Exhibit 99
CAUTIONARY STATEMENTS
We wish to inform investors of the following factors that in some cases
have affected, and in the future could affect, our results of operations and
that could cause future performance and results to differ materially from
those expressed in any forward looking statements we make or that are made on
our behalf. You can find many of these statements by looking for words such
as may, estimate, project, believe, anticipate, intend, expect, plan and
similar expressions, although some forward-looking statements are
expressed differently. Disclosure of these factors is intended to permit us
to take advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Many of these factors have been discussed in
our prior SEC filings. Although we have attempted to identify all material
factors, you should be aware that other factors in the future may affect our
performance and results.
Unfavorable economic events in our target markets could lead to lower sales
of our products.
Sales of our products depend on the growth of the fixed wireless
telecommunications industry in general and increased demand for fixed
wireless products worldwide, particularly in developing countries. Based on
observed trends, we believe that the market for fixed wireless terminals,
such as our PHONECELL products, will experience substantial growth over the
next five years. We believe that nearer term prospects should enable our
sales to grow, but at more modest rates. We anticipate that significant
opportunities for product sales will develop in the near future in Brazil,
China, India, Mexico, Spain, Turkey and the USA. However, we cannot assure
you that we will have significant sales in any of these markets or that any
sales will be made in the near term. Each of these markets will develop at a
different pace, and some or all of them may not develop to the point that
will enable us to achieve significant revenues.
In addition, unfavorable general economic conditions in any market will have
a negative affect on sales in that market. Because economic conditions in
one region often affect conditions globally, unfavorable general economic
conditions in one market or region might result in damage to industry growth
and demand in other markets as well. For instance, the recent economic
turmoil experienced by Russia and many Asian nations has and will continue to
negatively affect our growth prospects in the near term. If the unfavorable
economic conditions in these regions continue, or if conditions in other
countries decline, our product sales and financial condition could be
seriously harmed.
Our competitive position will be seriously damaged if we cannot protect
intellectual property rights in our technology.
We believe that our success depends, in part, on our ability to obtain and
enforce intellectual property protection for our technology. We believe that
the U.S. patent for our intelligent interface technology is valid. However,
it is possible that this patent, any of our other existing patents, or any
patents that we may obtain in the future, will be challenged, invalidated or
circumvented. If we lose or cannot enforce patent protection in the U.S. for
our technology and products, our competitive position will be significantly
harmed because it would be much easier for competitors to sell products
similar to ours.
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It also is possible that a competitor may independently develop and/or patent
technologies that are substantially equivalent to or superior to our
technology. If this happens, our patents will not provide protection and our
competitive position will be significantly harmed.
We believe that our intelligent interface technology can be adapted for use
with new wireless services, such as telemetry. However, we cannot be sure
that any new services will fall within the boundaries of the patent we hold.
If we expand our product line or develop new uses for our products, these
uses may be outside the protection provided by our current patents and other
intellectual property rights. In addition, if we develop new products or
enhancements to existing products we cannot assure you that we will be able
to obtain patents to protect them. Even if we do get patents for new
products, these patents may not provide meaningful protection.
In some countries outside of the U.S., such as Brazil and many African
nations, patent protection is not available. Moreover, some countries that
do allow registration of patents do not provide meaningful redress for
violations of patents. As a result, protecting intellectual property in
these countries is difficult. In addition, neither we nor any of our
competitors in the past obtained patent protection for our core intelligent
interface technology in many countries, including the principal countries of
Western Europe, and we and our competitors are now legally barred from
obtaining patents in these countries.
In countries where we do not have patent protection or where patents provide
little, if any, protection, we have to rely on other factors to differentiate
our products from our competitors' products. These factors include:
. the features and functions of our products;
. our reputation and experience in the industry;
. the quality of our products; and
. the desirability of products that meet the same specifications as
those in the U.S. and in other countries where we do have patent
protection.
Although we believe our products are superior to those of competitors, it is
easier for competitors to sell products similar to ours in countries where we
do not have meaningful patent protection. This could result in a loss of
potential sales.
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The intense competition in the fixed wireless industry could prevent us from
achieving or sustaining profitability.
The market for fixed wireless products is extremely competitive, and we may
not be able to successfully compete with other companies already in the
market and new companies that enter the market. The major national and
international companies in this market are:
. Motorola;
. Ericsson;
. Nokia;
. LGIC; and
. Hyundai.
Many of these competitors have greater resources than us in many areas
critical to succeeding in the industry, including:
. financial resources;
. manufacturing capabilities;
. name recognition;
. research and development capabilities;
. technical expertise;
. sales and marketing staffs; and
. distribution channels.
Because of these advantages our competitors may succeed in developing
products that are more effective, desirable and/or cheaper than ours or that
render our products and technology obsolete. They also may have better and
more efficient marketing and distribution structures than we do.
In addition, we have granted non-exclusive, royalty bearing licenses to
Motorola, Ericsson and Nokia, which permits these companies to produce and
sell products using our technology that compete with ours. Because these
companies have greater resources than us, they may be able to sell similar
products more effectively and cheaper than we can.
Our success depends on the growth and availability of wireless
telecommunications services in the markets we target.
Currently, some of our largest potential markets are developing countries
where the demand for basic telephone service has started to grow
significantly only in recent years, such as Brazil, China, India, Mexico,
Spain, Turkey and the USA. In these countries, the relatively low cost of
developing and constructing wireless communications infrastructure as
compared to traditional wireline infrastructure may make wireless an
attractive alternative to wireline. Our success depends to a large extent on
the continued growth and increased availability of cellular and other
wireless telecommunications services in these countries and the availability
of such services at competitive prices.
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However, these countries may decline to construct wireless systems, or
construction may be delayed, for a variety of reasons, including government
regulation, general economic factors, the availability of funding and other
competitive factors. These factors may also limit or delay purchases of
equipment used to provide telephone services, such as our products. If
system construction and equipment purchases in these countries are not made
or are delayed, the demand for our products in these countries will be
limited or delayed. Similarly, if the cost of using wireless
telecommunications services in these countries is not cost effective, the
demand for our products may be limited.
While wireless telecommunication systems in the U.S. are more developed than
in many other markets that we target, continued expansion of wireless
infrastructure and demand for fixed wireless products in the U.S. is also
important for the growth of our business. As is the case with conditions in
other target markets, there is no guarantee that wireless telecommunications
systems will continue to develop.
Delaware law and our charter documents may inhibit a potential takeover bid
that would be beneficial to common stockholders.
Delaware law and our certificate of incorporation may inhibit potential
acquisition bids for Telular common stock at a price greater than the market
price of the common stock. We are subject to the antitakeover provisions of
the Delaware General Corporation Law, which could delay, deter or prevent a
change of control of Telular or make this type of transaction more difficult.
In addition, our board of directors does not need the approval of common
stockholders to issue shares of preferred stock having rights that could
significantly weaken the voting power of the common stockholders and, as a
result, make a change of control more difficult.
An agreement among our principal stockholders and Motorola may inhibit a
potential takeover bid that would be beneficial to common stockholders.
We and our principal stockholders, including Motorola, have entered into an
agreement under which we and these stockholders are required to notify
Motorola before:
. we or the other stockholders solicit any purchase offers for all
or substantially all of our assets or a majority of the
outstanding common stock; or
. we or the other stockholders accept any unsolicited offer for all
or substantially all of our assets or a majority of the
outstanding common stock.
After Motorola has been notified, it has the right to submit a bid for the
proposed sale and we and the other stockholders cannot make any sale at a
valuation lower than Motorola's bid, if any. Motorola's contractual right
may inhibit other companies from making takeover bids at a price that would
benefit the common stockholders.
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We may not be able to obtain the funding we need to operate our business.
Our ability to continue operations depends on having adequate funds to cover
our expenses. Our current operating plan provides for significant
expenditures for research and development of new products, development of new
markets for our products, and marketing programs for our products. At
September 30, 2000, we had $20.5 million in cash and cash equivalents and a
working capital surplus of $28.2 million. This includes the proceeds of a
$10 million private placement of 444,444 shares of Common Stock, together
with warrants for additional shares, on March 3, 2000. In addition, we had
$1.9 million of restricted cash which represents the proceeds under a $5
million credit facility with Wells Fargo Bank ("Wells") entered into on
January 7, 2000. Based on our current operating plan, we believe that our
existing capital resources, including the Wells credit facility, revenues
from sales and royalty income from licensees, will allow us to maintain our
current and planned operations.
However, we caution you that our cash requirements may vary and are difficult
to predict. We target markets in developing countries for product sales, and
the nature of these markets makes it difficult to predict revenues. Events
that we cannot anticipate, economic and political factors, and the customers
ability to execute its plans, may result in order cancellations which may
increase our capital needs. Also, it is difficult to predict the amount
royalty income we will receive from our licensees. Thus, our actual cash
requirements may be greater than we currently anticipate.
Accordingly, we may not have adequate funds to cover our expenses. If this is
the case, we would need to find other financing sources to provide the
necessary funds, such as public or private sales of our equity or debt
securities. We cannot assure you that if we needed additional funds we would
be able to obtain them or obtain them on terms we find acceptable. If we
could not obtain the necessary financing we would be forced to cut back
operations, which might include the scaling back or elimination of research
and development programs.
Our revenues may increase or decrease significantly due to our reliance on a
limited number of customers for most of our product sales.
On September 13, 2000, we entered into an agreement for the sale of wireless
products to be distributed in Mexico. Under the terms of the agreement among
Telular Corporation, Radiomovil DIPSA, S.A. de C.V.("Telcel"), and BrightStar
de Mexico S.A. de C.V.("BrightStar"), we will manufacture and sell our
Phonecell(R) SX4D TDMA-800 Deskphone for a total contract price of $67.5
million. Delivery, under this agreement, is to be made during the period
beginning November 2000 and ending October 2001.
Telcel is the leading cellular operator in Mexico, with 8.1 million
subscribers nationwide and a 70 per cent share of the fast-growing Mexican
wireless market. BrightStar is a leading distributor and a provider of
value-added services (VAS) in the wireless telecommunications industry for
Latin America.
This agreement is the largest order for product we have received since 1996.
Consequently, the impact of this agreement will be to significantly increase
revenues. Further, the absence of continuation agreements with this customer
or failure to replace this business in the future could cause revenues to
decrease significantly.
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Our operating results may fluctuate greatly from quarter to quarter, which
may cause the price of our common stock to be volatile.
Our quarterly operating results may fluctuate greatly due to numerous
factors, including:
. our reliance on large volume orders from only a few customers for
most of our product sales, so we may experience volatility when
those orders are filled if we do not then have other orders;
. variations in our distribution channels;
. the mix of products we sell;
. general economic conditions in our target markets;
. the timing of final product approvals from any major distributor
or end user;
. the timing of orders from and shipments to major customers;
. the timing of new product introductions by us or our competitors;
. changes in the pricing policies of our suppliers;
. the availability and cost to us of the key components for our
products;
. the timing of personnel hirings; and
. market acceptance of our new products or enhanced versions of our
existing products.
These quarterly fluctuations may cause volatility in the price of our common
stock, as described in the following paragraph.
Our common stock price has been extremely volatile, and extreme price
fluctuations could negatively affect your investment.
The market price of our common stock has been extremely volatile. Since
January 1, 1999, the price of our common stock (calculated on the basis of
the reverse stock split implemented in January 1999) has ranged from a high
of $32.00 to a low of $1.00 per share.
Publicized events and announcements may have a significant impact on the
market price of our common stock. For example, the occurrence of any of the
following events could have the effect of temporarily or permanently driving
down the price of our common stock:
. shortfalls in our revenue or net income;
. the results of trials or the introduction of new products by us
or our competitors;
. market conditions in the telecommunications, technology and
emerging growth sectors; and
. rumors related to us or our competitors.
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In addition, the stock market from time to time experiences extreme price and
volume fluctuations which particularly affect the market prices for emerging
growth and technology companies, like Telular, and which often are unrelated
to the operating performance of the affected companies. These broad
fluctuations may negatively affect your ability to sell your shares at a
price equal to or greater than the price you paid for them. In addition, a
decrease in the price of our common stock could cause it to be delisted from
the Nasdaq National Market.
Sales of common stock issuable on the exercise of outstanding and
contemplated options and warrants may depress the price of the common stock.
As of September 30, 2000, there were options granted to employees and
directors to purchase approximately 1,001,200 shares of the Company's common
stock. However, options to purchase only 275,766 of these shares were
exercisable at that time. The exercise prices for the exercisable options
ranges from $1.44 to $39.00 per share, with a weighted average exercise price
of $10.31. Options to purchase the remaining 725,445 shares will become
exercisable over the next five years. The exercise prices for the options
that are not yet exercisable have a weighted average exercise price of $7.49.
In connection with the proposed credit facility with Wells, we issued to
Wells warrants to purchase 50,000 shares of common stock at an exercise price
of $16.29 per share. In connection with the private placement of 444,444
shares of common stock, we issued warrants to purchase 358,407 additional
shares at exercise prices which range from $12.27 to $31.56 per share, an
option to purchase 177,746 additional shares at an exercise price of $28.13
per share, and the right to receive additional warrants to purchase 50,000
additional shares at an exercise price of $31.56 per share. In the future we
may issue additional shares of common stock, convertible securities, options
and warrants.
The issuance of shares common stock issuable upon the exercise of options or
warrants could cause substantial dilution to holders of common stock. It
also could negatively affect the terms on which we could obtain equity
financing.
Technology changes rapidly in our industry and our future success will depend
on our ability to keep pace with these changes and meet the needs of our
customers.
The telecommunications equipment industry is characterized by rapid
technological advances, evolving industry standards, changing customer needs
and frequent new product introductions and enhancements. The wireless
telecommunications industry also is experiencing significant technological
change, such as the transformation of cellular systems from analog to
digital. The introduction of products embodying new technologies and the
emergence of new industry standards could render our existing products and
technology obsolete and unmarketable.
To succeed, we must timely develop and market new products and enhancements
to existing products that keep pace with advancing technological developments
and industry standards and that address the needs of customers. We may not
be successful in developing and marketing new products and enhancements or we
may experience difficulties that prevent development of products and
enhancements in a timely manner. In addition, our products may fail to meet
the needs of the marketplace or achieve market acceptance. Any of these
circumstances would seriously harm our results and financial condition.
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We must devote substantial resources to research and development to remain
competitive and we may not have the resources to do so.
For us to be competitive, we must continue to dedicate substantial resources
to research and development of new products and enhancements of current and
future products as described in the preceding paragraph. We cannot assure
you that we will have sufficient resources to fund the necessary research and
development or that our research and development efforts will be successful.
We may face litigation that could significantly damage our business and
financial condition.
In the telecommunications equipment and other high technology industries,
litigation increasingly has been used as a competitive tactic by both
established companies seeking to protect their position in the market and by
emerging companies attempting to gain access to the market. In this type of
litigation, complaints may be filed on various grounds, such as:
. antitrust;
. breach of contract;
. trade secret;
. copyright or patent infringement;
. patent or copyright invalidity; and
. unfair business practices.
If we have to defend ourselves against one or more of these claims, whether
or not they have any merit, we are likely to incur substantial expense and
management's attention will be diverted from operations. This type of
litigation also may cause confusion in the market and make our licensees and
distributors reluctant to commit resources to our products. Any of these
effects could have a significant negative impact on our business and
financial condition.
In the event that any of our patents or other intellectual property rights
were deemed invalid or were determined not to prohibit competing technologies
as a result of litigation, our competitive position would be significantly
harmed. See "Our competitive position will be seriously damaged if we cannot
protect intellectual property rights in our technology."
In order to succeed we must develop markets for our products and we may be
unable to do so.
Our ability to achieve profitability depends on our ability to develop both
domestic and international markets for our products and on the acceptance of
our products by these markets. We cannot assure you that we will be able to
develop adequate markets or generate enough sales to achieve and sustain
profitability.
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Certain former holders of our 5% Series A Convertible Preferred Stock believe
that we did not issue them enough common stock on conversion of their
preferred stock.
Under the terms of our 5% Series A Convertible Preferred Stock, on October
18, 1999, all of the 11,350 outstanding shares of preferred stock
automatically were converted into approximately 2.1 million shares of common
stock at the minimum conversion price of $8.00 per common share specified in
the terms. In Form SC-13G filings with the Securities and Exchange
Commission in October and December 1999, certain of the previous
holders noted that based upon their interpretation of Mandatory
Conversion formula, the holders were entitled to an aggregate of
approximately 4.2 million additional shares. We do not agree with this
interpretation, we have notified these holders of our position and we have not
received any further claim or communication from the previous holders. If we
were required to issue these shares it would cause substantial dilution to
our stockholders.
We rely on third parties to manufacture components for our products.
We manufacture some of our products and product components in-house. We also
use subcontractors to manufacture certain product components, such as
cellular transceivers and radio modules, and to assemble some of our
products, such as fixed wireless terminals. In the past, we experienced
delays in receiving subcontracted components and assembled products which
resulted in delays in our ability to deliver products. We may experience
similar delays in the future.
Our inability to obtain sufficient quantities of raw materials and key
components when required, or to develop alternative sources of supply if
required in the future, could result in delays or reductions in product
shipments and increased costs for affected parts. In addition, production
capacity restraints at our subcontractors or in our own manufacturing
facilities could prevent us from meeting production obligations.
Delays in product deliveries for any reason or our failure to deliver
products could significantly harm customer relationships and result in the
loss of potential sales. Delivery delays or failures also could subject to
litigation. See "Risk Factors --We may face litigation that could
significantly damage our business and financial condition."
We depend on Motorola to supply some of our products and the transceivers for
some of our products.
We currently obtain some of the cellular transceivers we use in our products
and products we sell from Motorola, which is one of our major stockholders
and competitors.
Motorola has agreed to make transceivers available to us based on any
transmission technology that Motorola's Cellular Subscriber Group offers,
when, as and if these products are offered to the public. Motorola has a
right of first refusal to supply all of our transceiver needs on the same
terms as we could get from a competitor of Motorola, provided that Motorola
manufactures a product comparable to the competitor's and our customer does
not specifically request another manufacturer's transceiver. If we are
unable to get sufficient quantities of Motorola transceivers, we might have
to redesign our products. This could increase our costs and cause shipments
delays.
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During fiscal year 1999, the Company entered into a five year distribution
agreement with Motorola, allowing the Company to distribute a CDMA FWT made
by Motorola. In July 2000 Motorola announced the discontinuance of that
product and their exiting the WLL business. The terms of that discontinuance
are still under discussion. Meanwhile the Company is pursuing obtaining its
own CDMA technology license, allowing the Company to develop and manufacture
its own CDMA FWT.
Quality control problems could harm our sales.
We believe that our products currently meet high standards of quality. We
have instituted quality monitoring procedures and we are ISO-9001 compliant.
All of our major subcontractors also have quality control procedures in place
and are ISO-9001 compliant. However, we and/or our subcontractors may
experience quality control problems in the future. If this occurs, the
quality of our products could suffer, which could significantly harm product
sales.
We operate in developing markets which may subject us to volatile conditions
not present in the U.S.
Developing countries are some of our largest potential markets. As we expand
our operations in these countries, our business and performance could be
negatively affected by a variety of factors and conditions that businesses
operating in the U.S. generally do not have to contend with, such as:
. foreign currency exchange fluctuations and instability of foreign
currencies;
. political or economic instability and volatility in particular
countries or regions;
. limited protection for intellectual property;
. difficulties in staffing and managing international operations;
and
. difficulties in collecting accounts receivable.
To date, our sales have not been negatively affected by currency
fluctuations. We currently require either letters of credit or qualification
for export credit insurance underwritten by the U.S. Export-Import Bank or
other third party insurers on a substantial portion of our international
orders. We also try to conduct all of our international transactions in U.S.
dollars to minimize the effects of currency fluctuations. However, as our
international operations grow, foreign exchange fluctuations and foreign
currency inflation may pose greater risks for us and we may be required to
develop and implement additional strategies to mange these risks. If we are
not successful in managing these risks our business and financial condition
could be seriously harmed.
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Some of our directors may have conflicts of interest that may adversely
affect our business.
Our board of directors currently includes, and we expect that it will
continue to include, persons designated by companies that we have business
relationships with. It is possible that the companies that designate these
directors, such as Motorola, may be in direct or indirect competition with us
or among themselves for business activities or transactions. Although the
affected directors may abstain from voting on matters in which Telular's
interests and the interests of another company are in conflict, the presence
of potential or actual conflicts could affect the process or outcome of board
deliberations in ways that would harm our business and financial condition.
A small number of our existing stockholders exercise significant control over
our affairs.
As of November 10, 2000, our officers and directors, together with entities
affiliated with our directors, beneficially owned 20.5% of our common stock
(this is assuming that they had actually exercised all stock options that are
exercisable within 60 days of November 10, 2000). If these stockholders act
together, they have a significant impact on director elections and matters
that require stockholder approval, such as a change of control of Telular.
Thus, these stockholders may have the ability to direct our affairs in a
manner that is beneficial for themselves but harmful to other shareholders.
Pursuant to the Shareholders' Agreement, Motorola has the right to nominate
at least one director to the Company's Board of Directors if it holds at
least 10% of the outstanding shares of the Company's common stock, and if it
holds at least 20% of the outstanding shares of the Company's common stock
it may nominate at least two directors. In each of the above cases, the
principal stockholders of the Company are party to the Shareholders' Agreement
and have agreed to vote in favor of the election of Motorola's nominee(s).
Motorola currently owns 9.4% of the Company's common stock and is not
entitled to name a nominee under the Shareholder's Agreement.
