United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     .

Commission File Number 0-23212

Telular Corporation

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		36-3885440 (I.R.S. Employer Identification No.)

311 South Wacker Drive, Suite 4300, Chicago, Illinois 60606-6622
(Address of principal executive offices and zip code)

(312) 379-8397
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o          Accelerated filer þ          Non-accelerated filer o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                    No þ

The number of shares outstanding of the Registrant’s common stock, par value $.01, as of July 27, 2007, the latest practicable date, was 18,311,802 shares.

 

 

TELULAR CORPORATION
Index

		Page No.
Part I — Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets June 30, 2007 (unaudited) and September 30, 2006			3
Consolidated Statements of Operations (unaudited) Three and Nine Months Ended June 30, 2007 and June 30, 2006			4
Consolidated Statement of Stockholders’ Equity (unaudited) Nine Months Ended June 30, 2007			5
Consolidated Statements of Cash Flows (unaudited) Nine Months Ended June 30, 2007 and June 30, 2006			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures about Market Risk			20
Item 4. Controls and Procedures			20
Part II — Other Information
Item 1. Legal Proceedings			21
Item 1A. Risk Factors			21
Item 6. Exhibits			21
Signatures			22
Exhibit Index			23
Exhibit 31.1
Exhibit 31.2
Exhibit 32

TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

		June 30,				September 30,
		2007				2006
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	12,548			$	6,799
Trade accounts receivable, net			21,305				25,495
Inventories, net			6,892				12,405
Prepaid expenses and other current assets			427				1,887
Total current assets			41,172				46,586
Property and equipment, net			3,709				4,625
Other assets:
Goodwill			2,043				2,043
Other intangible assets, net			1,098				4,247
Deposits and other			311				436
Total other assets			3,452				6,726
Total assets		$	48,333			$	57,937
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	7,400			$	9,488
Accrued liabilities			4,292				6,324
Working capital line of credit			—				3,313
Total current liabilities			11,692				19,125
Stockholders’ equity:
Common stock; $.01 par value; 75,000,000 shares authorized; 18,310,469 and 18,066,411 outstanding at June 30, 2007 and September 30, 2006, respectively			183				181
Additional paid-in capital			170,236				168,852
Deficit			(133,778	)			(130,221	)
Total stockholders’ equity			36,641				38,812
Total liabilities and stockholders’ equity		$	48,333			$	57,937

See accompanying notes

TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)

		Three Months Ended June 30,								Nine Months Ended June 30,
		2007				2006				2007				2006
Revenue
Net product sales		$	17,293			$	16,736			$	52,897			$	59,669
Service revenue			4,513				2,822				12,502				8,015
Total revenue			21,806				19,558				65,399				67,684
Cost of sales
Net product cost of sales			13,315				13,414				40,745				50,138
Service cost of sales			2,386				1,515				6,806				4,315
Total cost of sales			15,701				14,929				47,551				54,453
Gross margin			6,105				4,629				17,848				13,231
Operating expenses
Engineering and development expenses			1,750				2,034				5,670				5,628
Selling and marketing expenses			2,404				3,048				8,115				8,482
General and administrative expenses			1,175				1,433				3,978				4,163
Amortization			397				553				3,149				853
Goodwill impairment loss			—				4,045				563				4,045
Total operating expenses			5,726				11,113				21,475				23,171
Income (loss) from operations			379				(6,484	)			(3,627	)			(9,940	)
Other income, net			48				45				70				310
Income (loss) before income taxes			427				(6,439	)			(3,557	)			(9,630	)
Provision for income taxes			—				—				—				—
Net income (loss)		$	427			$	(6,439	)		$	(3,557	)		$	(9,630	)
Net loss per common share:
Basic		$	0.02			$	(0.37	)		$	(0.20	)		$	(0.58	)
Diluted		$	0.02			$	(0.37	)		$	(0.20	)		$	(0.58	)
Weighted average number of common shares outstanding:
Basic			18,247,316				17,280,976				18,147,624				16,511,585
Diluted			18,740,503				17,280,976				18,147,624				16,511,585

See accompanying notes

TELULAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)

						Additional								Total
		Common				Paid-In								Stockholders'
		Stock				Capital				Deficit				Equity
Balance at September 30, 2006		$	181			$	168,852			$	(130,221	)		$	38,812
Comprehensive income:
Net loss for period from October 1, 2006 to June 30, 2007			—				—				(3,557	)			(3,557	)
Stock based compensation expense			—				568				—				568
Stock options exercised			1				209				—				210
Restricted stock award			—				45				—				45
Stock issued in connection with CSI earn-out			1				562				—				563
Balance at June 30, 2007		$	183			$	170,236			$	(133,778	)		$	36,641

See accompanying notes

TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

		Nine Months Ended June 30,
		2007				2006
Operating Activities:
Net loss		$	(3,557	)		$	(9,630	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			1,282				1,298
Amortization			3,149				853
Goodwill impairment loss			563				4,045
Stock based compensation expense			598				671
Common stock issued for services			—				10
Loss on disposal of assets			54				—
Changes in assets and liabilities, net of the effects of acquisition:
Trade accounts receivable			4,190				(10,199	)
Inventories			5,513				(6,560	)
Prepaid expenses and other assets			1,600				(298	)
Trade accounts payable			(2,088	)			5,861
Accrued liabilities			(2,032	)			1,802
Net cash provided by (used in) operating activities			9,272				(12,147	)
Investing Activities:
Acquisition of property and equipment			(420	)			(1,073	)
Acquisition of business unit			—				(3,895	)
Proceeds from sale of marketable securities			—				12,075
Increase in restricted cash			—				(2,000	)
Net cash provided by (used in) investing activities			(420	)			5,107
Financing Activities:
Expenditures related to the issuance of common stock			—				(21	)
Proceeds from the exercise of stock options			210				51
Proceeds from the working capital line of credit			5,737				3,749
Payments on the working capital line of credit			(9,050	)			—
Net cash provided by (used in) financing activities			(3,103	)			3,779
Net increase (decrease) in cash and cash equivalents			5,749				(3,261	)
Cash and cash equivalents, beginning of period		$	6,799			$	10,023
Cash and cash equivalents, end of period		$	12,548			$	6,762

See accompanying notes

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

1.		Basis of Presentation
		The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, the accompanying financial statements include all adjustments considered necessary for a fair presentation. Operating results for the nine months ended June 30, 2007, are not necessarily indicative of the results that may be expected for the full fiscal year ending September 30, 2007. For additional information, please refer to the consolidated financial statements and the footnotes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2006.
2.		Earnings Per Share
		Basic earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents, which relate entirely to the assumed exercise of stock options and warrants. In the event of a net loss for the period, both basic and diluted earnings per share of common stock are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
		The shares outstanding used to compute diluted earnings per share for the three and nine months ended June 30, 2007 and 2006 excluded the following stock options and warrants because their inclusion in the computation would have been antidilutive:

		Three Months Ended June 30,								Nine Months Ended June 30,
		2007				2006				2007				2006
Stock options			624,044				1,649,712				607,127				1,649,712
Warrants			2,699,992				3,020,848				2,699,992				3,020,848
			3,324,036				4,670,560				3,307,119				4,670,560

3.		Stock Based Compensation
		The Company has an officer and employee stock incentive plan and a non-employee director stock incentive plan. The costs of stock options granted is calculated based on their grant date fair value and recognized over the vesting period. The fair value of stock options granted and warrants issued is estimated at the grant date or issuance date using a Black-Scholes stock option valuation model. Key factors in determining the valuation of a grant under the Black-Scholes model are: a volatility factor of the expected market price of the Company’s common stock, a risk-free interest rate, a dividend yield on the Company’s common stock and the expected term of the option.

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

On October 31, 2006, the Company issued restricted stock awards to all outside directors. This restricted stock has trading limitations which will be removed on October 31, 2007. The total value of these awards was $45 based on the price of the Company’s common stock on the date of issuance. The cost will be taken as a charge to operating expenses on a pro-rata basis over the twelve month period. There was no similar grant made in fiscal year 2006.

During the three and nine month periods ended June 30, 2007 and 2006, the Company recognized stock-based compensation expense as follows:

		Three Months Ended June 30,								Nine Months Ended June 30,
		2007				2006				2007				2006
Stock based compensation:
Stock options		$	198			$	221			$	568			$	671
Restricted stock			11				—				30				—
		$	209			$	221			$	598			$	671

4.		Restricted Cash
		Beginning in February 2003, the Venezuelan government imposed restrictions on the acquisition and payment of foreign currencies. On December 14, 2006, the Company entered into a Guaranty Agreement (the “Agreement”) with one of its customers located in Venezuela, Compania Anonima Nacional Telefonos De Venezuela (“CANTV”). Under the Agreement, CANTV recognized its debt to the Company of $950 related to an unpaid invoice and deposited this amount with the Company. The Agreement stipulates that the funds shall not be applied or used by the Company as total or partial payment of any unpaid invoices unless, within 365 days of the date of the Agreement, payment is not approved and made by the Venezuelan government. If such a payment on the unpaid invoice is made before December 14, 2007, the Company will return the funds. If payment is not made by December 14, 2007, the Company has the right to offset the unpaid invoice with the $950. During the quarter CANTV made payments to the Company for the outstanding debt and the restricted cash was returned.
5.		Trade Accounts Receivable and Allowance for Doubtful Accounts
		Trade accounts receivable represents sales made to customers on credit. An allowance for doubtful accounts is maintained based upon estimated losses resulting from the inability of customers to make payments for goods and services. Trade accounts receivable, net of the allowance for doubtful accounts, as of June 30, 2007 and September 30, 2006 are as follows:

		June 30,				September 30,
		2007				2006
		(Unaudited)
Trade receivables		$	21,349			$	25,839
Less: allowance for doubtful accounts			(44	)			(344	)
		$	21,305			$	25,495

The decrease in the allowance for doubtful accounts is a result of the elimination of the risk associated with the collectibility of a customer receivable.

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

6.		Inventories
		The components of inventories consist of the following:

		June 30				September 30,
		2007				2006
		(Unaudited)
Raw materials		$	3,010			$	6,335
Finished goods			5,454				7,845
			8,464				14,180
Less: reserve for obsolescence			(1,572	)			(1,775	)
		$	6,892			$	12,405

7.		Goodwill and Other Intangibles
		Goodwill as of June 30, 2007 and September 30, 2006 is as follows:

		Fixed Cellular				Fixed Cellular
		Terminals				Phones				Total
Balance at September 30, 2006		$	2,043			$	—			$	2,043
2007 activity:
Additional goodwill			—				563				563
Impairment of goodwill			—				(563	)			(563	)
Balance at June 30, 2007 (unaudited)		$	2,043			$	—			$	2,043

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

On May 8, 2006, the Company acquired substantially all of the assets and assumed certain liabilities relating to the fixed wireless division of CSI Wireless Inc. and CSI Wireless LLC (together, the “Sellers” or “CSI”). Pursuant to an earn-out provision in the Asset Purchase Agreement (the “Purchase Agreement”) the Company recognized an obligation to issue additional shares of common stock during the first quarter of fiscal year 2007, and subsequently, issued 150,990 additional shares of common stock to the Sellers in the second quarter of fiscal year 2007. The value of these shares of common stock, $563, was recorded as additional goodwill to the Fixed Cellular Phones (FCP) segment. In fiscal year 2006, it was determined that all of the goodwill attributed to the FCP segment was impaired and a charge was taken to operations. Accordingly, this additional goodwill was also determined to be impaired and the charge of $563 was taken in the first quarter of fiscal year 2007.

Other intangible assets as of June 30, 2007 and September 30, 2006 are as follows:

		June 30, 2007												September 30, 2006
						Accumulated												Accumulated
		Cost				Amortization				Net				Cost				Amortization				Net
Other Intangible Assets:
Capitalized technology		$	3,840			$	(3,240	)		$	600			$	3,840			$	(2,250	)		$	1,590
Customer relationships			3,070				(2,671	)			399				3,070				(637	)			2,433
Other			293				(194	)			99				293				(69	)			224
Total other intangible assets		$	7,203			$	(6,105	)		$	1,098			$	7,203			$	(2,956	)		$	4,247

		In the first quarter of fiscal year 2007, the Company reviewed the estimated lives of the intangible assets it purchased from CSI on May 8, 2006. It was determined that the useful life of one customer relationship would not extend beyond March 31, 2007. This intangible was fully amortized as of March 31, 2007. The effect of this change in the estimated life of the intangible was to reduce net income by $1,143 for the nine months ended June 30, 2007. The effect on earnings per share is to reduce it by $.06 for the nine month periods ending June 30, 2007.
8.		Line of Credit
		On June 27, 2006, the Company entered into a two year Loan and Security Agreement (the “Line of Credit Agreement”) and a Non-Recourse Receivable Purchase Agreement (the “Receivable Purchase Agreement”) with Silicon Valley Bank (SVB). The Line of Credit Agreement provides for a working capital line of credit secured by accounts receivable with borrowings based upon eligible accounts receivable at 80% of their face value. The Receivable Purchase Agreement provides for the sale of accounts receivable to SVB. Each agreement has a credit limit of $10,000 and there is an aggregate credit limit of $15,000 covering borrowings or purchases under both agreements. The Company repays the loan as receivables are collected. Interest charged under the line of credit agreement can vary from SVB’s prime rate to SVB’s prime rate plus 2%. At June 30, 2007, the Company had no outstanding borrowings under the Line of Credit Agreement or the Receivable Purchase Agreement.

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

		In connection with the agreements, the Company issued 320,856 warrants to purchase or convert into the Company’s Common Stock. The warrants are exercisable at $1.87 per share and were valued at $356 using the Black-Scholes pricing model. The value of the warrants has been recorded as a loan origination fee and is being amortized over the term of the agreements.
9.		Income Taxes
		The Company did not record any U.S. federal or state income tax provision for the three and nine month periods ending June 30, 2007 and 2006 due to the deductibility of certain items for tax purposes in excess of deductions for book purposes.
		Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has provided a full valuation allowance on its deferred tax assets and liabilities due to the uncertainty of the realizability. Accordingly, the Company has not recorded any U.S. federal or state income tax benefit related to these deferred taxes.
10.		Commitments
		On April 28, 2006, the Company entered into an agreement with ACT Electronics, Inc. (“ACT”) under which ACT will provide fulfillment services and manufacture final assemblies of the Company’s products. Either party may terminate the agreement upon 90 days prior written notice to the other party. Under the agreement, the Company has the right to offset amounts due to the Company from ACT against amounts owed to ACT by the Company. As of June 30, 2007, the Company had $11,221 in open purchase commitments pursuant to this agreement.
		On September 11, 2006, the Company entered into an agreement with Speedy-Tech Electronics Ltd. (“Speedy”) relating to the manufacturing of final assemblies of the Company’s products. Either party may terminate the agreement upon 90 days prior written notice to the other party. Under the agreement, the Company has the right to offset amounts due to the Company from Speedy against amounts owed to Speedy by the Company. As of June 30, 2007, the Company had $1,750 in open purchase commitments pursuant to this agreement.
11.		Segment and Major Customer Disclosures
		The Company has two reportable business segments: Fixed Cellular Terminals (FCT) and Fixed Cellular Phones (FCP). The FCT segment consists of feature-rich, high end fixed cellular terminals, including the Telguard family of products and services. The FCP consists of high-volume, low cost fixed cellular phones.
		The FCT market is mostly in North America and consists of vertical applications ranging from wireless residential and commercial alarm systems to machine-to-machine and portable dial tone applications. The FCP market is prevalent in countries outside of North America with low fixed line penetration.
		Summarized below are the Company’s revenues and net income (loss) by reportable segment.

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

		Three Months Ended June 30,								Nine Months Ended June 30,
		2007				2006				2007				2006
Revenue:
Fixed Cellular Terminals		$	16,290			$	14,387			$	47,187			$	28,877
Fixed Cellular Phones			5,516				5,171				18,212				38,807
		$	21,806			$	19,558			$	65,399			$	67,684
Net Income (Loss):
Fixed Cellular Terminals		$	1,845			$	1,195			$	3,302			$	2,784
Fixed Cellular Phones			(1,466	)			(7,679	)			(6,929	)			(12,724	)
Non-segment other income			48				45				70				310
		$	427			$	(6,439	)		$	(3,557	)		$	(9,630	)

		For the three month period ended June 30, 2007, the Company had two customers that accounted for 37% of the FCT revenues. These customers were located in the United States. For the nine month period ended June 30, 2007, the Company had two customers located in the United States that accounted for 40% of the FCT revenues.
		For the three months ended June 30, 2007, the Company had four customers that accounted for 86% of the FCP revenues. These customers are located in Mexico (37%), Venezuela (27%), Guatemala (11%) and South Africa (11%). For the nine month period ended June 30, 2007, the Company had two customers that accounted for 56% of the FCP revenues. These customers are located in Mexico (41%) and Guatemala (15%).
		Total export sales for the three and nine month periods ended June 30, 2007 were 37% and 35% of total Company revenues, respectively. FCT export sales for the three and nine month period ended June 30, 2007 were 12% and 9% of total Company revenues, respectively and FCP export sales for the three and nine month periods ended June 30, 2007 were 25% and 26% of total revenues, respectively.
12.		Supplemental Disclosures of Cash Flow Information

		Nine Months Ended
		June 30,
		2007				2006
Supplemental disclosure of cash flow information:
Interest paid		$	106			$	1
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued in connection with acquisition - 1,931,745 shares		$	—			$	5,505
Restricted common stock awarded as director compensation - 18,072 shares		$	45			$	—
Common stock issued to CSI in connection with the earn-out provisions of the Purchase Agreement - 150,990 shares		$	563			$	—
Increase in additional paid-in capital related to warrants issued to secure working capital line of credit - 320,856 warrants		$	—			$	356

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

13.		Business Combination

On May 8, 2006, the Company acquired substantially all of the assets and assumed certain liabilities relating to the fixed wireless division of CSI Wireless Inc. and CSI Wireless LLC (together, the “Sellers”). As a result of the acquisition, the Company established a greater presence with key customers in Latin America and obtained advanced technology for wireless public telephony. Pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), the Company initially paid $3,044 in cash and issued 1,931,745 shares of its common stock with a fair value of $5,505 as consideration in the acquisition. In addition the Company incurred $851 in direct costs related to the acquisition and recorded $197 of liabilities in connection with the purchase. Earn-out provisions of the transaction may require the Company to issue additional shares of common stock at measurement dates through June 30, 2007. The purchase was accounted for using the purchase method in accordance with SFAS No. 141, Business Combinations. The Company’s Statements of Operations include the results of operations for the purchased assets and liabilities since May 8, 2006.

The initial aggregate purchase price was $9,400, consisting of $3,044 of cash, 1,931,745 shares of the Company’s Common Stock valued at $5,505 and direct costs of the acquisition of $851. The fair value of the common stock was determined based on the average market price of the Company’s Common Stock over the five day period ended two days after the terms of the Purchase Agreement were finalized. In the first quarter of fiscal year 2007, $563 of additional purchase price was recorded as goodwill and as a liability to be settled with common stock of the Company pursuant to one of the earn-out provisions of the Purchase Agreement. In the second quarter of fiscal year 2007, the Company issued 150,990 of its common stock to the Sellers in settlement of the earn-out liability. The fair value of the common stock was determined based on the average market price of the Company’s common stock over the five day period ended two days after December 31, 2006. The additional goodwill was determined to be impaired and a charge of $563 was recorded to operations in the first quarter of fiscal year 2007. The final earn-out measurement date was June 30, 2007, and no additional purchase price was recorded in the second or third quarters of fiscal 2007. The following table summarizes the fair value of the assets acquired and the liabilities assumed at the date of acquisition, including the consideration under the earn-out:

		May 8, 2006
Inventory		$	69
Prepaid expenses and deposits			112
Property and equipemnt			2,349
Acquired technology			840
Cutomer relationships			3,070
Other intangible assets			293
Goodwill			4,097
Total assets acquired			10,830
Reserve on purchase orders commitments			517
Accured warranty reserve			40
Capital lease obligations			113
Liabilities in connection with the purchase			197
Total liabilities assumed			867
Net assest acquired		$	9,963

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited, dollars in thousands, except share data)

The following table summarizes the composition of the final purchase price:

Composition of final purchase price:
Cash		$	3,044
Common stock:
1,931,745 shares issued on purchase date			5,505
150,990 shares issued for earn-out			563
Direct costs of the acquisition			851
		$	9,963

14.		Subsequent Event

On July 24, 2007, the Company made a strategic decision to sell its fixed cellular phone business. Effective July 24, 2007, the Company will begin accounting for the fixed cellular phone business’ assets, liabilities and operating results as a discontinued operation in accordance with SFAS No 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Telular Corporation (Telular or the Company) is focused on global markets that have mature cellular and PCS networks (collectively cellular) that can be utilized for new applications and services that extend the cellular network’s capability. Specifically, Telular designs, develops, distributes and supports products and services that provide expanded connectivity and functionality to cellular networks. These product and service offerings add value to the cellular networks and take advantage of their economics, pervasiveness, convenience and architecture. These products provide the capability to connect alarm panels, telephones, fax machines and data modems directly to cellular networks. Bridging the gap between wireline customer premises equipment and cellular networks, these technologies provide the Company’s products with the “look and feel” of the wireline network, providing critical communications and security needs in a variety of environments. We refer to this concept as “Fixed Cellular.”

The growth of Fixed Cellular in any given market is dependent to a considerable extent upon the growth of cellular telephone service in that market as a cost-effective alternative to or substitute for landline telephone systems. Consequently, in managing the business and making decisions about where to invest resources, the Company’s management collects data and follows trends in the following areas of the cellular industry:

•		The cost of cellular airtime rates to consumers
•		The cost of cellular equipment technology and components
•		The capabilities of deployed cellular systems
•		Consumer attitudes toward cellular technology
•		Competitive and substitute products in the market place
•		Global economic conditions and economic conditions in key markets for Fixed Wireless
•		Telephony regulation in key markets for Fixed Wireless

Based upon trends noted from data collected in the above areas, such as improved economic conditions in Latin America and substantial growth in the adoption of Fixed Wireless in Asia and the United States, the Company believes that the market for Fixed Cellular will experience substantial growth over the next five years.

The Company currently operates two businesses organized into separate reporting segments: Fixed Cellular Terminals (FCT) and Fixed Cellular Phones (FCP). The Company is now focused on the FCT business due to strong growth and acceptable margins as compared to the FCP segment, where competition has driven margins to an unacceptable level. Subsequent to June 30, 2007, the Company has made the decision to place its FCP assets up for sale. By continuing to concentrate on the FCT markets, we believe we can further improve the performance and long-term profitability of Telular Corporation.

The FCT market is primarily in North and South America and consists of a number of vertical applications ranging from wireless residential and commercial alarm systems addressed by TELGUARD^® to Internet access provided by PHONECELL^® FCT’s. The FCT segment also includes monitoring services directly related to the activation of the TELGUARD^® products. The FCT market is addressed primarily through indirect channels consisting of distributors, representatives and agents along with in-house sales and customer support teams. The Company is currently developing additional event monitoring application in order to replicate its success with the TELGUARD^® products and services

The Company generates its revenue by making and selling products and providing services related to those products. It recognizes revenue when its products ship from various manufacturing locations to customers and when the service is performed. Although the Company has a broad base of customers worldwide, much of its FCP revenue is generated from large contracts, the timing of which is often unpredictable.

The Company’s operating expense levels are based in large part on expectations of future revenues. If anticipated sales in any quarter do not occur as expected, expenditure and inventory levels could be disproportionately high, and the Company’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 Cautionary Statements that are set forth in Exhibit 99 to the Company’s Form 10-K for the fiscal year ended September 30, 2006.

Results of Operations

Third quarter fiscal year 2007 compared to third quarter fiscal year 2006

Net product sales. Net product sales of $17.3 million for the three months ended June 30, 2007, increased 3% compared to the same period last year.

TELGUARD^® Terminal Products. Sales of TELGUARD^® products decreased 4%, or $0.4 million, to $8.0 million during the third quarter of fiscal year 2007 compared to the same period of fiscal year 2006. This decrease is due primarily to a lower average selling price to maintain market penetration of the TELGUARD^® digital products while continuing to take advantage of lower production costs.

Terminal Products (exclusive of TELGUARD^® products). Sales of terminal products increased 17%, or $0.6 million, to $3.8 million during the third quarter of fiscal year 2007 compared to the same period of fiscal year 2006. This increase was primarily the result of increased sales in developing markets where end users are increasingly using our products for Internet access and to allow legacy telephone equipment to utilize wireless networks.

Phone Products. Sales of FCP products during the third quarter of fiscal year 2007 of $5.5 million increased 9% or $0.4 million, over the same period last year. This increase was a result of higher unit volumes achieved by reducing the average selling price.

Service revenue. Service revenue increased 60% to $4.5 million during the second quarter of fiscal year 2007 from $2.8 million during the same period last year. The increase is primarily the result of the increased services related to TELGUARD^® products cumulatively activated over the past 12 months.

Gross margin. Gross margin for the three months ended June 30, 2007 of $6.1 million, or 28% of total revenue, compares to $4.6 million, or 24% of total revenue, for the same period last year. The increase in gross margin as a percentage of total revenue is the result of an increased mix of TELGUARD^® product and services in the Company’s revenues and the reduction of warranty expenses for the period.

Engineering and development expenses. Engineering and development expenses of $1.8 million for the three months ended June 30, 2007, decreased 14%, or $0.3 million, compared to the same period of fiscal year 2006. The decrease is primarily due to reduced personnel costs related to the Company’s reduction in workforce in the previous quarter.

Selling and marketing expenses. Selling and marketing expenses of $2.4 million for the three months ended June 30, 2007, decreased 21%, or $0.6 million, compared to the same period of fiscal year 2007. This decrease reflects the reduced personnel costs as a result of the reduction in workforce in the previous quarter and reduced co-op marketing expenses.

General and administrative expenses. General and administrative expenses of $1.2 million for the three months ended June 30, 2007, decreased 18%, or $0.3 million compared to the same period of fiscal year 2006. This decrease was primarily due to a decrease in the bad debt allowance which was reduced to reflect the stability of the Company’s customer payments.

Amortization. Amortization expense of $0.4 million for the three months ended June 30, 2007, decreased 28% compared to the same period of fiscal year 2006. This decrease was the result of accelerated amortization taken in the first six months of fiscal 2007 associated with certain intangible assets purchased in the May 8, 2006 acquisition of the fixed wireless division business of CSI Wireless Inc.

Net Income. The Company recorded net income of $0.4 million for the third quarter of fiscal year 2007 compared to a net loss of $6.4 million for the third quarter of fiscal year 2006. The change is the result of increased gross margins of $1.4 million and reduced operating expenses of $5.4 million, primarily due to the decrease in goodwill impairment loss of $4.0 million. Net income in the third quarter from the FCT segment of $1.8 million compares to net income of $1.2 million last year. Net loss in the third quarter from the FCP segment was $1.5 million compared to net loss of $7.7 million last year.

Net income per Common Share. Net income per share of $0.02 for the third quarter of fiscal year 2007 compares to net loss per share of $0.37 for the third quarter of fiscal year 2006.

First nine months fiscal year 2007 compared to first nine months fiscal year 2006

Net product sales. Net product sales of $52.9 million for the nine months ended June 30, 2007, decreased 11% compared to the same period last year.

TELGUARD^® Terminal Products. Sales of TELGUARD^® products increased 97%, or $12.2 million, to $24.8 million during the first nine months of fiscal year 2007 compared to the same period of fiscal year 2006. This increase is due primarily to increased market penetration resulting from lower cost TELGUARD^® digital products.

Terminal Products (exclusive of TELGUARD^® products). Sales of terminal products increased 20%, or $1.6 million, to $9.8 million during the first nine months of fiscal year 2007 compared to the same period of fiscal year 2006. This increase was primarily the result of increased sales in developing markets where end users are increasingly using our products for Internet access and to allow legacy telephone equipment to utilize wireless networks.

Phone Products. Sales of FCP products during the first nine months of fiscal year 2007 of $18.2 million decreased 53% or $20.3 million, over the same period last year as a result of a decline in global demand for CDMA-based products as well as increased competition.

Service revenue. Service revenue increased 56% to $12.5 million during the first nine months of fiscal year 2007 from $8.0 million during the same period last year. The increase is primarily the result of the increased services related to TELGUARD^® products cumulatively activated during the period.

Gross margin. Gross margin for the nine months ended June 30, 2007 of $17.8 million, or 27% of total revenue, compares to $13.2 million, or 20% of total revenue, for the same period last year. The increase in gross margin as a percentage of total revenue is the result of an increased mix of TELGUARD^® product and services in the Company’s revenues and the reduction of warranty expenses for the period.

Engineering and development expenses. Engineering and development expenses of $5.7 million for the nine months ended June 30, 2007, increased less than 1% compared to the same period of fiscal year 2006. The increase is due to reduced personnel costs related to the Company’s reduction in workforce earlier in the fiscal year, offset by an increase in separation compensation paid to the Company’s former CTO.

Selling and marketing expenses. Selling and marketing expenses of $8.1 million for the nine months ended June 30, 2007, decreased 4% compared to the same period of fiscal year 2007. This decrease reflects reduced personnel costs related to the reduction in workforce earlier in fiscal 2007 and a reduction in certain commission and co-op marketing expenses.

General and administrative expenses. General and administrative expenses of $4.0 million for the nine months ended June 30, 2007, decreased 4%, or $0.2 million compared to the same period of fiscal year 2006. This decrease was primarily due to a decrease in the bad debt allowance partially offset by an increase in the allocation of idle plant capacity to general and administrative expenses.

Amortization. Amortization expenses of $3.1 million for the nine months ended June 30, 2007, increased 269% compared to the same period of fiscal year 2006. This increase was the result of amortization associated with intangible assets purchased in the May 8, 2006 acquisition of the fixed wireless division business of CSI Wireless Inc.

Goodwill impairment. Goodwill impairment loss of $0.6 million for the nine months ended June 30, 2007, compares to $4.0 million in the same period of fiscal year 2006, a decrease of $3.4 million or 86%. In fiscal year 2006, goodwill in the FCP segment was determined to be impaired. A loss for the full carrying value of the goodwill was charged to operations in fiscal 2006. The loss in the current period resulted from the allocation of $0.6 million to goodwill relating to an earn-out provision contained in the Purchase Agreement with CSI (see financial statement footnote 7). This goodwill was also determined to be impaired and was taken as an impairment charge in the first quarter of fiscal year 2007.

Net loss. The Company recorded a net loss of $3.6 million for the first nine months of fiscal year 2007 compared to a net loss of $9.6 million for the first six months of fiscal year 2006. The decrease in net loss this year is primarily the result of increased gross margins and a decrease in operating expenses primarily related to a reduction in amortization expenses and goodwill impairment loss. Net income in the first nine months of fiscal 2007 from the FCT segment of $3.3 million compares to net income of $2.8 million last year. Net loss in the first nine months of fiscal year 2007 from the FCP segment was $6.9 million compared to net loss of $12.7 million last year

Net loss per Common Share. Net loss per share of $0.20 for the first nine months of fiscal year 2007 compares to net loss per share of $0.58 for the same period of fiscal year 2006.

Financial Position

Management regularly reviews net working capital in addition to cash to determine if it has enough cash to operate the business. On June 30, 2007, the Company had $12.5 million of unrestricted cash and cash equivalents and a working capital surplus of $29.5 million.

The Company generated $9.3 million of cash from operations during the first nine months of fiscal year 2007 compared to cash used of $12.1 million during the same period of fiscal year 2006. Cash provided by operations during the first nine months of fiscal year 2007 includes $3.6 million of the net loss, offset by $5.7 million of non-cash charges and $7.2 million due to net favorable changes in working capital as follows: (1) a decreases in trade accounts receivable as a result of more timely collections of existing receivables; (2) a decrease in inventories as a result of a focus on selling FCP finished goods, not withstanding the low margin available in the market; (3) a decrease in prepaid expenses and other assets primarily as a result of applying a prepayment made to our Contract Manufacturer for outstanding invoices, (4) a decrease in trade payables from reduced production, mainly in the FCP segment and (5) a decrease in accrued liabilities resulting from the timing of payments.

The FCT segment generated $3.2 million and $6.9 million of cash from operations during the three and nine month periods ended June 30, 2007, respectively. The FCP segment generated an additional $0.3 million and $2.3 million of cash from operations primarily from the improved collection of trade accounts receivable during the three and nine month periods ended June 30, 2007, respectively.

Cash of $0.4 million was used in investing activities during the first nine months of fiscal year 2007 compared to cash generated from investing activities of $5.1 million during the same period of the prior year, a net decrease of $5.5 million. This decrease was due to (1) the sale of $12.1 million of marketable securities which generated cash in the first nine months of fiscal year 2006 compared to no sales of marketable securities in the same period of fiscal year 2007, (2)$3.9 million used for the acquisition of the CSI business unit in the third quarter of fiscal 2006, (3) a $2.0 million increase ( a use of cash) in restricted cash period over period, and (3) $0.7 million less used for the acquisition of property and equipment.

Cash of $3.1 million was used in financing activities in the first nine months of fiscal year 2007. The decrease was due to $3.3 used to pay down the working line of credit with Silicon Valley Bank partially offset with $0.2 million proceeds from the exercise of employee stock options. There were no borrowings under this credit facility in the same period of the prior year (see financial statement footnote 8).

Based upon its current operating plan, the Company believes its existing capital resources, including the line of credit with Silicon Valley Bank, will enable it to maintain its current and planned operations. Cash requirements may vary and are difficult to predict given the volatility of demand in certain of the developing markets targeted by the Company. The Company expects to maintain levels of cash reserves which are required to undertake major product development initiatives and to qualify for large sales opportunities.

Critical Accounting Policies

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. The Company believes that the following represent the critical accounting policies that currently affect the presentation of the Company’s financial condition and results of operations.

Reserve for Obsolescence

Significant management judgment is required to determine the reserve for obsolete or excess inventory. The Company currently considers inventory quantities greater than a one-year supply as well as any additional, specifically identified inventory to be excess. The Company also provides for the total value of inventories that are determined to be obsolete based on criteria such as customer demand and changing technologies. At June 30, 2007 and September 30, 2006, the inventory reserves were $1.6 million and $1.8 million, respectively. Changes in strategic direction, such as discontinuance or expansion of product lines, changes in technology or changes in market conditions, could result in significant changes in required reserves.

Goodwill

The Company evaluates the fair value and recoverability of the goodwill of each of its business segments whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable or at least annually. In determining fair value and recoverability, the Company makes projections regarding future cash flows. These projections are based on assumptions and estimates of growth rates for the related business segment, anticipated future economic conditions, the assignment of discount rates relative to risk associated with companies in similar industries and estimates of terminal values. An impairment loss is assessed and recognized in operating earnings when the fair value of the asset is less than its carrying amount.

Income Taxes

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Currently, the Company has significant deferred tax assets principally related to the carryforward of net operating losses. Deferred tax assets are reviewed regularly for recoverability, and when necessary, valuation allowances are established based on historical tax losses, projected future taxable income, and expected timing of reversals of existing temporary differences. Valuation allowances have been provided for all deferred tax assets, as management makes assessments about the realizability of such deferred tax assets. Changes in the Company’s expectations could result in significant adjustments to the valuation allowances, which would significantly impact the Company’s results of operations.

Forward Looking Information

The Company includes certain estimates, projections and other forward-looking statements 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 forwarding-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. The Company is not obligated to and expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this report or unforeseen events. Other risks and uncertainties are discussed in Exhibit 99 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 which is hereby incorporated by reference.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes regarding the Company’s market risk position from the information provided in its Annual Report on From 10-K for the fiscal year ended September 30, 2006.

The Company frequently invests available cash and cash equivalents in short term instruments such as certificates of deposit, commercial paper and money market accounts. Although the rate of interest paid on such investments may fluctuate over time, each of the Company’s investments is made at a fixed interest rate over the duration of the investment. All of these investments have maturities of less than 90 days. The Company believes its exposure to market risk fluctuations for these investments is not material as of June 30, 2007.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. To reduce its exposure to the credit risks of international customers, with the exception of customers with ownership interests by credit-worthy, primarily US-based companies, the Company may receive payment prior to shipment, receives irrevocable letters of credit that are confirmed by U.S. banks, or purchases commercial credit insurance. In some instances, the Company extends credit to foreign customers without the protection of prepayments, letters of credits or credit insurance. The Company performs ongoing credit evaluations and charges amounts to operations when they are determined to be uncollectible. Because of the steps taken above to mitigate credit risks of international customers, the Company believes that its exposure to credit risk is not material.

To mitigate the effects of currency fluctuations on the Company’s results of operations, the Company conducts all of its international transactions in U.S. dollars.

Item 4. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 ( the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this report an evaluation of the effectiveness of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

During the quarter ended June 30, 2007, there were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15, each promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings that arose in the ordinary course of its business. While any litigation contains an element of uncertainty, management believes that the outcome of all pending legal proceedings will not have a material adverse effect on the Company’s consolidated results of operation or financial position. However, because of the nature and inherent uncertainties of litigation, should the outcome of any legal actions be unfavorable, the Company may be required to pay damages and other expenses, which could have a material adverse effect on the Company’s financial position and results of operations.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2006.

Item 6. EXHIBITS

The following documents are filed as Exhibits to this report:

Number		Description		Reference
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
32		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Exhibit Index

Number		Description		Reference
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
32		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Furnished herewith