)
------------ ------------
Net loss $ (6,408) $ (3,964)
Less: Amortization of preferred stock beneficial
conversion discount - (2,000)
Less: Cumulative dividend on redeemable preferred stock (691) -
Net loss applicable to common shares $ (7,099) $ (5,964)
============ ============
Basic and diluted net loss per common share $ (0.21) $ (0.19)
============ ============
Weighted average number of common shares outstanding 33,022,511 31,479,306
============ ============
</TABLE>
See accompanying notes
5
<PAGE> 6
TELULAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK EQUITY
--------- --------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ - $ 322 $ 111,143 $ (84,159) $ (1,607) $ 25,699
Proceeds from the issuance of
common stock - 2 148 - - 150
Deferred compensation related
to stock options - - 138 - - 138
Stock issued in connection with
services - 1 218 - - 219
Conversion of preferred stock
to common stock - 15 3,718 - - 3,733
Stock issued in connection with the
equity investment in Wireless Domain - 5 1,714 - - 1,719
Stock issued in connection with
services relating to redeemable
preferred stock - 1 149 - - 150
Cumulative dividend on redeemable
preferred stock - - - (691) - (691)
Net loss for period from October 1,
1997 to June 30, 1998 - - - (6,408) - (6,408)
--------- ----------------------------------------------------------
Balance at June 30,1998 $ - $ 346 $ 117,228 $ (91,258) $ (1,607) $ 24,709
========= ==========================================================
</TABLE>
See accompanying notes
6
<PAGE> 7
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,408) $ (3,964)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities
Depreciation 1,344 729
Amortization 708 241
Stock issued for compensation and services 357 143
Equity in net income of affiliate (84) 72
Loss on sale of assets - 22
Changes in assets and liabilities:
Receivables, net 5,815 6,820
Inventories, net (496) (1,085)
Prepaid expenses, deposits and other (1,567) (889)
Accounts payable (3,977) (544)
Accrued liabilities (513) 1,243
-------- --------
Net cash provided by (used in) operating activities (4,821) 2,788
INVESTING ACTIVITIES:
Investment in affiliate - (250)
Acquisition of property and equipment (2,027) (1,835)
Proceeds from disposal of equipment - 9
-------- --------
Net cash used in investing activities (2,027) (2,076)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 150 279
Proceeds from the issuance of redeemable preferred stock - 18,807
-------- --------
Net cash provided by financing activities 150 19,086
-------- --------
Net increase (decrease) in cash and cash equivalents (6,698) 19,798
Cash and cash equivalents, beginning of period 28,451 12,838
-------- --------
Cash and cash equivalents, end of period $ 21,754 $ 32,636
======== ========
</TABLE>
See accompanying notes
7
<PAGE> 8
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included. Operating results for the nine months ended June 30,
1998, are not necessarily indicative of the results that may be expected
for the full fiscal year ending September 30, 1998. For further
information, refer to the consolidated financial statements for the
fiscal year ended September 30, 1997.
2. INVENTORIES
The components of inventories consist of the following (000's):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
Raw materials $ 4,747 $ 6,344
Work in process 1,618 455
Finished goods 4,207 3,155
------- -------
10,572 9,954
Less: Reserve for obsolescence 645 523
------- -------
$ 9,927 $ 9,431
======= =======
</TABLE>
3. INVESTMENT IN WIRELESS DOMAIN CORPORATION (FORMERLY TELEPATH CORPORATION)
On June 28, 1996, the Company entered into an agreement with and acquired
a 33% interest in Wireless Domain Incorporated (WD) in exchange for $1
million in cash and common stock of the Company valued at approximately
$2.2 million. During the year ended September 30, 1997, the Company
increased its equity ownership in WD to 50% by purchasing an additional
17% of WD in exchange for $0.5 million in cash and 150,000 shares of
Common Stock valued at approximately $0.7 million.
On November 10, 1997, the Company acquired the remaining 50% of WD. Under
the terms of the merger, the Company issued 500,000 shares of common
stock to the shareholders of WD and relinquished control of the 500,000
shares of Common Stock held by WD. This acquisition was accounted for
using the purchase method of accounting. The excess of consideration paid
over the fair value of net assets purchased of $4.7 million was recorded
as goodwill, which is being amortized over ten years. Prior to the
November 10, 1997 transaction, the Company had accounted for its
investment in WD using the equity method.
The following unaudited pro forma results of operations assumes the
acquisition of Wireless Domain occurred as of October 1, 1996, after
giving effect to certain adjustments including amortization of goodwill
and equity income recorded for the periods in which the Company owned
less than 100% of WD.
8
<PAGE> 9
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
<TABLE>
<CAPTION>
Nine months ended June 30,
1998 1997
---- ----
(000's)
<S> <C> <C>
Total revenue $32,399 $35,710
Net loss (6,448) (4,614)
Basic and diluted net loss
per common share (0.21) (0.20)
</TABLE>
Revenues would not change as a result of the acquisition as WD's revenues
related entirely to amounts billed to the Company. The pro forma
financial information does not purport to be indicative of the results of
operations that would have occurred had the transaction taken place at
the beginning of the periods indicated or of future results of
operations.
4. CONVERTIBLE DEBENTURES
On December 11, 1995, the Company issued $18 million in convertible
debentures (the "Debentures") at 4% per annum, which matured on December
11, 1997. The Debentures were issued under the provisions of Regulation S
as promulgated under the United States Securities Act of 1933, as
amended. Holders of the Debentures were entitled, at their option any
time after issuance until December 10, 1997, to convert principal and
interest accrued thereon, in whole or in part, into shares of Common
Stock using defined conversion formulas based on NASDAQ closing bids for
the Common Stock. The Company was entitled, at its option any time
commencing one year after issuance (and under certain circumstances prior
to that date) through maturity, to require the holders to convert the
principal and accrued interest into shares of Common Stock using defined
conversion formulas based on NASDAQ closing bids for the common stock. As
of November 30, 1996, the entire issuance of convertible debentures and
all interest accrued thereon had been converted into approximately
7,033,000 shares of Common Stock.
5. REDEEMABLE PREFERRED STOCK
During fiscal 1997, the Company issued 20,000 shares (10,000 shares on
April 16, 1997 and 10,000 shares on June 6, 1997) of Series A Convertible
Preferred Stock (the "Preferred Stock") for $18.8 million which is net of
issuance cost of $1.2 million. The Preferred Stock automatically converts
to Common Stock on April 16, 1999 or October 16, 1999, depending on the
conversion price, and includes the equivalent of a 5% annual stock
dividend. Holders of the Preferred Stock are entitled, at their option,
subject to trading volume and other restrictions, to convert Preferred
Stock into shares of Common Stock using defined conversion formulas based
on the NASDAQ closing bid prices for the Common Stock. In addition, the
holders have the option to redeem the Preferred Stock upon the occurrence
of : (i) a consolidation or merger with another company; (ii) sale or
transfer of substantially all assets; or (iii) 50% change in ownership.
The redemption price upon holder redemption is the greater of $1,250 per
share and the cash equivalent of the defined conversion formula on the
date of redemption. The Company is entitled to require the holders to
convert the Preferred Stock and accrued dividends into shares of Common
Stock of using a defined conversion formula based upon the NASDAQ closing
bid prices for Common Stock. In addition, the Company has the right to
redeem the Preferred Stock after April 15, 1999 for $1,200 per share plus
120% of the accrued dividends. Holders of the Preferred Stock are not
entitled to vote on matters submitted for vote to the stockholders of the
Company.
9
<PAGE> 10
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
The Preferred Stock reflects a beneficial conversion feature that allows
holders to convert the security to Common Stock at a discount. The amount
of the discount is determined using NASDAQ closing bid prices for the
Common Stock. During fiscal year 1997, the Company recorded $2.2 million
of amortization of Preferred Stock beneficial conversion discount. The
offset entry to amortization of preferred stock beneficial conversion
discount increased redeemable Preferred Stock by $2.2 million. This
amount will accrete to the Common Stock and additional paid in capital
accounts as shares of redeemable Preferred Stock are converted into
shares of common stock of the Company. As of June 30, 1998, 3,294 shares
of Preferred Stock had been converted into 1,475,250 shares of Common
Stock.
6. EARNINGS PER SHARE
On October 1, 1997, the Company adopted Financial Accounting Standards
Board SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. When
necessary, previously reported earnings per share amounts have been
restated to conform to SFAS No. 128.
7. CONTINGENCIES
The Company is involved in legal proceedings that arise in the ordinary
course of business. While any litigation contains an element of
uncertainty, based upon discussion with the Company's counsel, management
believes that the outcome of such proceedings will not have a material
adverse effect on the Company's consolidated financial position and
results of operations.
On March 2, 1998, the Company reached settlement in its patent
infringement case against ORA Electronics, Inc. (formerly Alliance
Research Corporation) and received the following from ORA Electronics,
Inc.: $500,000 in cash, a $1,000,000 promissory note, 300,000 shares of
ORA Electronics, Inc. common stock ("ORA stock") with a fair market value
of $450,000, and the right to receive additional shares of ORA stock to
ensure the fair market value received in stock is equivalent to
$1,500,000 on February 1, 2000. The Company recorded royalty and royalty
settlement revenue of $1,176,201 during the three months ended March 31,
1998 which is the amount equivalent to the fair market value of cash and
assets received on March 2, 1998, net of legal fees. The Company deferred
recognition of an additional $700,000 of royalty and royalty settlement
revenue (net of additional legal fees) during the three months ended
March 31, 1998 which is the amount equivalent to the value of additional
shares of ORA stock or the appreciation of ORA stock currently held which
would be necessary to increase the value of ORA stock to an aggregate of
$1,500,000 on February 1, 2000.
8. RECLASSIFICATION
Certain amounts in the June 30, 1997 financial statements have been
reclassified to conform to the June 30, 1998 presentation.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is in the fixed wireless telecommunications industry. 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, whether cellular,
personal communications services ("PCS"), or satellite-based. Applications of
the Company's technology include fixed wireless telecommunications as a primary
service where wireline systems are unavailable, unreliable or uneconomical, as
well as wireless backup systems for wireline telephone systems and wireless
alarm signaling ("WAS"). The Company's principal product lines - PHONECELL(R), a
line of fixed wireless terminals ("FWTs"); and TELGUARD(R), a line of WAS
products - allow CPE designed for traditional wireline networks to send and
receive voice, data and facsimile signals over wireless networks.
Although the Company has licensed its patented technology to a limited number of
other companies and has received royalty revenues in return, these revenues have
not, prior to fiscal year 1998, represented a significant portion of the
Company's gross revenues, and so have been reported as net sales on the
Company's consolidated statements of operations. On March 2, 1998, the Company
received $1.2 million in royalties pursuant to a settlement entered into with
ORA Electronics, Inc., a company that had been using the Company's patented
technology without a license.
The Company is investing in new product development for both analog and digital
fixed wireless terminals. As with any emerging market, it is difficult to
predict the timing of the market demand. 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 the
Company's Annual Report on "Cautionary Statements Pursuant to the Securities
Litigation Reform Act" which is attached as Exhibit 99 to the Form 10-K for the
period ended September 30, 1997.
RESULTS OF OPERATIONS
THIRD QUARTER FISCAL 1998 COMPARED TO THIRD QUARTER FISCAL 1997
Net Product Sales. Third quarter fiscal 1998 sales increased 62% from $5.3
million for the three months ended June 30, 1997 to $8.6 million for the three
months ended June 30, 1998. Sales of FWTs increased 94% from $3.2 million during
the third quarter fiscal 1997 to $6.2 million during the third quarter fiscal
1998. The increase primarily resulted from strong sales in Europe and Africa, as
well as increased business in the OEM sector. Sales of wireless security alarm
products increased approximately 20% from $2.0 million during the three months
ended June 30, 1997 to $2.4 million during the three months ended June 30, 1998.
Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenues
of $0.1 million during the three months ended June 30, 1998 are $0.1 million
less than last year.
Gross Profit. Third quarter fiscal 1998 gross profit nearly tripled from $0.7
million during third quarter 1997 to $2.0 million during the third quarter 1998.
The increase resulted from the increase in volume, the introduction of new
products at a lower cost and improvements in manufacturing efficiency.
Engineering and Development Expenses. Engineering and development expenses of
$1.8 million during the third
11
<PAGE> 12
quarter of fiscal 1998, decreased 10% or $0.2 million over the third quarter of
fiscal 1997. During the previous several quarters the Company had increasing
engineering and development expenses as a result of efforts to bring new lower
cost products and a wider range of products to market. Many of the new products
were completed and introduced to market during the second and third fiscal
quarters of 1998. As such, the Company scaled back engineering and development
expenses by 10% during the third fiscal quarter of 1998.
Selling and Marketing Expenses. Selling and marketing expenses for the third
quarter of fiscal 1998 increased 56% or $0.5 million compared to the same
quarter of fiscal 1997. The increase was primarily a result of the Company's
effort to market and sell its new products.
General and Administrative Expenses (G&A). G&A for the third quarter of fiscal
1998 decreased 31% compared to the same quarter of fiscal 1997. The decrease is
primarily attributable to the reduction or elimination of expenditures and the
leveraging of available resources.
Amorization. Amortization expense increased from the same quarter of fiscal 1997
due to the amortization of goodwill recorded in connection with the acquisition
of Wireless Domain Incorporated on November 10, 1997.
Other Income/(Expense). Third quarter 1998 other income was $0.2 million more
compared to the same period of 1997. The Company wrote-off fixed assets as a
result of its relocation to Vernon Hills, Il. during fiscal 1997.
Net Loss. The Company recorded a net loss of ($2.5) million or ($0.08) per share
for the third quarter in fiscal 1998 compared to a loss of ($4.0) million or
($0.13) per share in the same quarter of fiscal 1997.
Net loss applicable to common shares. After giving effect to the cumulative
Preferred Stock dividend of $0.2 million in the second quarter of fiscal 1998,
net loss applicable to Common Shares was ($2.8) million or ($0.08) per share
compared to a loss of ($6.0) million or ($0.19) per share in the same quarter in
fiscal 1997.
FIRST NINE MONTHS FISCAL 1998 COMPARED TO FIRST NINE MONTHS FISCAL 1997
Net Product Sales. Net product sales of $31.0 million for the nine months ended
June 30, 1998 decreased from $35.1 million for the nine months ended June 30,
1997. Net product sales, excluding net product sales to a large Motorola
wireless local loop "WLL" project in Hungary during the nine months ended June
30, 1997, increased 75% from $17.7 million for the nine months ended June 30,
1997 to $31.0 million for the nine months ended June 30, 1998. FWT net product
sales, excluding net product sales to Hungary during the nine months ended June
30, 1997, increased 131% from $11.0 million for the nine months ended June 30,
1997 to $25.3 million for the nine months ended June 30, 1998. This increase
primarily resulted from shipments to WLL projects in Guinea, West Africa and the
Philippines.
Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenue
increased to $1.4 million during the nine months ended June 30, 1998, from $0.6
million for the same period of fiscal 1997, due primarily to the royalty
settlement of $1.2 million with ORA Electronics, Inc. (see financial statement
footnote 7 above).
Gross Profit. Gross Profit for the nine months ended June 30, 1998 decreased by
$0.5 million compared to the same period in fiscal 1997. The decrease was
primarily due to lower overall sales during the nine months ended June 30, 1998,
and was partially offset by the increase in royalty and royalty settlement
revenue during the nine months ended June 30, 1998.
Engineering and Development Expenses. Engineering and development expenses of
$6.2 million during the first nine months of fiscal 1998, increased
approximately 32% or $1.5 million over the first nine months of fiscal 1997. The
increase relates to the Company's increased focus on developing additional
analog and digital FWTs, including its acquisition of Wireless Domain
Incorporated, which increased the Company's engineering staff by 30 engineers
during the nine months ended June 30, 1998.
12
<PAGE> 13
Selling and Marketing Expenses. Selling and marketing expenses for the nine
months ended June 30, 1998 increased 63% or $1.9 million compared to the same
period in fiscal 1997. The increase was primarily a result of the Company's
efforts to market its new products and increase its sales force to support
worldwide sales coverage.
General and Administrative Expenses (G&A). G&A for the first nine months of
fiscal 1998 decreased 24% or $1.0 million compared to the same period in fiscal
1997. The decrease is primarily attributable to the reduction or elimination of
expenditures and the leveraging of available resources.
Provision for doubtful accounts. The provision for doubtful accounts expense
decreased during the nine months ended June 30, 1998 from the same period in
fiscal 1997, due to improvement in the Company's collections experience.
Amorization. Amortization expense increased during the nine months ended June
30, 1998 from the same period in fiscal 1997, due to the amortization of
goodwill recorded in connection with the acquisition of Wireless Domain
Incorporated on November 10, 1997.
Other Income. Other income during the first nine months of fiscal 1998 increased
by $0.8 million compared to the same period in fiscal 1997. The increase is
primarily due to higher interest income due to higher cash balances during the
nine months ended June 30, 1998, compared to the same period in fiscal 1997.
Net Loss. The Company recorded a net loss of ($6.4) million or ($0.19) per share
for the nine months ended June 30, 1998, compared to a net loss of ($4.0)
million or ($0.13) per share for the nine months ended June 30, 1997.
Net loss applicable to common shares. After giving effect to the cumulative
preferred stock dividend of $0.7 million in the nine months ended June 30, 1998,
net loss applicable to common shares was ($7.1) million or ($0.21) per share
compared to a net loss applicable to common shares of ($6.0) million or ($0.19)
per share during the same period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $21.8 million in cash and cash equivalents
with a working capital surplus of $32.5 million.
The Company used $6.8 million of cash before financing activities during the
nine months ended June 30, 1998 compared to $0.7 million of cash provided during
the same period last year. The increased use of cash primarily relates to a
decrease in accounts payable associated with lower inventory purchases during
the three months ended June 30, 1998, and funding an additional cash net loss
for the nine months ended June 30, 1998. Cash used for capital spending was
approximately $2.0 million during the nine months ended June 30, 1998 compared
to $1.8 million during the same period last fiscal year. The increase during the
first nine months of fiscal 1998 primarily relates to upgrades to the Company's
information systems and purchases of test equipment for new products.
Financing activities provided $0.2 million during the nine months ended June 30,
1998, compared to $19.1 million during the same period in fiscal 1997.
During fiscal 1997, the Company issued 20,000 shares (10,000 shares on April 16,
1997 and 10,000 shares on June 6, 1997) of Series A Convertible Preferred Stock
(the "Preferred Stock") for $18.8 million, which is net of issuance cost of $1.2
million. The Preferred Stock automatically converts to Common Stock on April 16,
1999 or October 16, 1999, depending on the conversion price, and includes the
equivalent of a 5% annual stock dividend. Holders of the Preferred Stock are
entitled, at their option, subject to trading volume and other restrictions, to
convert Preferred Stock into shares of Common Stock using defined conversion
formulas based on the NASDAQ
13
<PAGE> 14
closing bid prices for the Common Stock of the Company ("Common Stock"). In
addition, the holders have the option to redeem the Preferred Stock upon the
occurrence of a (i) consolidation or merger with another company; (ii) sale or
transfer of substantially all assets; or (iii) 50% change in ownership. The
redemption price upon holder redemption is the greater of $1,250 per share and
the cash equivalent of the defined conversion formula on the date of redemption.
The Company is entitled to require the holders to convert the Preferred Stock
and accrued dividends into shares of Common Stock using a defined conversion
formula based upon the NASDAQ closing bid prices for the Common Stock. In
addition, the Company has the right to redeem the Preferred Stock after April
15, 1999 for $1,200 per share plus 120% of the accrued dividends. Holders of the
Preferred Stock are not entitled to vote on matters submitted for vote to the
stockholders of the Company. As of June 30, 1998, 3,294 shares of preferred
stock have been converted into 1,475,250 shares of the Common Stock.
On April 23, 1997, the Company entered into a Loan and Security Agreement with
Sanwa Business Credit Corporation that, among other things, provides a credit
facility with a loan limit of $20.0 million (the "Loan"). Borrowings under the
Loan are subject to borrowing base requirements and other restrictions. Under
the Loan and Security Agreement, the Company is required to comply with certain
affirmative and negative covenants. The Loan matures on April 23, 2000. As of
March 31, 1998, the Company's borrowing capacity under the Loan provisions was
$6.3 million although there have been no borrowings and none are contemplated in
the near term.
The Company will use much of the capital raised in fiscal 1997 to fund new
product development. Beyond its specific research and product development needs,
expected future uses of cash include working capital requirements, marketing and
sales support programs in anticipation of future revenues and certain capital
expenditures. Based upon its current operating plan, the Company believes its
existing capital resources, including the credit facility and proceeds from the
issuance of the Preferred Stock, should 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
an impact on the Company's actual cash flow.
The Company requires letters of credit or qualification for export credit
insurance underwritten by third party credit insurance companies or the
Export-Import Bank of the United States on a substantial portion of its
international sales orders. Also, to mitigate the effects of currency
fluctuations on the Company's results of operations, the Company endeavors to
conduct all of its international transactions in U.S. dollars. To date, the
Company's sales have not been adversely affected by currency fluctuations;
however, as the Company's international operations grow, foreign exchange or the
inflation of a foreign currency may pose greater risks for the Company, and the
Company may be required to develop and implement additional strategies to manage
these risks.
YEAR 2000 ISSUE
Recently, national attention has focused on the potential problems and
associated costs resulting from computer programs that have been written using
two digits rather than four to define the applicable year. These programs treat
all years as occurring between 1900 and 1999 and do not self-correct to reflect
the upcoming change in the century. If not corrected, computer applications
could fail or create erroneous results by or at the year 2000.
Management believes that only minor modifications will be required to its
internal software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter. The cost of such modifications
is not expected to have a material adverse effect on the Company's results of
operations and will be funded through operating cash flows. The Company has
determined that it has no exposure to contingencies related to the year 2000
issue for products it has sold.
The Company has also initiated a formal review of its significant suppliers and
large customers to determine the extent to which the Company would be vulnerable
if those third parties' fail to remedy year 2000 issues.The Company anticipates
completing this review prior to December 31, 1998.
14
<PAGE> 15
The cost of the Company's efforts and the date on which the Company believes it
will complete its year 2000 compliance efforts reflect management's current
estimates based upon available information. Management will continue to monitor
this issue, particularly the possible impact of third-party year 2000 compliance
on the Company's operations, and will modify its estimates if warranted.
OUTLOOK
The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The Company expects fiscal 1998 sales levels to be approximately the same as in
fiscal 1997. Sales to the Hungary project accounted for over $21.2 million, or
approximately 44%, of total sales for fiscal 1997. Although sales to the Hungary
project are not expected to be significant in fiscal 1998, the Company
anticipates that new WLL business will replace the Hungary project business.
Comparison of the nine months ended June 30, 1998, with the same period in
fiscal 1997 does not fully reflect the performance trend for fiscal 1998. Sales
for the first nine months of fiscal year 1997 were strong as a result of sales
to the Hungary project of $17.7 million, representing 49% of total revenue
during the nine months ended June 30, 1997. The absence of sales to the Hungary
project during the nine months ended June 30, 1998 has been mostly offset by
sales to new projects. The Company previously announced that it will ship
approximately $11 million of product to WLL projects in Guinea, West Africa and
the Philippines during fiscal year 1998. The Company expects demand for FWTs to
continue to grow and is cultivating other revenue opportunities that it believes
will contribute to future revenue growth.
To capitalize on the anticipated growth in the market for FWTs, the Company
accelerated its product development plan for fiscal 1998. On November 10, 1997,
the Company added 30 additional engineers to its staff when it acquired the
remaining 50% of Wireless Domain Incorporated. The Company's strategy continues
to be to introduce fixed wireless terminals that will address the radio
standards serving 85 percent of all cellular subscribers by the year 2000. The
Company plans to continue to devote substantial resources to product
development.
Based upon observed trends, the Company believes that the market for FWTs is
undergoing substantial growth. The Company is seeking to capitalize on the
anticipated growth by devoting resources across the Company to meet the
anticipated needs of the market.
Statements contained in this filing, 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
filing 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 Annual Report on Form 10-K for the
period ended September 30, 1997, include the risk that technological change
could render the Company's technology obsolete, 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, the potential
for redemption of preferred stock, the effects of control by existing
shareholders, the effect of changes in management, intense industry competition,
and uncertainty in the development of wireless service generally.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
Under the terms of the Series A Convertible Preferred Stock issued on April 16,
1997 and June 6, 1997, for so long as such stock is outstanding, dividends may
be paid on the Common Stock only out of retained earnings of the Company
generated after April 1, 1997.
Under the terms of the Loan and Security Agreement with Sanwa Business Credit
Corporation that provides a credit facility up to $20 million, the Company is
prohibited from paying cash dividends during the term of the loan.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal quarter ended June 30, 1998, the Company issued: (i) 17,550
shares of Common Stock valued at $39,390 to the law of firm of Hamman and Benn
for legal services; (ii) 12,581 shares of Common Stock valued at $28,240 to the
law of firm of Bellows & Bellows for legal services; (iii) 6,882 shares of
Common Stock valued at $17,551 to Kenneth E. Millard in connection with the
Company's bonus plan; (iv) 3,441 shares of Common Stock valued at $8,775 to
Robert C. Montgomery in connection with the Company's bonus plan; and (v) 3,441
shares of Common Stock valued at $8,775 to Daniel D. Giacopelli in connection
with the Company's bonus plan. Each issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as it did
not involve a public offering of securities.
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)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION REFERENCE
- ------ ----------- ---------
<S> <C> <C>
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 Exhibit 3.2 to the
of Incorporation Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1 to Form
National Bank and Amendment 10-K filed December 27, 1995
thereto
4.2 Debenture Agreements dated Filed as Exhibit 4.2 to Form
December 11, 1995 10-K filed December 27, 1995
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
4.3 Certificate of Designations, Filed as Exhibit 99.2 to Form
Preferences, and Rights of Series 8-K filed April 25, 1997
A Convertible Preferred Stock
4.4 Loan and Security Agreement Filed as Exhibit 4.2 to Form
with Sanwa Business Credit 10-Q filed August 14, 1997
Corporation
10.1 Consulting Agreement with Filed as Exhibit 10.1 to the
William L. DeNicolo Registration Statement
10.2 Employment Agreement with Filed as Exhibit 10.1 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.4 Stock Purchase Agreement By Filed as Exhibit 10.3 to Form
and Among Telular Corporation 10-Q filed August 14, 1996
and TelePath Corporation
(which has changed its name to
Wireless Domain, Incorporated)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2 to Form
10-Q filed May 1, 1995
10.6 Option Agreement with Filed as Exhibit 10.6 to Form
Motorola Dated November 10, 10-K filed December 26, 1996(1)
1995
10.7 Stock Purchase Agreement Filed as Exhibit 10.11 to the
between Motorola, Inc. and Registration Statement
Telular Corporation dated
September 20, 1993
10.8 Patent Cross License Agreement Filed as Exhibit 10.12 to the
between Motorola, Inc. and Registration Statement (1)
Telular Corporation, dated
March 23, 1990 and
Amendments No. 1, 2 and 3
thereto
10.9 Exclusive Distribution and Filed as Exhibit 10.14 the
Trademark License Agreement Registration Statement (1)
between Telular Canada Inc. and
Telular Corporation, dated April
1, 1989, and Amendments
thereto
10.10 Amended and Restated Filed as Exhibit 10.15 to the
Shareholders Agreement dated Registration Statement (1)
November 2, 1993
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
10.11 Amendment No. 1 to Amended Filed as Exhibit 10.24 to the
and Restated Shareholders Registration
Agreement, dated January 24,
1994
10.12 Amendment No. 2 to Amended Filed as Exhibit 10.5 to the Form
and Restated Shareholders 10-Q filed July 28, 1995
Agreement, dated June 29, 1995
10.13 Amended and Restated Filed as Exhibit 10.16 to the
Registration Rights Agreement Registration Statement
dated November 2, 1993
10.14 Amendment No. 1 to Amended Filed as Exhibit 10.25 to the
and Restated Registration Rights Registration Statement
Agreement, dated January 24,
1994
10.15 Amended and Restated Filed as Exhibit 10.17 to Form
Employee Stock Option Plan 10-K filed December 26, 1996
10.16 Stock Option Grant to Filed as Exhibit 10.7 to Form
Independent Directors 10-Q filed July 28, 1995
10.17 Securities Purchase Agreement Filed as Exhibit 99.1 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.18 Registration Rights Agreement Filed as Exhibit 99.3 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.19 Securities Purchase Agreement Filed as Exhibit 99.3 to
dated June 6, 1997, by and Registration Statement on Form
between Telular Corporation and S-3, Registration No. 333-
purchasers of the Series A 27915, as amended by
Convertible Preferred Stock Amendment No. 1 filed June 13,
1997, and further Amended by
Amendment No. 2 filed July 8,
1997 ("Form S-3")
10.20 Registration Rights Agreement Filed as Exhibit 99.4 to Form
dated June 6, 1997, by and S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
10.21 Agreement and Plan of Merger Filed as Exhibit 10.21 to Form
by and among Wireless Domain 10-K filed December 19, 1997
Incorporated (formerly
TelePath), Telular-WD (a
wholly-owned subsidiary of
Telular) and certain stockholders
of Wireless Domain
Incorporated
10.22 Employment Agreement with Filed as Exhibit 10.22 to Form
Dan Giacopelli 10-Q filed February 13, 1998.
10.23 Employment Agreement with Filed as Exhibit 10.23 to Form
Robert Montgomery 10-Q filed February 13, 1998.
11 Statement regarding Filed herewith
computation of per share
earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant Filed as Exhibit 99 to Form
to the Securities Litigation Act 10-K filed December 19, 1997
of 1995
</TABLE>
(1) Confidential treatment granted with respect to certain portions of
documents.
19
<PAGE> 20
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1998.
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
<TABLE>
<S> <C>
Date August 12, 1998 By: /s/ Kenneth E. Millard
--------------------------- -----------------------------------
Kenneth E. Millard
President & Chief Executive Officer
Date August 12, 1998 /s/ Jeffrey L. Herrmann
--------------------------- -----------------------------------
Jeffrey L. Herrmann
Senior Vice President & Chief Financial Officer
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION REFERENCE
- ------ ----------- ---------
<S> <C> <C>
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 Exhibit 3.2 to the
of Incorporation Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1 to Form
National Bank and Amendment 10-K filed December 27, 1995
thereto
4.2 Debenture Agreements dated Filed as Exhibit 4.2 to Form
December 11, 1995 10-K filed December 27, 1995
4.3 Certificate of Designations, Filed as Exhibit 99.2 to Form
Preferences, and Rights of Series 8-K filed April 25, 1997
A Convertible Preferred Stock
4.4 Loan and Security Agreement Filed as Exhibit 4.2 to Form
with Sanwa Business Credit 10-Q filed August 14, 1997
Corporation
10.1 Consulting Agreement with Filed as Exhibit 10.1 to the
William L. DeNicolo Registration Statement
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
10.2 Employment Agreement with Filed as Exhibit 10.1 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.4 Stock Purchase Agreement By Filed as Exhibit 10.3 to Form
and Among Telular Corporation 10-Q filed August 14, 1996
and TelePath Corporation
(which has changed its name to
Wireless Domain, Incorporated)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2 to Form
10-Q filed May 1, 1995
10.6 Option Agreement with Filed as Exhibit 10.6 to Form
Motorola dated November 10, 10-K filed December 26, 1996(1)
1995
10.7 Stock Purchase Agreement Filed as Exhibit 10.11 to the
between Motorola, Inc. and Registration Statement
Telular Corporation dated
September 20, 1993
10.8 Patent Cross License Agreement Filed as Exhibit 10.12 to the
between Motorola, Inc. and Registration Statement (1)
Telular Corporation, dated
March 23, 1990 and
Amendments No. 1, 2 and 3
thereto
10.9 Exclusive Distribution and Filed as Exhibit 10.14 the
Trademark License Agreement Registration Statement (1)
between Telular Canada Inc. and
the Company, dated April 1,
1989, and Amendments thereto
10.10 Amended and Restated Filed as Exhibit 10.15 to the
Shareholders Agreement dated Registration Statement (1)
November 2, 1993
10.11 Amendment No. 1 to Amended Filed as Exhibit 10.24 to the
and Restated Shareholders Registration Statement
Agreement, dated January 24,
1994
10.12 Amendment No. 2 to Amended Filed as Exhibit 10.5 to the
and Restated Shareholders Form 10-Q filed July 28, 1995
Agreement, dated June 29, 1995
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
10.13 Amended and Restated Filed as Exhibit 10.16 to the
Registration Rights Agreement Registration Statement
dated November 2, 1993
10.14 Amendment No. 1 to Amended Filed as Exhibit 10.25 to the
and Restated Registration Rights Registration Statement
Agreement, dated January 24,
1994
10.15 Amended and Restated Filed as Exhibit 10.17 to Form
Employee Stock Option Plan 10-K filed December 26, 1996
10.16 Stock Option Grant to Filed as Exhibit 10.7 to Form
Independent Directors 10-Q filed July 28, 1995
10.17 Securities Purchase Agreement Filed as Exhibit 99.1 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.18 Registration Rights Agreement Filed as Exhibit 99.3 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.19 Securities Purchase Agreement Filed as Exhibit 99.3 to
dated June 6, 1997, by and Registration Statement on Form
between Telular Corporation and S-3, Registration No. 333-
purchasers of the Series A 27915, as amended by
Convertible Preferred Stock Amendment No. 1 filed June 13,
1997, and further Amended by
Amendment No. 2 filed July 8,
1997 ("Form S-3")
10.20 Registration Rights Agreement Filed as Exhibit 99.4 to Form
dated June 6, 1997, by and S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
10.21 Agreement and Plan of Merger Filed as Exhibit 10.21 to Form
by and among Wireless Domain 10-K filed December 19, 1997
Incorporated (formerly
TelePath), Telular-WD (a
wholly-owned subsidiary of
Telular) and certain stockholders
of Wireless Domain
Incorporated
10.22 Employment Agreement with Filed as Exhibit 10.22 to Form
Dan Giacopelli 10-Q filed February 13, 1998.
10.23 Employment Agreement with Filed as Exhibit 10.23 to Form
Robert Montgomery 10-Q filed February 13, 1998.
11 Statement regarding Filed herewith
computation of per share
earnings
Filed herewith
27 Financial data schedule
99 Cautionary Statements Pursuant Filed as Exhibit 99 to Form
to the Securities Litigation Act 10-K filed December 19, 1997
of 1995
</TABLE>
(1) Confidential treatment granted with respect to certain portions of
documents.
24
<PAGE> 1
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE AND PRO FORMA
EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
Average number of shares outstanding............ 33,543,529 31,542,630
================ ================
Net income (loss) $ (2,549,000) $ (3,973,000)
================ ================
Less: Cumulative dividend on redeemable
preferred stock $ (220,000) $ 0
Less: Amortization of preferred stock beneficial
conversion discount $ 0 $ (2,000,000)
---------------- ----------------
Income (loss) applicable to common shares $ (2,771,000) $ (5,973,000)
================ ================
Net income (loss) per share $ (0.08) $ (0.19)
================ ================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
Average number of shares outstanding............ 33,022,511 31,479,306
================ ================
Net income (loss) $ (6,408,000) $ (3,964,000)
================ ================
Less: Cumulative dividend on redeemable
preferred stock $ (691,000) $ -
---------------- ----------------
Less: Amortization of preferred stock beneficial
conversion discount $ 0 $ (2,000,000)
---------------- ----------------
Income (loss) applicable to common shares $ (7,099,000) $ (5,964,000)
================ ================
Net income (loss) per share $ (0.21) $ (0.19)
================ ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 21,754,000
<SECURITIES> 0
<RECEIVABLES> 5,689,000
<ALLOWANCES> (307,000)
<INVENTORY> 9,927,000
<CURRENT-ASSETS> 38,386,000
<PP&E> 9,083,000
<DEPRECIATION> (4,157,000)
<TOTAL-ASSETS> 48,688,000
<CURRENT-LIABILITIES> 5,863,000
<BONDS> 0
18,116,000
0
<COMMON> 346,000
<OTHER-SE> 24,363,000
<TOTAL-LIABILITY-AND-EQUITY> 48,688,000
<SALES> 8,604,000
<TOTAL-REVENUES> 8,657,000
<CGS> 6,675,000
<TOTAL-COSTS> 6,675,000
<OTHER-EXPENSES> 4,506,000
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,549,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,549,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (222,000)
<CHANGES> 0
<NET-INCOME> (2,771,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
