Telular Corporation 2001 Annual Report

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