Forward Looking Information

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Telular includes certain estimates, projections and other forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 in its reports and in other publicly available material. Statements regarding expectations, including performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements. These statements reflect management's judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer growth and retention, pricing, operating costs and the economic environment.

The words "estimate", "project", "intend", "expect", "believe", "target" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are found throughout Management's Discussion and Analysis. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, Telular is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this report or unforeseen events.

Introduction

Telular creates services that utilize wireless networks for the remote monitoring, control, or tracking of equipment and facilities. Telular's software-as-a-service ("SaaS") offerings are created through Telular's competence in developing complex software systems and data communication devices that utilize the data transport capabilities of today's commercial wireless networks. To enable these services, Telular is a significant reseller of such commercial wireless services.

Telular generates a majority of its revenue through the delivery of machine-to-machine ("M2M") services such as event monitoring service and asset tracking through its Telguard, TankLink, and SkyBitz business lines. A portion of its revenue comes from the sale of specialty cellular hardware products designed by Telular for use exclusively with its M2M services. Telular's operating expense levels are based in large part on its expectations for its future revenues. If anticipated sales in any quarter do not occur as expected, expenditure and inventory levels could be disproportionately high, and Telular's operating results for that quarter, and potentially for future quarters, could be adversely affected. Certain factors that could significantly impact expected results are described in Item 1A of this Quarterly Report on Form 10-Q.

The market for Telular's products is primarily in North America and consists of a number of vertical applications including Telguard security alarm conveyance; TankLink tank level monitoring; and, SkyBitz asset tracking. These markets are addressed primarily through indirect channels consisting of third party Value Added Resellers ("VARs"), distributors, representatives and agents along with in-house sales and customer support teams. A direct sales model is utilized for certain large customers. Fabrication of Telular's products is accomplished through contract manufacturing. Contract manufacturers in China, Mexico, and the United States make and test all hardware products.

The following details areas of product delivery and research either undertaken or anticipated in fiscal 2012.

Telguard - Telular's engineering team continues to update the Telguard product and service portfolio in various ways that will attract incremental demand from our security dealer customers. In fiscal 2011, Telular launched new features, such as Telguard Interactive Services which let end users remotely arm and disarm their security systems. In addition, we launched Telguard Voice, which allowed security dealers to speak with their end user customers in the event that an alarm condition was triggered. Perhaps the most significant development activity was the conversion of our full Telguard hardware product lines to 3G/4G capability. While 3G/4G capability was launched in early fiscal 2012, most of the development was accomplished in fiscal 2011. Product innovation within this space is important for the long-term success of Telguard and we expect to continue to enhance our Telguard software platform and underlying hardware products going forward. In 2012, the Telguard Message Center ("TMC") server platform, which is the underlying core software system for the Telguard service, was enhanced such that Telular can offer service to dealers in Canada. Furthermore, the architecture of TMC will be updated so that it can support even more end-user, feature development and increased traffic volumes in the future.

TankLink - The fiscal 2009 acquisition of TankLink Corp. brought Telular a successful wireless communicator product line for tank level monitoring. In early fiscal 2011, the acquisition of TankLink end-user accounts from our key value added reseller, SmartLogix, Inc., gave Telular more direct control over the TankLink end users as well as improved profitability. Enhancements to the TankLink software platform, TankData Online, have been made during 2011. Telular plans to further enhance both the software platform and the hardware product during fiscal 2012 to include a new hardware device which will be more suitable for smaller tank vessels and will operate on 3G/4G networks.

SkyBitz - Telular closed on the acquisition of SkyBitz, Inc. ("SkyBitz"), on February 1, 2012. SkyBitz is a leading provider of mobile resource management ("MRM") solutions focusing on tracking and management of truck trailers, intermodal containers, sea-going containers, rail cars, power generators and rental equipment. SkyBitz's unique Global Locating System ("GLS") satellite-based technology provides real-time visibility of many asset types. SkyBitz addresses a multi-billion dollar market opportunity by reducing operating costs, increasing efficiency and aiding in the compliance with regulatory requirements across an increasingly complex set of supply chains and business ecosystems.

Competition

Telular believes its advantages over the competition include:

Greater Focus -Telular is focused on creating M2M solutions, which we develop by combining our historical competency in designing cellular networking electronics and real-time transaction processing software with the data transport capabilities of commercial wireless networks. This focus allows us to develop high functioning software and products best suited to our customers' needs, resulting in products that are easier to install and maintain and are more reliable. Our primary competitors have the bureaucracy normally associated with large companies and the management distraction associated with overseeing a broad array of products and services; many of which are unrelated to one another.

More Experience - Telular has been in the cellular electronics business for over 20 years. Telular has been creating and operating real-time transaction processing software for over a decade and understands the importance of high reliability in that regard. We have deployed products in more than 130 countries worldwide, reflecting the quality, reliability and innovation of our product portfolio.

Broader Product line -Telguard, our largest line of business, includes targeted software features and a more diverse set of hardware products than any of our competitors and we believe this gives our customers a greater selection of features and hardware devices from which to choose.

Economies of Scale -Telguard's fully integrated end-to-end cellular solution is now utilized by over 592,300 individual subscribers, which helps to minimize costs on a per user basis. This large customer base also reflects our significant experience and demonstrates credibility to the market.

Service and Support - Telular provides customers with comprehensive customer service and product support. We believe that our commitment and ability to provide superior service differentiates us from our competition.

Financial Strength - Telular is currently generating cash from operations. We believe that this financial strength gives us an ability to develop new products and services and defend against competitive initiatives very well.

There are several firms that compete with Telular's Telguard products and services. These primary competitors include: Honeywell, DSC, Numerex and Alarm.com. Based on its own internal estimates, Telular believes it has a 15-20% market share for all currently active cellular alarm communicators in the United States, having introduced the first such device for digital cellular networks in 2005. Demand for cellular communicators has once again increased markedly over the past year. We believe this is due to consumers eliminating traditional telephone lines and therefore, requiring a cellular communicator to enable a home security system. If this trend continues, Telular believes that Telular and its competitors will continue to see substantial demand for products and related services.

Telular's Telguard hardware products will only interface with Telular's proprietary message center, which interprets and forwards any alarms received to Telular's security monitoring customers in near real-time. Telular believes its competitive advantages for this service are the fact that its hardware products interface with the vast majority of alarm panels on the market and that installers can quickly activate the hardware and service.

There are numerous, small competitors to Telular's TankLink offering. The most significant of these is Centeron, a division of Robertshaw Industries, which in turn is a subsidiary of Invensys, Inc. More often, the TankLink offering competes against the pre-existing, manual methods utilized by tank owners to determine the fill level and reorder timing for products held within tank vessels. Telular believes the key to growing its TankLink revenue is lowering its prices to the greatest extent possible in order to cost justify implementation of the TankLink solution.

Our SkyBitz asset tracking solutions also have competition from numerous sources, including I.D. Systems, Inc., and Qualcomm. Telular differentiates its SkyBitz solutions by providing advanced features on the web portal through which its customers receive tracking data, maximizing battery life on the tracking units to minimize the frequency of changing batteries, and through efficient design and manufacturing of its products to enable a low cost solution for its customers.

With regard to the Fixed Cellular Terminals ("FCTs") sold by Telular, there are a large number of competitors that manufacture and sell FCTs. They include: Ericsson, Axesstel, YX and numerous other manufacturers in Asia and elsewhere. Much of the demand for these terminals is outside the United States and demand is concentrated among the large wireless carriers that operate in various countries around the world. The FCT business is not a focus of Telular.

OUTLOOK

The statements contained in this outlook are based on current expectations. These statements are forward looking, and actual results may differ materially.

Telular expects to expend most of its market and product development resources on the M2M space, including continuing to capitalize on its favorable market position in the domestic security alarm market by virtue of its well-regarded Telguard offerings, as well as continuing to improve overall penetration in the tank level monitoring market through TankLink. Telular expects SkyBitz to continue to leverage its leading position in the trailer-tracking market while expanding into adjacent markets such as intermodal container and government asset tracking.

UNIT SALES

During the third quarter of fiscal 2012, Telular sold approximately 46,500 billable M2M units, compared with approximately 25,800 billable M2M units for the same period in fiscal 2011. During the first nine months of fiscal 2012, Telular sold approximately 119,100 billable M2M units compared with approximately 69,700 billable M2M units for the same period in fiscal 2011. These increases were primarily a result of strong demand for Telguard's new 3G/4G security products and the inclusion of SkyBitz in the total units sold beginning on February 1, 2012. Our Telguard subscriber base rose in the quarter to approximately 592,300 at June 30, 2012 from 589,100 subscribers at the end of the second quarter of fiscal 2012 and increased by 36,000 subscribers from a June 30, 2011 subscriber base of 556,300. This increase was due primarily to a strong overall demand for our new Telguard 3G/4G products. We expect Telguard sales of between 25,000 and 35,000 units on a quarterly basis throughout fiscal 2012. Telular ended the third quarter of fiscal 2012 with combined billable M2M units of 808,600, compared to 577,500 for the same period of fiscal 2011, due in large part to the SkyBitz acquisition.

REVENUE TRENDS

Product sales have increased due to increased demand, the introduction of new 3G/4G security products and the inclusion of asset tracking products as a result of the purchase of SkyBitz. Service revenues represented 58% of total sales in the third quarter of fiscal 2012 compared to 62% for the same period in fiscal 2011. Service revenues represented 59% of total sales in the first nine months of fiscal 2012 compared to 62% for the same period of fiscal 2011. On a consolidated basis, Telular ended the third quarter of fiscal 2012 with service average revenue per unit ("ARPU") of $5.52 compared to $4.50, excluding SkyBitz, for the same period of fiscal 2011. SkyBitz was not part of Telular during that period.

RECENT DEVELOPMENTS

On February 1, 2012, Telular purchased 100% of the capital stock of SkyBitz. SkyBitz provides mobile resource management solutions focusing on over-the-road tracking via satellite. SkyBitz's satellite-based technology provides real-time visibility of many asset types, including truck trailers, intermodal containers, sea-going containers, rail cars, power generators and rental equipment. The purchase was accounted for using the purchase method. For further discussion of this acquisition, refer to "Note 3. Business Combinations" in the Notes to Consolidated Financial Statements.

Simultaneous with the acquisition of SkyBitz on February 1, 2012, Telular executed the Second Amended and Restated Loan and Security Agreement with SVB (the "Second Amended Loan Agreement"). Under the Second Amended Loan Agreement, Telular borrowed $30,000 in the form of a term loan which Telular applied towards a portion of the cash consideration for the acquisition of SkyBitz. The term loan matures on February 1, 2017, the 5th anniversary of the amendment. The loan requires quarterly payments of interest and principal, with annual principal amortization of 10%, 15%, 20%, 20% and 25% in each of the first five years, respectively, with the final 10% due on the maturity date. At the option of Telular, interest will be incurred based on a rate ranging from 2.25% to 2.75% (depending on the calculation of the senior leverage ratio) above the published LIBOR rates, or at a rate of .25% to .75% above the Prime interest rate. The Second Amended Loan Agreement requires Telular to comply with certain financial covenants such as maintaining a maximum senior leverage ratio and a minimum fixed charge coverage ratio. The loan is secured by substantially all assets of Telular.

On August 2, 2012, Telular announced the declaration of a regular quarterly dividend of $0.11 per share, payable on August 21, 2012 to shareholders of record at the close of business on August 14, 2012. Telular estimates the cost of this dividend to be approximately $1,835 depending on the number of shares outstanding at the time of the dividend.

RESULTS OF OPERATIONS
(in thousands except when referring to ARPUs, units or share data)

Third quarter fiscal year 2012 compared to third quarter fiscal year 2011

Revenues and Cost of Sales

                                                          Change
                         2012         2011        Amount       Percentage
Revenues by Segment:
Event monitoring       $ 14,194     $ 12,824     $  1,370               11 %
Asset tracking            8,705            -        8,705             >100  %
Total revenues         $ 22,899     $ 12,824     $ 10,075               79 %




                                                                 Change
                                 2012         2011       Amount       Percentage
Revenues
M2M service revenue           $ 13,310     $  7,987     $  5,323               67 %
M2M hardware sales               9,399        4,347        5,052              116 %
Subtotal M2M                    22,709       12,334       10,375               84 %
Other product sales                190          490         (300 )            -61 %
Total revenue                   22,899       12,824       10,075               79 %
Cost of sales
M2M service cost of sales        3,557        2,543        1,014               40 %
M2M hardware cost of sales       7,040        2,856        4,184              146 %
Subtotal M2M                    10,597        5,399        5,198               96 %
Other product cost of sales        177          456         (279 )            -61 %
Total cost of sales             10,774        5,855        4,919               84 %
Gross margin                  $ 12,125     $  6,969     $  5,156               74 %

Revenues

Segment
Event Monitoring ("EM") revenues increased 11% primarily due to a 14% increase in Telguard revenues and an 11% increase in TankLink revenues, offset by a decrease of 61% in our terminal revenues. Telguard revenues increased primarily as a result increased cellular penetration in the security market and demand for of the new 3G/4G products. Telular is the first to market with a 3G/4G cellular communicator in the security products space. TankLink's increase in revenues is primarily due to a stronger demand for tank measuring products. The decrease in our terminal revenues reflects Telular's reduced focus in this product line because there is no subsequent recurring revenue stream associated with these products. Terminal products were approximately 0.8% of total revenue for the third quarter of fiscal 2012 as compared to 4% for the same period of fiscal 2011.

Telular purchased SkyBitz on February 1, 2012. There were no revenues in fiscal 2011 for the Asset Tracking ("AT") segment.

Type
M2M service revenues increased 67% primarily due to the inclusion of SkyBitz during the full third quarter and an increase in billable units activated of 10,200 during the quarter as a result of stronger demand of new product offerings.

M2M hardware revenues increased 116% primarily due to the initial inclusion of SkyBitz. Telular sold approximately 46,500 monitoring and tracking hardware units during the third quarter of fiscal 2012, compared to 25,800 units during the same period of fiscal 2011. This increase was primarily due the addition of SkyBitz's products to Telular's revenues as a result of the purchase of SkyBitz in the second quarter and to stronger demand for our new 3G/4G security monitoring products.

Other product sales decreased 61% primarily due to overall decrease in demand for our terminal products. Telular expects this decline to continue and has shifted its focus away from selling these products.

Cost of Sales

M2M service cost of sales increased 40% primarily due to the inclusion of SkyBitz for the full third quarter. Service cost of sales went up approximately $1,141 as a result of adding SkyBitz, offset with reductions to Telguard's services cost of sales of approximately $127 due to the migration to a cellular carrier that has reduced rates. The reduction of costs related to this migration began in the third quarter of fiscal 2011. Gross margin for M2M services was 73% in the third quarter of fiscal 2012 compared to 68% in the second quarter of fiscal 2011.This increase in gross margin is primarily due an increase in customers with a higher ARPU.

M2M hardware cost of sales increased 146% primarily due to including SkyBitz's sales for the full third quarter. As a percentage of M2M hardware product revenues, M2M hardware cost of sales was 75% for the third quarter of fiscal 2012 compared to 66% for the third quarter of fiscal 2011. This increase of 9% is due to the costs incurred to re-configure existing inventory to 3G/4G products, increased costs to produce new 3G/4G products and a slight increase in AT unit costs. Gross margin for M2M hardware was 25% in the third quarter of fiscal 2012 as compared to 34% in the second quarter of fiscal 2011. The decrease is attributable to reduced margins related to the terminal products and increase in M2M unit costs.

Operating Expenses


                                                               Change                % of Revenues
                               2012        2011       Amount       Percentage       2012        2011

Engineering and development   $ 2,117     $ 1,122     $   995               89 %        9 %        9%
Selling and marketing           3,236       1,970       1,266               64 %       14 %       15%
General and administrative      4,128       1,587       2,541              160 %       18 %       12%
                              $ 9,481     $ 4,679     $ 4,802                          41 %       36%

Engineering and Development

The increase of $995 in engineering and development was primarily due to including SkyBitz expenses for the full third quarter of $822 and the following increases in engineering development expenses for Telular and TankLink:
· $163 of salary and related benefits attributable to increased engineering headcount; and,

· $23 of outside services related to increased usage of engineering consultants for specific projects.

Offsetting these increases was a decrease of $13 of prototype materials and testing expenses.

Selling and Marketing

The increase in selling and marketing of $1,266 was primarily due to including SkyBitz expenses for the full third quarter of $1,229 and the following:
· $72 increase in third-party services, including consultants, primarily due to a two-year servicing agreement with SmartLogix. SmartLogix is providing monthly customer support services in conjunction with Telular's purchase of the SMARTank business unit from SmartLogix; and,

· $26 increase in the earnout provision contained in the Agreement between Telular and SmartLogix for the purchase of the SMARTank business unit.

Offsetting these increases were decreases of $50 related to reduced expenditures during the period for advertising, trade shows and marketing materials and an $11 decrease in various other expenses.

General and Administrative

The increase in general and administrative expenses of $2,541 was primarily due to including SkyBitz expenses for the full third quarter of $2,490, of which $1,345 was an increase in amortization expense due to capitalized intangibles related to the acquisition and $852 of typical departmental expenses such as salaries and related benefits, professional fees, office expenses and a one-time severance charge of $293 and the following:
· $69 increase in professional fees such as accounting, tax and consultants;

· $46 increase in costs related to the acquisition of SkyBitz;

· $19 increase in bank fees associated with the increased debt related to the SkyBitz acquisition; and,

· $17 increase in costs related to NASDAQ fees and investor conferences.

Offsetting these increases was a $100 decrease in legal fees. Telular was able to successfully resolve a patent infringement lawsuit in fiscal 2011.

Other Income (Expense)

Other income (expense) for the three months ended June 30, 2012 increased $226 compared to the same period of fiscal 2011. This increase was primarily due to an increase in interest expense of $231 related to the Second Amended Loan Agreement with SVB entered into in connection with the purchase of SkyBitz on February 1, 2012 and an increase of $5 in interest income and other income.

Income Taxes

The provision for income taxes increased $681 to $936 for the third quarter of fiscal 2012 as compared to $255 for the same period of fiscal 2011 primarily due to the increase in non-deductible amortization expense related to the intangibles recorded as a result of the acquisition of SkyBitz.

First nine months of fiscal year 2012 compared to first nine months of fiscal year 2011

Revenues and Cost of Sales

                                                          Change
                         2012         2011        Amount      Percentage
Revenues by Segment:
Event monitoring       $ 41,760     $ 37,406     $  4,354               12 %
Asset tracking           14,638            -       14,638             >100 %
Total revenues         $ 56,398     $ 37,406     $ 18,992               51 %



                                                                 Change
                                 2012         2011       Amount       Percentage
Revenues
M2M service revenue           $ 33,014     $ 23,091     $  9,923               43 %
M2M hardware sales              22,416       11,708       10,708               91 %
Subtotal M2M                    55,430       34,799       20,631               59 %
Other product sales                968        2,607       (1,639 )            -63 %
Total revenue                   56,398       37,406       18,992               51 %
Cost of sales
M2M service cost of sales        9,022        8,416          606                7 %
M2M hardware cost of sales      16,152        7,963        8,189              103 %
Subtotal M2M                    25,174       16,379        8,795               54 %
Other product cost of sales      1,159        2,469       (1,310 )            -53 %
Total cost of sales             26,333       18,848        7,485               40 %
Gross margin                  $ 30,065     $ 18,558     $ 11,507               62 %

Revenues

Segment
EM revenues increased 12% primarily due to an 17% increase in Telguard revenues and a 21% increase in TankLink revenues offset, by a decrease of 63% in our terminal revenues. Telguard revenues increased primarily as a result of increased cellular penetration in the security market and demand for the new 3G/4G products. Telular is the first to market with 3G/4G technology in its Telguard security products. TankLink's increase in revenues is primarily due to a stronger demand for tank measuring products, and the inclusion of incremental revenue resulting from the acquisition of the SMARTank business unit from SmartLogix in January 2011. The decrease in our terminal revenues reflects Telular's reduced focus in this product line because there is no subsequent recurring revenue stream associated with these products. Terminal products were . . .