Results of Operations
Third quarter fiscal year 2008 compared to third quarter fiscal year 2007
Revenues and Cost of Sales

                                                                     Change
                                    2008         2007        Amount       Percentage
         Net product sales
         Telguard                 $  5,145     $  7,969     $ (2,824 )            -35 %
         Terminal                    5,631        4,006        1,625               41 %

         Total product revenues     10,776       11,975       (1,199 )            -10 %
         Service revenues            4,536        4,527            9                0 %

         Total revenues             15,312       16,502       (1,190 )             -7 %

         Cost of sales
         Products                    7,980        8,494         (514 )             -6 %
         Services                    2,091        2,411         (320 )            -13 %

                                    10,071       10,905         (834 )             -8 %

         Gross margin             $  5,241     $  5,597     $   (356 )

Revenues
Product revenues decreased 10% due to the decreased sales of our Telguard products. The Telguard products revenue decreased primarily as a result of lower customer demand. Our dealers and distributors increased their inventory during the fourth quarter of fiscal 2007 and the first two quarters of fiscal 2008 anticipating a stronger demand to convert from analog to digital. As that demand waned and the housing market continued to weaken, our customers reduced their purchases during the third quarter to bring their levels of inventory down. Terminal product revenues increased primarily from customers in the Central American/Latin American (CALA) region placing new orders and taking delivery on orders that were delayed in the first and second quarters of fiscal 2008. Service revenues were flat, despite a higher number of active Telguard units, reflecting the reduction in average revenue per unit resulting from the deactivation of all analog units in February 2008. Activations, which are dependent on Telguard unit installations, will lag behind the sales of those units.
Cost of Sales
The decrease in cost of sales of 8% in the third quarter of fiscal 2008 when compared to the same period of fiscal 2007 reflects the lower sales volumes. Gross margin, as a percentage of sales, was 34% for the third quarters of both fiscal years.

Operating Expenses

                                                                   Change                     % of Revenues
                                2008         2007         Amount        Percentage         2008           2007

Engineering and development    $ 1,390      $ 1,614      $   (224 )             -14 %           9 %           10 %
Selling and marketing            1,609        1,362           247                18 %          11 %            8 %
General and administrative       1,766        1,278           488                38 %          11 %            8 %

                               $ 4,765      $ 4,254      $    511                              31 %           26 %

Engineering and Development
The decrease of 14% was primarily due to decreased payroll expenses of $326, decreased facility expenses of $16 offset by increased expenses of $118 relating to consultants and project related and other expenses. The decreased payroll expenses resulted from a decrease in engineering personnel. The reduction of personnel was a result of a Company- wide personnel reduction and as a result of relocating the Engineering and Development function to Atlanta from New York. The increased consulting expenses were a result of retaining selected key engineering personnel to complete projects that were in progress. Selling and Marketing
The increase in selling and marketing of 18% was primarily due to increases in salaries and related benefits of $200, mainly due to an expanded marketing department and increased stock based compensation, an increase in facility expenses of $96, primarily due to moving the Atlanta office to a larger space, offset by a reduction of $49 related to decreased external agent commission and trade show expenses.
General and Administrative (G&A)
The increase of 38% was primarily due to a $255 increase in bad debt expense, year over year, as a result of reducing the allowance for doubtful accounts in the third quarter of fiscal 2007, reflecting the stability of the Company's customer payments, an increase in professional fees of $146, primarily legal fees and consulting expenses, increased payroll expenses related to stock option compensation resulting from stock options of $48, an increase of $47 for insurance and an increase of $29 related to bank and credit card processing fees, offset by decreased facility and telephone charges of $17 and other expenses of $20.
Other Income
Other income for the three months ended June 30, 2008 increased $120 to $168 from $48 for the same period of fiscal 2007. The increase was primarily due to an increase of $39 of interest income, a reduction of miscellaneous business taxes of $27, and the $54 of loss on the disposition of fixed assets in the third quarter of fiscal 2007, there was no such loss in the third quarter of fiscal 2008.

Income Taxes
The Company recorded no income tax provision for the three months ended June 30, 2008 because the Company expects to have a taxable loss for fiscal 2008. There was no tax benefit recorded for the three months ended June, 2007 due to the uncertainty of the realizability of its deferred taxes. Discontinued Operations
The loss from discontinued operations of $4,737 for the three months ended June 30, 2008, increased $3,761 from a loss of $976 for the same period of fiscal 2007. The increase was due to the liquidation of existing inventory, at a negative gross margin, an impairment loss for equipment and intangible assets, and increased expenses as a result of finalizing the exit from the FCP segment. The following table summarizes the activity of the discontinued operations for the three months ended June 30, 2008 and 2007.

                                             2008        2007        Change

             Revenues                      $  1,689     $ 5,319     $ (3,630 )
             Cost of sales                    4,092       5,010         (918 )
             Gross margin                    (2,403 )       309       (2,712 )

             Engineering and development          -         135         (135 )
             Selling and marketing              180         751         (571 )
             Amortization                         -         396         (396 )
             Impairment loss                  1,213           -        1,213
             Loss on asset disposals            766           -          766
             Royalty expenses                   109           -          109
             Other                               66           3           63

                                           $ (4,737 )   $  (976 )   $ (3,761 )

First nine months fiscal year 2008 compared to first nine months fiscal year

2007
Revenues and Cost of Sales

                                                                     Change
                                    2008         2007       Amount       Percentage
         Net product sales
         Telguard                 $ 25,504     $ 24,842     $   662                3 %
         Terminal                   13,666       10,796       2,870               27 %

         Total product revenues     39,170       35,638       3,532               10 %
         Service revenues           15,481       12,517       2,964               24 %
         Total revenues             54,651       48,155       6,496               13 %

         Cost of sales
         Products                   27,114       25,475       1,639                6 %
         Services                    7,620        6,746         874               13 %

                                    34,734       32,221       2,513                8 %

         Gross margin             $ 19,917     $ 15,934     $ 3,983

Revenues
The 10% increase in product revenues for the first nine months of fiscal 2008 was due to strong sales of our terminal products, primarily in the CALA region. Telguard products had a slight increase over the same period of the prior year, bolstered primarily from strong sales in the first six months of fiscal 2008 resulting from the conversion of cellular networks to digital from analog. Telguard sales declined in the last quarter due to weakness in the housing market, as indicated above.
Service revenues reflect the increased activations resulting from increased Telguard sales, primarily during the first six months of fiscal 2008. Cost of Sales
The cost of sales related to products increase of 6% reflects the strong sales volumes in the first six months of fiscal 2008 and reduced product costs. Product cost of sales as a percentage of product revenue was 69% for the first nine months of fiscal 2008, compared to 71% for the same period of fiscal 2007. The cost to provide services increased 13%. Service cost of sales as a percentage of service revenue was 49% for the first nine months of fiscal 2008 compared to 54% for the same period of fiscal 2007. The factors contributing to the increased gross margin of services are an increased number of subscribers for the digital service, reduced costs to provide the digital service and a mix of lower average selling prices for services.

Operating Expenses

                                                                     Change                     % of Revenues
                                 2008          2007         Amount        Percentage         2008           2007

Engineering and development    $  4,059      $  5,059      $ (1,000 )             -20 %           7 %           10 %
Selling and marketing             5,079         4,686           393                 8 %           9 %           10 %
General and administrative        5,612         4,332         1,280                30 %          10 %            9 %

                               $ 14,750      $ 14,077      $    673                              26 %           29 %

Engineering and Development
The decrease of $1,000, or 20%, was due to decreased payroll related expenses of $964, a decrease in facility expenses of $100 and an increase of other project related expenses of $64. The decreased payroll expenses resulted from a decrease in engineering personnel resulting from a Company-wide personnel reduction plan and the relocation of the Engineering and Development function to Atlanta from New York.
Selling and Marketing
The increase in selling and marketing of 8% was primarily due to increased salaries and benefits of $619 as a result of an expanded marketing department, increased commissions related to increased sales volumes and the reduced allocation of selling and marketing expenses to discontinued operations, $200 increase in facility expenses as a result of moving the Atlanta office to a larger space, offset by a reduction of $426 related to decreased external agent commission and trade show expenses.

General and Administrative (G&A)
The increase of 30% was primarily due to increased payroll expenses related to termination pay and stock option compensation expenses of $708, an increase in professional fees of $500, primarily legal and consulting fees, a $244 increase in bad debt expense, year over year, as a result of reducing the allowance for doubtful accounts in the third quarter of fiscal 2007, reflecting the stability of the Company's customer payments, offset by decreased facility, telephone and other expenses of $172.
Other Income
Other income for the first nine months of fiscal 2008 increased $139 over the same period of fiscal 2007. The increase was due to an increase in interest income of $123, as a result of increased invested cash balances, a loss of $54 on the disposition of fixed assets in fiscal 2007, and a decrease of miscellaneous income of $38.
Income Taxes
The Company recorded no income tax provision for the nine months ended June 30, 2008 because the Company expects to have a taxable loss for fiscal 2008. There was no tax benefit recorded for the nine months ended June 30, 2007 due to the uncertainty of the realizability of its deferred taxes. Discontinued Operations
The loss from discontinued operations of $7,480 for the nine months ended June 30, 2008, increased $2,069 from a loss of $5,411 for the same period of fiscal 2007. The increase was due to the liquidation of existing inventory, at a negative gross margin, an impairment loss for equipment and intangible assets, loss on the disposal of equipment and increased expenses as a result of finalizing the exit from the FCP segment. The following table summarizes the activity of the discontinued operations for the nine months ended June 30, 2008 and 2007.

                                             2008         2007        Change

             Revenues                      $  7,544     $ 17,260     $ (9,716 )
             Cost of sales                   11,252       15,770       (4,518 )

             Gross margin                    (3,708 )      1,490       (5,198 )
             Engineering and development          -          611         (611 )
             Selling and marketing              767        2,575       (1,808 )
             Amortization                         -        3,147       (3,147 )
             Impairment loss                  1,711          563        1,148
             Loss on asset disposals          1,084            -        1,084
             Royalty expenses                   109            -          109
             Other                              101            5           96

                                           $ (7,480 )   $ (5,411 )   $ (2,069 )

Liquidity
Management regularly reviews net working capital in addition to cash to
determine if it has enough cash to operate the business. On June 30, 2008, the
Company had $19,209 of unrestricted cash and cash equivalents and a working
capital surplus of $36,021.
The Company generated $6,346 of cash from operations during the first nine
months of fiscal year 2008 compared to cash generated of $2,011 during the same
period of fiscal year 2007. The components of cash generated for the first nine
months of fiscal 2008 are as follows:

    $  (4,774 )    The increase in inventory reflects the buildup of Telguard
                   and terminal inventory to a level the Company feels is
                   modestly above normal. Inventory levels decreased
                   substantially n the fourth quarter of fiscal 2007 as a result
                   of the large sale of Telguard units to customer who were
                   anticipating the conversion of cellular networks to digital
                   from analog.
       (5,516 )    Trade accounts payable primarily consists of amounts due to
                   Telular's contract manufacturers. To assure timely production
                   of inventory to meet customers needs, these account are kept
                   current. That process, in addition to the payments made to
                   our contract manufacturers in the first quarter of fiscal
                   2008 for the production to support the increased sales in the
                   fourth quarter of fiscal 2007, led to the reduction in trade
                   accounts payable.
        9,160      The decrease in trade accounts receivable is due primarily to
                   the collection during the period of balances outstanding on
                   September 30, 2007 and timely customer payments on sales made
                   during the nine month period.
        1,889      Non-cash expenses: $1,353 from stock based compensation; $490
                   depreciation expenses; $46 loss on disposal of fixed assets.
          211      Net cash provided by other working capital items.
        5,376      Income from continuing operations; cash provided.

    $   6,346      Total cash used in continuing operations.

Investing activities used $671 of cash for the first nine months of fiscal 2008 primarily from the purchase of equipment of $1,011 offset by a $340 decrease in restricted cash. This compares to cash used in investing activities of $396, from the purchase of property and equipment, for the same period of fiscal 2007. The increase in cash provided from financing activities of $2,600 in the first nine months of fiscal 2008 is due to the proceeds from the exercise of stock options and warrants. Cash of $3,313 was used in financing activities in the first nine months of fiscal year 2007 primarily to pay down the working line of credit with Silicon Valley Bank offset by the proceeds from the exercise if stock options of $210.
Based upon its current operating plan, the Company believes its existing capital resources 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 is currently negotiating a new line of credit and expects to have one in place in the fourth quarter of fiscal 2008. 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 based on current year activity 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, 2008, and September 30, 2007, the inventory reserves for continuing operations were $70 and $551, respectively. All remaining FCP inventory, $802, has been fully reserved for. 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 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, and 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 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 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, 2007 which is hereby incorporated by reference.