Telular Corporation 2001 Annual Report

Telular Corporation:Providing WirelessSolutions2001 Annual Report

Telular fixed wirelessis a seamless connectionto wireline quality.

Whether used on a dedicatedWireless Local Loop networkor existing cellular or PCS(collectively cellular) infrastructure,Telular Phonecell ®Fixed Wireless Terminalsfulfill the delivery and quality requirements for voice, fax, and datawith seamless, transparent connectivity regardless of location.With Telular fixed wireless technology, standard phones, faxmachines, computers, PABX systems and alarm systems connectdirectly to the wireless network, gaining quick access to high quality,reliable and cost-effective communications. Simply plug yourequipment into the Phonecell ® and you are ready to communicate.

Kenneth E. MillardTo Our ShareholdersChairman of the Board,President and ChiefExecutive OfficerFiscal Year 2001 - A Great Year for TelularDespite a challenging year for the telecom industry ingeneral, we maintained our global focus and operated ina market space with strong demand and continued growth.We achieved our goals:• Significantly Increased Revenues: $101 million in FY2001compared to $40 million in FY2000.• Generated a Healthy Profit: $13 million profit in FY2001compared to $(6) million loss in FY2000.• Increased Worldwide Awareness of Wireless Local Loop:Our market is growing – the market for cellular and PCS(collectively cellular) fixed wireless solutions.As I reflect on the year that was Fiscal Year 2001, it’sclear to me that our focus over the years has been correct.We’ve employed only the best engineers, technical supportstaff, sales and marketing professionals; we’ve continuallyinvested in R&D; and we have grown the cellular fixedwireless market. Cellular fixed wireless has become notonly an accepted method – but the preferred method –of deploying affordable telecommunications around theworld. In addition, we have made great inroads in developedcountries, such as the U.S., providing an alternative towireline telecommunications.Fixed Wireless – The “Killer App” forNext-Generation Cellular NetworksYou can be assured, we will not sit idle and rest on ourlaurels. There are challenges ahead on which we areclearly focused. Our industry is undergoing a metamorphosisas we speak. Whereas voice has been the primarywireless market to date, advanced technology has finallydelivered high-speed data. We are progressing through2.5G toward the promise of 3G, which should see extensivenetwork deployment beginning 2003-2004.We believe we have the “Killer App” that will takeadvantage of the new 2.5G and 3G cellular networks beingdeployed. We are developing GPRS and 1xRTT productsfor the first step of next-generation networks that willprovide the affordable high-speed data that consumersare demanding. Telular will lead the market with productscapable of data speeds up to 144Kbps in early 2002.Rather than take a wait-and-see approach to the highspeeddata market, Telular has proactively positioneditself to be in the “sweet spot” of this market. As thesenew networks are deployed, we will be prepared withstate-of-the-art products available to meet the pent-updemand for high-speed wireless data.New Product DevelopmentOffering fresh, leading-edge products is key to ourcontinued growth and profitability. As we grew the fixedwireless market in 2001 with the Phonecell ® family ofDesktop Phones, we will introduce several new productsin 2002, including the SX5 family of cellular Fixed WirelessTerminals and Desktop Phones. SX5 products will featurehigh-speed data capability and will be in production asnext-generation networks come on-line.

1202020901010600030Revenuein millions-10Earningsin millions-10Cash Flowin millions99 00 0199 00 0199 00 01Relationship Buildingwhat is important to consumers in the U.S. may not beTelular has built its business – and its success – on strategicrelationships. We know from years of experience that thisis a global world and quality relationships can make youor break you. The customer relationship with Telcel-Mexicowas developed over a period of years and now extendsto all Americas Movil properties located throughoutLatin America. The relationship with Ericsson, which hastransitioned to the newly formed Sony Ericsson MobileCommunications, has grown during the last year froma supplier relationship to a strategic partnership aimed atsecuring new business for both companies. In 2001, Telularformed a new relationship with Axesstel for the supply ofCDMA products, replacing the former CDMA relationshipwith Motorola.It is clear that what worked yesterday may notwork tomorrow. Consequently, we continually evaluateour strategic relationships to ensure that Telular is wellpositionedfor continued long-term growth.important in Nigeria. This global focus provides an addedbenefit as it can lessen the impact – or threat – of regionalpolitical, governmental or economic crises around the world.To Our InvestorsWe are pleased to report that we are in a strong financialposition. In 2001, we earned record profits and maintainedpositive cash flow.But let me reiterate, we will not sit idly by and reston our past accomplishments. We will continue to dothe things that got us to the point of higher revenuesand profitability. We will continue to aggressively investin R&D. We will continue to lead the industry in sales,marketing and technical support around the world. Wewill continue to develop and expand the global cellularfixed wireless market.The future looks promising – we are truly in the rightplace at the right time. Thank you for your support.Global Market FocusOur future growth potential is unlimited because wemaintain a global market focus. We are dedicated toproviding ”last mile” solutions over the long haul –worldwide. Because we have deployed products in morethan 130 countries, we understand the nuances of cellularKenneth E. MillardChairman of the Board,President and Chief Executive Officerfixed wireless markets around the globe and we knowthat what works in Mexico, may not work in India, and

Telular is recognizedas the world leader incellular fixed wireless...In 2001, we again demonstratedthat we are therecognized world leaderin cellular fixed wirelessbecause we are botha product-focused anda customer-focusedcompany. But we don’tstop there. We cultivatethis dual focus into ourreal strength – providingwireless solutions.What does all this mean?Simply put, Telular combinesthe broadest cellularfixed wireless productoffering in the world withthe most comprehensiveservice. Our quality policyis our real-life creed: Telularis committed to providingproducts and services thatmeet or exceed customerexpectations.

TODAYThe Product CompanyIt all begins with quality products. Over the years, Telular has earned the enviable reputation of anticipating trends andsetting standards for product innovation, as well as leading the charge in the rapidly changing world of wirelesstelecommunications.Dynamic product development has resulted in a complete line of Phonecell ® cellular Fixed Wireless Terminals andcellular Desktop Phones for the world’s major cellular standards. We continually update our products utilizing state-of-thearttechnology and cutting-edge cost-reduction processes. We are the only cellular fixed wireless manufacturer to supportthe world’s major cellular standards: GSM, CDMA, TDMA and AMPS. In 2002, we will be adapting our products with GPRSand 1xRTT capability and focussing our marketing efforts on the data market and the growing least cost routing market.The Customer-Focussed CompanyWe have the right products. Now what? We have seen competitor after competitor stumble and ultimately exit the fixedwireless marketplace. Why? Because it takes much more than products and a big name to define, develop and managea successful market.Cellular fixed wireless – the successful business model – is all about “hands-on” listening, educating, servicing, andworking with customers around the world. Telular is the only cellular fixed wireless equipment manufacturer that provideson-the-ground technical, marketing and sales support – worldwide. Telular deploys sales, technical support, engineeringand marketing personnel where it’s happening. There is no better way to understand the customer, the wireless network,or the issues at hand than by being there – in person. It is this dedication and focus on the customer that sets us apart fromour competitors.The Solutions CompanyWe deliver solutions. While we develop and manufacture cellular fixed wireless products, we also have a keen understandingthat we do not simply sell products. We provide solutions to wireless operators, to businesses and to individuals.These are the very solutions that can bring basic voice telephone service to people for the first time. These are the verysolutions that allow operators to add incremental minutes and revenue to their networks while reducing churn. These arethe very solutions that provide significant savings to businesses by taking advantage of cost-saving applications. It’s Telular– the Solutions Company – that defines us as the market leader.

Telular’s successbegins with qualityproducts.GSMCDMAPhonecell ® SX4ePhonecell ® SX4DPhonecell ® SX4ePhonecell ® SX4DFixed Wireless TerminalDesktop PhoneFixed Wireless TerminalDesktop PhoneProvides digital voice,Provides digital voiceProvides digital voice,Provides digital voice,fax and data in 900 MHz,communication infax and data in 800 MHzfax and data in 800 MHz1800 MHz and 1900 MHz900 MHz and 1800 MHzand 1900 MHz CDMAand 1900 MHz CDMAGSM versions.GSM versions.versions.versions.Coming in 2002...Coming in 2002...Coming in 2002...Coming in 2002...Phonecell ® SX5ePhonecell ® SX5DPhonecell ® SX5ePhonecell ® SX5DFixed Wireless TerminalDesktop PhoneFixed Wireless TerminalDesktop Phonefor GPRS (GSM).for GPRS (GSM).for 1xRTT (CDMA).for 1xRTT (CDMA).

Telular offers the mostcomplete line of cellularFixed Wireless Terminals inthe world, spanning GSM,CDMA, TDMA and AMPStechnologies. We offerthe most complete lineof cellular Desktop Phonesin the world. Modelsrange from low-cost voiceunits to feature-rich units,which include fax anddata capability.We also offer themost complete line ofcellular alarm back-upproducts in the industry.Telguard ® modelsare compatible withmost alarm panels,enabling alarm signalsto be sent over thecellular networks.TDMAAMPSCellular AlarmTransmission SystemPhonecell ® SX4ePhonecell ® SX4DPhonecell ® SX3eTelguard DataBurst Fixed Wireless TerminalDesktop PhoneFixed Wireless TerminalTG-100Provides digital voice,Provides digital voiceProvides analog voice,Compatible with mostfax and data in 800 MHzcommunication in 800 MHzfax and data service onalarm panels.TDMA and Tri-ModeTDMA and Tri-Mode800 MHz AMPS networks.Communicates over(800 MHz and 1900 MHz(800 MHz and 1900 MHzthe control channelTDMA, AMPS) versions.TDMA, AMPS) versions.of the existing cellularnetwork. UL listed.

Telular’s fixed wirelesssolutions hold the keyto quality communicationsacross a wide range ofapplications.Basic Phone ServiceCompetitive AccessLeast Cost RoutingRapid DeploymentFor primary telephoneFor the second line marketProvides a direct connectionFaster to install thanservices – known asor as an alternative to theto a wireless phone aswired networks, cellularWireless Local Looplocal phone company.opposed to routing the callfixed wireless addresses(WLL). Telular’s fixedBy avoiding the use of thethrough the local wirelinethe need for emergencywireless platform enableslocal carrier’s infrastructurecarrier. Takes advantage ofservice in disasterrapid deployment andor access charges, cellularlow cost mobile-to-mobilesituations or temporarycost-effective installation.fixed wireless can providerates or avoids high inter-deployment whilevoice and data services atconnect charges.permanent facilitieslow cost.are constructed.

Back-Up Phone ServiceCellular Public PhonesPortable Dial Tone ServiceTelemetry/RemoteProvides reliable communi-Cellular public phones, bothIn addition to voice service,Monitoringcations when primarytraditional payphones andcellular fixed wirelessTwo-way communicationsservices fail, automaticallypublic calling offices, serveprovides robust fax and datato effectively manageconnecting an alarmdeveloping countries andfor marine use, recreationalgeographically dispersedsystem, PABX, key system,rural areas, wherevehicles, construction sites,systems, includingfax or computer tolandlines may not beportable kiosks, emergencyutilities, unstaffed facilitiesavailable cellular service –available, or for urban envi-vehicles and trade shows.and vehicles.with battery back-up forronments, where flexibilityadditional security.and portability are key.

Telular will increaseits data capabilitiesand continue to be theworld leader in cellularfixed wireless...Telular established thecellular fixed wirelessconcept, developedthe application around theworld, and has fieldedproducts in more countriesthan any other company.Looking forward, Telularwill be expanding thismarketplace with the adventof high-speed data over theworld’s ubiquitous cellularnetworks. Stay-tuned...

TOMORROWTelular Fixed Wireless – “The Killer App” for Next-Generation Cellular NetworksYou may have heard the ongoing saga about 3G – a technology in search of a customer? What is the applicationthat will justify the high cost of 3G? We believe the real killer app is Telular fixed wireless. While it may be moreflamboyant to think of THE killer app as some new, over-the-edge, exciting technology, it’s really right under our noses.It’s high-speed data in fixed locations. It’s cellular fixed wireless. It’s Telular.There is no doubt that low-cost ubiquitous access to broadband data is the coveted prize in the telecommunicationsworld today. But how do we get there at an affordable price and in an easy-to-deploy product? Again, it’s Telular.As cellular networks are upgraded to 2.5G and 3G technologies, Telular will be properly positioned. The Phonecell ®SX5 family of cellular fixed wireless products is Telular’s first step in delivering high-speed data and quality voicecommunication. The SX5 will lead the industry in 2002 with data speeds in excess of 100 Kbps using GPRS (GSM)and 1xRTT (CDMA) wireless networks.Broadband fixed wireless and its expensive proprietary systems are not the answer, as evidenced by the manybroadband wireless companies retreating from the market in 2001. Telular’s products and solutions utilize existingcellular networks, not expensive proprietary equipment and systems. This translates into affordable voice communicationand high-speed data functionality in easy-to-deploy, easy-to-install, and user-friendly equipment. Again, it’s Telular.Stay Tuned. 2001 Was Just the BeginningWe believe that the future of cellular fixed wireless is very promising. At the same time, it is also difficult to predictdue to international, governmental, political and economic factors beyond our control. Therefore, as we develop andpursue the various market opportunities around the world, we always keep one eye on the big picture. While the voicemarket will continue to be an important segment of our business in developing countries, we recognize that thehigh-speed data of 2.5G, and ultimately 3G, will provide significant opportunities in the developed countries of Europeand the Americas.As we look forward to 2002 and beyond, the reality of 3G will unfold and Telular will continue to focus on products,customers and solutions.

TABLE OF CONTENTSITEM 1. 1BusinessITEM 2. 9PropertiesITEM 3. 9Legal ProceedingsITEM 4. 9Submission of Matters to a Voteof Security HoldersITEM 5. 10Market for Registrant’s Common Equityand Related Stockholder MattersITEM 6. 11Selected Financial DataITEM 7. 12Managements Discussion and Analysis ofFinancial Condition and Results of OperationITEM 7A. 17Quantitative and Qualitative DisclosureAbout Market RiskITEM 8. 18Financial StatementsITEM 9. 32Changes in and Disagreements with Accountantson Accounting and Financial DisclosureITEM 10. 32Directors and Executive Officers of the Company

ITEM 1. BUSINESSOVERVIEWBackgroundTelular Corporation (the Company) is in the cellular fixedwireless telecommunications industry. The Companydesigns, develops, manufactures and markets productsbased on its proprietary interface technologies, which providethe capability to bridge standard telecommunicationsequipment, including standard telephones, fax machines,data modems and alarm panels with standard wirelesscommunication networks in the cellular and PCS frequencybands (collectively cellular). Applications of the Company’stechnology include Wireless Local Loop (WLL) as a primaryaccess service where wireline systems are unavailable,unreliable or uneconomical, as well as wireless backupsystems for wireline telephone systems and Cellular AlarmTransmission Systems. The Company’s business segmentsare divided among its two principal product lines:PHONECELL ® , a line of cellular Fixed Wireless Terminalsand cellular Fixed Wireless Desktop Phones (collectivelyFWTs), and TELGUARD ® , a line of Cellular Alarm TransmissionSystems. Refer to the financial statement footnotesfor financial information about the business segments.In 1986, the Company acquired the intellectual propertyrights for its cellular interface concept and methodology.The Company’s patents cover not only circuitry, but alsothe core concept and principles underlying the use of anintelligent interface device in conjunction with cellular-typetransceivers and systems.In 1994, the Company completed an initial publicoffering (IPO) of its Common Stock. The Company’s stockis traded on the Nasdaq National Market System underthe ticker symbol WRLS.Wireless Telecommunications OverviewThe majority of the wireline telephones in the worldcontinue to be concentrated in a relatively small numberof industrialized countries. While telecommunicationsinfrastructure has been recognized as a critical elementfor sustained economic growth, many developing nationshave telephone systems that are inadequate to sustainessential services. Thus, many developing countries areseeking basic communications solutions that are costeffective and can be deployed rapidly to support aggressiveeconomic development programs.The process of improving and expanding telephonenetworks using advanced wireless technology in developedand developing countries has created a market forcellular wireless telecommunication equipment such as theCompany’s FWTs. In developed countries, mobile cellularsystems have changed the way people communicate andhave enjoyed phenomenal growth. In many developingcountries, Wireless Local Loop systems represent what isoften the fastest and most cost-effective way of providingbasic telephone service. WLL systems are cellular wirelessnetworks constructed and operated primarily for fixedusers, both business and residential.The Wireless Competitive Access (WCA) marketinvolves FWTs operating on mobile cellular networks builtprimarily for handheld cellular phone users. For WCAapplications, FWT sales generally begin developing aftera new mobile cellular network has been in operation fora few years, when the growth rate in new mobile cellularphone subscribers slows and the mobile operator beginslooking for new revenue sources. FWTs offer this opportunitybecause they offer better reception, are less costlyto support than wireless handsets as they are linked toa single cell site, generate more average billable airtime,and provide demand during “off-peak” times whensystem capacity is high.COMPANY STRATEGYThe Company’s strategy is to leverage its fifteen years ofexperience in the market, internationally-accepted productsand court-tested patents into a continuing leadershipposition in the rapidly developing WLL and WCA FWTequipment industry as well as to support application nichessuch as alarm backup with Cellular Alarm TransmissionSystems. Global telecommunications equipment manufacturerstogether with national and international serviceproviders are increasingly sharing the Company’s visionthat cellular systems in both developed and developingcountries are well suited for use as basic telephone serviceTELULAR CORPORATION1

networks. The key trends that are fueling the worldwideadoption of WLL/WCA programs include the following:• Extensive worldwide coverage of cellular and PCSwireless networks;• An accelerating trend toward privatization oftelecommunication service in both developed anddeveloping countries;• Development and adoption of next generation digitalnetworks that provide greater voice capacity and higherdata speeds;• Service network providers acceptance of cellularnetwork solutions as fast, cost effective answers to theircustomers’ unfulfilled demand for telecommunicationsservice; and• The licensing of multiple cellular operators in a givenregion, which intensifies competition among cellularservice providers to capture additional minutes of usageand the potential for a large wireline bypass market.TARGET MARKETS AND PRODUCT APPLICATIONSThe Company’s revenues to date have been derivedprimarily from the sale of PHONECELL ® FWTs in internationalmarkets. Domestic revenues to date have beendriven primarily by the Company’s TELGUARD ® CellularAlarm Transmission Systems, yet a growing demandfor PHONECELL ® FWTs in the USA is beginning to havea favorable impact on domestic revenues.The Company’s major target market opportunitiescan be grouped into several categories:• Wireless Basic Telephone Servicevia cellular Wireless Local Loop• Wireless Competitive Access• Least Cost Routing (LCR)• Telemetry and Remote Monitoring• Cellular Alarm Transmission Systems• Cellular Public Phones• Portable Cellular Access• Disaster Recovery and EmergencyBack-up Services.Wireless Basic Telephone Service Some countries areevaluating or have already deployed cellular telecommunicationssystems in conjunction with, or as an alternativeto, the expansion of their basic wireline systems. ProvidingPHONECELL ® FWTs to this market, which is called WirelessLocal Loop, is one of the most significant market opportunitiesfor the Company’s products.Wireless Competitive Access In both developed anddeveloping countries, the existing mobile cellular communicationsinfrastructure can be utilized to provide basiccommunications services. This is occurring both in ruralareas where it can be costly to provide wireline service andin urban areas where there is a demand for alternativesto the incumbent local wireline carrier.Least Cost Routing PHONECELL ® Terminals can be usedin conjunction with PBX and Voice over Internet Protocol(VoIP) systems to provide cost savings. The user can takeadvantage of mobile to mobile and long distance ratesthat can often be less costly than the rates charged bywireline carrier. The PBX or VoIP equipment is programmedto recognize calls that can benefit from such wireless ratesand route such calls through the wireless path.Telemetry and Remote Monitoring The use of PHONECELL ®Terminals for remote-monitoring and telemetry applicationsis a common application of the Company’s technologyin developed countries, especially in the USA.Cellular Alarm Transmission Systems Remotely monitoredalarm systems are routinely subject to catastrophic failureby virtue of telephone lines being cut by intruders orinadvertently cut by construction crews. Cellular AlarmTransmission Systems were one of the first applications ofthe Company’s technology and are a growing segmentof the business. Use of the Company’s specialized productsallows an alarm monitoring system to automatically switchto a cellular network in the event of a telephone line failure,allowing alarms to be transmitted.Cellular Public Phones A growing application for theCompany’s technology is cellular public phones. Whilesome are the traditional coin and credit card devices,2 TELULAR CORPORATION

the rapidly growing segment is pre-paid phones in areasof the world where billing and collection is difficult. Thesedevices can be deployed rapidly in public places, publiccalling offices or businesses.Portable Cellular Access There is a growing market forwireless dial tone and data services in portable environments.The applications include construction trailers, ships,trains and emergency vehicles where wireline telephones,PCs and fax machines are connected to the Company’sPHONECELL ® products to provide timely communicationcapability regardless of location.Disaster Recovery and Emergency Back-Up ServicesTelephone network outages occur regularly around theworld. Today, with the widespread availability of cellularand PCS networks, a readily available and cost-effectivesolution is possible with the Company’s technology. TheCompany’s PHONECELL ® FWT products provide continuedcommunications capability during these critical events.The Company’s products are installed in hospitals, financialinstitutions, airports, emergency response centers, publicservice centers and utility companies. The cellular back-upapproach allows businesses to protect themselves fromnetwork outages and to provide communications followingnatural disasters. As an example, Telular products wereused extensively to reestablish communications in LowerManhattan following the World Trade Center disaster.TECHNOLOGYCore TechnologyThe Company’s core patented technology is an intelligentinterface (the Invention) that permits standard telecommunicationsequipment to operate on standard cellular andPCS wireless networks. The Company’s products containingthe Invention provide the capability to bridge wirelinetelecommunications customer premises equipment andcellular networks. The Invention provides a standard dialtone, off-hook detection signal and other signals usuallyprovided by the wireline telephone company, through itstip and ring wired local loop connection, which automaticallygenerates a send signal to the cellular transceiveronce the user has finished entering the telephone number.The Company has incorporated this core technology intoa variety of products and radio standards and continues todevelop and exploit derivative products and technologiesfor customer-specific applications.Interface TechnologyThe Company’s products contain printed circuit boardsthat incorporate the Invention. In certain cases, theCompany licenses its interface technology or patent rightsto other companies, for which, in most cases, royalty feesare received. However, most of the Company’s revenueshave been generated through the sale of finished products.PRODUCT LINES AND RESEARCHAND DEVELOPMENTProducts for WLL and WCA markets are marketed underthe PHONECELL ® brand name. Cellular Alarm TransmissionSystems are marketed under the TELGUARD ® brandname. Future product offerings are expected to reflecta continued evolution of existing product lines.During fiscal year 2001, the Company improved itsFWT market position on the following major cellularradio standards:GSM (Global System for Mobile Communications) -The Company commenced production of its PHONECELL ®SX4 GSM Desktop Phone in both 900 MHz and 1800 MHzbands, and was the first company to market a 1900 MHzGSM Terminals for the USA and Latin American markets.The Company has begun development of its nextgeneration GSM product line, the PHONECELL ® SX5 thatincludes General Packet Radio Service (GPRS) offeringhigh-speed packet data capability. PHONECELL ® SX5 GSMproduction will commence in 2002.CDMA (Code Division Multiple Access) - The Companyentered into an OEM Supply agreement with Axesstel, Inc.of San Diego, CA for the supply of IS-95A, IS-95B and1xRTT fixed wireless products including 800 MHz and1900 MHz Desktop Phones and Terminals. The productsare private labeled as Telular products. The Company hasTELULAR CORPORATION3

egun development of its next generation CDMA productline which includes 1xRTT, a service that offers high-speedpacket data. Next generation CDMA products are scheduledto be available for sale in 2002.TDMA (Time Division Multiple Access) - The Companybegan shipping its PHONECELL ® Tri-Mode Terminals andDesktop Phones. Tri-Mode products are both dual band(800 MHz and 1900 MHz TDMA) and dual mode (TDMAdigital and analog AMPS). The Company also upgradedits PHONECELL ® SX4D TDMA Desktop Phone, addingfeatures such as memory dial and monitor mode. In 2002,the Company plans to produce a Class 1 (3-Watt) versionof its PHONECELL ® SX4D TDMA Desktop Phone.During fiscal year 2001, the Company also enhanced itsTELGUARD ® product line with products that are compatiblewith Radionics alarm panels.The Company believes that its future success dependson its ability to continue to meet customers’ needsthrough product innovation, rapid time-to-market withnew products, and superior “in market” customer support.Telular works closely with long distance carriers, cellularservice providers, telecommunications infrastructuresuppliers and equipment manufacturers to develop newcellular fixed wireless products for global WLL markets.Current product lines deploy the major worldwide cellularair interface standards: GSM, TDMA, CDMA and AMPS.Products based on next generation technology, GPRSand 1xRTT, are scheduled to make their debut in 2002.The Company’s research and development staff isfocused on developing a steady stream of competitiveproducts addressing cellular Fixed Wireless Terminal andCellular Alarm Transmission System market opportunities.Its technology competence encompasses all major cellularair-interface standards, which is reflected in the broadestproduct line offering in the industry. Additionally, theCompany has developed innovative products addressingmany other market categories such as Cellular PublicPhones, Least Cost Routing systems and Telemetry.Telular’s expertise in engineering products to operatereliably in the rigorous environments of many developingcountries has been recognized as a core design competence.In addition to developing products incorporatingthe latest in advanced technologies, the research anddevelopment staff continually investigates methods bywhich the Company can improve the cost of its products.The Company expects to introduce a number of newPHONECELL ® and TELGUARD ® models during fiscal year2002 that will further secure its position as the industryleader in its market segments.SALES, MARKETING AND SERVICEInternational SalesThe international marketplace is characterized by newand repeat sales to mobile cellular operators and cellularWLL operators and their distribution channels throughoutthe world. The Company has built international salesand marketing teams consisting of industry professionalswith experience in the Middle East, Latin America, Asia,Europe, Africa and the USA. It has regional sales officesin Vernon Hills, Illinois; Atlanta, Georgia; Miami, Florida;London, England; Amman, Jordan; Johannesburg, SouthAfrica and Singapore. Additionally, the Company hasstrong distributors in markets where they add value.The ability to provide on-site customer technical assistanceand support has been identified as a key competitiveadvantage for Telular, and the regional offices are staffedto provide this important service.Domestic SalesIn the USA, the Company markets PHONECELL ® andTELGUARD ® products through its sales groups in VernonHills, Illinois and Atlanta, Georgia, respectively. With thedeployment of PCS networks in the USA, the Companyis focusing on establishing product development andsupply relationships with network operators and appropriatedistribution channels. The Company’s TELGUARD ®4 TELULAR CORPORATION

line is marketed almost exclusively in the USA. Primarycustomers are alarm installation companies and alarmsystem distributors.SERVICE AND SUPPORTThe Company believes that providing customers withcomprehensive product service and support is critical tomaintaining a competitive position in the cellular telecommunicationsequipment industry. The Company offerswarranty and repair service for its products through threeprimary methods: (1) advance replacement kits shippedas warranty with orders, (2) in-house service and technicalsales support technicians and engineers at its Vernon Hills,Illinois and Hauppauge, New York facilities, as well as atregional sales offices, and (3) authorized third party servicecenters in various regions of the world.ERICSSON RELATIONSHIPIn 1997, the Company entered into a non-exclusive limitedfield of use patent license agreement with Ericsson RadioSystems AB of Sweden (Ericsson). Ericsson is the world’sleading infrastructure provider with sales offices aroundthe world. The Company receives a per-unit royalty forfixed wireless terminal products covered under this agreementthat are manufactured and marketed by Ericsson.In 1999, the Company entered into an agreement withEricsson for the supply and distribution of FWT productsincorporating the TDMA digital cellular standard. Underthis agreement, the Company benefits from increasedsales activity arising from Ericsson’s extensive worldwideinfrastructure sales organization and relationships with theworld’s leading telecommunications operators. Ericssonmay incorporate Telular’s PHONECELL ® TDMA FWTs intoits product portfolio to provide carriers with a completesolution for fixed cellular applications. Ericsson may alsopromote the sale of the Company’s PHONECELL ® TDMAproducts in connection with its infrastructure salesactivities. Ericsson provided marketing assistance to theCompany in connection with its large shipments to Mexicoduring fiscal year 2001. The Company also enteredinto an agreement with Ericsson involving technical andtesting cooperation.Ericsson was the Company’s largest supplier in 2001,supplying TDMA cellular transceivers for the Company’sPHONECELL ® SX4 TDMA Fixed Wireless Terminal andDesktop Phone. This relationship has transitioned to thenew partnership between Ericsson and Sony known asSony Ericsson Mobile Communications.The Company competes directly with Ericsson inmarkets where Ericsson offers GSM digital cellular FWTproducts, but not on products incorporating the TDMAdigital cellular standard.MOTOROLA RELATIONSHIPIn 1999, the Company entered into a five year OEMdistribution agreement whereby the Company distributedFWT products made by Motorola, Inc. (Motorola) for theCDMA cellular radio standard. The Motorola productsutilized the Company’s Invention and Motorola paid theCompany a royalty on each unit that Motorola sold tocustomers other than the Company.In 2000, Motorola announced the discontinuance ofits CDMA fixed wireless products. In 2001, the Companyand Motorola agreed to terminate the OEM agreement.Terms of the settlement included payment by Motorolaof past due royalties of $5 million.In 1993, the Company entered into an agreementwith Motorola, whereby Motorola, through its CellularSubscriber Sector (CSS), acquired an interest in theCompany of approximately 19% and, pursuant to anoption, subsequently increased its holdings to 20%.Motorola obtained the right to representation on theCompany’s Board of Directors and had one director formost of 2001. Motorola, after dilution due to the issuanceof additional shares of common stock by the Company,owned approximately 9.4% of the outstanding sharesof the Company until August of 2001.TELULAR CORPORATION5

In August 2001, Motorola sold its holdings in theCompany to a private investor. Motorola also relinquishedits right to representation on the Company’s Board ofDirectors, as well as its right of first refusal on any tenderoffer for the Company.AXESSTEL RELATIONSHIPIn 2001, the Company entered into an OEM supplyagreement with Axesstel, Inc., a San Diego-based manufacturerof CDMA products, for the supply of TelularlabeledPHONECELL ® Fixed Wireless Terminals based onthe CDMA standard. At the same time the Company andAxesstel entered into a non-exclusive, limited field of usepatent license agreement allowing Axesstel to incorporatethe Company’s Invention into their products.MANUFACTURINGFabrication of the Company’s products is accomplishedthrough a combination of in-house assembly and contractmanufacturing. Contract manufacturers make and testprinted circuit boards for the Company. The final assemblyof PHONECELL ® and TELGUARD ® products is performedat the Company’s facility in Vernon Hills, Illinois, except forthe PHONECELL ® SX4 Desktop Phones, which are assembledby a contract manufacturer in Mexico.The Company has developed proprietary testing equipmentand procedures to conduct comprehensive qualitycontrol and quality assurance throughout the manufacturingand assembly process. Quality programs are a highpriority at the Company. The Vernon Hills facility becameISO 9001 certified during fiscal year 1998. The Company’squality assurance department works closely with contractmanufacturers to ensure compliance to the strict qualitystandards of the Company.The Company contracts with a variety of suppliers tobuy several critical components of its products, includingcellular transceivers. In 1998, the Company began designingand producing its own cellular radio transceivers for theAMPS and GSM PHONECELL ® FWT product lines. In 1999,the Company began designing products that utilize certaincellular transceivers manufactured by Sony EricssonMobile Communications.EXECUTIVE OFFICERSThe executive officers of the Company and their ages as ofNovember 9, 2001 are as follows:name age positionKenneth E. Millard 54 Chairman of the Board, ChiefExecutive Officer and PresidentDaniel D. Giacopelli 43 Executive Vice Presidentand Chief Technology OfficerJeffrey L. Herrmann 36 Executive Vice President,Chief Operating Officer, ChiefFinancial Officer and SecretaryDaniel C. Wonak 53 Senior Vice President,MarketingKenneth E. Millard was elected Chairman of the Boardon October 9, 2001, and is currently President and ChiefExecutive Officer of the Company. Mr. Millard has servedas a director, President and Chief Executive Officer ofthe Company since April 1996. Previously, Mr. Millardserved as President and Chief Operating Officer of OncorCommunications, based in Bethesda, Maryland from1992 to 1996. He worked for Ameritech from 1982 to 1992where he served as President and Chief Executive Officerof Michigan Bell Telephone Company from 1989 to 1992.Prior to 1989, he held the positions of Senior VicePresident of Corporate Strategy for three years and SeniorVice President and General Counsel of Ameritech for fouryears. From 1972 to 1982, Mr. Millard worked for AT&Tand Wisconsin Bell as an attorney. Mr. Millard is currentlya member of the Board of Directors of Digi Internationaland Omnitech Inc.Daniel D. Giacopelli has served as a director, ExecutiveVice President and Chief Technology Officer of theCompany since October 28, 1997. Mr. Giacopelli foundedand was President and Chief Executive Officer of WirelessDomain, Incorporated from September 1995 to November1997. Prior to that time, Mr. Giacopelli was Director6 TELULAR CORPORATION

of Engineering of the Wireless Group of TelephonicsCorporation from 1987 to 1995. Prior to 1987, Mr. Giacopelliwas President and CEO of Valinor Electronics, Inc.Jeffrey L. Herrmann has served as Executive VicePresident, COO, CFO and Secretary of the Company andSecretary of the Company’s Board of Directors sinceDecember 15, 1999. Prior to that he served as SeniorVice President, CFO and Secretary of the Company andSecretary of the Company’s Board of Directors sinceJuly 22, 1997. Mr. Herrmann had previously beenCorporate Controller of the Company since April 1997.Prior to that Mr. Herrmann held financial managementpositions with Bell & Howell Company (1994-1997)and R.R. Donnelley & Sons Company (1992-1994).Mr. Herrmann began his career with Arthur Andersen& Company in 1987.Daniel C. Wonak has served as Senior Vice President,Marketing since July 10, 2000. Mr. Wonak had previouslybeen Marketing Director for the Coherent OEM Divisionof Tellabs. From 1995 to 1998 Mr. Wonak served as VicePresident of Marketing and Vice President and GeneralManager for Coherent Communications Corporation.Prior to that he was Vice President for XL Vision, Inc. from1993 to 1995, President and CEO for HETRA Computerand Communications Industries, Inc. from 1988 to 1993and Vice President Engineering for Extel Corporationfrom 1982 to 1988.EMPLOYEESThe Company has 159 employees, of which 32% are insales and marketing, 29% in manufacturing, 28% inengineering and product development and 11% in financeand administration. None of the Company’s employeesare represented by organized labor.COMPETITIONThe cellular Fixed Wireless Terminal industry consists oflarge domestic and international telecommunicationsequipment companies, many of which have substantiallygreater resources than those of the Company, and includescompanies such as Motorola, Nokia, Ericsson and LGIC.The Company also competes with a number of smallercompanies that have arisen in markets where enforcementof the Company’s patent protection is not available orpracticable. The Company competes with these companiesprimarily on the basis of its higher product quality andreliability, state-of-the-art technology and enhancedfeatures, rapid product innovation and customer support.The cellular telecommunications industry is experiencingsignificant technological change, such as the upgrade ofcellular networks to 2.5G and 3G technologies. The rateat which this change occurs and the success of such newtechnologies may have a material effect on the rate atwhich the Company expands its business and on its abilityto maintain profitability. The Company continues to investin research and development in order to meet the technologicaladvances in the industry and stay abreast ofchanges in cellular standards and end-user requirements.The Company has granted licenses under its patentsto others for various uses and applications and continuesto pursue such license arrangements. It faces competitionfrom those licensees, their sublicensees or their customers.It is inevitable in growing markets with huge potentialthat competition will increase. Accordingly, some of thelarge companies noted above have introduced FWTs to themarketplace. The Company believes its advantages overthe competition include:Better focus/commitment In the WLL market, theCompany’s only business is cellular FWTs. Typically, thelargest competitors sell FWTs in support of their primaryfocus—their network infrastructure business.More experience The Company has been in the FWTbusiness for 15 years and the Cellular Alarm Transmissionbusiness for ten years and has deployed its units in morethan 130 countries worldwide, which reflects in the qualityand reliability of its products.Broader product line The Company offers productsthat operate on the world’s major cellular air-interfaceTELULAR CORPORATION7

standards and is developing products for the emerging2.5G networks. The company offers both terminal typeand phone-type products.The Company’s participation in the Cellular AlarmTransmission industry is focused on the North Americanmarket. The competitive environment has been previouslydominated by a few major equipment suppliers, whohave leveraged proprietary systems to maintain theirmarket share. Some of these suppliers have verticallyintegrated up the distribution chain to include ownershipof distribution channels as well. As a result, the pace oftechnological change to date in the industry has laggedthat of the telecommunications sector generally.The Company has adopted an “innovator” role, andhas competed successfully by introducing innovative newwireless technology into the marketplace. The TELGUARD ®value proposition is enabled through its products providinggreater signaling reliability, interface compatibility overa wide range of manufacturers’ alarm equipment, simpleinstallation and operational cost efficiencies. The Companyis selectively entering into distribution agreements with anumber of leading distributors and fulfillment companiesthat will give the Company substantially increased pointsof presence in the marketplace. Some of these companiesalso compete directly with the Company on products.PATENTS, LICENSES AND OTHERINTELLECTUAL PROPERTYWith respect to its interface technology, the Companycurrently has 14 issued patents and 7 pending patent applicationsin the United States, as well as 50 foreign patentsand 14 pending foreign patent applications. The Companyhas successfully defended many of its patents in court.Principal PatentThe patent for the Company’s system for interfacing astandard telephone set with a radio transceiver, U.S. PatentNo. 4,658,096 (the 096 Patent), was issued by the U.S.Patent Office on April 14, 1987 and expires on September18, 2004. The 096 Patent has been filed in 16 countries.The invention covered by the 096 Patent is a transparentinterface between a standard telephone (or other tipand ring device such as a facsimile machine) and a cellulartransceiver thereby allowing the telephone to control theoperation of the cellular transceiver. The interface providesdial tone, off-hook detection signals and many of the othersignals usually provided by regular wireline telephones.The interface also provides for the automatic generationof a send signal from the cellular transceiver once thetelephone number has been entered.Continuation PatentsIn 1988 and 1990, the Company obtained two patents(U.S. Patent Nos. 4,775,997 and 4,922,517, respectively),each of which is a continuation and broadening of the096 Patent. These continuation patents expire on thesame date as the 096 Patent. Also in 1988, the Companyobtained a continuation-in-part of the 096 Patent, underU.S. Patent 4,737,975. Among other things, this patentallows the interface to be programmed in the field torecognize variations in telephone systems from countryto country.Other PatentsThe Company has been granted several additional patentsfor self-diagnostics systems, payphones and answersupervision both in the USA and abroad. In 1995 and 1997,the Company was granted three U.S. patents relating toself-diagnostic systems for cellular transceiver systemsfor both local and remote reporting. (U.S. Patent Nos:5,469,494; 5,859,894 and 5,966,428). These patents covera system for providing diagnostics reporting of a fixedwireless terminal initiated either at the terminal or remotelyby the cellular provider. Also in 1999, the Company wasgranted U.S. Patent 5,946,616 entitled “ConcurrentWireless/ Landline Interface Apparatus and Method”which allows the easy adaptation of an unused telephoneline as a cellular line for use throughout the wired8 TELULAR CORPORATION

facility. On March 7, 2000 U.S. Patent No. 6,035,220 wasgranted to the Company entitled “Method of DeterminingEnd-of-Dialing for Cellular Interface Coupling a StandardTelephone to the Cellular Network.”Applicability of the Company’s Patentsto Emerging Wireless TechnologiesAlthough the Company believes its intelligent interfacecan be adapted to accommodate emerging wirelesstechnologies, there can be no assurance that these newapplications will fall within the scope of the existingpatent protection.Licensing of TechnologyThe Company has granted licenses to a number of othercompanies, which include the following:ITEM 2. PROPERTIESThe Company leases, pursuant to a renewable ten-yearlease that began January 1, 1997, 72,000 square feet forits corporate headquarters in Vernon Hills, Illinois. Inaddition to serving as corporate headquarters, the facilityhouses manufacturing, sales, marketing, finance andadministrative functions. The Company leases, pursuantto a renewable five-year lease that began October 10,1997, 20,000 square feet of space for its engineeringcenter in Hauppauge, New York. The Company leasesspace for its international sales offices in Miami, Florida,London, England and Singapore. The Company leasesspace to house its Telguard ® sales force and operationsin Atlanta, Georgia.Motorola(See Motorola Relationship)ITEM 3. LEGAL PROCEEDINGSEricsson RadioSystems AB (See Ericsson Relationship)Andrew(limited non-exclusive field of use andCorporation limited geographic license)Axesstel, Inc. (See Axesstel Relationship)Trademarks and Other Proprietary InformationThe Company has 9 registered trademarks, which are:Telular (block), TELULAR plus design, CELJACK, PCSone,TELCEL, Hexagon Logo, PHONECELL, CELSERV andTELGUARD. In addition, the Company has six registeredMexican trademarks covering the names and logosused for some of its products. The Company has 70 otherforeign trademark registrations and 3 other foreigntrademark applications.The Company is involved in legal proceedings, which arisein the ordinary course of its business. While any litigationcontains an element of uncertainty, based upon the opinionof the Company’s counsel, management believes that theoutcome of such proceedings will not have a materialadverse effect on the Company’s consolidated results ofoperation or financial position.ITEM 4. SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERSNo matters were submitted to a vote of security holdersduring the fourth quarter of the fiscal year endedSeptember 30, 2001.TELULAR CORPORATION9

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITYAND RELATED STOCKHOLDER MATTERSMARKET PRICE OF AND DIVIDENDS ONCOMMON STOCKThe Company’s Common Stock trades publicly on the Nasdaq National Market System under the symbol WRLS.The following table sets forth the quarterly high and low sales prices for each quarter of fiscal year 2001, 2000 and 1999,as reported by Nasdaq. Such quotations reflect inter-dealer prices without retail markup, markdown or commissionsand may not necessarily represent actual transactions. All stock sales prices reflect a 1-for-4 reverse stock split whichoccurred January 27, 1999.QUARTER ENDED DURING FISCAL YEAR 2001Dec. 31 March 31 June 30 Sept. 30High $ 12.38 $ 10.81 $ 12.15 $ 10.17Low $ 4.00 $ 5.63 $ 8.00 $ 4.68QUARTER ENDED DURING FISCAL YEAR 2000Dec. 31 March 31 June 30 Sept. 30High $ 22.25 $ 32.00 $ 15.00 $ 21.50Low $ 1.00 $ 9.63 $ 5.38 $ 10.75QUARTER ENDED DURING FISCAL YEAR 1999Dec. 31 March 31 June 30 Sept. 30High $ 4.00 $ 2.65 $ 3.63 $ 3.00Low $ 2.00 $ 1.44 $ 1.56 $ 1.69On November 9, 2001, there were 375 shareholders of record, 9,410 beneficial shareholders and 12,812,665 shares ofCommon Stock outstanding. The Company has not paid any dividends since its inception and does not intendto pay any dividends on its Common Stock in the foreseeable future.RECENT SALES OF UNREGISTERED SECURITIESDuring the fiscal year ended September 30, 2001, the Company issued 8,502 shares of Common Stock to the law firmof Hamman and Benn in lieu of a cash payment of $53,791 for legal services. The Company also issued 1,173 sharesof Common Stock to the law firm of Bellows and Bellows in lieu of a cash payment of $12,763 for legal services.Each of the forgoing issuances of the Company’s Common Stock did not involve a public offering of securities, andtherefore was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.10 TELULAR CORPORATION

ITEM 6. SELECTED FINANCIAL DATAThe following table is a summary of certain condensed statement of operations and balance sheet information of theCompany. The table sets forth-selected historical financial data of the Company for the years ended September 30, 2001,2000, 1999, 1998 and 1997. The selected financial data were derived from audited financial statements. The summaryshould be read in conjunction with financial statements and notes thereto appearing elsewhere in this report.Year ended September 30,(in thousands, except share data) 2001 2000 1999 1998 1997STATEMENT OF OPERATIONS DATA:Net product sales $ 95,708 $ 37,650 $ 36,375 $ 39,370 $ 48,417Net royalty and royalty settlement revenue 5,442 2,703 1,948 1,652 551Total revenue 101,150 40,353 38,323 41,022 48,968Cost of sales 68,724 29,463 30,392 30,571 37,88132,426 10,890 7,931 10,451 11,087Operating expenses 20,000 17,380 18,695 21,283 16,753Income (loss) from operations 12,426 (6,490) (10,764) (10,832) (5,666)Net other income 450 584 182 428 364Net income (loss) 12,876 (5,906) (10,582) (10,404) (5,302)Less-amortization of preferredstock beneficial conversion discount – – – – (2,222)Less-cumulative dividend onredeemable preferred stock – (29) (805) (895) (395)Income (loss) applicable to common shares $ 12,876 $ (5,935) $ (11,387) $ (11,299) $ (7,909)Basic income (loss) per common share $ 1.01 $ (.49) $ (1.27) $ (1.36) $ (1.00)Diluted income (loss) per common share $ .99 $ (.49) $ (1.27) $ (1.36) $ (1.00)As of September 30 2001 2000 1999 1998 1997BALANCE SHEET DATA:Working capital $ 41,752 $ 28,171 $ 19,117 $ 28,193 $ 39,033Total assets 62,169 44,586 35,328 48,812 57,553Long term debt (1) 3,000 1,900 – – –Stockholders’ equity 48,999 35,679 14,991 20,682 25,699(1) The company has 100% of its long term debt collaterized with restricted cashand therefore has no net debt as of September 30, 2001 and 2000.TELULAR CORPORATION11

ITEM 7. MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONINTRODUCTIONThe Company designs, develops, manufactures andmarkets products based on its proprietary interface technologies,which provide the capability to bridge standardtelecommunications equipment with wireless communicationnetworks in the Cellular and PCS frequency bands(collectively cellular). Applications of the Company’s technologyinclude cellular fixed wireless telecommunicationsas a primary access service where wireline systems areunavailable, unreliable or uneconomical, as well as cellularbackup systems for wireline telephone systems andcellular wireless security and alarm monitoring signaling.The Company’s principal product lines are: PHONECELL ® ,a line of cellular Fixed Wireless Terminals and cellularFixed Wireless Desktop Phones (collectively FWTs), andTELGUARD ® , a line of cellular wireless security and alarmmonitoring signaling products.Currently, the Company is devoting a substantialportion of its resources to international market development,extension of its core product line to new cellular wirelessstandards, expansion, protection and licensing of itsintellectual property rights and development of underlyingradio technology.The Company’s operating expense levels are based inlarge part on expectations of future revenues. If anticipatedsales in any quarter do not occur as expected, expenditureand inventory levels could be disproportionately high,and the Company’s operating results for that quarter, andpotentially for future quarters, could be adversely affected.Certain factors that could significantly impact expectedresults are described in Cautionary Statements Pursuantto the Securities Litigation Reform Act that is set forth inExhibit 99 to the Company’s Form 10-K.OVERVIEWMajor trends driving the market for the Company’sproducts include a broad consumer acceptance of cellularcommunications, rapid privatization of telecommunicationsin developed and developing countries, adoption of nextgeneration digital wireless transmission standards thatenhance network capacity and service, service networkproviders’ acceptance of cellular FWTs as cost-effectiveanswers to customer demand for basic telecommunicationsand the trend of licensing multiple cellular operators in agiven region, which intensifies competition among cellularwireless service providers to capture additional minutes ofusage and the potential for a large wireline bypass market.Cellular Wireless Local Loop (WLL), which is the coreof the Company’s prospects for the PHONECELL ® businessin developing countries, involves cellular infrastructureemployed predominately (and sometimes exclusively)for the fixed location user. Continued growth of the WLLmarket depends primarily on the pricing of WLL airtimeservice to the customer relative to available wirelineprices, the relative local availability of WLL and wirelineservice, operator regulatory constraints on fixed cellular,and availability of money in a given country. These factorshave contributed to an increase in the number of newcellular networks, primarily in Africa, Brazil, China, India,and Mexico.Wireless Competitive Access, which represents themajority of the Company’s current sales in developedcountries, has evolved as an alternative to existing wirelinesystems, and finds application where wireline service isunavailable, unreliable or uneconomic. FWTs are placedon cellular networks built for mobile cellular phones toprovide regular telephone service. Management anticipatesthat additional cellular FWT markets for wireless alternativeaccess applications will develop as existing cellular networksmature and new networks and high speed data servicesare introduced. As capacity and price competition increaseon new and existing cellular networks and the growth ratein new cellular phone subscribers slows, mobile cellularoperators will be forced to look for new revenue sources.Cellular FWTs provide an excellent opportunity for cellularnetwork operators, as they are less costly to support thanmobile units (because FWTs are permanently linked to aspecific cell site), generate more average airtime, andoperate mainly at off-peak times. The number of cellularFWTs presently operating on these networks is driven bythe relative price for airtime, as well as by the large installedbase of cellular mobile networks worldwide. The Companysees a significant opportunity for growth in developedcountries with the advent of high speed data services.12 TELULAR CORPORATION

The Company’s strategy is to leverage its’ fifteenyears of experience in the market, internationally-acceptedproducts and court-tested patents into a continuing leadershipposition in the rapidly developing cellular FWTequipment industry. Global telecommunications equipmentmanufacturers together with national and internationalservice providers are increasingly sharing the Company’svision that cellular systems in both developed and developingcountries are well suited for use as basic telephoneservice networks.The Company believes that its future success dependson its ability to continue to meet customer’s needs throughproduct innovation, rapid time-to-market with new products,and superior “in market” customer support. Telular worksclosely with cellular service providers, telecommunicationsinfrastructure suppliers and equipment manufacturers,to develop new cellular fixed wireless products for globalWLL markets. Current product lines deploy the majorworldwide cellular air interface standards: GSM, TDMA,CDMA, and AMPS. Development programs are progressingfor next generation digital cellular technologies.The Company’s research and development staff ishighly focused on developing a steady stream of competitiveproducts addressing cellular Fixed Wireless Terminaland Cellular Alarm Transmission System market opportunities.Its technology competence encompasses all majorcellular air-interface standards, which is reflected in thebroadest product line offering in the industry.During fiscal year 2001, the Company improved its FWTmarket position on the following major radio standards:GSM (Global System for Mobile Communications) -The Company commenced production of its PHONECELL ®SX4 GSM Desktop Phone in both 900 MHz and 1800 MHzbands, and was the first company to market a 1900 MHzGSM Terminals for the USA and Latin American markets.The Company has begun development of its nextgeneration GSM product line, the PHONECELL ® SX5 thatincludes General Packet Radio Service (GPRS) offeringhigh-speed packet data capability. PHONECELL ® SX5GSM production will commence in 2002.CDMA (Code Division Multiple Access) - The Companyentered into an OEM Supply agreement with Axesstel, Inc.of San Diego, CA for the supply of IS-95A, IS-95B and1xRTT fixed wireless products including 800 MHz and1900 MHz Desktop Phones and Terminals. The productsare private labeled as Telular products. The Company hasbegun development of its next generation CDMA productline, which includes 1xRTT, a service that offers high-speedpacket data. Next generation CDMA products are scheduledto be available for sale in 2002.TDMA (Time Division Multiple Access) - The Companybegan shipping its PHONECELL ® Tri-Mode Terminals andDesktop Phones. Tri-Mode products are both dual band(800 MHz and 1900 MHz TDMA) and dual mode (TDMAdigital and analog AMPS). The Company also upgraded itsPHONECELL ® SX4D TDMA Desktop Phone, adding featuressuch as memory dial and monitor mode. In 2002, theCompany plans to produce a Class 1 (3-Watt) version ofits PHONECELL ® SX4D TDMA Desktop Phone.During fiscal year 2001, the Company also enhanced itsTELGUARD ® product line with products that are compatiblewith Radionics alarm panels.RESULTS OF OPERATIONSFiscal Year 2001 Compared to Fiscal Year 2000Net Product Sales. Net product sales of $95.7 million forthe fiscal year ended September 30, 2001 increased 154%from $37.7 million for the fiscal year ended September 30,2000. Sales of PHONECELL ® products increased 213% from$27.1 million during the fiscal year 2000 to $84.8 millionfor fiscal year 2001. The increase resulted primarily fromthe shipment of Desktop Phones to Mexico in connectionwith the Company’s supply agreement with RadiomovilDipsa (Telcel) during the current year. The sale of TEL-GUARD ® products increased approximately 3% from $10.6million during fiscal year 2000 to $10.9 million during fiscalyear 2001.Royalty and Royalty Settlement Revenue. Royalty androyalty settlement revenue increased 101% from $2.7 millionduring fiscal year 2000 to $5.4 million during fiscal year2001. The fiscal year 2001 amount includes $5.0 millionin royalty settlement revenue related to the terminationof the OEM agreement with Motorola. The fiscalyear 2000 amount includes $1.5 million of royalty revenuefrom Motorola and $1.0 million for the royalty fromAndrew Corporation.TELULAR CORPORATION13

Cost of Sales. Cost of sales increased from $29.5 millionfor fiscal year 2000 to $68.7 million for fiscal year 2001. Theincrease is primarily the result of the added sales volume.Cost of sales is 68% of total revenue for fiscal year 2001compared to 73% for fiscal year 2000. The decrease in costof sales as a percentage of total revenue is due primarilyto an improvement in the absorption of fixed costs andincreased royalty and royalty settlement revenue.Engineering and Development Expenses. Engineering anddevelopment expenses of $6.4 million for fiscal year 2001increased approximately 23% or $1.2 million comparedto fiscal year 2000. The increase is primarily the result ofadded labor costs for the development of the next generationof PHONECELL ® SX5 GSM fixed wireless terminals,including 1900 MHz models and models with GeneralPacket Radio Service (GPRS) and additional TELGUARD ®products. The engineering and development expenses are6% of total revenue for fiscal year 2001 compared to 13%for fiscal year 2000.Selling and Marketing Expenses. Selling and marketingexpenses of $ 7.8 million for fiscal year 2001 increased 4%,or $0.3 million from fiscal year 2000. The increase isprimarily the result of higher commission expenses dueto the larger volume of product shipments. Selling andmarketing expenses are 8% of total revenue for fiscal year2001 compared to 19% for fiscal year 2000.General and Administrative Expenses (G&A). G&A forfiscal year 2001 increased 22% to $5.0 million from $4.1million for fiscal year 2000. The increase consists primarilyof legal fees associated with ongoing claims of infringementon the Company’s patents in Korea and the USA andperformance bonuses based on profitability. G&A expensesare 5.0% of total revenue for fiscal year 2001 compared to10% for fiscal year 2000.Provision for Doubtful Accounts. Provision for doubtfulaccounts increased 300%, or $0.1 million during fiscalyear 2001 compared to fiscal year 2000. The increase wasthe result of the bankruptcy of a TELGUARD ® customerin the USA.Amortization. Amortization expense increased $0.1 millionduring fiscal year 2001 compared to fiscal year 2000. Theincrease is due to the addition of certain intangible assetsduring fiscal year 2001, which will be amortized over a lifeof two years.Other Income. Other income for fiscal year 2001 decreasedby $0.1 million compared to fiscal year 2000. The decreaseis primarily the result of increased interest expense on therevolving line of credit.Income Taxes. See note 6 of the Consolidated FinancialStatements.Net Income (Loss). The Company recorded a net incomeof $12.9 million for fiscal year 2001 compared to a netloss of $5.9 million for fiscal year 2000. The increase isprimarily the result of higher sales volume.Net Income (Loss) Applicable to Common Shares. Aftergiving effect to the cumulative preferred stock dividend,net income applicable to common shares of $12.9 millionor $1.01 per share for fiscal year 2001 compares to a netloss of $5.9 million or $0.49 per share for fiscal year 2000.Fiscal Year 2000 Compared To Fiscal Year 1999Net Product Sales. Net product sales of $37.7 million forthe fiscal year ended September 30, 2000 increased 4%from $36.4 million for the fiscal year ended September 30,1999. Sales of PHONECELL ® products increased 9% from$24.8 million during the fiscal year 1999 to $27.1 millionfor fiscal year 2000. The increase resulted primarilyfrom larger shipments to the Dominican Republic and inthe United States during fiscal year 2000. The sale ofTELGUARD ® products decreased approximately 9% from$11.6 million during fiscal year 1999 to $10.6 million duringfiscal year 2000.Royalty and Royalty Settlement Revenue. Royalty androyalty settlement revenue increased 39% from $1.9 millionduring fiscal year 1999 to $2.7 million during fiscal year2000. The fiscal year 2000 amount includes $1.5 millionof royalty revenue from Motorola and $1.0 million forthe royalty revenue from Andrew Corporation. There was$0.9 million of royalty revenue from Motorola and no14 TELULAR CORPORATION

oyalty revenue from Andrew in fiscal year 1999. TheCompany had an agreement with Motorola, whereby theCompany provided engineering services, at their typicalrates, over a three-year period ending November 10, 1998.The 1999 Motorola royalty represents the final paymentrelating to liquidated damages owed the Company byMotorola in connection with this agreement.Cost of Sales. Cost of sales decreased from $30.4 millionfor fiscal year 1999 to $29.5 million for fiscal year 2000.During the third quarter of fiscal year 1999 the Companyrecorded a one-time special charge of $1.5 million towrite-off its Extended Total Access Communication System(ETACS) and old CDMA inventories. On June 30, 1999,the Company decided to exit the ETACS business andto offer a new generation of CDMA products, which arepurchased by the Company. Cost of sales is 73% of totalrevenue for fiscal year 2000 compared to 75%, afterexcluding this one-time charge to cost of sales, for fiscalyear 1999.Engineering and Development Expenses. Engineeringand development expenses of $5.2 million for fiscalyear 2000 decreased approximately 7% or $0.4 millioncompared to fiscal year 1999. In fiscal year 1999 andprior the Company had increasing engineering and developmentexpenses as a result of efforts to bring severalnew lower cost products and a wider range of productsto market. Many new products were completed andintroduced to market during that year, and therefore theCompany has reduced engineering and developmentexpenses, primarily through reductions in material costsand contracted engineering services. The engineeringand development expenses are 13% of total revenue forfiscal year 2000 compared to 15% for fiscal year 1999.Selling and Marketing Expenses. Selling and marketingexpenses of $7.5 million for fiscal year 2000 were thesame as fiscal 1999. The $7.5 million represents 19% and20% compared to sales for fiscal years 2000 and 1999,respectively.General and Administrative Expenses (G&A). G&A forfiscal year 2000 decreased 9% to $4.1 million from $4.5million for fiscal year 1999. The decrease consists primarilyof reduced legal fees for the successful patent defensein New Zealand, which was initiated in fiscal year 1999.Provision for Doubtful Accounts. Provision for doubtfulaccounts decreased $0.3 million during fiscal year 2000,compared to fiscal year 1999. The decline was the resultof a reduction in overdue accounts.Amortization. Amortization expense decreased $0.3 millionduring fiscal year 2000 compared to fiscal year 1999, dueto certain intangible assets, which became fully amortizedduring the first 6 months of fiscal year 1999.Other Income. Other income for fiscal year 2000 increasedby $0.4 million compared to fiscal year 1999. The increaseis primarily due to higher interest income as a resultof larger average cash balances during fiscal year 2000compared to fiscal year 1999. The increase in interestincome more than offset the interest expense resultingfrom the new revolving line of credit.Net loss. The Company recorded a net loss of $5.9 millionor $0.48 per share for fiscal year 2000 compared to a netloss of $10.6 million or $1.18 per share for fiscal year 1999.Excluding the $1.5 million one-time charge to write-offcertain inventories, the net loss of $9.1 million or $1.01per share for fiscal year 1999, compares to net loss of$5.9 million or $0.48 per share for fiscal year 2000.Net Loss Applicable to Common Shares. After givingeffect to the cumulative preferred stock dividend, net lossapplicable to common shares of $5.9 million or $0.49per share for fiscal year 2000 compares to a net loss of$11.4 million or $1.27 per share for fiscal year 1999.LIQUIDITY AND CAPITAL RESOURCESOn September 30, 2001, the Company had $36.4 millionin cash and cash equivalents and working capitalof $41.8 million. During fiscal year 2001, cash and cashequivalents increased $15.9 million, compared to anincrease in cash and cash equivalents of $10.6 millionduring fiscal year 2000.TELULAR CORPORATION15

The Company generated $17.8 million of cash fromoperating activities during fiscal year 2001 compared toa use of $1.6 million in cash for fiscal year 2000. The cashprovided by operating activities is due primarily to theprofitability resulting from the increases in sales volume.Working capital changes, consisting primarily of decreasesin accounts receivable and increases in accounts payableand inventories provided $2.2 million of the cash generatedfrom operating activities. These changes are the result ofvolume purchases and sales and favorable payment terms.Cash used in investing activities of $3.0 million forfiscal year 2001 compares to $2.7 million for fiscal year2000. The investing activities for both periods includecapital spending for product testing equipment andincreases in restricted cash related to the revolving lineof credit. The investing activities for fiscal year 2001 alsoinclude $1.0 million for the acquisition of a GPRS softwareproduct license.Financing activities generated cash of $1.0 millionduring fiscal year 2001 compared to $14.9 million for fiscalyear 2000. The fiscal year 2001 amount consists primarilyof the proceeds from borrowings under the revolving lineof credit. Proceeds from the issuance of common stockand borrowings under the revolving line of credit providedthe amount for fiscal year 2000.The Company continues to do business with ACTManufacturing under an agreement signed in November1998. The agreement covers the manufacturing of circuitcard assemblies and final assemblies of the Company’sproducts. The agreement may be terminated by defaultof either party or by mutual consent. As of September 30,2001, the Company had $2.4 million in open purchasecommitments with ACT Manufacturing.The Company expects to maintain significant levels ofcash reserves which are required to qualify for large salesopportunities.The Company requires its foreign customers to prepay,obtain letters of credit or to qualify for export creditinsurance underwritten by third party credit insurancecompanies prior to making international shipments.Also, to mitigate the effects of currency fluctuations on theCompany’s results of operations, the Company conductsall of its international transactions in U.S. dollars.OUTLOOKThe statements contained in this outlook are based oncurrent expectations. These statements are forward looking,and actual results may differ materially.Based upon observed trends, the Company believesthat the market for cellular FWTs will experience substantialgrowth over the next five years. The Company hasidentified significant growth opportunities in Africa, Brazil,China, India, Mexico and the USA. Each of these marketswill develop at a different pace, and the sales cycle forthese regions are likely to be several months or quarters.Further, economic conditions play an important role in thetiming of market development for the Company’s products.In connection with the present global economic slowdownand the recession in the USA, the Company’s prospectsfor continued growth have been accordingly reduced in thenear term. However, as economic conditions improve, theCompany is well positioned with a wide range of productsto capitalize on these market opportunities.In recent months there has been considerable pricepressure in the cellular FWT market, particularly for CDMAproducts. Most CDMA products are manufactured in Korea,where several manufacturers are competing for the samebusiness. There appears to be a glut of CDMA products,which has resulted in very low prices. The Companyexpects this trend to continue until next generation 1xRTTCDMA networks and products become generally available.The Company expects to improve its position in theGSM FWT markets with the launch of its PHONECELL ® SX5GSM products with GPRS in 2002. GPRS in GSM networksalso allow for the use of high-speed data applications.The Company expects the market for cellular FWTsto be favorably impacted by 1xRTT and GPRS once theseservices become generally available, especially in developedcountries.Shipments under the agreement with Telcel to supply$67.5 million Desktop Phones were completed duringthe fourth quarter of fiscal year 2001. The Company isactively pursuing a renewal of this agreement, the outcomeand timing of which will have a significant impact on theCompany’s future revenues and profitability.16 TELULAR CORPORATION

FORWARD LOOKING INFORMATIONStatements contained in this document, other than historicalstatements, consist of forward-looking information.The Company’s actual results may vary considerably fromthose discussed in this document as a result of various risksand uncertainties. For example, there are a number ofuncertainties as to the degree and duration of the revenuemomentum, which could impact the Company’s abilityto be profitable as lower sales may likely result in lowermargins. In addition, product development expenditures,which are expected to benefit future periods, are likelyto have a negative impact on near term earnings. Otherrisks and uncertainties, which are discussed in Exhibit 99,to the Company’s Form 10-K for the period endedSeptember 30, 2001, include the risk that technologicalchange will render the Company’s technology obsolete,ability to protect intellectual property rights in its products,unfavorable economic conditions could lead to lowerproduct sales, the risk of litigation, the Company’s abilityto develop new product, the Company’s dependence oncontractors, the Company’s ability to maintain qualitycontrol, the risk of doing business in developing markets,the Company’s dependence on research and development,the uncertainty of additional funding, dilution of ownershipto stockholders resulting from financing activities,volatility of Common Stock price, the effects of controlby existing shareholders, intense industry competitionincluding competition from its licensees and new marketentrants with cellular phone docking station productsand the uncertainty in the development of wirelessservice generally.ITEM 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISKOn March 2, 1998, the Company received 300,000 sharesof ORA Electronics, Inc. common stock (“ORA stock”)in connection with the settlement of patent litigation.ORA stock is traded on Nasdaq’s Over The Counter (OTC)system. The Company’s holdings in ORA stock are valuedat the quoted price on OTC for ORA stock on the date ofeach balance sheet presented.The Company frequently invests available cash andcash equivalents in short term instruments such as:certificates of deposit, commercial paper and moneymarket accounts. Although the rate of interest paid onsuch investments may fluctuate over time, each of theCompany’s investments is made at a fixed interest rateover the duration of the investment. All of these investmentshave maturities of less than 90 days. The Companybelieves its exposure to market risk fluctuates for theseinvestments is not material as of September 30, 2001.Financial instruments that potentially subject theCompany to significant concentrations of credit risk consistprincipally of trade accounts receivable. For internationalsales, the Company generally receives either payment priorto shipment or irrevocable letters of credit that are confirmedby U.S. banks to reduce its credit risk. Further, theCompany purchases credit insurance for all significantopen accounts outside of the United States. The Companyperforms ongoing credit evaluations and charges amountsto operations when they are determined to be uncollectible.TELULAR CORPORATION17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe following financial statements are included in this document.Report of Independent Auditors 19Consolidated Balance Sheets as of September 30, 2001 and 2000 20Consolidated Statements of Operations for the years endedSeptember 30, 2001, 2000 and 1999 21Consolidated Statements of Stockholders’ Equity for the years endedSeptember 30, 2001, 2000 and 1999 22Consolidated Statements of Cash Flows for the years endedSeptember 30, 2001, 2000 and 1999 23Notes to Consolidated Financial Statements 2418 TELULAR CORPORATION

REPORT OF INDEPENDENT AUDITORSThe Board of Directors and ShareholdersTelular CorporationWe have audited the accompanying consolidated balance sheets of Telular Corporation as ofSeptember 30, 2001 and 2000, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended September 30, 2001. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our audits providea reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects,the consolidated financial position of Telular Corporation at September 30, 2001 and 2000, and theconsolidated results of its operations and its cash flows for each of the three years in the period endedSeptember 30, 2001, in conformity with accounting principles generally accepted in the United States.Chicago, IllinoisOctober 26, 2001TELULAR CORPORATION19

CONSOLIDATED BALANCE SHEETSSeptember 30(in thousands, except share data) 2001 2000ASSETSCurrent assets:Cash and cash equivalents $ 36,385 $ 20,527Short term investment 15 147Receivables:Trade, less allowance for doubtful accounts of$210 and $104, respectively 5,151 6,771Royalties due from related party – 9005,151 7,671Inventories, net 10,008 6,391Prepaid expenses and other current assets 363 442Total current assets 51,922 35,178Restricted cash 3,000 1,900Property and equipment, net 3,743 4,266Other assets:Excess of cost over fair value of net assets acquired,less accumulated amortization of $2,341 and $1,822, respectively 2,554 3,073Other intangible assets, less accumulated amortization of $125 in 2001 875 –Deposits and other 75 169Total other assets 3,504 3,242Total assets $ 62,169 $ 44,586LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable:Trade $ 8,470 $ 2,872Related party – 2,037Accrued liabilities 1,700 2,098Total current liabilities 10,170 7,007Long term revolving line of credit 3,000 1,900Commitments and contingencies – –Total liabilities 13,170 8,907Stockholders’ equity:Common stock, $.01 par value; 75,000,000 shares authorized; 12,810,998and 12,661,942 outstanding, at September 30, 2001 and 2000, respectively 129 127Additional paid-in capital 149,071 148,627Deficit (99,904) (112,780)Accumulated other comprehensive (loss) (297) (295)Total stockholders’ equity 48,999 35,679Total liabilities and stockholders’ equity $ 62,169 $ 44,586See accompanying notes.20 TELULAR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONYear ended September 30(in thousands, except share data) 2001 2000 1999RevenueNet product sales $ 95,708 $ 37,650 $ 36,375Royalty and royalty settlement revenue 5,442 2,703 1,948Total revenue 101,150 40,353 38,323Cost of sales 68,724 29,463 30,39232,426 10,890 7,931Operating ExpensesEngineering and development 6,374 5,162 5,568Selling 7,845 7,546 7,531General and administrative 5,025 4,119 4,543Provision for doubtful accounts 112 28 290Amortization 644 525 763Income (loss) from operations 12,426 (6,490) (10,764)Other income (expense)Interest income 1,578 983 562Interest expense (246) (151) (25)Other (882) (248) (355)450 584 182Net income (loss) 12,876 (5,906) (10,582)Less: Cumulative dividend on redeemable preferred stock – (29) (805)Income (loss) applicable to common shares $ 12,876 $ (5,935) $(11,387)Basic earnings (loss) per common share $ 1.01 $ (.49) $ (1.27)Diluted earnings (loss) per common share $ .99 $ (.49) $ (1.27)Weighted-average number of common shares outstanding:Basic 12,748,677 12,183,022 8,976,640Diluted 12,961,507 12,183,022 8,976,640See accompanying notes.TELULAR CORPORATION21

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYAccumulatedAdditional Other TotalCommon Paid-in Comprehensive Treasury Stockholder’s(in thousands) Stock Capital Deficit Income (Loss) Stock EquityBALANCE AT SEPTEMBER 30, 1998 $ 346 $ 117,326 $ (95,458) $ 75 $ (1,607) $ 20,682Comprehensive loss:Net loss for year ended September 30, 1999 – – (10,582) – – (10,582)Unrealized loss on investments – – – (459) – (459)Comprehensive loss – – – – – (11,041)Conversion of redeemable preferred stockto common stock 18 5,591 – – – 5,609Deferred compensation related to stock options – 165 – – – 165Dividends on redeemable preferred stock – – (805) – – (805)One-for-four stock exchange (269) 269 – – – –Stock issued for services and compensation 2 379 – – – 381BALANCE AT SEPTEMBER 30, 1999 $ 97 $ 123,730 $ (106,845) $ (384) $ (1,607) $ 14,991Comprehensive loss:Net loss for the year ended September 30, 2000 – – (5,906) – – (5,906)Unrealized gain on investments – – – 89 – 89Comprehensive loss – – – – – (5,817)Common stock and warrants issuedin private placement 4 9,629 – – – 9633Stock options exercised 5 1,740 – – 1,607 3,352Conversion of redeemable preferred stock to common stock 21 13,065 – – – 13,086Deferred compensation related to stock options – 140 – – – 140Dividends on redeemable preferred stock – – (29) – – (29)Stock and warrants issued forservices and compensation – 323 – – – 323BALANCE AT SEPTEMBER 30, 2000 $ 127 $ 148,627 $ (112,780) $ (295) $ – $ 35,679Comprehensive income:Net income for the year ended September 30, 2001 – – 12,876 – – 12,876Unrealized loss on investments – – – (2) – (2)Comprehensive income – – – – – 12,874Deferred compensation related to stock options – 140 – – – 140Stock options exercised 1 223 – – – 224Stock issued forservices and compensation 1 370 – – – 371Other – (289) – – – (289)BALANCE AT SEPTEMBER 30, 2001 $ 129 $ 149,071 $ (99,904) $ (297) $ – $ 48,999See accompanying notes.22 TELULAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWSYear ended September 30(in thousands) 2001 2000 1999Operating activitiesNet income (loss) $ 12,876 $ (5,906) $(10,582)Adjustments to reconcile net income (loss) to net cash provided by(used in) operating activities:Depreciation 1,442 1,737 1,804Amortization 644 525 763Compensation expense related to stock options and grants 140 140 165Common stock issued for services and compensation 371 128 381Loss on sale of short term investment 109 3 –Changes in assets and liabilities:Trade receivables 1,620 (101) (2,202)Related party receivables 900 (417) 785Inventories (3,617) 2,379 2,824Prepaid expenses, deposits, and other 173 151 679Trade accounts payable 5,598 422 (2,688)Related party payable (2,037) 299 553Accrued liabilities (398) (994) (429)Net cash provided by (used in) operating activities 17,821 (1,634) (7,947)Investing activitiesProceeds from sale of short term investment 21 5 –Increase in restricted cash (1,100) (1,900) –Acquisition of property and equipment (919) (801) (1,510)Acquisition of licenses and technology (1,000) – –Net cash used in investing activities (2,998) (2,696) (1,510)Financing activitiesProceeds from issuances of common stock 224 12,985 –Payments for the issuance of redeemablePreferred stock – – (425)Proceeds from revolving line of credit 1,100 1,900 –Other (289) – –Net cash provided by (used in) financing activities 1,035 14,885 (425)Net increase (decrease) in cash and cash equivalents 15,858 10,555 (9,882)Cash and cash equivalents, beginning of period 20,527 9,972 19,854Cash and cash equivalents, end of period $ 36,385 $ 20,527 $ 9,972Supplemental cash flow informationInterest paid $ 248 $ 134 $ 25Taxes paid $ 240 $ – $ –See accompanying notes.TELULAR CORPORATION23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)1. DESCRIPTION OF BUSINESSTelular Corporation (the Company) operates in twobusiness segments, divided among its two principal productlines: PHONECELL ® , a line of cellular Fixed WirelessTerminals (FWTs), and TELGUARD ® , a line of Cellular AlarmTransmission Systems (Security Products). The Companydesigns, engineers, and manufactures component elementsand complete telecommunications equipment assembliesand other complementary products and markets suchproducts domestically and internationally by sale, lease,or license.2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIESConsolidationThe consolidated financial statements include the accountsof the Company and its wholly owned subsidiaries,Telular-Adcor Security Products and Telular International,Inc. All significant intercompany balances and transactionshave been eliminated.Revenue RecognitionProduct sales and associated costs are recognized at thetime of shipment of products or performance of services.Royalty revenue is calculated as a percentage of sales bythe licensee and is recognized by the Company uponnotification of sales by the licensee.Cash EquivalentsCash equivalents consist of highly liquid investmentsthat have maturities of three months or less from the dateof purchase.Financial InstrumentsFinancial instruments that potentially subject the Companyto significant concentrations of credit risk consist principallyof trade accounts receivable. Credit risks with respectto trade receivables are limited due to the diversity ofcustomers comprising the Company’s customer base.For international sales, the Company generally receivespayment in advance of shipment, irrevocable letters ofcredit that are confirmed by U.S. banks or purchasesinternational credit insurance to reduce its credit risk.The Company performs ongoing credit evaluations andcharges amounts to operations when they are determinedto be uncollectible.InventoriesInventories are stated at the lower of first in, first out(FIFO) cost or market.Business Combinations, Goodwill andOther Intangible AssetsIn 2001, the FASB issued Statement of Financial AccountingStandards (SFAS) 141, “Business Combinations” (SFAS 141)effective July 1, 2001, and SFAS 142, “Goodwill andOther Intangible Assets” (SFAS 142), effective for fiscalyears beginning after December 15, 2001. These standardschange the accounting for business combinations by,among other things, prohibiting the prospective use ofpooling-of-interests accounting and requiring companies tostop amortizing goodwill and certain intangible assets withan indefinite useful life created by business combinationsaccounted for using the purchase method of accounting.Under the new rules, goodwill and intangible assetsdeemed to have indefinite lives will no longer be amortizedbut will be subject to annual impairment tests in accordancewith the new standards. Other intangible assets willcontinue to be amortized over their useful lives.The Company is planning to early adopt and willapply the new rules on accounting for goodwill and otherintangible assets beginning in the first quarter of fiscalyear 2002. Application of the nonamortization provisionsof the new standards is expected to result in an increasein pretax income of $519 for the year ended 2002.ReclassificationsCertain amounts in the September 30, 2000 and 1999financial statements have been reclassified to conform tothe September 30, 2001 presentation.Reverse Stock SplitThe number of shares of the Company’s Common Stock(Common Stock) outstanding, the weighted averagenumber of Common shares outstanding and basic anddiluted net income (loss) per share amounts have all beenrestated to reflect the one-for-four (1:4) reverse stock splitof the Company’s Common Stock on January 27, 1999.Property and EquipmentProperty and equipment are stated at cost. Depreciationand amortization are computed using straight-line andaccelerated methods over the assets’ useful lives rangingfrom 3 to 10 years.24 TELULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)InvestmentsManagement determines the appropriate classification ofequity securities as of each balance sheet date. Availablefor-salesecurities are carried at fair value, with theunrealized gains and losses reported as a separatecomponent of stockholders’ equity. Interest, dividends,and realized gains and losses on securities classified asavailable-for-sale are included in income.Income TaxesThe Company recognizes deferred tax assets and liabilitiesbased on differences between the financial reportingand tax bases of assets and liabilities using the enacted taxrates and laws that are expected to be in effect when thedifferences are expected to reverse. The Company providesa valuation allowance for deferred tax assets for whichit does not consider realization of such assets to be morelikely than not.Intangible AssetsIntangible assets consist primarily of license and technologyagreements, which are being amortized over the livesof the related agreements, typically 2 years, using thestraight-line method.Excess of Cost Over Fair Value ofNet Assets AcquiredThe excess of cost over fair value of net assets acquired(goodwill) is amortized based on the straight-line methodover ten years.Use of EstimatesThe preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions thateffect the amounts reported in the financial statementsand accompanying notes. Actual results could differfrom those estimates.Research and Development CostsResearch and development costs for the years endedSeptember 30, 2001, 2000 and 1999, respectively, were$5,263, $3,974 and $4,050, and are included in engineeringand development expense.Stock-Based CompensationThe Company accounts for stock-based compensationawards to employees using the intrinsic value methodprescribed in Accounting Principles Board Opinion No. 25,“Accounting for Stock issued to Employees,” and hasadopted the disclosure alternative of FASB Statementof Financial Accounting Standard, “Accounting for Stock-Based Compensation” (SFAS No. 123).Fair Value of Financial InstrumentsThe carrying values reported in the consolidated balancesheet for receivables and accounts payable approximatetheir fair values at September 30, 2001 and 2000.3. INVENTORIESInventories consist of the following:September 30 2001 2000Raw materials $ 5,486 $ 2,770Finished goods 5,468 3,83210,954 6,602Less: Reserve for obsolescence 946 211$ 10,008 $ 6,3914. PROPERTY AND EQUIPMENTProperty and equipment consist of the following:September 30 2001 2000Computer equipment $ 3,045 $ 2,784Shop equipment 7,137 6,510Office equipment 1,094 1,079Leasehold improvements 1,481 1,464Security equipment held for rent 333 33313,090 12,171Less: Accumulated depreciation 9,347 7,905$ 3,743 $ 4,266Shipping and Handling CostsShipping and handling costs of approximately $417, $221,and $346 were included in selling expenses for the yearsended September 30, 2001, 2000 and 1999, respectively.TELULAR CORPORATION25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)5. INVESTMENTSOn March 2, 1998, the Company received 300,000 sharesof ORA Electronics, Inc., formerly Alliance ResearchCorporation, common stock, valued at $450, as part of alitigation settlement. The investment is classified as available-for-sale,and is recorded as the short term investmentat its fair value of $15 and $147 at September 30, 2001and 2000, respectively.6. INCOME TAXESThe Company did not provide any U.S. federal or stateincome tax provision or benefit for the current period dueto the utilization of net operating loss carryforwards.On September 30, 2001, the Company had net operatingloss carryforwards of approximately $97,020 for incometax purposes that begin expiring in 2008. Of this amount,$6,860 relates to tax deductions generated by the exerciseof certain stock options by employees which will beavailable to offset future income tax liabilities by a total of$2,662. This amount will be treated as a credit to paid incapital when realized. In addition, the Company has $1,458of research and development credit carryforwards whichexpire in the years 2009 to 2020.Deferred income taxes reflect the net tax effects oftemporary differences between the carrying amountsof assets and liabilities for financial reporting purposesand the amounts used for income tax purposes. Significantcomponents of the Company’s deferred tax assets areas follows:The Company has provided a full valuation allowanceon the deferred tax asset due to the uncertainty of itsrealizability. The valuation allowance decreased by $5,184during the fiscal year ended September 30, 2001, dueprincipally to the utilization of approximately $13,000 ofnet operating loss carryforwards.Based on the Internal Revenue Code and changesin the ownership of the Company, utilization of the netoperating loss carryforwards are subject to certain annuallimitations.7. SEGMENT REPORTINGThe Company, which is organized on the basis of productsand services, has two reportable business segments, FixedWireless Terminals and Security Products. The Companydesigns, develops, manufactures and markets both fixedwireless terminals and security products. Fixed WirelessTerminals bridge wireline telecommunications customerpremises equipment with cellular-type transceivers for usein wireless communication networks. Security productsprovide wireless backup systems for both commercial andresidential alarms.Export sales of fixed wireless terminals represent 88%,78%, and 79% of total fixed wireless net sales for the yearsending September 30, 2001, 2000, and 1999, respectively.Export sales of security products were insignificant forthese periods.See Segment Reporting information on page 27.September 30 2001 2000Deferred tax assets:Reserve for inventories $ 406 $ 82Allowance for doubtful accounts 81 40Certain intangible assets 2,164 2,492Research and developmenttax credit 1,458 1,397Net operating loss carryforwards 34,762 39,870Other 319 493Total deferred tax assets 39,190 44,374Valuation allowance 39,190 44,374Net deferred tax assets $ – $ –26 TELULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)2001 2000 1999SEGMENT REPORTINGRevenueFixed Wireless Terminals $ 90,235 $ 29,727 $ 26,763Security Products 10,915 10,626 11,560101,150 40,353 38,323Net Income (Loss)Fixed Wireless Terminals 14,859 (4,188) (10,093)Security Products (1,983) (1,718) (489)12,876 (5,906) (10,582)Tangible Long-Lived Assets, netFixed Wireless Terminals 2,743 3,094 4,017Security Products 1,000 1,172 1,1853,743 4,266 5,202Capital ExpendituresFixed Wireless Terminals 861 597 751Security Products 58 204 759919 801 1,510Depreciation and AmortizationFixed Wireless Terminals 1,855 2,045 2,443Security Products 231 217 1242,086 2,262 2,567For the fiscal year ending September 30, 2001, onecustomer located in Mexico accounted for 77% of FixedWireless Terminal revenue and two customers, both locatedin the U.S., accounted for 16% and 13%, respectively, of thesecurity products revenue.For the fiscal year ending September 30, 2000, onecustomer located in the Dominican Republic accountedfor 21% of Fixed Wireless Terminal revenue and twocustomers, both located in the U.S., accounted for 19%and 15%, respectively, of the security products revenue.For the fiscal year ending September 30, 1999, twocustomers located in Mexico and Dominican Republic,accounted for 26% and 17%, respectively, of the FixedWireless Terminal revenue and two customers, both locatedin the U.S., accounted for 30% and 13%, respectively, ofthe security products revenue.8. REVOLVING LINE OF CREDITOn January 7, 2000, the Company entered into a Loan andSecurity Agreement with Wells Fargo Business Credit Inc.(Wells) to provide a revolving credit facility with a loanlimit of $5 million (the Loan). In accordance with theagreement, 100% of the outstanding amount of the Loan iscollaterized in cash. At September 30, 2001, the Companyhad $3.0 million of borrowings outstanding under the Loan.Under the Loan, the Company is restricted from makingdividend payments. The Loan matures on January 7, 2003and bears interest at the bank’s prime rate. To reduceapplicable financing fees, the Company issued 50,000shares of Common Stock Warrants to Wells. The Warrantshave a strike price of $16.29 per share and expire onJanuary 6, 2005. The value of the Warrants was accountedfor as deferred financing costs, and was recorded at thefair value of the financing fees of $195. The deferredfinancing costs are included in other assets and are beingamortized over the life of the Loan.TELULAR CORPORATION27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)9. REDEEMABLE PREFERRED STOCK AND PRE-FERRED STOCKDuring the year ending September 30, 1997, the Companyissued 20,000 shares of Series A Convertible PreferredStock (the “Redeemable Preferred Stock”) for $18,375,which is net of issuance costs of $1,200. The RedeemablePreferred Stock includes the equivalent of a 5% annualstock dividend of $29 and $805 at September 30, 2000 and1999 respectively.As of September 30, 1999, 8,650 shares of RedeemablePreferred Stock had been converted into 1,583,865 sharesof Common Stock. On October 15, 1999, the final 11,350shares of Redeemable Preferred Stock automaticallyconverted into 2,146,540 shares of Common Stock (theMandatory Conversion). On October 18, 1999, the previousholders of the Redeemable Preferred Stock notified theCompany that they disagree with the conversion formulathe Company used to process the Mandatory Conversion.In Form SC-13G filings with the Securities and ExchangeCommission in October and December 1999, certain ofthe previous holders noted that based upon their interpretationof Mandatory Conversion formula, the holders wereentitled to an aggregate of 4,247,834 additional shares ofthe Company’s Common Stock. The Company has notreceived any further claim or communication from theprevious holders. The Company believes that it processedthe conversion correctly and that the claim by previousholders of Redeemable Preferred Stock is unfounded.On September 30, 2001 and 2000, the Company had21,000 shares of $0.01 par value Redeemable PreferredStock authorized and none outstanding.On September 30, 2001 and 2000, the Companyhad 9,979,000 shares of $0.01 par value Preferred Stockauthorized and none outstanding.10. RELATED PARTY TRANSACTIONSPursuant to the terms of a 1993 Stock PurchaseAgreement, the Company issued and sold 956,060 sharesof Common Stock to Motorola, Inc. (Motorola) in exchangefor cash proceeds of $11,000, access to specified servicesof Motorola, and certain transceiver supply and pricingarrangements. On April 26, 1994, Motorola exercisedits option to purchase 232,187 additional shares fromcertain major shareholders in lieu of the Company issuingsuch shares. Among other things, the Stock PurchaseAgreement contains restrictions on certain actions thatwould adversely impair the rights of Motorola and on thesale of additional Company stock to strategic investors,as defined.In addition, the Company has a patent licenseagreement with Motorola, whereby the Company receivesa royalty for each unit leased, used, or sold by Motorola.The agreement will remain in effect for the life of thepatents by country, unless either party in accordance withthe terms of the agreement terminates it. For the yearsended September 30, 2001, 2000, and 1999, royalty androyalty settlement revenue earned by the Companypursuant to the Motorola agreement was approximately$5,006, $1,525, and $1,948, respectively.The Company also had an agreement with Motorola,whereby the Company provided engineering services,at its typical rates, over a three-year period endingNovember 10, 1998. For the year ended September 30,1999, payments received under this agreement wereapproximately $1,000. No payments were received underthis agreement for the years ended September 30, 2001and 2000.In 1999, the Company entered into a five year OEMdistribution agreement whereby the Company distributesfixed wireless products made by Motorola for the CodeDivision Multiple Access (CDMA) cellular radio standard.The Motorola products utilize the Company’s technologyand Motorola is required to pay the Company a royalty oneach unit that Motorola sells to customers other thanthe Company. In 2000 Motorola announced the discontinuanceof their fixed wireless products and in 2001, theCompany and Motorola agreed to terminate the OEMagreement. Terms of the settlement included a royaltypayment of $5,000 which is included in royalty and royaltysettlement revenue.In August 2001, Motorola sold its holdings in theCompany to an unrelated third party.Accounts receivable from Motorola were $132 and$900 as of September 30, 2001 and 2000, respectively.Purchases from Motorola totaled approximately $1,675,$9,114, and $6,404 for the years ended September 30,2001, 2000, and 1999, respectively.Accounts payable to Motorola, were approximately$14 and $2,037 for the fiscal years ended September 30,2001 and 2000, respectively.28 TELULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)In 1992, the Telular Group L.P., predecessor of theCompany, entered into a contribution agreement with DNICBrokerage Company (DNIC) pursuant to which DNIC contributeda variety of assets including certain patents andlicense agreements, to the Company. Under the contributionagreement, DNIC retains the right to receive the first$250 per year in annual royalty payments pursuant to thecontributed license agreements. The Company paid a totalof $250 to DNIC pursuant to this contribution agreementduring the fiscal year ended September 30, 2001. OnOctober 10, 2001, the Company entered into an agreementwith DNIC, pursuant to which the Company agreed toadvance an amount not to exceed $750 of future royaltiesto DNIC to be used solely for the purpose of purchasingthe Company’s common stock in open market transactions.Beginning on October 1, 2001, all royalties received bythe Company for the benefit of DNIC will first be appliedto amounts advanced to DNIC by the Company, and anyremaining royalties will be paid to DNIC. Subsequentto fiscal year 2001, the Company advanced a total of $750to DNIC under the terms of this arrangement. DNIC is ashareholder of the Company.11. COMMITMENTSThe Company occupies certain facilities and rents certainequipment under various lease agreements expiringthrough February 28, 2007. Rent expense for the yearsended September 30, 2001, 2000, and 1999 was approximately$919, $1,137, and $997, respectively. Futureminimum obligations under noncancelable operatingleases are as follow:2002 9392003 7402004 6912005 6532006 669Thereafter 282Total $ 3,974During fiscal 1999, the Company entered into anagreement with ACT Manufacturing which covers the manufacturingof circuit card assemblies and final assembliesof the Company’s products. The agreement may beterminated by default of either party or by mutual consent.As of September 30, 2001, the Company had $2,417 inopen purchase commitments relative to this agreement.12. CAPITAL STOCK AND STOCK OPTIONSOn March 3, 2000, the Company issued 444,444 sharesof Common Stock for $9,533 which is net of issuance costsof $467, including $100 of Common Stock issued to theCompany’s placement agent. The Common Stock wasissued to investors under the provisions of Regulation Dof the United States Securities Act of 1933, as amended.In connection with this financing, the Company issued358,407 shares of Common Stock Warrants to investorsand the placement agent. The Common Stock Warrantshave strike prices which range from $12.27 to $31.56 pershare and expire during the period from March 2, 2005through April 11, 2005. The fair value of these CommonStock Warrants of $2,264, determined using the Black-Scholes method was included in additional paid in capital.The Company has a Stock Incentive Plan (the Plan).Under the Plan, options to purchase shares of CommonStock may be granted to all employees. Stock options havebeen granted at exercise prices as determined by the Boardof Directors to all officers and employees of the Companypursuant to the Plan. These stock options will vest eitherimmediately or over a period of up to seven years.All stock options, if not exercised or terminated, willterminate either on the sixth or the tenth anniversary ofthe date of grant.Outside of the Plan, the Company has entered intostock option agreements (the Stock Option Agreements)with former employees and independent directors. Underthese Stock Option Agreements, certain employees weregranted options before the Company’s 1994 initial publicoffering. These options were granted at exercise pricesranging from $3.72 to $39.00 per share, as determined bythe Board of Directors, and represented the estimated fairmarket values of the Company’s Common Stock at thegrant date. These options are fully vested and those notexercised or cancelled will expire on the tenth anniversaryof the date of grant.Stock Option Agreements are provided annually tothe independent directors of the Company in lieu ofcompensation as directors and members of committeesof the Board of Directors. These options are granted atexercise prices equal to the price of the Company’scommon stock on the date of grant and expire on thetenth anniversary of the date of grant.TELULAR CORPORATION29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)The following table displays all stock option activity, including stock options granted to all employees and theStock Option Agreements.2001 2000 1999Weighted Weighted WeightedAverage Average AverageOptions Exercise Options Exercise Options Exercise(000’s) Price (000’s) Price (000’s) PriceOutstanding at beginning of year 1,001 $ 8.27 1,205 $ 7.71 688 $ 12.56Granted 584 13.33 406 8.40 742 3.31Exercised (81) 2.55 (461) 7.30 – –Canceled (296) 8.88 (149) 5.59 (225) 7.97Outstanding at end of year 1,208 $ 10.95 1,001 $ 8.27 1,205 $ 7.71Weighted average fair value ofoptions granted during the period $ 7.00 $ 4.39 $ 1.06The following table summarizes information about options outstanding at September 30, 2001:Weighted Outstanding ExercisableOutstanding Average Weighted Exercisable WeightedRange of as of 9/30/01 Remaining Average as of 9/30/01 AverageExercise Prices (000’s) Contractual Life Exercise Price (000’s) Exercise Price$1.56 - 3.75 291 5.17 $ 3.23 200 $ 3.464.25 - 10.05 252 5.97 8.37 40 9.4910.06 - 15.25 321 4.85 11.89 137 12.0917.50 - 39.00 344 4.69 18.48 132 19.731,208 5.11 $ 10.95 509 $ 10.47At September 30, 2001, the Company has reserved2,350,000 shares of Common Stock, of which 1,470,133are available for issuance in connection with the Plan.Pro forma information regarding net income andearnings per share is required by Statement of FinancialAccounting Standard No. 123, which also requires that theinformation be determined as if the Company had accountedfor its options granted subsequent to October 1, 1995,under the fair value method of that Statement. The fairvalue of options was estimated at the date of grant usinga Black-Scholes stock option pricing model with the followingweighted-average assumptions for 2001, 2000 and1999: risk-free interest rate of 6.0%; a weighted-averageexpected life of the options of four years; and no dividendyield. For the volatility factor of the expected marketprice of the common stock, the weighted average assumptionsof 60%, 60% and 35% were used for 2001, 2000 and1999, respectively.The Black-Scholes stock option valuation model wasdeveloped for use in estimating the fair value of tradedoptions which have no vesting restrictions and are fullytransferable. In addition, stock option valuation modelsrequire the input of highly subjective assumptionsincluding the expected stock price volatility. Because the30 TELULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)Company’s employee stock options have characteristicssignificantly different from those of traded options, andbecause changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’sopinion, the existing models do not necessarily provide areliable single measure of the fair value of its employeestock options.For purposes of pro forma disclosures, the estimatedfair value of the options is amortized to expense overthe options’ vesting period. The Company’s pro formainformation follows:2001 2000 1999Pro forma netearnings (loss) applicableto common shares $ 10,587 $ (7,102) $ (12,002)Pro forma basicearnings (loss)per common share $ 0.83 $ (0.58) $ (1.34)Pro forma dilutedearnings (loss)per common share $ 0.82 $ (0.58) $ (1.34)13. EARNINGS PER SHAREBasic and diluted net income (loss) per common shareare computed based upon the weighted-average numberof shares of common stock outstanding. Common sharesissuable upon the exercise of options, warrants andredeemable preferred stock are not included in the pershare calculations if the effect of their inclusion wouldbe anti-dilutive.Following is a reconciliation of the weighted averagenumber of common shares outstanding for the basic anddiluted earnings per share computation:Year Ended September 30 2001 2000Weighted average number of commonshares outstandingBasic 12,748,677 12,183,022Effect of dilutivestock options 212,830 –Diluted 12,961,507 12,183,02214. MAJOR CUSTOMERSFor the year ended September 30, 2001, the Companyderived approximately $69,235 (68%) of its total revenuesfrom one customer, Radiomovil Dipsa (Telcel) Mexico.As of September 30, 2001, $1,630 was included in accountsreceivable from Telcel.For the year ended September 30, 2000, the Companyderived approximately $6,070 (15%) of its total revenuesfrom one customer, Tricom, Inc. As of September 30, 2000,$72 was included in accounts receivable from Tricom, Inc.For the year ended September 30, 1999, the Companyderived approximately $4,422 (12%) and $6,840 (18%) ofits total revenues from two customers, Tricom, Inc. andRadiomovil S.A., respectively. As of September 30, 1999,$2.2 million was included in accounts receivable fromRadiomovil, S.A.15. EXPORT SALESExport sales were approximately $79,340, $23,305, and$21,073 for the years ended September 30, 2001, 2000,and 1999, respectively. Export sales were primarily to theCaribbean and Latin American (CALA) and European,Middle Eastern, and African (EMEA) regions during theyears ended September 30, 2001, 2000 and 1999.16. CONTINGENCIESThe Company is involved in various legal proceedingsthat arise in the ordinary course of its business. While anylitigation contains an element of uncertainty, based uponthe opinion of the Company’s counsel, managementbelieves that the outcome of such proceedings will nothave a material adverse effect on the Company’s consolidatedresults of operations or financial position.17. EMPLOYEE BENEFIT PLANThe Company sponsors a defined contribution plan undersection 401(k) of the Internal Revenue Code. The plancovers substantially all employees of the Company.The Company may match employee contributions ona discretionary basis. There were no amounts chargedagainst operations related to the Company’s match for theyears ended September 30, 2001, 2000, and 1999.TELULAR CORPORATION31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)The following is a summary of the quarterly results of operations for the years ended September 30, 2001, 2000, and 1999.Three months ended(in thousand, except share data) December 31 March 31 June 30 September 30Fiscal year ended 2001Total revenue $ 15,207 $ 38,615 $ 28,343 $ 18,985Gross profit 4,614 13,581 8,546 5,685Net Income 151 8,343 (1) 3,476 906Basic income per common share .01 .66 .27 .07Diluted income per common share .01 .64 .27 .07Fiscal year ended 2000Total revenue $ 9,077 $ 9,709 $ 10,750 $ 10,817Gross profit 1,914 2,832 2,709 3,435Net loss (2,354) (1,475) (1,411) (666)Basic and diluted loss per common share (.21) (.12) (.11) (.05)Fiscal year ended 1999Total revenue $ 8,269 $ 8,433 $ 10,751 $ 10,870Gross profit 1,849 2,585 1,167 2,330Net loss (2,691) (1,998) (3,216) (2,677)Basic and diluted loss per common share (.33) (.25) (.38) (.31)(1) Includes $5,000 in royalty settlement revenue (Note 10)ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURENoneITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANYReference is made to the information contained under the caption Directors of the Company in the Company’s definitiveproxy statement for its 2002 Annual Meeting of Shareholders filed with the Securities and Exchange Commission on orbefore December 29, 2001.The Directors’ names and occupations are listed on the inside back cover of this document. Names and informationabout executive officers are provided on page 6.ANNUAL REPORT COPIESThe Company hereby undertakes to provide to each shareholder of record as of December 5, 2001, upon the written requestof such shareholder, (i) without charge a copy of the annual report on From 10-K (for the most recent fiscal year), includingthe financial statements and financial statement schedules, required to be filed with the Securities and Exchange Commissionand (ii) upon the payment of a reasonable fee to cover the reasonable expenses of the Company (to be specified by theCompany), a copy of the exhibit set forth in Item 14 of such Form 10-K.Requests for such copies should be directed to:Telular CorporationJeffrey L. Herrmann647 N. Lakeview ParkwayVernon Hills, IL 6006132 TELULAR CORPORATION

The Quality System at Telular Corporation is ISO 9001 certifiedBOARD OFOFFICERSINVESTORDIRECTORSINFORMATIONCorporateInformationKenneth E. MillardChairmanKenneth E. MillardChief Executive OfficerCorporate Headquarters647 North Lakeview ParkwayJohn E. BerndtFormer PresidentSprint InternationalSprint Corporationand PresidentDaniel D. GiacopelliExecutive Vice President andChief Technology OfficerVernon Hills, Illinois 60061www.telular.comRegistrar and Transfer AgentComputershare InvestorLarry J. FordSenior Vice PresidentADC Telecommunications, Inc.Jeffrey L. HerrmannExecutive Vice President,Chief Operating Officer, ChiefServices2 North LaSalle StreetChicago, Illinois 60602Daniel D. GiacopelliTelular CorporationFinancial Officer, SecretaryDaniel C. WonakStock Exchange ListingNasdaq: WRLSRichard D. HaningSenior Vice PresidentMotorola, Inc.Mitchell H. SaranowChairman andChief Executive OfficerThe Saranow GroupSenior Vice President,MarketingInvestor RelationsTelular CorporationJeffrey L. Herrmann847.247.9400Please e-mail InvestorRelations questions toinvestor@telular.com

647 North Lakeview ParkwayVernon Hills, Illinois 60061www.telular.com