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, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File Number 0-23212
Telular Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-3885440
(State or other jurisdiction (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 June 30, 2000, the latest practicable date, was 12,498,946
shares.
<PAGE>
TELULAR CORPORATION
Index
Part I - Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 2000 (unaudited) and September 30, 1999 3
Consolidated Statements of Operations (unaudited)
Three Months Ended June 30, 2000 and June 30, 1999 4
Consolidated Statements of Operations (unaudited)
Nine Months Ended June 30, 2000 and June 30, 1999 5
Consolidated Statement of Stockholders' Equity (unaudited)
Period from September 30, 1999 to June 30, 2000 6
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended June 30, 2000 and June 30, 1999 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 17
Signatures 20
Exhibit Index 21
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30, September 30,
2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,165 $ 9,972
Short term investment 184 0
Receivables:
Trade, net of allowance for doubtful accounts
of $156 and $103 at June 30, 2000
and September 30, 1999, respectively 7,649 6,670
Related parties 448 483
------------ ------------
8,097 7,153
Inventories, net 5,799 8,770
Prepaid expenses and other current asset 343 502
------------ ------------
Total current assets 36,588 26,397
Property and equipment, net 4,388 5,202
Other assets:
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$1,692 and $1,303 at June 30, 2000 and
September 30, 1999, respectively 3,203 3,592
Intangible assets, less accumulated amortization
of $1,095 and $1,089 at June 30, 2000 and
September 30, 1999, respectively 0 6
Long term investment 0 66
Deposits and other 191 65
------------ ------------
$ 44,370 $ 35,328
============ ============
<PAGE>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 2,389 $ 2,450
Related parties 2,271 1,738
Accrued liabilities 1,589 3,092
------------ ------------
Total current liabilities 6,249 7,280
Long-term Debt 1,900 0
Commitments and contingencies 0 0
Total Liabilities 8,149 7,280
Redeemable Preferred Stock:
Series A convertible preferred stock, $.01
par value; $12,775 liquidation preference
at September 30, 1999; 21,000 shares authorized
at June 30, 2000 and September 30, 1999;
30, 1999; no shares outstanding at June 30,
2000, and 11,350 shares outstanding at
September 30, 1999 0 13,057
Stockholders' Equity:
Preferred stock $.01 par value; 9,979,000 shares
authorized at June 30, 2000 and September 30,
1999; none outstanding 0 0
Common stock; $.01 par value; 75,000,000 shares
authorized; 12,498,946 and 9,563,004 outstanding
at June 30, 2000 and September 30, 1999,
respectively 125 97
Additional paid-in capital 148,468 123,730
Deficit (112,414) (106,845)
Accumulated other comprehensive income/(loss) (258) (384)
Treasury stock, no shares on June 30, 2000 and
140,000 shares on September 30, 1999, at cost 0 (1,607)
------------ ------------
Total stockholders' equity 36,221 14,991
------------ ------------
Total liabilities, redeemable preferred stock
and stockholders' equity $ 44,370 $ 35,328
============ ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Net product sales to unrelated parties $ 10,338 $ 8,859
Net product sales to related parties 0 1,037
---------- ----------
Total net product sales 10,338 9,896
Royalty and royalty settlement revenue 341 788
---------- ----------
Total revenue 10,679 10,684
Cost of sales 8,041 9,584
---------- ----------
2,638 1,100
Engineering and development expenses 1,336 1,327
Selling and marketing expenses 1,766 1,690
General and administrative expenses 1,005 975
Provision for doubtful accounts 25 215
Amortization 130 161
---------- ----------
Loss from operations (1,624) (3,268)
Other income, net 213 52
---------- ----------
Net loss $ (1,411) $ (3,216)
========== ==========
Less: Cumulative dividend on redeemable
on preferred stock 0 (168)
---------- ----------
Net loss applicable to common shares $ (1,411) $ (3,384)
========== ==========
Basic and diluted net loss per common share $ (0.11) $ (0.38)
========== ==========
Weighted average number of common
shares outstanding 12,494,402 8,989,930
========== ==========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Nine Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Net product sales to unrelated parties $ 27,408 $ 24,175
Net product sales to related parties 0 1,285
---------- ----------
Total net product sales 27,408 25,460
Royalty and royalty settlement revenue 1,946 1,798
---------- ----------
Total revenue 29,354 27,258
Cost of sales 22,080 21,852
---------- ----------
7,274 5,406
Engineering and development expenses 4,091 4,346
Selling and marketing expenses 5,217 5,538
General and administrative expenses 3,099 2,852
Provision for doubtful accounts 75 265
Amortization 389 603
---------- ----------
Loss from operations (5,597) (8,198)
Other income, net 356 294
---------- ----------
Net loss $ (5,241) $ (7,904)
========== ==========
Less: Cumulative dividend on redeemable
preferred stock (28) (549)
---------- ----------
Net loss applicable to common shares $ (5,269) $ (8,453)
========== ==========
Basic and diluted net loss per common share $ (0.44) $ (0.96)
========== ==========
Weighted average number of common
shares outstanding 11,949,695 8,850,186
========== ==========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
Telular Corporation
Consolidated Statements of Stockholders' Equity
(Dollars In Thousands)
(Unaudited)
Accumulated
Additional Other Total
Preferred Common Paid-in Comprehensive Treasury Stockholder's
Stock Stock Capital Deficit Income/(Loss) Stock Equity
--------- ------ --------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $ 0 $ 97 $123,730 $(106,845) $(384) $ (1,607) $ 14,991
Comprehensive income/(loss):
Net loss for period from
October 1, 1999 to June
30, 2000 0 0 0 (5,241) 0 0 (5,241)
Other comprehensive income
Unrealized gain on investments 0 0 0 0 126 0 126
---------
Comprehensive loss (5,115)
---------
Common stock and warrants
issued in private placement 0 4 9,645 0 0 0 9,649
Deferred compensation related
to stock options 0 0 111 0 0 0 111
Stock options exercised 0 3 1,585 0 0 1,607 3,195
Stock and warrants issued
in connection with services
and compensation 0 0 332 0 0 0 332
Conversion of preferred stock
to common stock 0 21 13,065 0 0 0 13,086
Cumulative dividend on
redeemable preferred stock 0 0 0 (28) 0 0 (28)
--------- ------ --------- --------- ---------- -------- ----------
Balance at June 30, 2000 0 125 148,468 (112,114) (258) 0 36,221
========= ====== ========= ========= ========== ======== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Operating Activities:
Net loss $ (5,241) $ (7,904)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 1,433 1,164
Amortization 395 603
Inventory obsolescence expense 504 1,980
Compensation expense related to
stock options and grants 111 135
Common stock issued for services
and compensation 136 221
Changes in assets and liabilities:
Trade receivables, net (979) (2,231)
Related parties receivables 35 (645)
Inventories 2,467 195
Prepaid expenses, deposits and other 230 89
Trade accounts payable (61) (35)
Related parties accounts payable 533 (15)
Accrued liabilities (1,503) (1,389)
---------- ----------
Net cash used in operating activities (1,940) (7,832)
Investing Activities:
Proceeds from the sale of short term investment 8 0
Acquisition of property and equipment (619) (1,283)
---------- ----------
Net cash used in investing activities (611) (1,283)
---------- ----------
Financing Activities:
Proceeds from the issuance of common stock 12,844 0
Borrowings, net 1,900 0
---------- ----------
Net cash provided by financing activities 14,744 0
---------- ----------
Net increase (decrease) in cash
and cash equivalents 12,193 (9,115)
Cash and cash equivalents, beginning of period 9,972 19,854
---------- ----------
Cash and cash equivalents, end of period $ 22,165 $ 10,739
========== ==========
See accompanying notes
</TABLE>
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
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 and
nine months ended June 30, 2000, are not necessarily indicative of
the results that may be expected for the full fiscal year ending
September 30, 2000. For further information, refer to the
consolidated financial statements and the footnotes included in the
Annual Report on Form 10-K for the fiscal year ended September 30,
1999.
2. 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. 130 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.
3. Inventories
The components of inventories consist of the following (000's):
June 30, September 30,
2000 1999
(unaudited)
Raw materials $ 3,290 $ 3,873
Finished goods 2,888 5,481
6,178 9,354
Less: Reserve for obsolescence 379 584
$ 5,799 $ 8,770
4. Revolving Line of Credit
On January 7, 2000, the Company entered into a Loan and Security
Agreement with Wells Fargo Business Credit Inc. (Wells) to provide a
<PAGE>
revolving credit facility with a loan limit of $5 million (the Loan).
Borrowings under the Loan are subject to borrowing base requirements
and other restrictions. To reduce its transaction fees, on June 28,
2000, the Company negotiated an option to collaterize 100% of the
outstanding amount of its loan with Wells in cash. At June 30, 2000,
the Company had approximately $1.9 million of available borrowings
under the Loan, of which $1.9 million was outstanding. Under the
Loan, the Company is restricted from making dividend payments. The
Loan matures on January 7, 2003. The Loan carries interest at the
bank's prime rate. To reduce applicable financing fees, the Company
issued 50,000 shares of Common Stock Warrants to Wells. The strike
price for the Warrants is $16.29 per share. The value of the
Warrants was accounted for as deferred financing costs, included in
other assets, and recorded at $197,000 the fair value of the
financing fees.
5. Issuance of Common Stock
On March 3, 2000, the Company issued 444,444 shares of Common Stock
for $9,549,000 which is net of issuance cost of $451,000, including
$100,000 of Common Stock to be issued to the Company's placement
agent. The Common Stock was issued to investors under the provisions
of Regulation D of the United States Securities Act of 1933, as
amended. In connection with this financing, the Company issued
358,407 shares of Common Stock Warrants to investors and the
placement agent. The strike prices for the Warrants range from $12.27
per share to $31.56 per share. The fair value of these warrants of
$1,643,000, determined using the Black-Scholes method was included in
additional paid in capital.
6. Segment Disclosures
The Company, which is organized on the basis of products and
services, has two reportable business segments, Fixed Wireless
Terminals and Security Products. The Company designs, develops,
manufactures and markets both fixed wireless terminals and security
products. Fixed wireless terminals bridge wireline telecommunications
customer premises equipment with cellular-type transceivers for use
in wireless communication networks. Security products provide
wireless backup systems for both commercial as well as residential
alarms.
Export sales of fixed wireless terminals represent 62% and 55% of
total fixed wireless net product sales for the first nine months of
fiscal year 2000 and 1999, respectively.
<PAGE>
Export sales of security products were insignificant for the first
nine months of fiscal year 2000 and 1999.
Period ending June 30,
2000 1999
Revenue (000's)
Fixed Wireless Terminals 21,311 19,163
Security Products 8,043 8,095
29,354 27,258
Loss From Operations (000's)
Fixed Wireless Terminals (2,976) (5,301)
Security Products (2,621) (2,897)
(5,597) (8,198)
For the first nine months of fiscal year 2000, one customer located
in Dominican Republic accounted for 31% of fixed wireless terminal
net product sales and two customers, both located in the USA,
accounted for 18% and 17% of the security products net product sales.
For the first nine months of fiscal year 1999, one customer in Mexico
accounted for 39% of the fixed wireless terminal net product sales
and one customer, located in the U.S. accounted for 33% of the
security products net product sales.
7. Redeemable Preferred Stock
During the year ending September 30, 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 $18,375 which is net of issuance cost of $1,200. The Preferred
Stock included the equivalent of a 5% annual stock dividend. On
October 15, 1999, the final 11,350 shares of Preferred Stock
automatically converted into 2,146,540 shares of common stock (the
Mandatory Conversion). On October 18, 1999, the previous holders of
the Preferred Stock notified the Company that they disagreed with the
conversion formula the Company used to process the Mandatory
Conversion. In Form SC-13G filings with the Securities and Exchange
Commission in October and December 1999, certain of the previous
holders noted that based upon their interpretation of the Mandatory
Conversion formula, the holders were entitled to an aggregate of
4,247,834 additional shares of the Company's common stock. The
Company has not received any further claim or communication from the
previous holders. The Company believes that it processed the
conversion correctly and that the claim by previous holders of
Preferred Stock is unfounded.
8. Contingencies
In 1998, the Company reached settlement in its patent infringement
case against ORA Electronics, Inc. (ORA) and received the following
from ORA: $500,000 in cash, a $1,000,000 promissory note payable
through February 1, 2000, 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
<PAGE>
fair market value received in stock is equivalent to $1,500,000 on
February 1, 2000. On February 18, 2000 the Company agreed to defer
its right to receive additional shares of ORA stock to February 1,
2002, and received the right to sell the shares of ORA stock
currently held by the Company. On February 23, 2000, the Company
received the final balloon payment of $250,000 pursuant to the
promissory note from ORA.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, develops, manufactures and markets products based on its
proprietary interface technologies, which provide the capability to bridge
wireline telecommunications customer premises equipment (CPE) with cellular-
type transceivers for use in wireless communication networks in the Cellular
and PCS bands. Applications of the Company's technology include fixed wireless
telecommunications as a primary access service where wireline systems are
unavailable, unreliable or uneconomical, as well as wireless backup systems
for wireline telephone systems and wireless security and alarm monitoring
signaling. The Company's principal product lines are: PHONECELL, a line of
fixed wireless terminals, and TELGUARD, a line of wireless security and alarm
monitoring signaling products.
Currently, the Company is devoting a substantial portion of its resources
to international market development, extension of its core product line to
new wireless standards, expansion, protection and licensing of its
intellectual property rights and development of underlying radio
technology.
The Company's operating expense levels are based in large part on
expectations of future revenues. If anticipated sales in any quarter do not
occur as expected, expenditure and inventory levels could be
disproportionately high, and the Company's operating results for that
quarter, and potentially for future quarters, could be adversely affected.
Certain factors that could significantly impact expected results are
described in Cautionary Statements Pursuant to the Securities Litigation
Reform Act that is set forth in Exhibit 99 to this Form 10-K.
Results of Operations
Third quarter fiscal year 2000 compared to third quarter fiscal year 1999
Net Product Sales. Net product sales of $10.3 million for the three months
ended June 30, 2000 increased 4% from $9.9 million for the three months ended
June 30, 1999. Sales of PHONECELL products increased 24% to $7.4 million for
the third quarter of fiscal year 2000 compared to $6.0 million for the same
quarter fiscal year 1999. Sales of components decreased 95% or $1.0 million
during the third quarter of fiscal year 2000 compared to the same period last
year. The decline in component sales resulted from an isolated $1.0 million
sale of Extended Total Access Communication System (ETACS) components to
Motorola during the third quarter of fiscal year 1999. There were no component
sales to Motorola in the third quarter of fiscal year 2000. The sale of
TELGUARD products increased 1% from $2.8 million during the three months ended
June 30, 1999 to $2.9 million during the three months ended June 30, 2000.
Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenue
decreased 57% from $0.8 million during the third quarter of fiscal year 1999
to $0.3 million during the same quarter of fiscal year 2000. The $0.5 million
decrease in total royalty and royalty settlement revenue during fiscal year
2000 compared to fiscal year 1999 is due to back royalties from Motorola in
fiscal year 1999 resulting from the completion of a technology license for its
Code Division Multiple Access (CDMA) products in April 1999.
<PAGE>
Cost of Sales. Cost of sales decreased from $9.6 million for the third quarter
of fiscal year 1999 to $8.0 million for the third quarter of fiscal year 2000.
During the third quarter of fiscal year 1999 the Company recorded a special
charge of $1.5 million to write-off its ETACS and CDMA inventories.
Amortization. Amortization expense decreased 19% during the third quarter
of fiscal year 2000 compared to the third quarter fiscal year ended 1999
due to certain intangible assets which became fully amortized during fiscal
year 1999.
Other. Other income for the third quarter of fiscal year 2000 increased by
$0.2 million compared to the same period of fiscal year 1999. The increase
is primarily due to higher interest income, as a result of larger average
cash balances during the third quarter of fiscal year 2000 compared to the
same period of fiscal year 1999. This increase in interest income more than
offset the addition of interest expense on the new revolving line of credit
for the third quarter of fiscal year 2000.
Net loss. The Company recorded a net loss of $1.4 million for the third
quarter of fiscal year 2000 compared to a net loss of $3.2 million for the
third quarter of fiscal year 1999. Loss per share decreased 69% during the
third quarter of fiscal year 2000, from net loss per share of $0.36 for the
third quarter of fiscal year 1999 to a net loss per share of $0.11 for the
third quarter of fiscal year 2000.
Net loss applicable to common shares. A net loss of $1.4 million, or $0.11
per share, for the third quarter of fiscal year 2000 compares to a net loss
of $3.4 million, or $0.38 per share, after giving effect to the cumulative
preferred stock dividend of $0.2 million for the third quarter of fiscal
year 1999.
First nine months fiscal year 2000 compared to first nine months fiscal
year 1999
Net Product Sales. Net product sales of $27.4 million for the nine months
ended June 30, 2000 increased 8% from $25.5 million for the nine months ended
June 30, 1999. Sales of PHONECELL increased 32% from $14.4 million during the
first nine months of fiscal year 1999 to $19.0 million during the same period
of fiscal year 2000. Sales of components decreased 88% or $2.6 million for the
nine months ended June 30, 2000 compared to the same period of the previous
fiscal year. The decline in component sales resulted from an isolated $1.0
million sale of ETACS components to Motorola during fiscal year 1999. There
were no component sales to Motorola in fiscal year 2000. The sale of TELGUARD
products decreased 1% from $8.1 million during the nine months ended June 30,
1999 to $8.0 million during the nine months ended June 30, 2000.
Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenue
increased 8% from $1.8 million during the first nine months of fiscal year
1999 to $1.9 million during the same period of fiscal year 2000. The fiscal
year 1999 amount includes $1.0 million in royalty settlement revenue from
Motorola. The fiscal year 2000 amount includes $1.0 million of royalty revenue
from Andrew Corporation. The $0.1 million increase in total royalty and
royalty settlement revenue during fiscal year 2000 compared to fiscal year
1999 is due to increased digital-based royalties and decreased analog-based
royalties from Motorola.
<PAGE>
Cost of Sales. Cost of sales increased to $22.1 million for the first nine
months of fiscal year 2000 from $21.9 million for the first nine months of
fiscal year 1999. During the third quarter of fiscal year 1999 the Company
recorded a special charge of $1.5 million to write-off its ETACS and CDMA
inventories.
Engineering and Development Expenses. Engineering and development expenses
of $4.1 million during the first nine months of fiscal year 2000 decreased
approximately 6% from the first nine months of fiscal year 1999. In fiscal
year 1999 and prior the Company had increasing engineering and development
expenses as a result of efforts to bring several new lower cost products
and a wider range of products to market. Many new products were completed
and introduced to market during that year, and therefore the Company has
reduced engineering and development expenses, primarily through reductions
in material costs and contracted engineering services.
Selling and Marketing Expenses. Selling and marketing expenses for the
first nine months of fiscal year 2000 decreased 6% or $0.3 million compared
to the same period of fiscal year 1999. The decrease is primarily due to a
reduction in product introduction expenses during the first nine months of
fiscal year 2000 compared to the same period of last fiscal year (see
Engineering and Development Expenses above).
General and Administrative Expenses (G&A). G&A for the first nine months of
fiscal year 2000 increased 9% compared to the first nine months of fiscal
year 1999. The increase relates to legal fees for patent defense in New
Zealand.
Other Income. Other income during the first nine months of fiscal year 2000
increased by $0.1 million compared to the same period of fiscal 1999. The
increase is primarily due to higher interest income, as a result of larger
average cash balances during the first nine months of fiscal year 2000
compared to the same period of fiscal year 1999.
This increase in interest income more than offset the addition of interest
expense on the new revolving line of credit for the first nine months of
fiscal year 2000.
Net loss. The Company recorded a net loss of $5.2 million for the first
nine months of fiscal year 2000 compared to a net loss of $7.9 million for
the first nine months of fiscal year 1999. Loss per share decreased 51%
during the first nine months of fiscal year 2000, from net loss per share
of $0.89 for the first nine months of fiscal year 1999 to a net loss per
share of $0.44 for the first nine months of fiscal year 2000.
Net loss applicable to common shares. After giving effect to the cumulative
preferred stock dividend of $28 for the first nine months of fiscal year
2000, net loss applicable to common shares of $5.3 million or $0.44 per
share compares to a net loss of $8.5 million or $0.96 per share in the
first nine months of fiscal year 1999.
Liquidity and Capital Resources
On June 30, 2000, the Company had $22.2 million in cash and cash
equivalents with a working capital surplus of $30.3 million.
The Company used $1.9 million of cash for operating activities during the
first nine months of fiscal year 2000 compared to $7.8 million used during
the same period of fiscal year 1999. The decrease in cash used for
operations is primarily due to reductions in inventory and accounts
<PAGE>
receivable. Cash used for capital spending was $0.6 million during the
first nine months of fiscal year 2000, compared to $1.3 million during the
same period of fiscal year 1999. Cash generated from financing activities
for the first nine months of fiscal year 2000 of $14.7 million relates to
proceeds from the issuance of common stock and borrowings under the credit
facility. There was no cash activity from financing activities during the
first nine months of fiscal year 1999.
On March 3, 2000, the Company issued 444,444 shares of Common Stock for
$9,549,000 which is net of issuance cost of $451,000, including $100,000 of
Common Stock to be issued to the Company's placement agent. The Common
Stock was issued to investors under the provisions of Regulation D of the
United States Securities Act of 1933, as amended. Management registered the
Common Stock for resale on May 8, 2000 under the Securities Act of 1933, as
amended. In connection with this financing, the Company issued 358,407
shares of Common Stock Warrants to investors and the placement agent. The
strike prices for the Warrants range from $12.27 per share to $31.56 per
share. The fair value of these warrants of $1,643,000, determined using the
Black-Scholes method was included in additional paid in capital. This
financing also provides the investors with the right, but not the
obligation to a one day purchase of up to 177,746 additional shares at a
price of $28.13 per share. Upon such a purchase the investors would also
receive up to an additional 50,000 shares of Common Stock Warrants.
On January 7, 2000, the Company entered into a Loan and Security Agreement
with Wells Fargo Business Credit Inc. (Wells) to provide a revolving credit
facility with a loan limit of $5 million (the Loan). Borrowings under the
Loan are subject to borrowing base requirements and other restrictions. To
reduce its transaction fees, on June 28, 2000, the Company negotiated an
option to colateralize 100% of the outstanding amount of its loan with
Wells in cash. At June 30, 2000, the Company had approximately $1.9
million of available borrowings under the Loan, of which $1.9 million was
outstanding. Under the Loan, the Company is restricted from making dividend
payments. The Loan matures on January 7, 2003. The Loan carries interest at
the bank's prime rate. To reduce applicable financing fees, the Company
issued 50,000 shares of Common Stock Warrants to Wells. The strike price
for the Warrants is $16.29 per share. The value of the warrants was
accounted for as deferred financing costs, included in other assets, and
recorded at $197,000, the fair value of the financing fees.
The Company expects to use the proceeds from its recent equity financing
and borrowings under the Loan to fund working capital requirements, to fund
future product development efforts and to sustain significant levels of
cash reserves which are required to qualify for large sales opportunities.
Based upon its current operating plan, the Company believes its existing
capital resources 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 its foreign customers to obtain letters of credit or
to qualify for export credit insurance underwritten by third party credit
insurance companies prior to making international shipments. Also, to
mitigate the effects of currency fluctuations on the Company's results of
operations, the Company conducts all of its international transactions in
U.S. dollars.
<PAGE>
Outlook
The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ
materially.
Based upon observed trends, the Company believes that the market for FWTs
will experience substantial growth over the next five years. Nearer term
prospects should enable the Company to grow, but at more modest rates. The
Company has identified significant near term opportunities in Brazil,
China, Dominican Republic, Mexico, Malaysia and the USA. Each of these
markets will develop at a different pace, and the sales cycle for these
regions are likely to be several months or quarters, but market indications
are positive. The Company is well positioned with a wide range of products
to capitalize on these market opportunities.
Since its inception, the Compnay has relied on Motorola for cellular
transceivers and other products. In April, 1999, Motorola agreed to supply
the Company with complete FWT products for the CDMA market for a period of
five (5) years. The Company has shipped several thousand Motorola supplied
CDMA FWTs over the last 16 months to its customers.
On July 26, 2000, Motorola notified the Company of its intent to discontinue
production of CDMA FWTs within the next year. Motorola has assured the
Company that it will produce sufficient quantities for the Company, or it
will assist the Company in locating an equivalent source of supply of CDMA
FWTs for the remainder of the supply agreement. The Company and Motorola
have identified and are currently assessing several potential alternate
suppliers, and negotiating resolution of this matter.
The Company believes that the withdrawal of Motorola from this CDMA FWT
market may on balance enhance the Company's competitive position in that
market, although at this time it is impossible to predict such effects with
assurance.
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,
1999, include the risk that technological change could render the Company's
technology obsolete, unfavorable economic conditions could lead to lower
sales of products, the risk of litigation, the Company's ability to develop
new products, the Company's dependence on contractors and Motorola, the
Company's ability to maintain quality control, the risk of doing business
in developing markets, the Company's dependence on research and
development, the uncertainty of additional funding, the effects of control
by existing shareholders, the effect of changes in management, intense
<PAGE>
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, 2002.
The Company frequently invests available cash and cash equivalents in short
term instruments such as: certificates of deposit, commercial paper and
money market accounts. Although the rate of interest 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 fluctuations for these investments is
not material as of June 30, 2000.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. Credit risks with respect to trade receivables are limited due
to the diversity of customers comprising the Company's customer base. The
Company generally receives irrevocable letters of credit that are confirmed
by U.S. banks to reduce its credit risk. Further, the Company purchases
credit insurance for all significant open accounts outside of the United
States. The Company performs ongoing credit evaluations and charges
uncollectible amounts to operations when they are determined to be
uncollectible.
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND RECENT SALES OF UNREGISTERED SECURITIES
Changes in Securities
Under the terms of the Loan and Security Agreement with Wells Fargo Business
Credit Inc., the Company is prohibited from paying dividends during the term
of the loan.
Recent Sales of Unregistered Securities
During the three months ended June 30, 2000, the Company issued 3,037
shares of Common Stock valued at $34,803 to the law of firm of Hamman and
Benn 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
of Incorporation Exhibit 3.2 to
the Registration
Statement
3.3 Amendment No. 2 to Certificate Filed as
of Incorporation Exhibit 3.3 to
the Registration
Statement
3.4 Amendment No. 3 to Certificate Filed as
of Incorporation Exhibit 3.4 to
Form 10-Q filed
February 16, 1999
3.5 Amendment No.4 to Certificate Filed as
of Incorporation Exhibit 3.5 to
Form 10-Q filed
February 16, 1999
3.6 By-Laws Filed as
Exhibit 3.4 to
the Registration
Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit
National Bank and Amendment 4.1 to Form 10-K
Thereto filed December 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit
December 11, 1995 4.2 to Form 10-K
filed December 27, 1995
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of to 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
William L. De Nicolo 10.1 to the
Registration
Statement
<PAGE>
10.2 Employment Agreement with Filed as Exhibit
Kenneth E. Millard 10.1 to Form 10-Q
filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit
Kenneth E. Millard 10.2 to Form 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 Amendment No.1 dated September 24, Filed as Exhibit 10.7
1996 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999(1)
10.8 Amendment No.2 dated April 30, 1999 Filed as Exhibit 10.8
to Option Agreement with Motorola to Form 10-Q filed
August 13, 1999(1)
10.9 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration
Telular Corporation dated Statement
September 20, 1993
10.10 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
10.11 Amendment No. 4 to Patent Cross Filed as Exhibit 10.11
Liscense Agreement between Motorola, to Form 10-Q filed
Inc. and the Company, dated August 13, 1999 (1)
May 3, 1999
10.13 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders to the Registration
Agreement, dated January 24, 1994 Statement
10.15 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
<PAGE>
10.16 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, 1994 Statement
10.18 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.19 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.20 Securities Purchase Agreement dated Filed as Exhibit 99.1 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.21 Registration Rights Agreement dated Filed as Exhibit 99.3 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.22 Securities Purchase Agreement dated Filed as Exhibit 99.3 to
June 6, 1997, by and between Telular Registration Statement on
Corporation and purchasers of the Form S-3, Registration
Series A Convertible Preferred Stock No. 333-27915, as amended
by Amendment No. 1 filed
June 13, 1997, and
further Amended by
Amendment No. 2 filed
July 8, 1997 (Form S-3)
10.23 Registration Rights Agreement dated Filed as Exhibit 99.4 to
June 6, 1997, by and between Telular Form S-3
Corporation and purchasers of the
Series A Convertible Preferred Stock
10.24 Agreement and Plan of Merger by and Filed as Exhibit 10.21
among Wireless Domain Incorporated to Form 10-K filed
(formerly TelePath), Telular-WD (a December 19, 1998
wholly-owned subsidiary of Telular)
and certain stockholder of Wireless
Domain Incorporated
10.25 Common Stock Investment Agreement Filed as Exhibit 4.8 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000
10.26 Registration Rights Agreement Filed as Exhibit 4.9 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000
<PAGE>
10.27 Employment Agreement with Daniel D. Filed as Exhibit 10.22
Giacopelli to Form 10-Q filed
February 13, 1998
10.29 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
with Motorola for WAFU to Form 10-Q filed
dated April 30, 1999 August 13, 1999 (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant to the Filed as Exhibit 99 to
Securities Litigation Act of 1995 Form 10-K filed December
20, 1999
(1) Confidential treatment granted with respect to redacted portions
of documents.
(b) Reports on Form 8-K
The Company filed one (1) report on Form 8-K during the three
months ended March 31, 2000:
(i) On March 6, 2000, the Company reported it had issued 444,444
shares of Common Stock and filed related documents.
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 August 14, 2000 By: /s/ Kenneth E. Millard
Kenneth E. Millard
President & Chief
Executive Officer
Date August 14, 2000 /s/ Jeffrey L. Herrmann
Jeffrey L. Herrmann
Executive Vice President &
Chief Operating Officer
Date August 14, 2000 /s/ Robert L. Zirk
Robert L. Zirk
Controller & Chief
Accounting 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
of Incorporation Exhibit 3.2 to
the Registration
Statement
3.3 Amendment No. 2 to Certificate Filed as
of Incorporation Exhibit 3.3 to
the Registration
Statement
3.4 Amendment No. 3 to Certificate Filed as
of Incorporation Exhibit 3.4 to
Form 10-Q filed
February 16, 1999
3.5 Amendment No.4 to Certificate Filed as
of Incorporation Exhibit 3.5 to
Form 10-Q filed
February 16, 1999
3.6 By-Laws Filed as
Exhibit 3.4 to
the Registration
Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit
National Bank and Amendment 4.1 to Form 10-K
Thereto filed December 27, 1995
4.2 Debenture Agreements dated Filed as Exhibit
December 11, 1995 4.2 to Form 10-K
filed December 27, 1995
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of to 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
William L. De Nicolo 10.1 to the
Registration
Statement
<PAGE>
10.2 Employment Agreement with Filed as Exhibit
Kenneth E. Millard 10.1 to Form 10-Q
filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit
Kenneth E. Millard 10.2 to Form 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 Amendment No.1 dated September 24, Filed as Exhibit 10.7
1996 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999(1)
10.8 Amendment No.2 dated April 30, 1999 Filed as Exhibit 10.8
to Option Agreement with Motorola to Form 10-Q filed
August 13, 1999(1)
10.9 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration
Telular Corporation dated Statement
September 20, 1993
10.10 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
10.11 Amendment No. 4 to Patent Cross Filed as Exhibit 10.11
Liscense Agreement between Motorola, to Form 10-Q filed
Inc. and the Company, dated August 13, 1999 (1)
May 3, 1999
10.13 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders to the Registration
Agreement, dated January 24, 1994 Statement
10.15 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
<PAGE>
10.16 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, 1994 Statement
10.18 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.19 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.20 Securities Purchase Agreement dated Filed as Exhibit 99.1 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.21 Registration Rights Agreement dated Filed as Exhibit 99.3 to
April 16, 1997, by and between Telular Form 8-K filed
Corporation and purchasers of the April 25, 1997
Series A Convertible Preferred Stock
10.22 Securities Purchase Agreement dated Filed as Exhibit 99.3 to
June 6, 1997, by and between Telular Registration Statement on
Corporation and purchasers of the Form S-3, Registration
Series A Convertible Preferred Stock No. 333-27915, as amended
by Amendment No. 1 filed
June 13, 1997, and
further Amended by
Amendment No. 2 filed
July 8, 1997 (Form S-3)
10.23 Registration Rights Agreement dated Filed as Exhibit 99.4 to
June 6, 1997, by and between Telular Form S-3
Corporation and purchasers of the
Series A Convertible Preferred Stock
10.24 Agreement and Plan of Merger by and Filed as Exhibit 10.21
among Wireless Domain Incorporated to Form 10-K filed
(formerly TelePath), Telular-WD (a December 19, 1998
wholly-owned subsidiary of Telular)
and certain stockholder of Wireless
Domain Incorporated
10.25 Common Stock Investment Agreement Filed as Exhibit 4.8 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000
10.26 Registration Rights Agreement Filed as Exhibit 4.9 to
dated March 3, 2000 Registration Statement on
Form S-3, Registration
No. 333-33810 filed
March 31, 2000
<PAGE>
10.27 Employment Agreement with Daniel D. Filed as Exhibit 10.22
Giacopelli to Form 10-Q filed
February 13, 1998
10.29 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
with Motorola for WAFU to Form 10-Q filed
dated April 30, 1999 August 13, 1999 (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant to the Filed as Exhibit 99 to
Securities Litigation Act of 1995 Form 10-K filed December
20, 1999
(1) Confidential treatment granted with respect to redacted portions
of documents.
<PAGE>
