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, 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)
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, 1998, the latest practicable
date, was 35,145,666 shares (8,786,417 on a post-split basis).
<PAGE>
TELULAR CORPORATION
Index
Part I - Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1998 (unaudited) and September 30,1998 3
Consolidated Statements of Operations
Three Months Ended December 31, 1998 and
December 31, 1997 (unaudited) 4
Consolidated Statement of Stockholders' Equity
Period from September 30, 1998 to
December 31, 1998 (unaudited) 5
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1998 and
December 31, 1997 (unaudited) 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
Part II - Other Information
Item 2. Changes in Securities and Recent Sales of Unregistered
Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 17
Exhibit Index 18
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,440 $ 19,854
Receivables:
Trade, net of allowance for doubtful accounts
of $122 and $112 at December 31, 1998
and September 30, 1998, respectively 7,620 4,468
Related parties 251 1,268
------------ ------------
7,871 5,736
Inventories, net 11,307 11,594
Prepaid expenses and other current asset 957 853
------------ ------------
Total current assets 32,575 38,037
Property and equipment, net 5,654 5,496
Other assets:
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$915 and $785 at December 31, 1998 and
September 30, 1998 3,981 4,111
Intangible assets, less accumulated amortization
of $962 and $845 at December 31, 1998 and
September 30, 1998 133 250
Deposits and other 832 918
------------ ------------
4,946 5,279
------------ ------------
Total assets $ 43,175 $ 48,812
============ ============
<PAGE>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 3,127 $ 5,138
Related parties 530 1,185
Accrued liabilities 3,147 3,521
------------ ------------
Total current liabilities 6,804 9,844
Commitments and contingencies 0 0
Redeemable Preferred Stock:
Series A convertible preferred stock, $.01
par value; $16,448 and $17,709 liquidation
preference at December 31, 1998 and
September 30, 1998, respectively;21,000 shares
authorized at December 31, 1998 and September
30, 1998; 14,906 shares and 16,506 shares issued
and outstanding at December 31, 1998 and
September 30, 1998 17,026 18,286
Stockholders' equity:
Preferred stock $.01 par value; 9,979,000 shares
December 31, 1998 and September 30, 1998;
none outstanding 0 0
Common stock; $.01 par value; 75,000,000 shares
authorized; 8,786,417 and 8,534,298 outstanding
at December 31, 1998 and September 30, 1998,
respectively 88 346
Additional paid-in capital 119,171 117,326
Deficit (98,344) (95,458)
Unrealized gain on investments 37 75
Treasury stock, 140,000 shares at cost (1,607) (1,607)
------------ ------------
Total stockholders' equity 19,345 20,682
------------ ------------
Total liabilities, redeemable preferred stock
and stockholders' equity $ 43,175 $ 48,812
============ ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended December 31,
1998 1997
---------- ----------
<S> <C> <C>
Net product sales $ 8,211 $ 12,687
Cost of sales 6,420 9,913
---------- ----------
1,791 2,774
Engineering and development expenses 1,368 2,162
Selling and marketing expenses 2,027 1,664
General and administrative expenses 963 1,076
Provision for doubtful accounts 20 25
Amortization 247 223
---------- ----------
Loss from operations (2,834) (2,376)
Other income/(expense) 143 332
---------- ----------
Net loss $ (2,691) $ (2,044)
========== ==========
Less: Cumulative dividend on redeemable
on preferred stock (195) (239)
---------- ----------
Net loss applicable to common shares $ (2,886) $ (2,283)
========== ==========
Basic and diluted net loss per common stock $ (0.33) $ (0.28)
========== ==========
Weighted average number of common share 8,669,254 8,167,009
========== ==========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
Telular Corporation
Consolidated Statements of Stockholders' Equity
(In Thousands)
Unrealized
Additional gain (loss) Total
Preferred Common Paid-in on Treasury Stockholder's
Stock Stock Capital Deficit Investments Stock Equity
--------- ------ --------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 0 $346 $117,326 $ (95,458) $ 75 $ (1,607) $ 20,682
Comprehensive income:
Net loss for period from
October 1, 1998 to December
31, 1998 0 0 0 (2,691) 0 0 (2,691)
Other comprehensive income
Unrealized loss on investments 0 0 0 0 (38) 0 (38)
---------
Comprehensive income (2,729)
---------
One-for-four stock exchange 0 (269) 269 0 0 0 0
Deferred compensation related
to stock options 0 0 45 0 0 0 45
Stock issued in connection
with services 0 1 86 0 0 0 87
Conversion of preferred stock
to common stock 0 10 1,445 0 0 0 1,455
Cumulative dividend on
redeemable preferred stock 0 0 0 (195) 0 0 (195)
--------- ------ --------- --------- ---------- -------- ----------
Balance at December 31, 1998 0 88 119,171 (98,344) 37 (1,607) 19,345
========= ====== ========= ========= ========== ======== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended December 31,
1998 1997
---------- ----------
<S> <C> <C>
Operating Activities:
Net loss $ (2,691) $ (2,044)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 88 436
Amortization 247 223
Inventory obsolescence expense 60 86
Compensation expense related to
stock options and grants 132 38
Equity in net income of affiliate 0 (84)
Changes in assets and liabilities:
Trade receivables, net (3,152) 1,259
Related parties receivables, net 1,017 750
Inventories 227 (197)
Prepaid expenses, deposits and other (56) (69)
Trade accounts payable (2,011) (378)
Related parties accounts payable (655) 265
Accrued liabilities (374) (504)
---------- ----------
Net cash used in operating activities (6,868) (219)
Investing Activities:
Acquisition of property and equipment (546) (720)
---------- ----------
Net cash used in investing activities (546) (720)
---------- ----------
Financing Activities:
Proceeds from the issuance of common stock 0 202
---------- ----------
Net cash provided by financing activities 0 202
---------- ----------
Net decrease in cash and cash equivalents (7,414) (737)
Cash and cash equivalents, beginning of period 19,854 28,451
---------- ----------
Cash and cash equivalents, end of period $ 12,440 $ 27,714
========== ==========
See accompanying notes
</TABLE>
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
effect 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, 1998, are not necessarily indicative of the results
that may be expected for the full fiscal year ending September 30, 1999.
For further information, refer to the consolidated financial statements
for the fiscal year ended September 30, 1998.
2. Inventories
The components of inventories consist of the following (000's):
December 31, September 30,
1998 1998
------------ ------------
(unaudited)
Raw materials $ 5,904 $ 6,709
Finished goods 6,086 5,488
------------ ------------
11,990 12,197
Less: Reserve for obsolescence 683 603
------------ ------------
$ 11,307 $ 11,594
============ ============
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 (Common Stock)
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.
Effective October 1, 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 October 1, 1997, the Company had accounted for its
investment in WD using the equity method.
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Redeemable Preferred Stock
In 1997, the Company issued 20,000 shares 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 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.
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
December 31, 1998, 5,094 shares of Preferred Stock have been converted
into 2,520,079 shares (630,020 shares on a post-split basis) of the
Common Stock.
5. Comprehensive Income
On October 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income (SFAS No.
130). Comprehensive income is defined by SFAS No. 103 as net income
plus other comprehensive income, which, under existing accounting
standards includes foreign currency items, minimum pension liability and
unrealized gains and losses on certain investments in debt and equity
securities. Comprehensive income is reported by the Company in the
consolidated statement of changes in stockholders' equity.
6. Segment Disclosures
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131), which is effective for years beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way
public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises
elected information about operating segments in interim
financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will adopt the new requirements retroactively
during the three month period ended September 30, 1999. Management has
not completed its review of SFAS No. 131, but anticipates that the
adoption of this statement will not have a significant effect on the
Company's financial disclosures.
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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.
8. Reverse Stock Split
The number of shares of common stock outstanding, the weighed average
number of common shares outstanding and basic and diluted net loss per
share amounts have all been restated to reflect the one-for-four (1:4)
reverse stock split of the Company's common stock on January 27, 1999.
9. Reclassification
Certain amounts in the December 31, 1997 financial statements have been
reclassified to conform to the December 31, 1998 presentation.
<PAGE>
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. 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 are: PHONECELL, a line
of fixed wireless terminals (FWTs), and TELGUARD, a line of WAS products.
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 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, 1998.
Results of Operations
First quarter fiscal year 1999 compared to first quarter fiscal year 1998
Net Product Sales. First quarter fiscal year 1999 net product sales
decreased approximately 35% from $12.7 million for the three months ended
December 31, 1997 to $8.2 million for the three months ended December 31,
1998. Sales of FWTs decreased 48% from $10.1 million during the first
quarter fiscal year 1998 to $5.5 million during the first quarter fiscal
year 1998. The decrease resulted primarily from lower shipments to
Africa during the current year. The Company shipped $4.6 million of
FWTs to Guinea, West Africa during the first quarter of fiscal year 1998.
The sale of WAS products increased approximately 5% from $2.6 million
during the three months ended December 31, 1997 to $2.7 million during
the three months ended December 31, 1998.
Engineering and Development Expenses. Engineering and development
expenses of $1.4 million during the first quarter of fiscal year 1999
decreased approximately 37% or $0.8 million from the first quarter of
fiscal year 1998. 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
fiscal year 1998, and therefore the Company has reduced its engineering
and development expenses during the first quarter of fiscal year 1999.
Selling and Marketing Expenses. Selling and marketing expenses for the
first quarter of fiscal year 1999 increased 22% or $0.4 million compared
to the same quarter of fiscal year 1998. The increase is primarily a
result of the Company's effort to market and sell its new products and
increase its salesforce and technical support personnel to support
worldwide sales coverage.
General and Administrative Expenses (G&A). G&A for the first quarter of
fiscal year 1999 decreased 11% compared to the same quarter of fiscal year
1998. The decrease is primarily attributable to the reduction of
administrative expenditures and the leveraging of available resources.
Other Income/(Expense). Due to a decrease in average cash balances,
interest income decreased during the three months ended December 31,
1998 by $0.2 million compared to the same period in fiscal year 1998.
Net Loss. The Company recorded a net loss of ($2.7) million or ($0.31)
per share for the first quarter in fiscal year 1999 compared to a loss
of ($2.0) million or ($0.25) per share in the same quarter of fiscal year
1998.
Net loss applicable to common shares. After giving effect to the
cumulative Preferred Stock dividend of $0.2 million in the first quarter
of fiscal year 1999, net loss applicable to Common Shares was ($2.9)
million or ($0.33) per share compared to a loss of ($2.3) million or
($0.28) per share in the same quarter in fiscal year 1998.
<PAGE>
Liquidity and Capital Resources
At December 31, 1998, the Company had $12.4 million in cash and cash
equivalents with a working capital surplus of $25.8 million.
The Company used $7.4 million of cash during the three months ended
December 31, 1998 compared to $0.7 million of cash used during the same
period last year. The increase in the use of cash relates to a decrease
in accounts payable associated with lower inventory purchases, providing
extended payment terms to certain customers to stimulate larger purchases
and funding a net loss for the three months ended December 31, 1998.
Cash used for capital spending was $0.5 million during the three months
ended December 31, 1998, compared to $0.7 million during the same period
last fiscal year.
<PAGE>
In 1997, the Company issued 20,000 shares 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
into shares of the Company's common stock (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 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
December 31, 1998, 5,094 shares of preferred stock have been converted
into 2,520,079 shares (630,020 shares on a post-split basis) 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 December 31, 1998, the
Company's borrowing capacity under the Loan provisions was $9.7 million,
although there have been no borrowings and none are contemplated in the
near term.
<PAGE>
The Company will use much of the capital raised in fiscal year 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.
<PAGE>
Impact of the 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 has conducted a formal assessment of its significant
information technology systems, including computers used in its
production and manufacturing functions. Based upon this assessment,
management believes that only minor modifications will be required to its
internal software and hardware (imbedded chips) so that its computer
systems will function properly with respect to dates in the Year 2000 and
thereafter. The cost of such modifications, including testing and
implementation, is not expected to have a material adverse effect on the
Company's results of operations and will be funded with available cash.
The Company expects to complete the implementation (final) phase of
changes to its internal computer systems by March 31, 1999, however,
there can be no assurance that such schedule will be met.
<PAGE>
The Company does not conduct any of its purchase transactions through
computer systems that interface directly with suppliers. The Company has
also initiated a formal assessment of its significant suppliers to
determine the extent to which the Company would be vulnerable if those
third parties' fail to remedy Year 2000 issues. To date, the Company has
received written responses from most of its suppliers. The Company has
evaluated these responses and is now monitoring the progress of suppliers
that are not fully ready for the Year 2000. Where the Company determines
that critical suppliers will not be ready for the Year 2000, the Company
will take appropriate actions.
With respect to its customers, the Company currently has no material
systems that interface directly with customers. Further, the Company has
not entered into any significant supply contracts that extend beyond
September 30, 1999. The Company's large customers beyond December 31,
1999 will likely be new customers due to the project nature of its
business. However, as a global company that operates in many different
countries, some of which may not be addressing the Year 2000 problem as
aggressively as the United States, there can be no assurances that future
customers will be Year 2000 compliant. Moreover, because markets for the
Company's products are dependent on third parties, such as wireless local
loop network providers, management cannot fully assess the impact that
the Year 2000 problem will have on future sales.
<PAGE>
The Company has reviewed each of its product lines and has determined
that its products will operate properly in the Year 2000 and beyond.
However, for some industries, the Company's products are integrated with
other company's products and sold as a combined product. There can be
no assurances that such combined products, current and future, will
operate properly in the Year 2000 and beyond.
The cost of the Company's efforts to prepare for the Year 2000 which is
estimated at $100,000 (including approximately $50,000 spent to date), and
the date on which the Company believes it will complete its internal 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.
Management believes that it has an effective program in place to resolve
its internal Year 2000 issues in a timely manner. Nevertheless,
because it is not possible to anticipate all future outcomes, especially
when third parties are involved, there could be circumstances in which the
Company is adversely effected by Year 2000 problems. The loss of revenue
from such occurrences has not been estimated.
Outlook
The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ
materially.
<PAGE>
Based upon observed trends, the Company believes that the market for FWTs
will experience substantial growth over the next five years. Nearer term
prospects should enable the Company to grow, but at more modest rates. The
economic turmoil in the Asia, a key market for the Company's products, will
negatively impact growth prospects in the near term. However, the Company
has identified significant near term opportunities primarily in Eastern
Europe, Africa, Columbia, Venezuela, Mexico and Malaysia. Each of these
markets will develop at a different pace, and the sales cycle for these
regions may extend out several months or quarters, but market indications
remain positive. The Company is well positioned with a wide range of
products and an expanded sales force to capitalize on these market
opportunities.
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 Form 10-K for the period ended September 30,
1998, 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.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In 1998, the Company received 300,000 shares of ORA Electronics, Inc.
common stock (ORA stock) in connection with the settlement of 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, 2000.
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 available 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, 1998.
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND RECENT SALES OF UNREGISTERED SECURITIES
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.
<PAGE>
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 three months ended December 31, 1998, the Company issued 64,364
shares (16,091 shares on a post-split basis) of Common Stock valued at
$48,273 to the law of firm of Hamman and Benn for legal services. The
Company also issued 5,350 shares (1,338 shares on a post-split basis) of
Common Stock valued at $4,013 to the law firm of Bellows & Bellows for
legal services. These issuances were exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended, as they did not
involve a public offering of securities.
<PAGE>
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 Exhibit 3.2
of Incorporation to the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 Amendment No. 3 to Certificate Filed herewith
of Incorporation
3.5 Amendment No. 4 to Certificate Filed herewith
of Incorporation
3.6 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1
National Bank and Amendment to Form 10-K filed December
thereto 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit 4.2
December 11, 1995 to Form 10-K filed
December 27, 1995
<PAGE>
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
4.4 Loan and Security Agreement with Filed as Exhibit 4.2 to
Sanwa Business Credit Corporation Form 10-Q filed August 14, 1997
10.1 Consulting Agreement with Filed as Exhibit 10.1
William L. De Nicolo to the 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
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)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
<PAGE>
10.6 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996(1)
10.7 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration Statement
Telular Corporation dated
September 20, 1993
10.8 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
10.9 Exclusive Distribution and Filed as Exhibit 10.14
Trademark License Agreement the Registration
between Telular Canada Inc. Statement(1)
and the Company, dated April 1,
1989, and Amendments thereto
10.10 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
<PAGE>
10.11 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.12 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
10.13 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, Statement
1994
10.15 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.16 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.17 Securities Purchase Agreement Filed as Exhibit 99.1 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
<PAGE>
10.18 Registration Rights Agreement Filed as Exhibit 99.3 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
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
between Telular Corporation and Form S-3, Registration
purchasers of the Series A No. 333-27915, as amended
Convertible Preferred Stock by 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
dated June 6, 1997, by and Form S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.21 Agreement and Plan of Merger by Filed as Exhibit 10.21
and among Wireless Domain to Form 10-K filed
Incorporated (formerly TelePath), December 19, 1998
Telular-WD (a wholly-owned
subsidiary of Telular) and
certain stockholder of Wireless
Domain Incorporated
10.22 Employment Agreement with Daniel Filed as Exhibit 10.22
D. Giacopelli to Form 10-Q filed
February 13, 1998
<PAGE>
10.23 Employment Agreement with Robert Filed as Exhibit 10.23
C. Montgomery to Form 10-Q filed
February 13, 1998
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
(1) Confidential treatment granted with respect to redacted
portions of documents.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three
months ended December 31, 1998.
<PAGE>
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 12, 1999 By: /s/ Kenneth E. Millard
----------------- -------------------------
Kenneth E. Millard
President & Chief Executive Officer
Date February 12, 1999 /s/ Jeffrey L. Herrmann
----------------- -------------------------
Jeffrey L. Herrmann
Senior Vice President & Chief
Financial Officer
<PAGE>
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 Exhibit 3.2
of Incorporation to the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 Amendment No. 3 to Certificate Filed herewith
of Incorporation
3.5 Amendment No. 4 to Certificate Filed herewith
of Incorporation
3.6 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1
National Bank and Amendment to Form 10-K filed December
thereto 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit 4.2
December 11, 1995 to Form 10-K filed
December 27, 1995
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
<PAGE>
4.4 Loan and Security Agreement with Filed as Exhibit 4.2 to
Sanwa Business Credit Corporation Form 10-Q filed August 14, 1997
10.1 Consulting Agreement with Filed as Exhibit 10.1
William L. De Nicolo to the 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
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)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
10.6 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996(1)
10.7 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration Statement
Telular Corporation dated
September 20, 1993
<PAGE>
10.8 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
10.9 Exclusive Distribution and Filed as Exhibit 10.14
Trademark License Agreement the Registration
between Telular Canada Inc. Statement(1)
and the Company, dated April 1,
1989, and Amendments thereto
10.10 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
10.11 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.12 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
10.13 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, Statement
1994
<PAGE>
10.15 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.16 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.17 Securities Purchase Agreement Filed as Exhibit 99.1 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
10.18 Registration Rights Agreement Filed as Exhibit 99.3 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
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
between Telular Corporation and Form S-3, Registration
purchasers of the Series A No. 333-27915, as amended
Convertible Preferred Stock by Amendment No. 1 filed
June 13, 1997, and further
Amended by Amendment
No. 2 filed July 8, 1997
(Form S-3)
<PAGE>
10.20 Registration Rights Agreement Filed as Exhibit 99.4 to
dated June 6, 1997, by and Form S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.21 Agreement and Plan of Merger by Filed as Exhibit 10.21
and among Wireless Domain to Form 10-K filed
Incorporated (formerly TelePath), December 19, 1998
Telular-WD (a wholly-owned
subsidiary of Telular) and
certain stockholder of Wireless
Domain Incorporated
10.22 Employment Agreement with Daniel Filed as Exhibit 10.22
D. Giacopelli to Form 10-Q filed
February 13, 1998
10.23 Employment Agreement with Robert Filed as Exhibit 10.23
C. Montgomery to Form 10-Q filed
February 13, 1998
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
(1) Confidential treatment granted with respect to redacted
portions of documents.
Exhibit (3.4) - Amendment No. 3 to Certificate of Incorporation
TELULAR CORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
TELULAR CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the board of directors of said corporation, by the
unanimous written consent of its members, filed with the minutes
of the board, adopted a resolution proposing and declaring advisable
the following amendment to the Certificate of Incorporation of said
corporation:
RESOLVED, that the Directors do hereby adopt and approve the
amendment of Article IV of the Certificate of the Corporation
to read in its entirety as follows:
ARTICLE IV
CAPITAL STOCK
A. The total number of shares of captial stock that the
Corporation shall have authority to issue is Eighty-Five
million (85,000,000) shares, of which Seventy-Five million
(75,000,000) shall be shares of Common Stock with par
value of one cent ($.01) each and ten million (10,000,000)
shall be shares of Preferred Stock with par value of one
cent ($.01) per share.
B. Preferred Stock may be used from time to time in one
or more series, each of such series to have such terms
as stated or expressed herein and in the resolution or
resolutions providing for the issue of such series adopted
by the Board of Directors of the Corporation as hereinafter
provided. Any shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes
of voting by classes unless expressly provided.
C. Authority is hereby expressly granted to the Board
of Directors from to time to issue the Preferred Stock in
one or more series, and in connection with the creation of
any such series, by resolution or resolutions providing for
the issue of the shared thereof, to determine and fix such
voting powers, full or limited, or no voting powers, and such
designations, preferences and relative participating,
optional or other special rights, and qualifications,
limitations or restrictions thereof, including without
limitation thereof, dividend rights, special voting rights,
conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter
permitted by the General Corporaiton Law of Delaware.
Without limiting the generality of the foregoing, the
resolutions providing for issuance of any series of
Preferred Stock may provide that such series shall be
superior or rank equally or be junior to the Preferred
Stock of any other series to the extent permitted by law.
Except as otherwise specifically provided in this Certificate
of Incorporaiton, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the issuance
of any shares of any series of the Preferred Stock authorized
by and complying with the conditions of this Certificate
of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock
of the Corporation.
SECOND: That at a meeting of stockholders duly called and
held on January 28, 1997, the stockholders have approved said
amendment.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Telular Corporation has caused this
certificate to be signed by Kenneth E. Millard, its President,
and attested by Frank J.M. ten Brink, its Secretary, this
31st day of January, 1997.
TELULAR CORPORATION
/s/ Kenneth E. Millard
-----------------------
Kenneth E. Millard
President
ATTEST:
/s/ Frank J.M. ten Brink
-------------------------
Frank J.M. ten Brink
Secretary
Exhibit (3.5) - Amendment to Certificate of Incorporation No. 4
TELULAR CORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Telular Corporation (the "Corporation"), organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on April 13, 1993. On
August 13, 1993, the Corporation filed a Certificate of Amendment with the
Secretary of State amending Article Fifth of the Certificate of
Incorporation. On November 22, 1993, the Corporation filed a Certificate
of Amendment with the Secretary of State amending Article Fourth of the
Certificate of Incorporation. On February 28, 1997, the Corporation filed
a Certificate of Amendment with the Secretary of State further amending
Article Fourth of the Certificate of Incorporation. On April 16, 1997, the
Corporation filed a Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock with the Secretary of State.
2. As set forth in Article Fourth of the Certificate of Incorporation,
as amended, the total number of shares of capital stock that the Corporation
has authority to issue is 85 million shares, consisting of (i) 75 million
shares of common stock, par value $.01 per share (Common Stock), and (ii)
10 million shares of preferred stock, par value $.01 per share. The
capitalization of the Corporation, as set forth in the Certificate of
Incorporation shall not change by reason of this Certificate of Amendment.
3. The Certificate of Incorporation of the Corporation, as heretofore
amended, is amended by adding to Article Fourth, at the end thereof, the
following language:
D. Reverse Stock Split.
(a) Effective at 11:59 p.m., Delaware time, on the day of the
filing of this Certificate of Amendment with the Secretary of State of
the State of Delaware, without further act of the Corporation or its
stockholders (but subject to the provisions paragraphs (b) and (c)
below), each share of Common Stock (the Reverse Split Factor) issued and
outstanding (the Old Comon Stock) is hereby combined, reclassified and
changed into one-fourth (1/4) of one fully paid and nonassessable share
of Common Stock (the New Common Stock).
(b) Fractional shares of New Common Stock shall be issued when and
as required in order to implement the foregoing actions; provided,
however, that if, prior to the effective time of the Reverse Stock Split,
the holders of two-thirds (2/3) of the issued and outstanding shares of
Series A Convertible Preferred Stock of the Corporation shall have given
their written consent to a repurchase of such shares, then:
<PAGE>
(i) No fractional shares of New Common Stock shall be issued, and
the holders of Old Common Stock shall not be or become entitled to any
fractional shares of New Common Stock, by reason of the combination,
reclassification and change as herein provided; and
(ii) If rights to fractions of a share of New Common Stock result
from such combination, reclassification and change, the Corporation
shall deliver to each such holder otherwise entitled to receive a
fractional share of New Common Stock a cash payment equal to the product
of (A) such fraction of a share and (B) the fair market value of a share
of New Common Stock, as determined by the Board of Directors, at the
close of business the first trading day following the filing of this
Certificate of Amendment with the Secretary of State.
(c) Effective 11:59 p.m., Delaware time, on the day of the filing
of this Certificate of Amendment with the Secretary of State of the
State of Delaware, each holder of shares of Old Common Stock shall cease
to be a holder thereof, and the certificate or certificates of such
holder that immediately prior to such time evidenced shares of Old
Common Stock shall thereafter represent the right to receive,
upon surrender thereof to the Corporation for cancellation a new
certificate or certificates representing the number (including any
fractional number) of fully paid and nonassessable shares of New Common
Stock equal to the number of shares of Old Common Stock evidenced by the
certificate or certificates of such holder divided by four (4).
4. The amendment to the Certificate of Incorporation set forth
in this Certificate of Amendment was duly adopted by a resolution of the
Board of Directors at a meeting duly called and held on October 27,
1998, and was approved by the affirmative vote of the holders of
two-thirds of the outstanding shares of Common Stock at a meeting of
stockholders duly called and held on January 26, 1999, all in accordance
with Section 242 of the General Corporate Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be signed by its President and its Corporate Seal to be
affixed hereto this 26th day of January, 1999.
TELULAR CORPORATION
By: /s/ Kenneth Millard
----------------------
Kenneth Millard
President and
Chief Executive Officer
Exhibit (11) - Statement Re: Computation of Earnings Per Share and
Pro Forma Earnings Per Share (1999)
<TABLE>
<CAPTION> Three Months Ended
December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Average number of shares outstanding 8,669,254 8,167,009
============== =============
Net loss $ (2,691,000) $ (2,044,000)
Less: cumulative dividend on
redeemable preferred stock $ (195,000) $ (239,000)
-------------- -------------
Loss applicable to common shares $ (2,886,000) $ (2,283,000)
============== =============
Net loss per share $ (0.33) $ (0.28)
============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 12440
<SECURITIES> 0
<RECEIVABLES> 7993
<ALLOWANCES> 122
<INVENTORY> 11307
<CURRENT-ASSETS> 32575
<PP&E> 10493
<DEPRECIATION> 4839
<TOTAL-ASSETS> 43175
<CURRENT-LIABILITIES> 6804
<BONDS> 0
17026
0
<COMMON> 88
<OTHER-SE> 19257
<TOTAL-LIABILITY-AND-EQUITY> 43175
<SALES> 8211
<TOTAL-REVENUES> 8211
<CGS> 6420
<TOTAL-COSTS> 6420
<OTHER-EXPENSES> 4462
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2691)
<DISCONTINUED> 0
<EXTRAORDINARY> (195)
<CHANGES> 0
<NET-INCOME> (2886)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
