Telular Corporation 2001 Annual Report

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