UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


[ X
      ]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the Fiscal Year ended December 31,
2007


or


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





For the transition period from
___________ to ___________





Commission
      File No. 0-22920NUMEREX
      CORP.(Exact Name of Registrant as
      Specified in its Charter)Pennsylvania
            
            11-2948749(State
      or Other Jurisdiction of Incorporation or Organization)
            
            (IRS
      Employer Identification No.)1600
      Parkwood Circle
              Suite
      500
              Atlanta,
      Georgia
            
            30339-2119(Address
      of principal executive offices)
            
            (Zip
      Code)Registrant's
      Telephone Number, Including Area Code:  (770) 693-5950




Securities
registered pursuant to Section 12(b) of the Act:




Class
      A Common Stock, no par value
            
            The
      NASDAQ Stock Market LLC(Title
      of each class)
            
            (Name
      of each exchange on which
registered)





Securities
registered pursuant to Section 12(g) of the Act: NONE





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     Yes o          No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15 (d) of the
Act.     Yes o          No þ





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     þ





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
accelerated filer o          Accelerated
filer þ           Non-accelerated
filer o      Smaller
Reporting Company  o





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).     Yes o          No þ








The
aggregate market value of voting and non-voting common stock held by
nonaffiliates of the registrant (9,689,046 shares) based on the closing
price of the registrant’s common stock as reported on the NASDAQ National Market
on June 30, 2007, was $110,648,905.  For purposes of this
computation, all officers, directors, and 10% beneficial owners of the
registrant are deemed to be affiliates.  Such determination should not
be deemed to be an admission that such officers, directors, or 10% beneficial
owners are, in fact, affiliates of the registrant.





The
number of shares outstanding of the registrant’s Class A Common Stock as of
March 10, 2008, was 13,525,905 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





The
registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended
December 31, 2007. The proxy statement is incorporated herein by reference
into the following parts of the Form 10-K:





Part III,
Item 10, Directors, Executive Officers and Corporate
Governance;


Part III,
Item 11, Executive Compensation;


Part III,
Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related


Stockholder
Matters;


Part III,
Item 13, Certain Relationships and Related Transactions, and Director
Independence; and


Part III,
Item 14, Principal Accountant Fees and Services.





2


NUMEREX
CORP.


ANNUAL
REPORT ON FORM 10-K


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007





TABLE
OF CONTENTS


PagePART
      IItem
      1.
            Business
            4Item
      1A.
            Risk
      Factors
            14Item
      1B.
            Unresolved
      Staff Comments
            22Item
      2.
            Properties
            22Item
      3.
            Legal
      Proceedings
            22Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            22PART
      IIItem
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases ofEquity
      Securities
            23Item
      6.
            Selected
      Consolidated Financial Data
            25Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            26Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market Risk
            37Item
      8.
            Financial
      Statements and Supplementary Data
            38Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            66Item
      9A.
            Controls
      and Procedures
            66Item
      9B.
            Other
      Information
            68PART
      IIIItem
      10.
            Directors
      and Executive Officers of the Registrant
            68Item
      11.
            Executive
      Compensation
            68Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            68Item
      13.
            Certain
      Relationships and Related Transactions
            68Item
      14.
            Principal
      Accounting Fees and Services
            68PART
      IVItem
      15.
            Exhibits,
      Financial Statement Schedules
            69

















3


Forward-Looking
Statements





This
document contains certain 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. These statements include, among other things, statements
regarding trends, strategies, plans, beliefs, intentions, expectations, goals
and opportunities. Forward looking statements are typically identified by words
or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,”
“assume,” “strategy,” “plan,” “outlook,” “outcome,” “continue,” “remain,”
“trend,” and variations of such words and similar expressions, or future or
conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar
expressions. All statements and information herein and incorporated by reference
herein, other than statements of historical fact, are forward-looking statements
that are based upon a number of assumptions concerning future conditions that
ultimately may prove to be inaccurate. Many phases of the Company’s operations
are subject to influences outside its control. The Company cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. These forward-looking statements speak
only as of the date of this Annual Report, and the Company assumes no duty to
update forward-looking statements. Actual results could differ materially from
those anticipated in these forward-looking statements and future results could
differ materially from historical performance.
 
 Any
one or any combination of factors could have a material adverse effect on the
Company’s results of operations or could cause actual results to differ
materially from forward-looking statements or historical performance. These
factors include: the pace of technological change; loss or disruption of key
telecommunications infrastructure and related services supplied to the Company;
loss or disruption of key wireless network services supplied to the Company; the
inability to integrate the newly acquired satellite operations or market and
sell its products and services; variations in quarterly operating results;
delays in the development, introduction and marketing of new wireless products
and services; customer acceptance of products and services; economic conditions;
the inability to attain revenue and earnings growth; changes in interest rates;
inflation; the introduction, withdrawal, success and timing of business
initiatives and strategies; competitive conditions; the extent and timing of
technological changes; changes in customer spending; the loss of intellectual
property protection; general economic conditions and conditions affecting the
capital markets. Actual events, developments and results could differ materially
from those anticipated or projected in the forward-looking statements as a
result of certain uncertainties set forth below and elsewhere in this document.
Subsequent written or oral statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this report and those in the Company’s reports previously and
subsequently filed with the Securities and Exchange
Commission.


PART
I





Business





Numerex
Corp. (“Numerex” or “Company”) is a wireless machine-to-machine (M2M)
communications, technology and solutions business. The Company offers its
network services, technology, products, and application development capabilities
in “turnkey” packages or custom-designed M2M offerings for customers across
multiple market segments. Numerex makes possible real-time wireless data
communications for monitoring, tracking, and service management tailored to the
needs of diverse industries and applications, including wireless security,
vehicle location and tracking, fleet management, intermodal transportation,
emergency management services, telemedicine, meter reading, utilities, vending,
remote device monitoring, and others.





M2M is
defined as electronic (wireless) data communication between devices, systems,
and people that turns data into useful information and addresses the needs of
such industries as security, vending, real estate, healthcare, gas and oil,
utilities and others. While the M2M industry emerged a few years ago, the
underlying network and technology infrastructure has been a part of Numerex’s
business for several years.





Numerex
has established and maintained a leadership position in M2M through delivering
end-to-end, single-source solutions as well as “white label” products that are
available for distribution as branded offerings through Value Added Resellers
(VARs), vertically focused System Integrators (SI’s) and Original Equipment
Manufacturers (OEMs) who choose to integrate our products and services into
their own offerings. Numerex customers can select from a menu of products and
services that address their specific M2M needs. We market and sell these
products and services through two business groupings:Numerex Networks
and Technology, and Integrated Solutions.


4





We
believe that Numerex has developed industry-specific expertise in providing
wireless network services, back-office support services, wireless device
technology, and network integration services to a number of vertical markets and
industries, such as the security, mobile tracking and asset recovery,
vending and bottling, as well as remote asset management. As a result,
businesses with M2M requirements value Numerex for its extensive experience and
demonstrated track record of supporting their applications through launch. We
add value by assisting companies by removing the complexities associated with
the design, development, deployment and support of M2M solutions so that our
customers can better focus on their primary business objectives and speed time
to market.





We
continue to look for ways to expand our expertise by entering new vertical
sectors conducive to our long-term recurring revenue model. We may choose to
enter through industry partnerships, organically, or via acquisition. Our
strategic vision is to be recognized as the “Partner of Choice” and leading
provider of M2M networks, technology and end-to-end wireless solutions for
customers in our target markets by:





·
            Providing
      secure All-Terrain M2MTM network offerings, best-in-class wireless radio
      technologies, and industry leading integrated solutions and logistical
      services to the M2M market, expanding our success in network services,
      fixed-point and portable applications, wireless security and remote asset
      monitoring into new market segments across multiple
      industries;





·
            Providing
      the broadest choice of secure M2M network services and solutions,
      including terrestrial and satellite
service;





·
            Delivering
      quality, innovative products and services that meet and anticipate the
      evolving needs of our customers;





·
            Embedding
      information security across all solutions and services, as reflected in
      our receiving the M2M industry-first ISO/IEC 27001:2005 (ISO 27001)
      certification in North America;





·
            Establishing
      the company as  a single source  for M2M network
      services, technology, solutions and support;
and





·
            Creating
      a culture of excellence through the promotion and implementation, across
      the organization, of corporate core values, i.e., “The Numerex P.R.I.D.E.
      ©”: People, Responsiveness, Integrity, Development, and
      Excellence;





·
            Enhancing
      shareholder value through long-term recurring revenue
    growth.





Background





Numerex
Corp is headquartered in Atlanta, Georgia and organized under the laws of the
Commonwealth of Pennsylvania, and began in July 1992 with the acquisition of
technology referred to as “Derived Channel.” Derived Channel enables data
transmission over an existing telephone line without interfering with voice
communications over that same telephone line. We expanded our business primarily
through the acquisition of complementary businesses, product lines, and
proprietary technologies. In November 1999, we sold the Derived Channel
technology and business to British Telecommunications PLC (“BT”).





In May
1998, Numerex Corp., BellSouth Corporation and BellSouth Wireless, which became
Cingular in 2001 and AT&T in 2006, completed a transaction whereby
Cellemetry LLC, a joint venture between Numerex and Cingular, was formed.
Cellemetry LLC provided a cost-effective, two-way wireless data communications
network throughout the United States, Canada, Mexico, Colombia, Argentina,
Paraguay, the Dutch Antilles, and Puerto Rico. On March 28, 2003, we acquired
Cingular’s interest in Cellemetry LLC.





At the
beginning of 2006, the Company further enhanced it’s portfolio of wireless
products and services through the acquisition of the assets of Airdesk, Inc.
Airdesk’s  wireless data solutions, network access and technical
support have been fully integrated into the Company’s operations. In 2007,
Numerex acquired the assets of Orbit One Communications, Inc which provides
satellite data products and services to government agencies and the emergency
service market.





NUMEREX
BUSINESS GROUPS





Over the
past ten years, Cellemetry’s business has evolved from primarily a proprietary
network service into a comprehensive M2M business organized into two business
groupings: Numerex Networks and Technology, and Integrated Solutions. Numerex
Integrated Solutions are brought to market through three divisions: UplinkTM,
Orbit One, and FastTrack.


5


Numerex
Networks and Technology





Numerex Networks and
Technology provide customers and partners with access to an intelligent
dedicated network services platform specifically honed to meet the demands of
the M2M marketplace. Our network offerings extend to GSM, CDMA and Satellite
services. This group delivers network services, technology,
implementation and logistical expertise. It also provides advanced
services, including intelligent device management services, integration and
device certification expertise for use on GSM, CDMA and Satellite networks. In
addition, our Network and Technology business includes the distribution of a
variety of wireless radio modules that we primarily market and sell throughout
North America.





Numerex
Integrated Solutions Group





Numerex’s
Integrated Solutions group provides flexible M2M market-ready solutions that are
fully integrated with our M2M network platforms and radio technology, adaptable
to applications deployed by our partners and customers across a wide range of
industries. With individual applications and comprehensive end-to-end solution
expertise, it serves the utilities, security, telematics, manufacturing, real
estate and retail markets.  The Integrated Solutions group supplies
packaged and custom-designed M2M products and services for asset tracking,
inventory control, point-of-sale systems and a host of emerging M2M
applications.





M2M
Divisions





Three
dedicated divisions operate under the umbrella of the Company’s Integrated
Solutions Group:





·
            Security
      Solutions, branded Uplink: The packaged wireless security product solution
      of Numerex, Uplink provides products and services that report security
      alarm messages reliably and securely to central monitoring stations,
      dealers, and end users. Uplink offers wireless security solutions through
      a nationwide network of independent dealers and distributors in North
      America. Uplink is delivered to the market under the Uplink brand as well
      as our customers’ own brands for sale to other distributors of security
      products, including Fortune 500 companies.


·
              Satellite
      Solutions, branded Orbit One: Numerex completed the acquisition of the
      assets of Orbit One Communications, Inc. in August 2007, which are
      currently operated and managed through our Satellite Solutions Division.
      This business, which provides innovative satellite-based solutions, is
      managed by an experienced management team headed by David Ronsen,
      president of our Orbit One satellite solutions division and senior vice
      president of Numerex. We believe that this acquisition contributes to the
      scope and depth of our horizontal M2M platforms, extends Numerex’s market
      reach, and better positions it as a leading provider of secure All-Terrain
      M2MTM Network solutions and services.  Our satellite services are
      primarily marketed and sold to the emergency services and government
      sectors that, we believe, give Numerex entree into these market sectors
      for both satellite and our terrestrial cellular-based products and
      solutions.


·
            Asset
      Management Solutions, branded FastTrack: A fully integrated packaged
      solution for the sensor, metering, and remote device management market,
      FastTrack is deployed by our customers who manage and monitor remote
      events, processes, assets, and devices. FastTrack is a turnkey, hosted
      solution that combines the end-user device, web-based software application
      that enable remote monitoring services used for wide area monitoring
      situations.





Branded
Integrated Solutions





Uplinkä: Wireless Security
Solutions





Uplink is
a dedicated wireless communications solution for security monitoring that
reports alarm, status, and other messages generated by security systems. Uplink
delivers this solution by providing a secure, dedicated cellular data link and
network access module that transmits alarms to virtually any alarm-receiving
center or monitoring service.





A
stand-alone sensor, alarm panel output, or alarm panel serial connection
provides the trigger to one of Uplink’s family of network access modules, which
in turn transmits the alarm event over the Numerex Network. The Numerex gateway
accepts the incoming signal and logs it for immediate viewing through the
password-secured Web interface. Depending on the selected reporting options and
alarm monitoring station receiver, the decoded signal can be forwarded via
encrypted IP or the Public Switched Telephone Network (PSTN) to the alarm
monitoring station. As an option, a customizable text message can be sent to any
email-enabled device or to an alphanumeric pager.  The Uplink Network
Operations Center (NOC) in Atlanta, GA activates and manages the service for its
dealers.





6


Uplink is
distributed through master distributors to a network of over 5,000 certified
Uplink alarm and security dealers in North America for both commercial and
residential alarm security markets. Uplink private labeled and custom services
are marketed through direct business development and partnering initiatives. The
longevity of an uplink connection is significant -- on average connections
remain active for 6 to 8 years, contributing a consistent source of recurring
revenue to the Company.





Orbit
One: Satellite Turnkey Solutions





Orbit One
provides turnkey and customized satellite-based M2M solutions that include
hardware, software, data management, installation and maintenance, coupled with
a proprietary operational support platform.  Primarily through
integration partners and VARs, Orbit One currently supplies satellite-tracking
solutions to a variety of federal and state agencies for disaster and emergency
response operations.





In
October 2007, Numerex introduced the Orbit One SX1 solution; a battery powered
satellite-based asset monitoring and tracking technology.  Operating
on GlobalStar’s Low Earth Orbit (LEO) simplex satellite data network, the Orbit
One SX1 provides GPS visibility, event monitoring and asset management on a near
global basis.





FastTrack TM:
Hosted, Turnkey Remote Monitoring Solution





In
October 2007, Numerex launched FastTrack TM,
designed to wirelessly monitor and control remote processes, events, conditions
and devices.  It serves a variety of industries with remote monitoring
and control requirements  -- including highway and transportation,
utilities, security, SCADA and agriculture – and a host of wider area monitoring
situations such as pipeline temperature sensors, pressure measuring points, flow
monitoring, discrete level monitoring and pulse generating
sensors.  FastTrack TM
utilizes SMSXpressTM from Numerex Networks to deliver real-time data between
remote devices and facilities.





Numerex
Mobile Platform





Numerex Mobile (formerly
known as Airdesk Mobile)provides advanced vehicle tracking features and
functions. We believe that Numerex Mobile includes network-centric services and
multiple technologies that suit a variety of needs in the automotive and
security markets. Numerex Mobile vehicle location and recovery solutions combine
the accuracy of GPS (Global Positioning System), Numerex Networks, and wireless
communications technology to improve the prospect of vehicle recovery and the
timeframe in which the recovery occurs.





Intelligent Networks
Platform and Network Services





Analog
to Digital Migration





On June
15, 2007, the FCC upheld its analog cellular sunset ruling, which allowed
carriers to cease providing Advanced Mobile Phone System (AMPS) analog network
service as of February 18, 2008. Throughout 2007, Numerex focused on moving
Numerex Networks’ customers to digital services with our integrated digital
migration strategy and solution. Currently, we have converted (through
replacement) the majority of our existing analog subscriber base and we expect
to capture a significant portion of our remaining analog base going
forward.





In
September 2007, Numerex extended its relationship with GE Security through an
agreement to provide the technology, network solutions and expertise to convert
GE Security’s residential and commercial wireless security base from analog
connectivity to a complete digital platform.  Key components of this
platform include Numerex’s SMSXpressTM and plug-and-play hardware that is fully
integrated with GE Security’s alarm panels.





In parallel, during the
course of the year, Numerex completed a seamless transition from its old analog
gateway to an intelligent digital gateway platform.This
substantially increased the Company’s network and transport capacity and its
ability to enable a variety of additional M2M applications, including higher
message throughput.





7


Numerex
Networks and Technology





Numerex
brings to market M2M solutions and an array of products that support the M2M
value chain. An essential component of these offerings and services is the
Company’s wireless data network service, Numerex Networks. In a rapidly evolving
marketplace, Numerex Networks provides carrier-grade network air-interface
transport services. Numerex is an M2M Network Operator designed to serve a
robust and dynamic M2M marketplace. Numerex Networks sells cellular-based
network services without owning or deploying the physical network infrastructure
or other equipment in the field over which data is transmitted. While Numerex
owns and operates an open-source proprietary intelligent network gateway
platform, we have not invested in wireless spectrum or cellular towers. Instead,
we have entered into several agreements with a variety of wireless carriers that
allows us to move information with our own identification numbers over their
existing cellular infrastructure. As a result, we provide a multitude of
wireless data network services.





Numerex
Networks is dedicated to the M2M market and currently only offers data network
services. These services include specific, vertically focused M2M applications
combined with Numerex Networks and services. Numerex services offered through
Numerex’s Integrated Solutions group are comprised of application engineering
and development, customized billing, GPS mapping for mobile applications,
network and application implementation management, back-end message delivery
management, application and network support, and interactive Web
services.





Our
customers and industry partners look to us not only to help integrate our
wireless platform and services with their devices and applications, but also to
assist them through the certification, launch, and operation of their products
in their respective markets.





Numerex
NetworksTM





Numerex
Networks is capable of supporting a variety of remote applications that are
either fixed or portable. From Global System for Mobile Communications (GSM) and
Code Division Multiple Access (CDMA) digital and Satellite network offerings, to
premium 24x7x365 network support services, Numerex Networks supports continued
expansive coverage, legacy network interoperability, and extended gateway
capabilities for higher bandwidth M2M applications.  Through various
carrier agreements, Numerex Networks provides extensive digital and analog
wireless network connectivity and services in the Continental U.S., Canada, the
Caribbean, and Mexico.





Numerex
offers multiple digital network services.  Numerex Networks supports
various wireless transport technologies, providing unique, value added services
to fulfill diverse customer data and application requirements.  As an
example, in May 2007, Numerex and GE Security announced a strategic
collaboration resulting in the provision of nationwide wireless services in
support of GE’s industry-leading advanced technology real estate products,
including its ActiveKey wireless key.  Numerex services include
SMSXpressTM and GPRS, real-time network activations, provisioning and
configuration support, and 24x7x365 network support services.





Real-Time
Delivery with SMSXpressTM





Numerex
offers a unique network architecture enabling Short Message Service (SMS)
delivery with low latency.  Numerex Networks delivers messages from
our dedicated intelligent gateway to customer back-end
applications.  Acknowledgement of message delivery is provided within
microseconds.  Low latency, a dedicated SMS platform, and message
acknowledgement – features that differentiate Numerex Networks and the SMSXpress
service from its competitors in the market.





Flexible,
Reliable GPRS Service





Numerex
Networks GPRS (General Packet Radio Service) provides a secure, two-way network
feature as an option, enabling private connectivity of packet routing to
applications, as well as hosted applications services.  The network
offering allows management of dynamic device IPs, which facilitates true two-way
communication between field devices and application servers. Numerex Networks
GPRS provides dedicated frame relay connections to route packet data off the
Internet across North America.





U.S.
Coverage with 1xRTT





Numerex
Networks provides coverage throughout the domestic United States with 1xRTT
(CDMA-based single carrier (1x) Radio Transmission Technology) services. In
addition, Numerex Networks delivers unique, location-based services (LBS) that
provide an accurate, cost-effective way to track customers’ valuable assets.
These two services have been combined for unique and specific private-labeled
customer applications.





8


‘Beyond
the Network’: Value-Added Services and Customer Support





Beyond
the network technology, customer support is delivered through the following
offerings:





·
            24x7
      Customer Support:  Numerex staffs an “around-the-clock”
      support center, or help desk, to provide assistance to
      customers;





·
            Flexible
      billing:  Numerex provides accurate, timely invoices in
      flexible formats that detail usage per device.  This flexibility
      is a key differentiator for customers’ end-user billing
      requirements;





·
            Integration
      services:  Numerex provides development support, in
      coordination with our Technology support group, to ensure timely and
      efficient production;





·
            Automated
      provisioning:  Numerex enables automated, Web-based
      online provisioning of devices for immediate activation and account
      management; and





·
            Network
      Operations Center: Customers and industry partners receive 24x7x365
      network support from our Network Operations Center in Atlanta,
      Georgia.





Numerex
Networks’ service is built upon on certain critical elements such as integrity
and redundancy of its gateway infrastructure; reliable and secure network
service; reliable and experienced network management; and network support
capabilities:





·
            Gateway
      Infrastructure:Our Numerex
      Operation Center (NOC) architecture is built on the latest generation of
      best of class processing power, using high-grade servers in a totally
      redundant and hot swappable configuration. The hardware and software
      network topology features high grade, robust platforms for increased
      reliability. One of the most important components of this offering is the
      support delivered by the help desk. With a continuous 24x7x365 level of
      availability, support technicians are also knowledgeable, experienced and
      have the requisite skills to diagnose and resolve most
    issues;





·
            Redundancy
      and Reliability: The operations sites are geographically diverse
      and are interconnected over Synchronous Optical Network bidirectional,
      fault-tolerant facilities. We believe this architecture provides Numerex
      Networks with service level standards that meet and exceed requirements
      for mission-critical applications. The technology is Underwriters
      Laboratories (UL) compliant and all components are UL certified;





·
            Reliable
      and Secure Network: Numerex is a proud holder of the ISO 27001
      certification, ISO’s highest security certification for information
      security that helps to ensure data confidentiality, integrity and
      availability. Numerex is the first North American M2M Company to become
      ISO 27001 certified, and we continue to thread advanced security standards
      throughout our business.





·
            Network
      Management: Based on best
      practices, the system allows for the automation of help desk
      management—from submission to monitoring to lifecycle management of
      customer issues.  It also facilitates the management of tasks
      and asset inventory records and indicates which business services are
      impacted by a given incident or problem. We believe that this helps
      Technical Support Center develop priorities that resolve customer issues
      based on business requirements and translates into higher customer
      satisfaction and quality of
service;





·
            Network
      Support Services: Building on its operating experience and a solid
      understanding of data networks and technology, Numerex network support
      personnel bring a working knowledge of systems and processes for GSM,
      CDMA, and Satellite service activation, service provisioning, inventory
      planning and management, and supply chain logistical
    support.





Technology,
Development, Distribution and Logistics





Numerex
Network Access Technology





Numerex
designs, develops, manufactures, and distributes a suite of network access
modules (wireless data modems) that provide the physical and electrical
interface between the customer’s application and Numerex Networks. Examples of
the various Numerex-manufactured modules include, Uplink DigiCell AnyNET, and AnyNET (VAR version) for
security applications, the Orbit One SX1 Tracker and ADM3500 family for mobile
applications. The Network Modules are configurable as generic product offerings
for VAR application development, as fully configured modules for OEM
integration, or as a component of the Company’s end-to-end
solutions.


9


Numerex
also sources Network Access Technology from its industry partners in order to
deliver a wider portfolio of products and services.





Numerex
is a leading distributor of Wavecom radio modules. Wavecom, based in France, is
one of the leading manufacturers of compact, rugged and reliable M2M radio
modules. Numerex and Wavecom announced in October 2007 that Numerex will support
the Wavecom StarService for customers in North America, expanding their
relationship. The Wavecom StarService is delivered over Numerex’s wireless
network allowing users to remotely manage their wireless devices securely over
the air (OTA). The service enables users to remotely upgrade firmware and
application software, configure devices, and implement remote
diagnostics.





Numerex
diversified its technology portfolio by offering Enfora radio modules beginning
in 2006. Enfora, based in the United States, is another leading manufacturer of
radio transmitters and modems.





The
DigiCell AnyNET module
supports a variety of communication services -- including SMS and GPRS. The
module features real-time message delivery; maximum network coverage; simplified
customization and integration into OEM applications; support for analog,
digital, and hybrid networks; and automated provisioning.





Sales,
Marketing, and Distribution





Numerex
Networks and Technology and Integrated Solutions groups employ an indirect sales
model through private label/OEM agreements, channel partners, system
integrators, and VARs (collectively referred to in some cases as ‘industry
partners’). We also indirectly market and sell certain Numerex branded products
and services through distribution and dealer channels, specifically the Uplink
product suite.





Our
network products are integrated and bundled with Numerex technology and services
to provide private-labeled solutions for both fixed and portable applications.
Our network products are also sold and marketed to VARs, integrators, and
application service providers who bundle and resell Numerex Networks with their
end-to-end solutions.  Network products are also sold as a data-only
network offering for enterprise customers running M2M applications.





Our
custom M2M solutions are typically marketed to Fortune 1000 companies, providing
them the opportunity to deliver additional and complementary products and
services to their customers, or next-generation solutions to their existing
market channels.





Our
private-label solutions are designed for and marketed to specific vertical
markets.  Typically, these customers are sales and marketing
organizations without technical resources that are seeking rapid entry into a
market.  We currently offer both mobile solutions to a variety of
asset tracking markets, including the automotive and emergency services
markets and remote asset management solutions to VARs and integrators
that are servicing a variety of M2M markets.





NON-CORE
BUSINESS: DIGITAL MULTIMEDIA, NETWORKING AND WIRELINE DATA
COMMUNICATIONS





Numerex’s
primary focus is wireless M2M networks and solutions as described above. We
continue to offer products and services to certain customers in digital
Multimedia education, networking integration and Derived Channel wireline data
communications. These products and services currently comprise about 8% of our
revenue base and are managed as a single business group.





Digital
Multimedia





We
design, develop, and market complete video conferencing and digital multimedia
system products and services for high-quality communications networks. We
manufacture both the products upon which the systems are based and incorporate
third-party products where appropriate.  The offerings includePowerPlayTM, a digital
multimedia solution for high-bandwidth private network applications. PowerPlay
provides capability for interactive videoconferencing and is an integrated
hardware-software system that supports user-friendly control over network
devices. PowerPlay
is supplemented by our desktop videoconferencing software version, IPContactTM,
which offers high-quality and high-performance video.




Networking
Integration





We
provide products under the Digilogbrand that
assist both wireline and wireless carriers in the engineering, installation, and
servicing of new telecommunications control networks. These telecommunications
network operational support systems and services can be categorized as:
Services, including system integration (rack and stack) and installation:
Products, Test Access and Interconnecting Devices.





10


Wireline
Data Communications (Derived Channel)





Our
licensed technology creates a derived channel on an existing telephone line by
using an inaudible frequency below the voice communications spectrum for data
transmission. This creates a two-way communication system that continuously
monitors the integrity of a user’s telephone line and security
system.





Non-Core Products and
Services: Sales
and Marketing





Our
digital multimedia products and services are marketed through a combination of
system integrators and VARs.   Our networking products are sold
and marketed under the Digilog brand. Distribution is focused on wireless and
wireline telecommunications companies through system integration agreements with
a number of suppliers of telecommunications and monitoring equipment and
services.  Our Wireline Data Communications service is marketed under
the DCX brand directly to carriers primarily in the United States and
Australia.





GENERAL





Clients




For the
year ended December 31, 2007, revenue from our largest client, General
Electric (GE), accounted for an aggregate of approximately 13% of our total
revenue. For the year ended December 31, 2006, no single client accounted
for more than 10% of our revenue.







Suppliers





We rely
on third-party contract manufacturers and wireless network operators, both in
the United States and overseas, to manufacture most of the equipment used to
provide our wireless M2M solutions, networking equipment and products; and to
provide the underlying network service infrastructure that we use to support our
M2M data network, respectively. In addition, some of our technology products are
obtained from sole-source suppliers. The loss of a contractor or supplier could
cause a disruption in our business due to the short lead times demanded by
certain customers. The loss of the wireless network connectivity provided by
cellular or satellite (wireless) network operators and other telecommunications
infrastructure providers could cause a disruption in our network
services.





Competition





Various
entities, such as M2M application service providers, MVNOs, and system
integrators, offer a variety of the components and services required to deliver
complete M2M solution.  Numerex believes that it provides all of the
key components of the M2M value chain, including enabling hardware, multiple
wireless technologies and custom applications, and wireless network
services.  Numerex sells complete network-enabled solutions, or
individual components, based upon the specific needs of the
customer.





The
Numerex wireless data network offering, Numerex Networks, competes with KORE
Telematics, Aeris and Jasper Wireless as M2M network providers, and to some
extent the major cellular operators/ carriers and satellite operators/
carriers.  We believe that our current network services combined with
the continuing development of our Numerex Network offerings and services
positions us to compete effectively with emerging providers of M2M solutions
using GSM, CDMA and Satellite technology. Other potentially competitive
offerings may include “wireless fidelity” (Wi-Fi), World Interoperability for
Microwave Access (WiMAX) and other emerging technologies and
networks.  We believe that principal competitive factors when
selecting a network provider are network reliability and the ability of the
carrier to support unique M2M requirements.





We
believe that Numerex Networks network coverage extended through various
agreements with wireless operators/carriers, together with competitive pricing,
end-to-end solution offerings, a ‘single source’ approach to the M2M market, and
its experience and track record in M2M, will allow Numerex to effectively
maintain and increase its current market share. The addition of our Orbit One
satellite-based solution brings the Company access to a new customer base that
should provide additional opportunities for added Satellite network and service
sales. Also, we expect that it will also interject Numerex into a
wider potential customer base, specifically emergency services and
government. However, some of our competitors who market and sell integrated
solutions similar to our Orbit One, Uplink, or FastTrack product suites, whether
satellite or cellular-based, may have greater financial and human resources than
we do, which may provide them a competitive advantage in marketing and selling,
as well as technological advantages obtained through greater outlays of
resources for research and development.





11


Our
Uplink security products and services have three primary competitors in the
existing channels of distribution — Honeywell’s AlarmNet, Telular’s Teleguard
and DSC, the security division of TYCO.  The principal competitive
factors when making a product selection in the business and consumer security
industry are hardware price, service price, reliability, industry certification
status and feature requirements for specific security applications, for example
fire, burglary, bank vault, etc. Additional competitors have entered the market
in the last several years with a focus on blending security monitoring and home
automation. These products and services are targeted for the do-it-yourself
market as opposed to traditional security dealers.  Several companies,
including GE Security, offer OEM versions or include Uplink technology with
network services provided by Numerex Networks. We believe that Uplink’s products
and services are competitively positioned and priced.





Our
Numerex Mobile end-to-end product is offered to a variety of customers,
primarily comprised of resellers and VARs. There are many competitors offering
vehicle location and recovery services, but the principal direct competitor to
our customer base in the new car after-market vehicle location and recovery
business is LoJack Corporation, the industry’s market leader. OnStar Corp., a
subsidiary of General Motors Corp., which offers a full suite of concierge
services, markets and sells their services primarily through automobile
manufacturers. Other manufacturers are also moving to provide factory direct
“networked cars” including Ford and Microsoft, Jaguar, and
others.  There are also numerous other small companies that currently
offer or are developing other wireless products and services for this market.
The principal competitive factors are channel distribution, hardware price,
network service price, features, and the ability to locate a vehicle at any time
on demand.  Our competitive challenge is the pressure to maintain our
hardware margins with an on-going process of cost reduction associated with the
in-vehicle hardware and the expansion of our distribution network.  We
believe our mobile hardware-based solution for this market will continue to
undergo pricing pressure and will require hardware cost reduction in order to
remain competitive. However, we believe that our Numerex Mobile network-only
service is well positioned to capture market share, is competitively priced, and
is our primary focus prospectively.





The
market for our technology and platforms has been characterized by rapid
technological change. The principal competitive factors in this market include
product performance, ease of use, reliability, price, breadth of product lines,
sales and distribution capability, technical support and service, customer
relations, and general industry and economic conditions. The ability to provide
wireless network service, wireless radios, device and modem technology, and
end-to-end solutions -- including integration, network and service management --
has set Numerex apart from the competition. We believe that our distribution
agreements with module manufacturers give us a competitive advantage in
combining the sale of their radio modules with the marketing and selling of our
network and technology services. Also, this provides our Network and Technology
group the opportunity for cross-selling our network services and Integrated
Solutions. Our primary competition for radio modules comes from Siemens and an
assortment of smaller manufacturers.





Research
and Development





Technology
is subject to abrupt change.  Therefore, the introduction of new
products, technologies, and applications in our markets could adversely affect
our business. Our success will depend, in part, on our ability to enhance
existing products and introduce new products and applications on a timely basis.
We plan to continue to devote a portion of our resources to research and
development.





We
continue to invest in new services and improvements to various Numerex
technologies, especially networks and digital fixed and mobile solutions. We are
focused primarily on the development and enhancement of our gateway and network
services; reductions in the cost of delivery of our network services and
solutions, and additional enhancements and expansion of our application
capabilities.





We have
concentrated on providing customers with industry-benchmark solutions that go
beyond the network requirement. With digital network migration progressing and
our current product offerings running on digital networks, we believe it is
important to continue to communicate to the market and customers a clear
migration path from legacy analog networks and services to the new digital
networks and platforms. Prudent integration of new digital and Web technology
into our wireless businesses is an active and ongoing process. We are committed
to taking full advantage of such new technology whenever and wherever it makes
sense for our customers.





Product
Warranty and Service





Our M2M
wireless communications business provides a one-year parts and labor warranty on
all hardware-based products. Our wireline data communications (Derived Channel)
business provides customers with limited one-year warranties on scanners and
message switch software, while Subscriber Terminal Units (STUs) are typically
sold with a one-year labor and materials warranty. Our digital multimedia
business provides either a one-year warranty on parts and labor, depending on
the scale and type of product provided. Our networking business provides a one-
or two-year warranty on all telecommunications networking products. In addition,
a help desk and training support is offered to users of telecommunications
networking products. To date, warranty costs and the cost of our warranty
programs have not been material to our business.


12


Intellectual
Property





We hold patents through Cellemetry
LLC, Numerex Corp., and Numerex Investment Corp. covering the technologies we
have developed in support of our product and service offerings in the United
States and various other countries.  These patents are by law subject
to expiration.  Through Cellemetry, we license certain technologies
related to Cellemetry under licenses with BellSouth Corporation (now AT&T).
It is our practice to apply for patents as we develop new technologies,
products, or processes suitable for patent protection.  No assurance
can be given about the scope of the patent protection.





We also
hold other intellectual property rights including, without limitation,
copyrights, trademarks, and trade secret protections relating to our technology,
products, and processes.  Patents have a limited legal lifespan. The
patents we presently hold will, by law, begin expiring over the approximate
period 2010 through 2022 depending upon the effective date of the subject
patent. We believe that the rapid technological developments in the
telecommunications industry may limit the protection afforded by
patents.  Accordingly, we believe that our success will also depend on
our manufacturing, engineering, and marketing know-how and the quality and
economic value of our products, services, and solutions.





Cellemetry is a registered trademark
of Numerex Corp.  We believe that no individual trademark or trade
name is material to our competitive position in the industry.





Regulation





Federal, state, and local
telecommunications laws and regulations have not posed any significant
impediments to either the delivery of wireless data signals/ messaging using our
networks or the provision of alarm services by telephone companies using Derived
Channel technology. However, we may be subject to certain governmentally imposed
telecommunications taxes, surcharges, fees, and other regulatory
charges.





Employees





As of March 3, 2008, we had 130
employees in the U.S., consisting 72 in sales, marketing and customer service,
30 in engineering and operations and 28 in management and administration. We
have experienced no work stoppages and none of our employees are represented by
collective bargaining arrangements.  We believe our relationship with
our employees is good.





Available
Information





We make
available free of charge through our website at www.nmrx.comour annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, and all amendments thereto filed or furnished pursuant to 13(a) or 15(d) of
the Securities and Exchange act of 1934, as soon as reasonably practicable after
such reports are filed with or furnished to the Securities and Exchange
Commission.  Our filings are also available through the Securities and
Exchange Commission via their website, http://www.sec.gov.
You may also read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549.  You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The information contained
on our website is not incorporated by reference in this annual report on form
10-K and should not be considered a part of this report.




13


Executive
Officers of the Registrant







Our executive officers, and all persons
chosen to become executive officers, and their ages and positions as of March
15, 2008, are as follows:





Name
            Age
            PositionStratton
      J. Nicolaides*
            54
            Chairman
      of the Board of Directors, Chief Executive OfficerMichael
      A. Marett
            53
            Executive
      Vice President, Chief Operating OfficerAlan
      B. Catherall
            54
            Executive
      Vice President, Chief Financial OfficerLouis
      Fienberg
            53
            Executive
      Vice President, Corporate DevelopmentMichael
      Lang
            42
            Executive
      Vice President, Sales &
Marketing





*Member
of the Board of Directors





Mr. Nicolaides has served as Chief
Executive Officer of the Company since April 2000, having served as Chief
Operating Officer from April 1999 until March 2000 and as Chairman of the Board
since December 1999.  From July 1994 until April 1999, Mr. Nicolaides
managed a closely held investment partnership.




Mr. Marett has been an Executive Vice
President of the Company since February 2001. In February 2005 he was named
Chief Operating Officer.  From 1999 to 2001, Mr. Marett was Vice
President, Sales and Marketing, of TManage, Inc., which provided planning,
installation, and support services to companies with large remote workforces.
From 1997 to 1999 Mr. Marett was Vice President, Business Development, of Mitel
Business Communications Systems, a division of Mitel
Corporation.  Prior to this position Mr. Marett held a number of
executive positions at Bell Atlantic.




Mr. Catherall has been the Executive
Vice President and Chief Financial Officer of the Company since June
2003.  From 1998 to 2002, Mr. Catherall served as Chief Financial
Officer of AirGate PCS, a NASDAQ-listed wireless company.  From 1996
to 1998, Mr. Catherall was a partner in Tatum CFO LLP, a financial services
consulting company.  Prior to this, he held a number of executive and
management positions at MCI Communications.




Mr.
Fienberg serves as the Company’s Executive Vice President for Corporate
Development and has been with the Company since July 2004.  From
August 2003 to July 2004, Mr. Fienberg served as Managing Director of an
investment banking firm. From 1992 to 2003, Mr. Fienberg was a Senior Vice
President and merger and acquisition specialist with Jefferies and Company,
Inc.





Mr. Lang
has been an Executive Vice President of the Company since January 2008 and
directs the focus and execution of sales and marketing. From January 2006
through December 2007 Mr. Lang served as Senior Vice President of Sales for the
Company and President of Airdesk, LLC. Prior to joining the Company in January
of 2006, Mr. Lang was founder and President of Airdesk, Inc. From 1988 to 1997,
Mr. Lang founded and led a wireless voice and data services company and also
co-founded an internet services company which was sold to Verio in
1997.





Item
1A.   Risk Factors





An
investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks before buying
shares of our common stock. The following risks and uncertainties are not the
only ones facing us. Additional risks and uncertainties of which we are unaware
or we currently believe are not material could also adversely affect us. In any
case, the value of our common stock could decline, and you could lose all or
part of your investment. You should also refer to the other information
contained in this Form 10-K or incorporated herein by reference, including our
consolidated financial statements and the notes to those statements. See also,
“Special Note Regarding Forward-Looking Statements.”




Risks
Related to Our Financial Condition and Ownership Structure





We
have a history of losses and are uncertain as to our future
profitability.





Although
we earned a profit for the years ended December 31, 2007, December 31, 2006 and
December 31, 2005 we have otherwise had a net loss each year since 1998. We may
not sustain operating income, net earnings, or positive cash flow from
operations in the future.





In
addition, we expect to continue to incur significant operating costs and, as a
result, will need to generate significant additional revenues to maintain
profitability, which may not occur. If our revenues do not grow as needed to
offset these costs, our business may not succeed.


14


We are a
holding company. Our only material assets are our ownership interests in our
subsidiaries and in certain intellectual property rights. Consequently, we
depend on distributions or other intercompany transfers from our subsidiaries to
make payments on our debt. In addition, distributions and intercompany transfers
to us from our subsidiaries will depend on:





·
            the
      earnings of our subsidiaries;





·
            covenants
      contained in agreements to which we or our subsidiaries are, or may
      become, subject;





·
            business
      and tax considerations; and





·
            applicable
      law, including laws regarding the payment of dividends and
      distributions.





We cannot
assure you that the operating results of our subsidiaries or the distributions
they make to us at any given time will be sufficient to make distributions or
other payments to us or that any distribution and/or payments will be adequate
to pay our debt, including interest payments, when due.





The
structure of our company may limit the voting power of our stockholders and
certain factors may inhibit changes in control of our company.





The
concentration of ownership of our common stock may have the effect of delaying,
deferring, or preventing a change in control, merger, consolidation, or tender
offer that could involve a premium over the price of our common stock.
Currently, our executive officers, directors and greater-than-five percent
stockholders and their affiliates, in the aggregate, beneficially own
approximately 54% of our outstanding common stock. These stockholders, if they
vote together, are able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions and matters. The interests of these
stockholders may be different than those of our unaffiliated stockholders and
our unaffiliated stockholders may be dissatisfied with the outcome of votes that
may be controlled by our affiliated stockholders.





Our
articles of incorporation generally limit holdings by persons of our common
stock to no more than 10% without prior approval by our Board. Except as
otherwise permitted by the Board, no stockholder has the right to cast more than
10% of the total votes regardless of the number of shares of common stock owned.
In addition, if a person acquires holdings in excess of this ownership limit,
our Board may terminate all voting rights of the person during the time that the
ownership limit is violated, bring a lawsuit against the person seeking
divestiture of amounts in excess of the limit, or take other actions as the
Board deems appropriate. Our articles of incorporation also have a procedure
that gives us the right to purchase shares of common stock held in excess of the
ownership limit.





In
addition, our articles of incorporation permit our Board to authorize the
issuance of preferred stock without stockholder approval. Any future series of
preferred stock may have voting provisions that could delay or prevent a change
in control or other transaction that might involve a premium price or otherwise
be in the best interests of our common stockholders.





Our
current business plan contemplates significant expansion, which we may be unable
to manage.





To the
extent that we are successful in implementing our business strategy, we may
experience periods of rapid expansion in the future. In order to effectively
manage growth, whether organic or through acquisitions, we will need to maintain
and improve our operating systems and expand, train, and manage our employees.
Our expansion through acquisitions is contingent on successful management of
those acquisitions, which will require proper integration of new employees,
processes and procedures and information systems, which can be both difficult
and taxing from a human resources perspective. In addition, we must carefully
manage product inventory levels to meet demand. Inaccuracies in expected demand
could result in insufficient or excessive inventories and unexpected additional
expenses. We must also expand the capacity of our sales, distribution and
installation networks in order to achieve continued growth in our existing and
future markets. The failure to manage growth effectively in any of these areas
could have a material adverse effect on our business, financial condition, and
results of operations.





15


We
may require additional capital to fund further development, and our competitive
position could decline if we are unable to obtain additional capital, or access
the credit markets.





To
address our long-term capital needs, we intend to continue to pursue strategic
relationships that would provide resources for the further development of our
product candidates. There can be no assurance, however, that these discussions
will result in relationships or additional funding. In addition, we may continue
to seek capital through the public or private sale of securities, if market
conditions are favorable for doing so. If we are successful in raising
additional funds through the issuance of equity securities, stockholders will
likely experience dilution, or the equity securities may have rights,
preferences, or privileges senior to those of the holders of our common stock.
If we raise funds through the issuance of debt securities, those securities
would have rights, preferences, and privileges senior to those of our common
stock. There can be no assurance that we will be successful in seeking
additional capital.





The
current credit environment has negatively affected the economy, and we have
considered how it might affect our business.  Events affecting credit
market liquidity could increase borrowing costs or limit availability of
funds.  If we are not successful in obtaining sufficient capital
because we are unable to access the capital markets at financially economical
interest rates, it could reduce our product development efforts and may
materially adversely affect our future growth, results of operations and
financial results, and we may be required to curtail significantly, or eliminate
at least temporarily, one or more of our research and development programs
involving new products and technologies.





Sales
of common stock issuable on the exercise of warrants may dilute the value
of our common stock.





In 2006
we entered into a $10 million financing agreement with the Laurus Master Fund,
Ltd ("Laurus").  The net proceeds from the transaction fund strategic
initiatives that may include joint ventures, co- marketing programs, and
acquisitions. The financing provided is a $10 million Convertible Note with a
term of four years and a fixed interest rate of 9.5%.  It is secured
by the assets of Numerex. Pursuant to the transaction, we issued
warrants to Laurus to purchase a total of 158,562 Numerex shares of our
common stock at a price per share of $10.13. Both principal and
interest on the Note are payable in cash or, subject to certain
conditions, in shares of our common stock. Principal reductions
in equal amounts began in July 2007 and will continue until the
final payment is made in December 2010. If payments are made in common
stock, the amount of principal and interest repaid will be converted into equity
at the fixed conversion price of $10.37, a 10% premium over the average NASDAQ
closing prices for the past ten trading days. (We have a put right to
convert the Note into equity in tranches not to exceed $2.5 million, should
the market price of the common stock exceed $11.40 or 110% of the fixed
conversion price for twelve consecutive trading days.) As of December 31,
2007, Laurus has not exercised any warrants.




The
issuance of shares of common stock issuable upon the exercise of options or
warrants could result in dilution of our common stock. It also
could adversely affect the terms on which we may be able
to obtain equity financing in the future.





Risks
Related to Our Business





A
prolonged overall economic downturn, or one or more market-specific downturns,
could individually or collectively have an adverse affect on our
sales.





Sales of
our fixed and mobile, cellular- and satellite-based asset tracking and
monitoring solutions are dependant on growth in the overall market for M2M
wireless data communications services. If adverse economic conditions impede the
overall growth of the M2M market, it is likely that sales across each of the
individual market segments that we serve will, to varying degrees, be adversely
affected as well. Conversely, it is likely that adverse economic conditions that
are initially specific to an individual market segment may, because of complex
macro- and micro-economic interdependencies, adversely impact adjacent market
segments.





In
particular, the continued slowdown in the number of new housing starts or a
prolonged overall economic downturn or recession could negatively impact our
sales of alarm monitoring solutions. Growth in that segment is, in significant
part, driven by new home buying and business starts. A continuation of the
slowdown in new housing and business starts would likely be matched by a
slowdown in the purchase and installation of new residential and commercial
security systems. In response to an overall economic slowdown or recession,
consumers and business owners may also decide to cancel wireless monitoring
services in an effort to reduce or eliminate expenses they may view as
“discretionary”.





Similarly,
declining automobile sales associated with an overall economic downturn could
result in fewer sales of our vehicle tracking solutions.





16


The
markets in which we operate are highly competitive, and we may not be able to
compete effectively.





We face
competition from many companies with significantly greater financial resources,
well-established brand names, and larger customer bases. Numerous companies also
may try to enter our market and expose us to greater price competition for our
services. We expect competition to intensify in the future. If our competitors
successfully focus on the markets we serve, our business could be adversely
affected.





We
operate in new and rapidly evolving markets where rapid technological change can
quickly make products, including those that we offer, obsolete.





The
markets we operate in are subject to rapid advances in technology, continuously
evolving industry standards and regulatory requirements, and ever-shifting
customer requirements. The M2M wireless data communications field, in
particular, is currently undergoing profound and rapid technological change. For
example, cellular carriers that we rely upon in delivering our network services
began dismantling their analog-based cellular networks on February 18, 2008.
While we have developed a digital standard, we may not be successful in fully
transitioning our existing customer base to the digital standard. Further, while
we believe we are prepared to meet our customers’ demand for solutions that are
compatible with the cellular carriers’ all-digital networks, the introduction of
unanticipated new technologies by the carriers, or the development of
unanticipated new end use applications by our customers, could render our
then-existing solutions obsolete. In that regard, we must discern current trends
and anticipate an uncertain future. We must engage in product development
efforts in advance of events that we cannot be sure will happen and time our
production cycles and marketing activities accordingly. If our projections are
incorrect, or if our product development efforts are not properly directed and
timed, or if the demands of the marketplace shift in directions that we failed
to anticipate, we may lose market share and revenues as a result.





To remain
competitive, we continue to support research and development efforts intended to
bring new products to the markets that we serve. However, those efforts are
capital intensive. If we are unable to adequately fund our research and
development efforts, we may not be successful in keeping our product line
current with advances in technology and evolving customer requirements. Even
with adequate funding, our development efforts may not yield any appreciable
short-term results and may never result in products that produce revenues over
and above our cumulative development costs or that gain traction in the
marketplace, causing us to either lose market share or fail to increase and
forego increased sales and revenues as a result.





Failure
of our products and services to gain market acceptance would adversely affect
our financial condition.





Over the
past three years, among many initiatives, we have introduced a system enabling
alarm signals to be transmitted over the cellular network to central monitoring
stations; a cellular and GPS-based vehicle tracking solution, solutions tailored
to the security needs of the construction industry; a multimedia
videoconferencing solution, direct-to-consumer services; enhanced “back end”
services; and, most recently, with our acquisition of the assets of Orbit One
Communications, Inc., satellite-based asset monitoring and tracking solutions.
If these products and services, or any of our other existing products and
services, do not perform as expected, or if our sales are less than expected,
our business may be adversely affected.





We
are dependent on a number of network service providers, manufacturers and
suppliers of our products and product components, the loss of any one of which
could adversely impact our ability to service or supply our
customers.





The loss or disruption of key
telecommunications infrastructure services and key wireless network services
supplied to the Company would unfavorably impact our ability to adequately
service our customers.





We
outsource the manufacturing of our products to independent companies and do not
have internal manufacturing capabilities to meet the demands of our customers.
Any delay, interruption, or termination of the manufacture of our products could
harm our ability to provide our products to our customers and, consequently,
could have a material adverse effect on our business and operations. The
manufacture of our products requires specialized know-how and capabilities
possessed by a limited number of enterprises. Consequently, we are reliant on
one or two suppliers for the manufacture of key products and product components.
If a key supplier experiences production problems or financial difficulties, we
may not be able to obtain enough units to meet demand, which could result in
failure to meet our contractual commitments to our customers, further causing us
to lose sales and generate less revenue. If any of our products or product
components contain significant manufacturing defects that the existing
manufacturer or supplier is unable to resolve, we could also have difficulty
locating a suitable alternative manufacturer or supplier. Related efforts to
design replacement products or product components could also take longer and
prove costlier than planned, resulting in lost sales and reduced.





17


If
we are unable to provide our suppliers with accurate forecasts of our product
needs, margins could be adversely affected.





We are
contractually obligated to provide our suppliers with forecasts of our demand
for manufactured products. Specific terms and conditions vary by contract,
however, if our forecasts do not result in the production of a quantity of units
sufficient to meet demand we may be subject to contractual penalties under some
of our contracts with our customers. By contrast, overproduction of units based
on forecasts that that overestimate demand could result in an accumulation
excess inventory that, under some of our contracts with our customers, would
have to be managed at our expense thus adversely impacting our margins. Excess
inventory that becomes obsolete or that we are otherwise unable to sell would
also be subject to write-offs resulting in adverse affects on our
margins.





If
we experience product defects or failures, our costs could increase and delay
product shipments.





Our
products and services, and the applications they support, are complex. While we
test our products, they may still have errors, defects, or bugs that we find
only after commercial production has begun. In the past, we have experienced
errors, defects, and bugs in connection with new products. Our customers may not
purchase our products if the products have reliability, quality, or
compatibility problems. Furthermore, product errors, defects, or bugs could
result in additional development costs, diversion of resources from our other
development efforts, claims by our customers or others against us, or the loss
of credibility with our current and prospective customers. Historically, the
time required for us to correct defects has caused delays in product shipments
and resulted in lower than expected revenues. Significant capital and resources
may be required to address and fix problems in new products. If our products do
not function properly, we may have lower than expected revenues, and net income
would likely be adversely affected.





A
large portion of our revenues is derived from sales to distributors, and changes
in the productivity of our distribution channels or any disruption of our
distribution channel could adversely affect the sale of our products and
services.





We
primarily sell our products through distributors. Our sales could be affected by
disruptions in the relationships between our distributors and us or between our
distributors and end users of our products or services. Also, distributors may
choose not to emphasize our products and services to their customers. Any of
these actions or results could lead to decreased sales, and adversely affect our
results of operations.





The
loss of a significant customer could materially impact our
revenues.





Purchases
by a single customer may account for up to 13% of our anticipated revenues for
2008 as was the case for fiscal year 2007. The loss of such a customer could
have a material adverse affect on our revenues, operating income and net
earnings.





We
may experience long sales cycles for our products, as a result of a variety of
factors.





Certain
of our product offerings, particularly those specific to our satellite-based
asset tracking unit, are subject to long sales cycles in view of the need for
testing of our products in combination with our customers’ applications and
third party technologies, the need to obtain regulatory approvals and export
clearances, and as a function of the need to negotiate other complex operational
and technical issues. Particularly in the government contracting arena, it may
take months or longer to finalize a contract. Terms and conditions of sale
unique to the government sector may also affect when we are able to recognize
revenues under our government contracts. For that reason, month-over-month
comparisons of our financial results may not always be meaningful.





If
we do not adapt to changing government regulations, our business will
suffer.





Changing
government regulations could make our existing hardware non-compliant or
obsolete. For example, as previously discussed, as of February 18, 2008,
cellular carriers in the United States were no longer required by the FCC to
provide analog service pursuant to the Advanced Mobile Phone Service (AMPS)
standard and, as a result, we had to convert our existing analog subscriber base
to digital service. (No date has been set for ending analog service in Canada.
However, cellular carriers in Canada are transitioning from analog to digital
networks as well.)





Our
expansion into government markets subjects us to increased regulation. We must
comply with a complex set of rules and regulations applicable to government
contractors. Failure to comply with an applicable rule or regulation could
result in our suspension of doing business with the government or cause us to
incur substantial penalties.





18


Many of
the ultimate consumers of our PowerPlay hardware and services are elementary and
secondary schools that pay for their purchases with funding that they receive
through the Schools and Libraries Program (commonly known as the “E-Rate
Program”)  of the Universal Service Fund, which is administered by the
Universal Service Administrative Company (USAC) under the direction of the FCC.
Changes in this program could affect demand for our PowerPlay hardware and
services.




We may be
subject to telecommunications taxes, surcharges, and fees, and changes in these
could affect our results of operations.





And, as
we expand beyond the “business-to-business” market and begin providing some
services directly to end user consumers, some of our sales could become subject
to federal and state level consumer protection laws and other regulations that
could prompt adverse legal action in the event of an alleged violation of those
laws.





We
operate internationally, which subjects us to international regulation and
business uncertainties that create additional risk for us.





We are
doing business in Australia, Canada, China, Mexico, and Japan. Accordingly, we
are subject to additional risks, such as





·
            export
      control requirements, including restrictions on the export of critical
      technology,


·
            currency
      exchange rate fluctuations,


·
            generally
      longer receivable collection periods and difficulty in collecting accounts
      receivable,


·
            trade
      restrictions and changes in
tariffs,


·
            difficulties
      in staffing and managing international operations,
  and


·
            potential
      insolvency of international dealers and
  distributors.





In
addition, the laws of certain countries do not protect our hardware as much as
the laws of the United States, which may lead to the potential loss of our
proprietary technology through theft, piracy or a failure to protect our rights.
The combination of these factors may have a material adverse effect on our
future international sales and, consequently, on our business and results of
operations.





We may not be able to achieve our
organic growth goals if we do not generate additional traffic and efficiently operate our
network.





Our
long-term success depends on our ability to operate, manage, and maintain a
reliable and cost effective network, as well as our ability to keep pace with
changes in technology.





Furthermore,
our network operations are dependent on third parties. If we experience
technical or logistical impediments to our ability to transfer traffic onto our
network, fail to generate additional traffic on our network, or if we experience
difficulties with our third party providers, we may not achieve our revenue
goals or otherwise be successful in growing our business.





We
may lose customers if we experience system failures that significantly disrupt
the availability and quality of the service our network provides.





The
operation of our network depends on our ability to avoid or limit any
interruptions in service to our customers. Interruptions in service or
performance problems, for whatever reason, could undermine confidence in our
services and cause us to lose customers or make it more difficult to attract new
customers. In addition, because most of our customers are businesses, any
significant interruption in service could result in lost profits or other losses
to our customers. Although we attempt to disclaim or limit liability in our
agreements with these customers, a court may not enforce a limitation on
liability, which could expose us to losses.





The
failure of any equipment on our network, or that of a customer’s equipment,
could result in the interruption of that customer’s service until necessary
repairs are made or replacement equipment is installed. Network failures,
delays, and errors may result from natural disasters, power losses, security
breaches, viruses or terrorist acts. These failures or faults cause delays,
service interruptions, expose us to customer liability, or require expensive
modifications that could have a material adverse effect on our business and
operating results.





19


We
may have difficulty identifying the source of a problem in our
network.





If a
problem occurs on our network, it may be difficult to identify the source of the
problem due to the overlay of our network with cellular, and/or satellite
networks and our network’s reliance on those other networks. The occurrence of
hardware or software errors, regardless of whether such errors are caused by our
products or our network, may result in the delay or loss of market acceptance of
our products and services, and any necessary revisions may result in significant
and additional expenses. The occurrence of some of these types of problems may
seriously harm our business, financial condition, or operations. Given our
dependence on cellular, and satellite telecommunications service providers,
risks specific or unique to their technologies, i.e., the loss or malfunction of
a satellite or satellite ground station, should also be viewed as having the
potential to impair our ability to provide services.





A
natural disaster or other weather events could diminish our ability to provide
service; our revenues may be impacted by weather patterns.




Although
our internal platform is very robust and supported by redundant systems, natural
disasters including, without limitation, hurricanes, tornadoes, earthquakes, or
solar flares could damage or destroy our facilities resulting in a disruption of
service to our customers. If a future natural disaster impairs or destroys any
of our facilities, we may be unable to provide service to our customers in the
affected area for a period of time. In addition, even if our facilities are not
affected by natural disasters, our service could be disrupted if a natural
disaster damages the third party cellular or satellite networks we are
interconnected with. Further, in the event of an emergency, the
telecommunications networks that we rely upon may become capacity constrained or
preempted by governmental authorities.




With
respect to our satellite-based asset tracking unit in particular, sales may be
influenced by weather patterns. For example, if government agencies and
emergency responders anticipate a relatively “mild” storm season, they buy fewer
of our units for deployment in support of disaster response
operations.




The
loss of a few key technical personnel could have an adverse affect on us in the
short-term.





We rely
on a relatively small number of technical personnel who play key roles in
maintaining the back-end technology and systems that enable us to provide
network services to our customers and that is also central to our product
development efforts. The loss of some staff could result, temporarily, in
shortfalls in the knowledge base of our remaining technical staff concerning
existing products and products that are under development.





The
loss of intellectual property protection both U.S. and international, could have
a material adverse effect on our operations.





Our
future success and competitive position depend upon our ability to obtain and
maintain intellectual property protection, especially with regard to patents on
the technology used in our core business. Loss of such protection could
compromise any advantage obtained and, therefore, impact our sales, market
share, and results. Furthermore, our future or pending patent applications may
not be issued with the scope of the claims sought by us, if at all. In addition,
others may develop technologies that are similar or superior to our technology,
duplicate our technology or design around the patents owned or licensed by us.
Effective patent, trademark, copyright, and trade secret protection may be
unavailable or limited in foreign countries where we may need protection. We
cannot be sure that steps taken by us to protect our technology will prevent
misappropriation of the technology.





Our
services are highly dependent upon our technology and the scope and limitations
of our proprietary rights therein. In order to protect our technology, we rely
on a combination of patents, copyrights, and trade secret laws, as well as
certain customer licensing agreements, employee and third-party confidentiality
and non-disclosure agreements, and other similar arrangements. If our assertion
of proprietary rights is held to be invalid, or if another party’s use of our
technology were to occur to any substantial degree, our business, financial
condition and results of operations could be materially adversely
affected.





Our
competitors may obtain patents that could restrict our ability to offer our
products and services, or subject us to additional costs, which could impede our
ability to offer our products and services and otherwise adversely affect us. We
may, from time to time, also be subject to litigation over intellectual property
rights or other commercial issues.





Several
of our competitors have obtained and can be expected to obtain patents that
cover products or services directly or indirectly related to those offered by
us. There can be no assurance that we are aware of all patents containing claims
that may pose a risk of infringement by its products or services. In addition,
patent applications in the United States are confidential until a patent is
issued and, accordingly, we cannot evaluate the extent to which our products or
services may infringe on future patent rights held by others.





20


Furthermore,
even with technology that we develop independently, a third party may claim that
we are using inventions claimed by their patents and may go to court to stop us
from engaging in our normal operations and activities, such as research and
development and the sale of any of our products or services. These lawsuits are
expensive and would consume time and other resources. The court could decide
that we are infringing the third party’s patents and order us to stop the
activities claimed by the patent and/or order us to pay the other party damages
for having infringed its patents. There is no guarantee that the prevailing
patent owner would offer us a license so that we could continue to engage in
activities claimed by the patent, or that such a license, if made available to
us, could be acquired on commercially acceptable terms. In the highly
competitive and technology-dependent telecommunications field in particular,
litigation over intellectual property rights is significant business risk, and
some entities are pursuing a litigation strategy the goal of which is to
monetize otherwise unutilized intellectual property portfolios via licensing
arrangements entered into under threat of continued litigation.





Some
licenses we obtain may be nonexclusive and, therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to sell some
of our products, and there can be no assurance that we would be able to design
and incorporate alternative technologies, without a material adverse effect on
our business, financial condition, and results of operations.





Our
      products and information are subject to secrecy and confidentiality
      obligations, violations of which may not be able to be
      remedied.





Although
we have taken, and will continue to take, steps to protect the confidential
nature of our proprietary and trade secret information, we cannot control
whether secrecy obligations will be honored or whether disputes will arise
related to this information. There is a risk that the steps we have taken will
not prevent misappropriation of our technology or that others might
independently develop substantially equivalent products and processes or
otherwise gain access to our technology. In addition, we cannot rule out that we
will not be subjected to claims from others that we are misappropriating their
trade secrets or confidential proprietary information.





We seek to protect our trade secrets
and proprietary know-how, in part, through confidentiality agreements with our
employees, customers, and licensees. We cannot guarantee that those parties will
not violate these agreements, that we will have adequate remedies for any
breach, or that our trade secrets will not otherwise become known or be
independently developed by competitors. We cannot be certain that we will, in
connection with every relationship, be able to maintain the confidentiality of
our technology, which if released could materially affect our business. To the
extent that our licensees develop inventions or processes independently that may
be applicable to our products, disputes may arise as to the ownership of the
proprietary rights to this information. These inventions or processes will not
necessarily become our property, but may remain the property of these persons or
their full-time employers. We could be required to make payments to the owners
of these inventions or processes, in the form of either cash or equity, or a
combination of both.





Litigation.





From time
to time we are engaged as a defendant and/or plaintiff in litigation in the
ordinary course of business.  Due to the uncertainty inherent in
litigation, were a legal proceeding to be decided adversely against us and
of a magnitude that reached a materiality threshold, such litigation could have
a material adverse effect on our business, financial condition or results of
operations.








21


Item
1B.  Unresolved Staff Comments.





None.





Item
2.  Properties.





All of our facilities are
leased.  Set forth below is certain information with respect to our
leased facilities:





Location
            Principal Business
            Square Footage
            Lease TermAtlanta,
      Georgia
            Wireless
      Data Communications and Principal Executive Office
            31,526
            2012Warminster,
      Pennsylvania
            Wireless
      Data Communications
            18,000
            2011Bozeman,
      Montana
            Wireless
      Data Communications
            11,300
            2012Willow
      Grove, Pennsylvania
            Networking
      and Wireline Data Communications
            10,000
            2008State
      College, Pennsylvania
            Digital
      Multimedia
            10,788
            Month
      to Month





We conduct engineering, sales and
marketing, and administrative activities at many of these locations.We believe that our
existing facilities are adequate for our current needs. As we grow and expand
into new markets and develop additional hardware, we may require additional
space, which we believe will be available at reasonable rates.





We engage in limited manufacturing,
equipment and hardware assembly and testing for certain hardware. We also use
contract manufacturers for production, sub-assembly and final assembly of
certain hardware.  We believe there are other manufacturers that could
perform this work on comparable terms.





Item
3.  Legal Proceedings.





On
January 7, 2008 Orbit One Communications, Inc. (“Orbit One”) and David Ronsen
(“Ronsen”) filed an action against Numerex in New York State Supreme Court,
County of New York, alleging,inter alia,breach of contract in frustrating Orbit One’s ability to
achieve earn out targets in the acquisition and employment agreements. 
Plaintiffs are claiming $20 million in damages.  On January 25, 2008
Numerex removed the action to the United States District Court, Southern
District of New York.  On March 11, 2008 Numerex answered and
counterclaimed asserting, inter alia, breach of
fiduciary duty and declaratory relief.  Numerex believes that the
plaintiffs' claims are without merit and intends to defend against the
allegations and to vigorously pursue its counterclaims.





Item
4.  Submission of Matters to a Vote of Security Holders.





Not
applicable.


22





PART
II





Item
5.  Market for the Registrant's Common Stock and Related Shareholder
Matters.





The Company’s Common Stock trades
publicly on the NASDAQ Global Market System under the symbol NMRX.





The following table sets forth, for the
fiscal quarters indicated, the high and low sales prices per share for the
Common Stock on the NASDAQ National Market for the applicable
periods.





Fiscal 2007
            
            High
            
            
            LowFirst
      Quarter (January 1, 2007 to March 31, 2007)
            
            $
            11.90
            
            
            $
            9.02Second
      Quarter (April 1, 2007 to June 30, 2007)
            
            
            12.44
            
            
            
            9.72Third
      Quarter (July 1, 2007 to September 30, 2007)
            
            
            11.75
            
            
            
            7.30Fourth
      Quarter (October 1, 2007 to December 31, 2007)
            
            
            9.05
            
            
            
            7.26Fiscal 2006
            
            High
            
            
            LowFirst
      Quarter (January 1, 2006 to March 31, 2006)
            
            $
            8.71
            
            
            $
            4.59Second
      Quarter (April 1, 2006 to June 30, 2006)
            
            
            8.99
            
            
            
            6.39Third
      Quarter (July 1, 2006 to September 30, 2006)
            
            
            10.25
            
            
            
            7.45Fourth
      Quarter (October 1, 2006 to December 31, 2006)
            
            
            10.35
            
            
            
            7.76




On March
6, 2008, the last reported sale price of our Class A common stock on The NASDAQ
Global Market was $7.67 per share.






Dividend
Policy




We
currently do not pay any cash dividends.  In deciding whether or not
to declare or pay dividends in the future, the Board of Directors will consider
all relevant factors, including our earnings, financial condition and working
capital, capital expenditure requirements, any restrictions contained in loan
agreements and market factors and conditions.  We have no plans now or
in the foreseeable future to declare or pay cash dividends on our common
stock.


23




Performance
Graph






The
information included under the heading "Performance Graph" in this Item 5 of
this Annual Report on Form 10-K is "furnished" and not "filed" and shall not be
deemed to be "soliciting material" or subject to Regulation 14A or 14C, nor
shall it be deemed "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that we specifically incorporate it by reference into any
such filing.




The
following graph shows a comparison of the cumulative total return for Common
Stock, the NASDAQ Composite Index and the NASDAQ Telecomm Index, assuming
(i) an investment of $100 in each, on December 31, 2002, the last
trading day before the beginning of the Company’s five preceding years, and,
(ii) in the case of the Indices, the reinvestment of all
dividends.














SHAREHOLDER
      VALUE AT YEAR END2002
            
            
            2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007NMRX
            
            $
            100.00
            
            
            $
            141.26
            
            
            $
            174.72
            
            
            $
            175.84
            
            
            $
            350.19
            
            
            $
            306.69NASDAQ
      US Index
            
            $
            100.00
            
            
            $
            150.01
            
            
            $
            162.89
            
            
            $
            165.14
            
            
            $
            180.85
            
            
            $
            198.60NASDAQ
      Telecomm Index
            
            $
            100.00
            
            
            $
            168.74
            
            
            $
            182.23
            
            
            $
            169.09
            
            
            $
            216.03
            
            
            $
            235.85








As of
March 10, 2008, there were 52 holders of record of our Common Stock,
approximately 8 beneficial shareholders and 13,525,905 shares of Common Stock
outstanding.  Because many of the shares of our common stock are held
by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these record
holders.





24


Item
6.  Selected Financial Data.





The
following selected financial data should be read in conjunction with the
consolidated financial statements and the notes contained in “Item
8.  Financial Statements and Supplementary Data” and the information
contained in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”  Historical results are not
necessarily indicative of future results.





The
following financial information was derived using the consolidated financial
statements of Numerex Corp.  The table lists historical financial data
of the Company for the fiscal years ended December 31, 2007, 2006, 2005,
2004 and 2003.





(in
      thousands, except earnings per share)
            
            December
      31, 2007
            
            
            December
      31, 2006
            
            
            December
      31, 2005
            
            
            December
      31, 2004
            
            
            December
      31, 2003Statement
      of Operations DataRevenues
            
            $
            68,004
            
            
            $
            52,788
            
            
            $
            29,946
            
            
            $
            22,993
            
            
            $
            20,157Gross
      profit
            
            
            23,408
            
            
            
            18,922
            
            
            
            12,717
            
            
            
            10,039
            
            
            
            9,029Operating
      income (loss)
            
            
            2,500
            
            
            
            1,674
            
            
            
            961
            
            
            
            (1,631
            )
            
            
            (2,726
            )Net
      income (loss)
            
            
            440
            
            
            
            4,103
            
            
            
            593
            
            
            
            (2,079
            )
            
            
            (1,404
            )Earnings
      (loss) per common share (diluted)
            
            
            0.03
            
            
            
            0.32
            
            
            
            0.05
            
            
            
            (0.19
            )
            
            
            (0.13
            )Balance
      Sheet DataCash,
      cash equivalents and short term investments
            
            $
            7,382
            
            
            $
            20,384
            
            
            $
            4,359
            
            
            $
            1,684
            
            
            $
            734Total
      Assets
            
            
            74,098
            
            
            
            66,394
            
            
            
            36,348
            
            
            
            32,612
            
            
            
            33,970Total
      Debt and capital lease obligations (short and long term)
            
            
            10,683
            
            
            
            14,337
            
            
            
            1,326
            
            
            
            3,848
            
            
            
            3,782Shareholders'
      equity
            
            
            46,865
            
            
            
            41,420
            
            
            
            27,729
            
            
            
            23,652
            
            
            
            25,366Cash
      Flow DataNet
      cash provided by (used in) operations
            
            $
            (3,371
            )
            
            $
            2,663
            
            
            $
            3,277
            
            
            $
            1,520
            
            
            $
            706








25


Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.





Overview





We are
a machine-to-machine data communications, technology and solutions
business.  We combine our network services, hardware and applications
development capabilities to create innovative packaged and custom designed
machine-to-machine solutions for customers across multiple market
segments.





Fiscal
year 2007 represented an improvement in revenues over prior
periods.  Full year revenues of $68.0 million increased $15.2 million
or 28.8% from 2006.  All of this increase came from our wireless
division where 2007 revenues grew 35.6% compared to 2006.





Gross
margins for 2007 were 34.4% compared with 35.8% in 2006.  Gross
margins were unfavorably affected by our decision to discount our hardware in
order to effectively compete for new customers in the digital M2M market.
Wireless data hardware sales typically earn a lower margin than that generated
by service revenue.  These hardware sales, however, should result in
enhanced recurring service revenue in subsequent periods.





Fiscal
year 2007 overhead, which includes selling, general and administrative
(SG&A) costs as well as research and development expenses and bad debt
costs, collectively were $20.9 million or $3.7 million higher than
2006.  This increase in SG&A expenses is related to our
acquisition of the assets of Orbit One Communications, Inc. as well as costs
incurred with regard to Sarbanes Oxley compliance.  SG&A expenses,
which represented almost 26% of revenues in 2006, were 25% in 2007.





The
following is a discussion of our consolidated financial condition and results of
operations for the fiscal years ended December 31, 2007 and 2006 and
2005.  This discussion should be read in conjunction with our
consolidated financial statements, the related notes thereto, and other
financial information included elsewhere in this report.





Critical
Accounting Policies





Note A of the Notes to the Consolidated
Financial Statements includes a summary of the significant accounting policies
and methods used in the preparation of Numerex’s Consolidated Financial
Statements. The following is a brief discussion of the more significant
accounting policies and methods used.





General





The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The most
significant estimates and assumptions relate to revenue recognition, accounts
receivable and allowance for doubtful accounts, inventories and the adequacy of
reserves for excess and obsolete inventories, accounting for income taxes and
valuation of goodwill and other intangible assets. Actual amounts could differ
significantly from these estimates.





Revenue
Recognition





We
primarily sell hardware, recurring services (most billed on a monthly basis) and
on-demand services.   Hardware revenues are recognized at the
time title passes to the customer, which in most cases is at the time of
shipment.





We bill
most of our recurring service revenues on a monthly basis, which are generated
by providing customers access to our wireless machine-to-machine communications
network (the “Network”).  We sell these services to retailers and
wholesalers of the service.  For services sold to retailers, monthly
service fees are generally a fixed monthly amount billed at the beginning of
each month.  For services sold to wholesalers, the customers are
billed a fixed base fee in advance and usage fees in arrears at the end of each
month.  We defer the advance billing of the base fee and recognize the
revenues when the services are performed.





We also
provide services on a demand basis.  These types of services are
generally completed in a short period of time (usually less than one month) and
are billed and the revenue recognized when the services are
completed.


26


Some of
our customers prepay for services for up to a year in advance.  These
services include our satellite communication services, 24 hour a day access to
our internet based mapping software and other support services.  
Additionally, these prepaid services expire after a specified period of
time.  We defer these revenues until the services have been performed or,
for unused services, when the term expires.




Accounts
Receivables




Trade
receivables are stated at gross invoiced amount less discounts, other allowances
and provision for uncollectible accounts.





Allowance
for Doubtful Accounts





We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Changes in the
financial condition of our customers could result in upward or downward
adjustments to the allowance for doubtful accounts.





Inventories
and Reserves for Excess, Slow-Moving and Obsolete Inventory





We
      value our inventory at the lower of cost or market.  We
      continually evaluate the composition of our inventory and identify, with
      estimates, potential future excess, obsolete and slow-moving inventories.
      We specifically identify obsolete hardware for reserve purposes and
      analyze historical usage, forecasted production based on demand forecasts,
      current economic trends, and historical write-offs when evaluating the
      adequacy of the reserve for excess and slow-moving inventory. If we are
      not able to achieve our expectations of the net realizable value of the
      inventory at its current carrying value, we adjust our reserves
      accordingly.





Prepaid
Minutes





With our
satellite communications business, we purchase satellite minutes in advance from
our primary satellite communications carrier.  These prepaid minutes
expire after a specified period of time, usually one year, from the date of
purchase.  We classify these prepaid minutes as a prepaid expense then
expense the minutes as they are used.  Additionally, we evaluate the
potential future minutes that will not be used by their expiration at each
reporting period, taking into consideration any seasonality in our usage of our
satellite communication minutes.  Should we estimate that any amounts
of minutes are not expected to be used by their expiration date, we expense the
expected unused minutes at that time as cost of sales.





Valuation
of Goodwill and Other Intangible Assets





In
accordance with Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, (“SFAS No. 144”) and Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets(“SFAS No. 142”), we do not amortize goodwill and other intangible assets
with indefinite lives. Our intangible assets and goodwill are subject to annual
impairment tests, which require us to estimate the fair value of our business
compared to the carrying value. The impairment reviews require an analysis of
future projections and assumptions about our operating performance. Should such
review indicate the assets are impaired, we would record an expense for the
impaired assets.  Our long-lived assets are tested for impairment
whenever events or changes in events or circumstances indicate their carrying
amount may not be recoverable.




Annual
tests or other future events could cause us to conclude that impairment
indicators exist and that our goodwill is impaired. For example, if we had
reason to believe that our recorded goodwill and intangible assets had become
impaired due to decreases in the fair market value of the underlying business,
we would have to take a charge to income for that portion of goodwill or
intangible assets that we believed was impaired. Any resulting impairment loss
could have a material adverse impact on our financial position and results of
operations.





We
conducted our goodwill analysis and assessment for all of our reporting units as
of December 31, 2007 and determined there was no impairment of
goodwill.





27


Deferred
Tax Valuation Allowance





In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management
considers projections of future taxable income, tax planning strategies and the
reversal of temporary differences in making this assessment.  During
the year ended December 31, 2007, management determined that certain deferred
tax assets previously offset by a valuation allowance had become unrealizable.
As such, both the deferred tax assets and the associated valuation allowance
were reduced. These reductions did not impact net income.





Result
of Operations





The
following table sets forth, for the periods indicated, certain revenue and
expense items and the percentage increases and decreases for those items in the
Company’s Consolidated Statements of Operations.





For
      the years ended December 31,
            
            
            2007
      vs. 2006
            
            
            2006
      vs. 2005(in
      thousands, except per share amounts)
            
            2007
            
            
            2006
            
            
            2005
            
            
            %
      Change
            
            
            %
      ChangeNet
      sales:Wireless
      Data CommunicationsHardware
            
            $
            41,661
            
            
            $
            32,383
            
            
            $
            11,919
            
            
            
            28.7
            %
            
            
            171.7
            %Service
            
            
            21,164
            
            
            
            13,938
            
            
            
            10,409
            
            
            
            51.8
            %
            
            
            33.9
            %Sub-total
            
            
            62,825
            
            
            
            46,321
            
            
            
            22,328
            
            
            
            35.6
            %
            
            
            107.5
            %Digital
      Multimedia, Networking and
    Wireline   ServicesHardware
            
            
            1,747
            
            
            
            2,142
            
            
            
            2,654
            
            
            
            -18.4
            %
            
            
            -19.3
            %Service
            
            
            3,432
            
            
            
            4,325
            
            
            
            4,964
            
            
            
            -20.7
            %
            
            
            -12.9
            %Sub-total
            
            
            5,179
            
            
            
            6,467
            
            
            
            7,618
            
            
            
            -19.9
            %
            
            
            -15.1
            %Total
      net salesHardware
            
            
            43,408
            
            
            
            34,525
            
            
            
            14,573
            
            
            
            25.7
            %
            
            
            136.9
            %Service
            
            
            24,596
            
            
            
            18,263
            
            
            
            15,373
            
            
            
            34.7
            %
            
            
            18.8
            %Total
      net sales
            
            
            68,004
            
            
            
            52,788
            
            
            
            29,946
            
            
            
            28.8
            %
            
            
            76.3
            %Cost
      of hardware sales
            
            
            38,491
            
            
            
            27,967
            
            
            
            11,303
            
            
            
            37.6
            %
            
            
            147.4
            %Cost
      of services
            
            
            6,106
            
            
            
            5,899
            
            
            
            5,926
            
            
            
            3.5
            %
            
            
            -0.5
            %Gross
      Profit
            
            
            23,408
            
            
            
            18,922
            
            
            
            12,717
            
            
            
            23.7
            %
            
            
            48.8
            %Gross
      Profit %
            
            
            34.4
            %
            
            
            35.8
            %
            
            
            42.5
            %Selling,
      general, and administrative expenses
            
            
            16,320
            
            
            
            12,088
            
            
            
            8,663
            
            
            
            35.0
            %
            
            
            39.5
            %Research
      and development expenses
            
            
            1,459
            
            
            
            1,067
            
            
            
            1,106
            
            
            
            36.7
            %
            
            
            -3.5
            %Bad
      debt expense
            
            
            635
            
            
            
            198
            
            
            
            325
            
            
            
            220.9
            %
            
            
            -39.1
            %Depreciation
      and amortization
            
            
            2,493
            
            
            
            1,755
            
            
            
            1,662
            
            
            
            42.1
            %
            
            
            5.6
            %Goodwill
      impairment
            
            
            -
            
            
            
            2,140
            
            
            
            -
            
            
            nm
            
            
            nmOperating
      earnings
            
            
            2,500
            
            
            
            1,674
            
            
            
            961
            
            
            
            49.3
            %
            
            
            74.2
            %Interest
      expense, net
            
            
            (1,367
            )
            
            
            (552
            )
            
            
            (311
            )
            
            
            147.7
            %
            
            
            77.5
            %Other
      income and (expense), net
            
            
            35
            
            
            
            31
            
            
            
            (5
            )
            
            
            12.4
            %
            
            nmProvision
      (benefit) for income taxes
            
            
            (728
            )
            
            
            2,950
            
            
            
            (52
            )
            
            
            -124.7
            %
            
            nmNet
      earnings
            
            
            440
            
            
            
            4,103
            
            
            
            593
            
            
            
            -89.3
            %
            
            
            591.9
            %Basic
      income per common share
            
            $
            0.03
            
            
            $
            0.33
            
            
            $
            0.05Diluted
      income per common share
            
            $
            0.03
            
            
            $
            0.32
            
            
            $
            0.05Basic
            
            
            13,137
            
            
            
            12,502
            
            
            
            11,231Diluted
            
            
            13,700
            
            
            
            12,985
            
            
            
            11,482





See notes
to consolidated financial statements


28


Fiscal
Years Ended December 31, 2007 and December 31, 2006





Net
revenues increased 28.8% to $68.0 million for the year ended December 31, 2007
as compared to $52.8 million for the year ended December 31,
2006.  The increase in total net revenues for the year ended December
31, 2007 is attributable to a 25.7% increase in total hardware sales and a 34.7%
increase in service revenue.  The hardware sales and service revenue
increase for the year ended December 31, 2007, compared to the same period in
2006, was in Wireless Data Communications in the amount of $16.5
million.  These increases were partially offset by a decrease in
Digital Multimedia, Networking & Wireline Security hardware sales and
service revenue of $1.3 million, as compared to fiscal year 2006.





Cost of
hardware sales increased 37.6% to $38.5 million for the year ended December 31,
2007 as compared to $28.0 million for the year ended December 31,
2006.  The increase in cost of sales was primarily the result of
higher hardware sales volume in Wireless Data Communications.





Cost of
services was increased 3.5% to $6.1 million for the year ended December 31, 2007
as compared to $5.8 million for the year ended December 31, 2006.  The
increase in cost of services was primarily the result of higher service sales
volume in Wireless Data Communications.





Gross
profit, as a percentage of net revenue, was 34.4% for the year ended December
31, 2007 as compared to 35.8% for the year ended December 31,
2006.  The total gross profit as a percentage of revenue decreased for
the year ended December 31, 2007 compared to 2006 as a result of changing the
pricing model in our wireless data communications segment.  The
pricing model was changed in order to secure additional network connections to
support the associated long-term recurring service revenues.





Selling,
general, administrative and other expenses increased 34.7% to $16.3 million for
the year ended December 31, 2007 as compared to $12.1 million for the year ended
December 31, 2006.  As a percentage of revenue, selling, general,
administrative and other expenses increased to 23.9% for the year ended December
31, 2007 as compared to 22.9% for the year ended December 31,
2006.  The increase of $4.2 million was due to higher personnel
related costs ($1.2 million), increased spending in sales and marketing to
support hardware sales ($790,000), an increase in general & administrative
spending as we responded to regulatory requirements such as Sarbanes-Oxley and
the adoption of FIN 48 ($981,000), the acquisition of the assets of Orbit One,
Inc. ($759,000) and share-based compensation expense ($480,000).





Research
and development expenses increased for the year ended December 31, 2007 to $1.5
million as compared to $1.1 million for the year ended December 31,
2006.  The increase in research and development expenses is primarily
due to new projects related to new digital hardware that have not reached
technical feasibility and therefore work on these projects was expensed as
incurred.





Bad debt
expense increased 221% to $635,000 for the year ended December 31, 2007 as
compared to $198,000 for the year ended December 31, 2006.  Bad debt
increased over the prior year due to an increase in the bad debt allowance in
the current year period as a result of reserving for specific customers based on
our assessment of the likelihood of these customers defaulting.





Depreciation
and amortization expense increased 42.1% to $2.5 million for the year ended
December 31, 2007 as compared to $1.8 million for the year ended December 31,
2006.  This increase is attributable to amortization beginning on
completed research and development projects as well as the purchase of
depreciable computer and office equipment.





We did
not record any goodwill impairment for the year ended December 31,
2007.  We recorded a pre-tax, non-cash charge of $2.1 million for the
impairment of goodwill within the Digital Multimedia, Networking and Wireline
segment for the year ended December 31, 2006. Key factors affecting the amount
of the impairment charge included the Company’s assessment of the long term
outlook for its Broadband Networks, Inc. within the Digital Multimedia,
Networking and Wireline segment and a determination that a reduction in the
goodwill balance in the amount of $2.1 million would be required to more
properly reflect the current value of the business.





Interest
expense net of interest income increased to $1.4 million in 2007 compared to
$552,000 for the prior year.  This increase was primarily the result
of the transactions with the Laurus Master Fund (Laurus) that occurred on May
30, 2006 and December 29, 2006.  Interest expense related to these
transactions was $1.9 million for the year ended December 31, 2007 as compared
to $638,000 for the year ended December 31, 2006.  The increase in
interest expense related to the Laurus transactions was partially offset by
interest income of $566,000.  Please see Note A (14) to our
Consolidated Financial Statements for additional information about our
transactions with Laurus.


29





A Foreign
currency loss of $28,000 was recorded for the year ended December 31, 2007 down
from a $10,000 gain for the year ended December 31, 2006.  This
decrease was the result of increased foreign currency losses on sales to
Canadian and Australian customers.





The
company recorded a tax provision of $728,000 for the year ended December 31,
2007 as compared to a tax benefit of $2,950,000 for
the year ended December 31, 2006, representing effective tax rates
of 65.74% and (256%), respectively. The difference between the
company's effective tax rate and the 34% federal statutory rate in the current
year resulted primarily from state tax accruals, stock option expenses, and
changes in the Company’s uncertain tax positions. The overall increase in the
effective tax rate from the year ended 2006 compared to the same period in
2007 can be attributed to the company's partial release of the valuation
allowance which offset much of the company's net operating loss (NOL) deferred
tax assets in 2006. The company is recognizing deferred tax expense in 2007
primarily related to the utilization of these NOLs.





Basic and
diluted earnings per common share decreased to $.03 for year ended December 31,
2007 as compared to $.33 and $.32, respectively for the year ended December 31,
2006.





The
weighted average basic shares outstanding increased to 13,137,000 for the year
ended December 31, 2007 as compared to 12,502,000 for the year ended December
31, 2006.  The increase in weighted average basic shares outstanding
for year ended was due to the potential issuance of 321,000 common shares
related to the acquisition of the assets of Orbit One Communications, Inc.,
134,000 common shares related to the exercise of employee stock options and
100,000 common shares related to the acquisition of the assets of Airdesk,
Inc.





Fiscal
Years Ended December 31, 2006 and December 31, 2005





Net
revenues increased 76.3% to $52.8 million for the year ended December 31, 2006
as compared to $29.9 million for the year ended December 31,
2005.  The increase in total net revenues for the year ended December
31, 2006 is attributable to a 136.9% increase in total hardware sales and an
18.9% increase in service revenue.  The hardware sales and service
revenue increase for the year ended December 31, 2006, compared to the same
period in 2005, was in Wireless M2M Data Communications in the amount of $24.0
million.  These increases were partially offset by a decrease in
Digital Multimedia, Networking & Wireline Security hardware sales and
service revenue of $1.2 million, as compared to fiscal year 2005.





Cost of
hardware sales increased 147% to $28.0 million for the year ended December 31,
2006 as compared to $11.3 million for the year ended December 31,
2005.  The increase in cost of sales was primarily the result of
higher hardware sales volume in Wireless M2M Data Communications.





Cost of
services was flat at $5.9 million for the years ended December 31, 2006 and
2005.





Gross
profit, as a percentage of net revenue, was 35.8% for the year ended December
31, 2006 as compared to 42.5% for the year ended December 31,
2005.  The total gross profit as a percentage of revenue decreased for
the year ended December 31, 2006 compared to the same period in 2005 because
hardware sales were 65.2% of total revenue for the year ended December 31, 2006
versus 48.7% for the year ended December 31, 2005.  Since, gross
profit as a percentage of revenue is generally less on hardware sales than for
service revenue, the increase in hardware sales versus service revenue decreased
the total gross profit as a percentage of revenue.





Selling,
general, administrative and other expenses increased 40.0% to $12.1 million for
the year ended December 31, 2006 as compared to $8.7 million for the year ended
December 31, 2005.  The increase of $3.4 million in selling, general,
administrative and other expenses was primarily due to the acquisition of the
assets of Airdesk, Inc. ($2.0 million), higher personnel related costs
($685,000), share-based compensation expense ($462,000) and an increase in
spending in sales and marketing to support hardware sales ($265,000) As a
percentage of revenue, selling, general, administrative and other expenses
decreased to 23.0% for the year ended December 31, 2006 as compared to 28.9% for
the year ended December 31, 2005.  Selling, general, administrative
and other expenses decreased as a percentage of revenue for the year primarily
due to control over these types of expenses.





Research
and development expenses were relatively flat for the year ended December 31,
2006 at $1.1 million.  We expense most of our research and development
costs and expect such costs to continue at approximately these current
levels.





Bad debt
expense decreased 39.1% to $198,000 for the year ended December 31, 2006 as
compared to $325,000 for the year ended December 31, 2005.  Bad debt
decreased during the period as a result of our continued stringent credit
policies and collections processes.


30





Depreciation
and amortization expense increased 5.4% to $1,755,000 for the year ended
December 31, 2006 as compared to $1,662,000 for the year ended December 31,
2005.  This increase was due to depreciation expense on purchases of
new equipment during 2006.





We
recorded a pre-tax, non-cash charge of $2.1 million for the impairment of
goodwill within the Digital Multimedia, Networking and Wireline segment for the
year ended December 31, 2006. Key factors driving the amount of the impairment
charge include the Company’s assessment of the long term outlook for its
Broadband Networks, Inc. unit within the Digital Multimedia, Networking and
Wireline segment and a determination that a reduction in the goodwill balance in
the amount of $2.1 million would be required to more properly reflect the
current value of the business.  We did not record any goodwill
impairment for the year ended December 31, 2005.





Interest
expense net of interest income increased to $552,000 in 2006 compared to
$311,000 for the prior year.  This increase was primarily the result
of the transactions with the Laurus Master Fund (Laurus) that occurred on
January 25, 2005 and May 30, 2006.  Interest expense related to these
transactions was $638,000 for the twelve months ended December 31,
2006.  The increase in interest expense related to the Laurus
transactions was partially offset by interest income of
$86,000.  Please see Note A (14) to our Consolidated Financial
Statements for additional information about our transactions with
Laurus.





A Foreign
currency gain of $10,000 was recorded for the year ended December 31, 2006 up
from a $5,000 loss for the year ended December 31, 2005. This increase was the
result of decreased foreign currency losses on sales to Canadian
customers.  Other income of $21,000 was recorded for the year ended
December 31, 2006 as a result of a refund at our Australian
location.





We
recorded a provision (benefit) for income taxes of ($2,950,000) and $52,000 for
the years ended December 31, 2006 and 2005, respectively.  The amount
of income tax benefit recorded for reversal of valuation allowance was
$4,572,000 and $241,000 for the years ended December 31, 2006 and 2005,
respectively.  The effective tax rate differs from the statutory U.S.
federal income tax rate of 34% primarily due to permanent differences, foreign
and state income tax differences, and the benefit of reversal of valuation
allowance for the years ended December 31, 2006 and 2005.





We had
provided a valuation allowance of $11,439,000 as of December 31, 2005, on 100%
of our deferred tax assets as it had been determined that it was more likely
than not that the deferred tax assets would not be realized.  We
reversed a portion of the valuation allowance related to certain net operating
loss carryforward deferred tax assets expected to be utilized.  For
the remaining deferred tax assets, we intend to maintain a valuation allowance
until sufficient positive evidence exists to support their
reversal.  As of December 31, 2006, the remaining valuation allowance
is $6,867,000.





Basic and
diluted earnings per common share increased to $.33 and $.32 respectively for
year ended December 31, 2006 as compared to $.05 for the year ended December 31,
2005.





The
weighted average basic shares outstanding increased to 12,502,000 for the year
ended December 31, 2006 as compared to 11,231,000 for the year ended December
31, 2005.  The increase in weighted average basic shares outstanding
for the twelve-month period ended was due to the issuance of 885,000 common
shares to Laurus in connection with the conversion of our debt, as discussed
above as well as the issuance of 348,000 common shares related to the
acquisition of the assets of Airdesk, Inc.





31


Segment
Information





Net Sales by Segment:
            
            For
      the years ended December 31,
            
            
            2007
      vs. 2006
            
            
            2006
      vs. 2005(In
      thousands)
            
            2007
            
            
            2006
            
            
            2005
            
            
            %
      Change
            
            
            %
      ChangeNet
      sales:Wireless
      M2M Data CommunicationsHardware
            
            $
            41,661
            
            
            $
            32,383
            
            
            $
            11,919
            
            
            
            28.7
            %
            
            
            171.7
            %Service
            
            
            21,164
            
            
            
            13,938
            
            
            
            10,409
            
            
            
            51.8
            %
            
            
            33.9
            %Sub-total
            
            
            62,825
            
            
            
            46,321
            
            
            
            22,328
            
            
            
            35.6
            %
            
            
            107.5
            %Digital
      Multimedia, Networking and WirelineHardware
            
            
            1,747
            
            
            
            2,142
            
            
            
            2,654
            
            
            
            -18.4
            %
            
            
            -19.3
            %Service
            
            
            3,432
            
            
            
            4,325
            
            
            
            4,964
            
            
            
            -20.7
            %
            
            
            -12.9
            %Sub-total
            
            
            5,179
            
            
            
            6,467
            
            
            
            7,618
            
            
            
            -19.9
            %
            
            
            -15.1
            %Total
      net salesHardware
            
            
            43,408
            
            
            
            34,525
            
            
            
            14,573
            
            
            
            25.7
            %
            
            
            136.9
            %Service
            
            
            24,596
            
            
            
            18,263
            
            
            
            15,373
            
            
            
            34.7
            %
            
            
            18.8
            %Total
      net sales
            
            
            68,004
            
            
            
            52,788
            
            
            
            29,946
            
            
            
            28.8
            %
            
            
            76.3
            %Percent
      of Total Sales2007
            
            
            2006
            
            
            2005Net
      sales:Wireless
      M2M Data CommunicationsHardware
            
            
            61.3
            %
            
            
            61.3
            %
            
            
            39.8
            %Service
            
            
            31.1
            %
            
            
            26.4
            %
            
            
            34.8
            %Sub-total
            
            
            92.4
            %
            
            
            87.7
            %
            
            
            74.6
            %Digital
      Multimedia and NetworkingHardware
            
            
            2.6
            %
            
            
            4.1
            %
            
            
            8.9
            %Service
            
            
            5.0
            %
            
            
            8.2
            %
            
            
            16.6
            %Sub-total
            
            
            7.6
            %
            
            
            12.3
            %
            
            
            25.4
            %Total
      net salesHardware
            
            
            63.8
            %
            
            
            65.4
            %
            
            
            48.7
            %Service
            
            
            36.2
            %
            
            
            34.6
            %
            
            
            51.3
            %Total
      net sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %





32


Fiscal
Years Ended December 31, 2007 and December 31, 2006





Wireless
M2M Data Communications Segment





Net
revenues from Wireless M2M Data Communications increased 35.6% to $62.8 million
for the year ended December 31, 2007 including our satellite solutions
division as compared to $46.3 million for the year ended December 31,
2006.  This increase was the result of a 28.7% increase in hardware
sales and a 51.9% increase in service revenues compared to the same period last
year.  The increase in Wireless M2M Data Communications hardware sales
of $9.3 million for the year ended December 31, 2007 versus the same period in
2006 was primarily the result of increased sales of wireless modules, and
increased sales of our security devices used for wireless communications between
alarm installations and central monitoring stations. The increase in the
Wireless M2M Data Communication services revenue was primarily due to an
increase in the number of connections to our wireless
network.  Connection increases were generated by sales of our security
hardware as well as those generated by value added resellers who utilize our
network to provide customer solutions.  We continue to focus on
increasing connections to our network due to the recurring nature of service
revenues.





Digital
Multimedia, Networking and Wireline Security Segment





Net
revenue from Digital Multimedia, Networking and Wireline Security decreased
19.9% to $5.2 million for the year ended December 31, 2007 as compared to $6.5
million for the year ended December 31, 2006.  This decrease was
primarily due to an 18.4% decrease in hardware sales to $1.7 million, primarily
due to decreased sales of our interactive videoconferencing hardware
(PowerPlayTM) to distance-learning customers.  Capital spending by
targeted distance learning customers is largely funded by government entities
and, as a result, is difficult to predict and can fluctuate significantly from
period to period.  Digital Multimedia, Networking and Wireline
Security service revenues, mainly installation and integration services, also
decreased to $3.4 million for the year ended December 31, 2007 compared to $4.3
million during the same period in 2006.  Our installation and
integration services are primarily, either directly or indirectly, provided to
large wireline and wireless telecommunication companies.  The decrease
for the year ended December 31, 2007 is due to a decrease in demand for these
services.





Fiscal
Years Ended December 31, 2006 and December 31, 2005





Wireless
M2M Data Communications Segment





Net
revenues from Wireless M2M Data Communications increased 107.5% to $46.3 million
for the year ended December 31, 2006 including our wireless module unit as
compared to $22.3 million for the year ended December 31, 2005.  This
increase was the result of a 171.7% increase in hardware sales and a 34.0%
increase in service revenues compared to the same period last
year.  The increase in Wireless M2M Data Communications hardware sales
of $20.5 million for the year ended December 31, 2006 versus the same period in
2005 was primarily the result of increased sales of wireless modules, our
vehicle security hardware and tracking services, and increased sales of our
security devices used for wireless communications between alarm installations
and central monitoring stations. The increase in the Wireless M2M Data
Communication services revenue was primarily due to an increase in the number of
connections to our wireless network. Connection increases were generated by
sales of our security hardware as well as those generated by value added
resellers who utilize our network to provide customer solutions.  We
continue to focus on increasing connections to our network due to the recurring
nature of service revenues.





Digital
Multimedia, Networking and Wireline Security Segment





Net
revenue from Digital Multimedia, Networking and Wireline Security decreased
15.1% to $6.5 million for the year ended December 31, 2006 as compared to $7.6
million for the year ended December 31, 2005.  This decrease was
primarily due to a 19.3% decrease in hardware sales to $2.1 million, primarily
due to decreased sales of our interactive videoconferencing hardware
(PowerPlayTM) to distance-learning customers.  Capital spending by
targeted distance learning customers is largely funded by government entities
and, as a result, is difficult to predict and can fluctuate significantly from
period to period.  Digital Multimedia, Networking and Wireline
Security service revenues, mainly installation and integration services, also
decreased to $4.3 million for the year ended December 31, 2006 compared to $5.0
million during the same period in 2005.  This decrease was due to
lower hardware sales for the year ended December 31, 2006.





33


Selected
Quarterly Financial Data





The
following tables detail certain unaudited financial data of Numerex for each
quarter of the last two fiscal years ended December 31, 2007, and 2006,
respectively.





Our
financial results may fluctuate from quarter to quarter as a result of certain
factors related to our business, including the timing of hardware shipments, new
hardware introductions and equipment, and hardware and system sales that
historically have been of a non-recurring nature.





This information has been prepared from
our books and records in accordance with generally accepted accounting
principles for interim financial information.  In the opinion of
management, all (including only normal, recurring) adjustments considered
necessary for fair presentation have been included.  Interim results
for any quarter are not necessarily indicative of the results that may be
expected for any future period.





Selected
Quarterly Financial Data (Unaudited)





For
      the Three Months Ended(in
      thousands)
            
            March
      31,
            
            
            June
      30,
            
            
            September
      30,
            
            
            December
      31,2007
            
            
            2007
            
            
            2007
            
            
            2007Net
      sales:Wireless
      M2M Data CommunicationsHardware
            
            $
            8,913
            
            
            $
            9,661
            
            
            $
            9,874
            
            
            $
            13,213Service
            
            
            3,956
            
            
            
            4,176
            
            
            
            4,964
            
            
            
            8,068Sub-total
            
            
            12,870
            
            
            
            13,837
            
            
            
            14,837
            
            
            
            21,281Digital
      Multimedia and NetworkingHardware
            
            
            361
            
            
            
            452
            
            
            
            312
            
            
            
            623Service
            
            
            955
            
            
            
            881
            
            
            
            835
            
            
            
            761Sub-total
            
            
            1,316
            
            
            
            1,333
            
            
            
            1,147
            
            
            
            1,383Total
      net salesHardware
            
            
            9,274
            
            
            
            10,113
            
            
            
            10,185
            
            
            
            13,836Service
            
            
            4,911
            
            
            
            5,057
            
            
            
            5,799
            
            
            
            8,829Sub-total
            
            
            14,185
            
            
            
            15,170
            
            
            
            15,984
            
            
            
            22,665Cost
      of hardware sales
            
            
            7,609
            
            
            
            9,168
            
            
            
            9,097
            
            
            
            12,617Cost
      of services
            
            
            1,203
            
            
            
            1,282
            
            
            
            1,536
            
            
            
            2,085Gross
      Profit
            
            
            5,374
            
            
            
            4,720
            
            
            
            5,352
            
            
            
            7,962Selling,
      general, and administrative expenses
            
            
            3,614
            
            
            
            3,866
            
            
            
            4,078
            
            
            
            4,763Research
      and development expenses
            
            
            288
            
            
            
            334
            
            
            
            382
            
            
            
            455Bad
      debt expense
            
            
            86
            
            
            
            162
            
            
            
            164
            
            
            
            222Depreciation
      and amortization
            
            
            490
            
            
            
            530
            
            
            
            697
            
            
            
            777Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      earnings (loss)
            
            
            895
            
            
            
            (172
            )
            
            
            31
            
            
            
            1,745Interest
      expense
            
            
            (155
            )
            
            
            (365
            )
            
            
            (449
            )
            
            
            (364
            )Earnings
      (loss) before income taxes
            
            
            740
            
            
            
            (536
            )
            
            
            (418
            )
            
            
            1,381Provision
      (benefit) for Income taxes
            
            
            314
            
            
            
            (214
            )
            
            
            (201
            )
            
            
            828Net
      earnings (loss)
            
            $
            427
            
            
            $
            (323
            )
            
            $
            (217
            )
            
            $
            553Foreign
      currency translation adjustment
            
            
            -
            
            
            
            10
            
            
            
            (3
            )
            
            
            2Comprehensive
      earnings (loss)
            
            $
            427
            
            
            $
            (313
            )
            
            $
            (220
            )
            
            $
            551Basic
      income (loss) per common share
            
            $
            0.03
            
            
            $
            (0.02
            )
            
            $
            (0.02
            )
            
            $
            0.04Diluted
      income (loss) per common share
            
            $
            0.03
            
            
            $
            (0.02
            )
            
            $
            (0.02
            )
            
            $
            0.0413,006
            
            
            
            13,156
            
            
            
            13,187
            
            
            
            13,19713,608
            
            
            
            13,156
            
            
            
            13,187
            
            
            
            13,575





34


Selected
Quarterly Financial Data (Unaudited)





For
      the Three Months Ended(in
      thousands)
            
            March
      31,
            
            
            June
      30,
            
            
            September
      30,
            
            
            December
      31,2006
            
            
            2006
            
            
            2006
            
            
            2006Net
      sales:Wireless
      M2M Data CommunicationsHardware
            
            $
            7,286
            
            
            $
            7,810
            
            
            $
            7,747
            
            
            $
            9,540Service
            
            
            3,112
            
            
            
            3,403
            
            
            
            3,527
            
            
            
            3,896Sub-total
            
            
            10,398
            
            
            
            11,213
            
            
            
            11,274
            
            
            
            13,436Digital
      Multimedia and NetworkingHardware
            
            
            309
            
            
            
            463
            
            
            
            1,008
            
            
            
            362Service
            
            
            1,136
            
            
            
            1,218
            
            
            
            1,009
            
            
            
            962Sub-total
            
            
            1,445
            
            
            
            1,681
            
            
            
            2,017
            
            
            
            1,324Total
      net salesHardware
            
            
            7,595
            
            
            
            8,273
            
            
            
            8,755
            
            
            
            9,902Service
            
            
            4,248
            
            
            
            4,621
            
            
            
            4,536
            
            
            
            4,858Sub-total
            
            
            11,843
            
            
            
            12,894
            
            
            
            13,291
            
            
            
            14,760Cost
      of hardware sales
            
            
            6,198
            
            
            
            6,756
            
            
            
            6,799
            
            
            
            8,363Cost
      of services
            
            
            1,443
            
            
            
            1,471
            
            
            
            1,541
            
            
            
            1,295Gross
      Profit
            
            
            4,202
            
            
            
            4,667
            
            
            
            4,951
            
            
            
            5,102Selling,
      general, and administrative expenses
            
            
            2,827
            
            
            
            2,938
            
            
            
            3,051
            
            
            
            3,272Research
      and development expenses
            
            
            288
            
            
            
            280
            
            
            
            258
            
            
            
            241Bad
      debt expense
            
            
            -
            
            
            
            83
            
            
            
            84
            
            
            
            37Depreciation
      and amortization
            
            
            448
            
            
            
            398
            
            
            
            423
            
            
            
            479Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,140Operating
      earnings (loss)
            
            
            639
            
            
            
            968
            
            
            
            1,135
            
            
            
            (1,067
            )Interest
      expense
            
            
            (137
            )
            
            
            (73
            )
            
            
            (193
            )
            
            
            (119
            )Earnings
      (loss) before income taxes
            
            
            502
            
            
            
            895
            
            
            
            942
            
            
            
            (1,186
            )Provision
      (benefit) for Income taxes
            
            
            29
            
            
            
            15
            
            
            
            1
            
            
            
            (2,995
            )Net
      earnings
            
            $
            473
            
            
            $
            880
            
            
            $
            941
            
            
            $
            1,809Foreign
      currency translation adjustment
            
            
            (6
            )
            
            
            (1
            )
            
            
            (1
            )
            
            
            (2
            )Comprehensive
      earnings
            
            $
            467
            
            
            $
            879
            
            
            $
            940
            
            
            $
            1,807Basic
      income per common share
            
            $
            0.04
            
            
            $
            0.07
            
            
            $
            0.08
            
            
            $
            0.14Diluted
      income per common share
            
            $
            0.04
            
            
            $
            0.07
            
            
            $
            0.07
            
            
            $
            0.1312,243
            
            
            
            12,307
            
            
            
            12,492
            
            
            
            12,95812,868
            
            
            
            13,021
            
            
            
            13,363
            
            
            
            13,695





35


Liquidity
and Capital Resources





We had
working capital of $19.5 million as of December 31, 2007 compared to working
capital of $25.9 million as of December 31, 2006.  We had cash
balances of $7.4 million and $20.3 million, respectively, as of December 31,
2007 and December 31, 2006.  The decrease in cash balances is
primarily related to the cash used for the purchase of the assets of Orbit One
Communications, Inc., as well as an increase in inventory and accounts
receivable.




The
following table shows information about our cash flows and liquidity positions
during the twelve months ended December 31, 2007 and 2006. You should read this
table and the discussion that follows in conjunction with our consolidated
statements of cash flows contained in “Item 8. Financial Statements” of this
report.





Year
      ended December 31,2007
            
            
            2006Net
      cash provided by (used in) operating activities
            
            $
            (3,304
            )
            
            $
            2,663Net
      cash used in investing activities
            
            
            (8,699
            )
            
            
            (4,110
            )Net
      cash provided by (used in) financing activities
            
            
            (947
            )
            
            
            19,000Effect
      of exchange differences on cash
            
            
            (9
            )
            
            
            10Net
      change in cash and cash equivalents
            
            $
            (12,959
            )
            
            $
            17,563





We used
cash from operating activities totaling $3.3 million for the year ended December
31, 2007 compared to providing cash of $2.7 million for the year ended December
31, 2006.  The increase in cash used by operating activities for the
twelve months ended December 31, 2007 versus the comparable period of 2006 was
primarily due to an increase in inventory and an increase in accounts
receivable.  These were partially offset by an increase in accounts
payable, deferred revenue and a decrease in prepaid expenses.





We used
cash in investing activities totaling $8.7 million for the year ended December
31, 2007 compared to $4.1 million for the year ended December 31,
2006.   The increase in cash used in investing activities was
primarily due to the purchase of the assets of Orbit One Communications, Inc.
and the purchase of intangible assets.





We used
cash in financing activities totaling $947,000 for the year ended December 31,
2007 compared to generating cash from financing activities totaling $19.0
million for the year ended December 31, 2006.  For the period ended
December 31, 2007 cash used in financing activities was primarily due to the
principal payments on Laurus Note C, which was partially offset by the proceeds
from the exercise of stock options.  For the period ended December 31,
2006, cash generated from financing activities was primarily related to the
proceeds from Laurus Notes B and C, as well as the proceeds from the exercise of
stock options, which was partially offset by payments on the notes and lease
payable.





Our
business has traditionally not been capital intensive; accordingly, capital
expenditures have not been material.  To date, we have funded all
capital expenditures from working capital, capital leases and other long-term
obligations.





We
believe that our existing cash and cash equivalents together with cash generated
from operations will be sufficient to meet our operating requirements through at
least December 31, 2008.  This belief could be affected by future
results that differ from expectations, a material adverse change in our
operating business or a default under the Company Notes.





36


Contractual
Obligations





The table
below sets forth our contractual obligations at December 31,
2007.  Additional details regarding these obligations are provided in
the notes to our consolidated financial statements.





(in
      thousands)Payments
      due by periodTotal
            
            
            Less
      than 1 Year
            
            
            1 -
      3 Years
            
            
            3 -
      5 Years
            
            
            More
      than 5 YearsLong-term
      debt(1)
      (2)
            
            $
            16,355
            
            
            $
            4,061
            
            
            $
            12,294
            
            
            
            -
            
            
            
            -Capital
      lease obligations(3)
            
            
            121
            
            
            
            54
            
            
            
            67
            
            
            
            -
            
            
            
            -Operating
      lease obligations(4)
            
            
            4,018
            
            
            
            845
            
            
            
            2,608
            
            
            
            565
            
            
            
            -Total
            
            $
            20,494
            
            
            $
            4,960
            
            
            $
            14,969
            
            
            $
            565
            
            
            $
            -





(1)
            $8,571,000
      of this debt is convertible into the Company’s common stock at both the
      Company’s and Lender’s option depending on the Company’s stock
      price.


(2)
            Long-term
      debt includes estimated interest.  Interest rates used on the
      debt outstanding is fixed at 9.5% and 9.75%.  See Note 13 to the
      consolidated financial statements contained in this report for further
      information.


(3)
            Amounts
      represent future minimum lease payments under non-cancelable capital
      leases for computer equipment.  The value of the computer
      equipment recorded in Property and Equipment at the inception of the
      leases was $327,000.


(4)
            Amounts
      represent future minimum rental payments under non-cancelable operating
      leases for our facilities.


(5)
            Liabilities  related
      to Interpretation No. 48, Accounting for Uncertainty in
      Income Taxes – an interpretation of FASB Statement No. 109 (“FIN
      No. 48”) have not been included in the table above because we are
      uncertain as to if or when such amounts may be settled. See Note 8 to the
      consolidated financial statements contained in this report for further
      information.





Off-Balance
Sheet Arrangements





As of
December 31, 2007, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC regulation S-K.





Item
7A. Quantitative and Qualitative Disclosures about Market Risk.





The
market risk in our financial instruments represents the potential loss arising
from adverse changes in financial rates. We are exposed to market risk in the
area of interest rates. These exposures are directly related to our normal
funding and investing activities.





Effect
of Inflation





As a
result of our placement of $ 5.0 million and $10.0 million of notes due in
2010, at interest rates of 9.75% and 9.5%, respectively, substantially all of
our debt as of December 31, 2007, is at fixed rates. The fair market value
of long-term fixed interest rate debt is subject to interest rate risk.
Generally, the fair market value of fixed interest rate debt will increase as
interest rates fall and decrease as interest rates rise. Fair market values are
determined based on estimates made by investment bankers. For fixed rate debt,
interest rate changes do not impact book value, operations, or cash
flows.





Inflation has not been a material
factor affecting our business.  In recent years the cost of electronic
components has remained relatively stable, due to competitive pressures within
the industry, which has enabled us to contain our hardware costs.  Our
general operating expenses, such as salaries, employee benefits, and facilities
costs are subject to normal inflationary pressures, but to date inflation has
not had a material effect on our operating results.





Foreign
Currency





Our functional and reporting currency
is the U.S. Dollar. Fluctuations in foreign currency exchange rates have not,
and are not expected to have a material impact on our results of operations or
liquidity.





37


ITEM
8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageConsolidated
      Balance Sheets as of December 31, 2007 and 2006
            39Consolidated
      Statements of Earnings and Comprehensive Income for the Years ended
      December 31, 2007, 2006 and 2005
            40Consolidated
      Statements of Shareholders’ Equity for the Years ended December 31, 2007,
      2006 and 2005
            41Consolidated
      Statements of Cash Flows for the Years ended December 31, 2007, 2006 and
      2005
            42Notes
      to Consolidated Financial Statements
            44Report
      of Independent Registered Public Accounting Firm
            65





38





NUMEREX
      CORP.CONSOLIDATED
      BALANCE SHEET(In
      thousands, except share information)December
      31,
            
            
            December
      31,2007
            
            
            2006ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            7,425
            
            
            $
            20,384Accounts
      receivable, less allowance for doubtful accounts of $1,009 at December 31,
      2007 and $935 at December 31, 2006
            
            
            16,396
            
            
            
            11,844Inventory
            
            
            10,059
            
            
            
            2,755Prepaid
      expenses and other current assets
            
            
            1,885
            
            
            
            1,677Deferred
      tax asset - current
            
            
            770
            
            
            
            1,113TOTAL
      CURRENT ASSETS
            
            
            36,535
            
            
            
            37,773Property
      and Equipment, net
            
            
            2,003
            
            
            
            1,287Goodwill,
      net
            
            
            22,603
            
            
            
            15,967Other
      Intangibles, net
            
            
            6,940
            
            
            
            6,734Software,
      net
            
            
            3,486
            
            
            
            1,815Other
      Assets
            
            
            526
            
            
            
            747Deferred
      tax asset – long term
            
            
            2,005
            
            
            
            2,070TOTAL
      ASSETS
            
            $
            74,098
            
            
            $
            66,393LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            10,299
            
            
            $
            7,651Other
      current liabilities
            
            
            2,312
            
            
            
            2,270Note
      payable, current
            
            
            2,568
            
            
            
            1,139Deferred
      revenues
            
            
            1,328
            
            
            
            715Obligations
      under capital leases, current portion
            
            
            44
            
            
            
            96TOTAL
      CURRENT LIABILITIES
            
            
            16,550
            
            
            
            11,871LONG
      TERM LIABILITIESObligations
      under capital leases and other long term liabilities
            
            
            486
            
            
            
            339Note
      Payable
            
            
            10,197
            
            
            
            12,763TOTAL
      LONG TERM LIABILITIES
            
            
            10,683
            
            
            
            13,102COMMITMENTS
      AND CONTINGENCIES (Note G)
            
            
            -
            
            
            
            -SHAREHOLDERS’
      EQUITYPreferred
      stock - no par value; authorized 3,000,000; none issued
            
            
            -
            
            
            
            -Class
      A common stock – no par value; authorized 30,000,000; issued 14,706,101
      shares at December 31, 2007 and 14,145,234 shares at December 31,
      2006
            
            
            47,455
            
            
            
            43,133Additional
      paid-in-capital
            
            
            3,427
            
            
            
            2,486Treasury
      stock, at cost, 1,184,900 shares at December 31, 2007 and December 31,
      2006
            
            
            (5,053
            )
            
            
            (5,053
            )Class
      B common stock – no par value; authorized 5,000,000; none
      issued
            
            
            -
            
            
            
            -Accumulated
      other comprehensive income (loss)
            
            
            (6
            )
            
            
            2Accumulated
      earnings
            
            
            1,042
            
            
            
            852TOTAL
      SHAREHOLDERS' EQUITY
            
            
            46,865
            
            
            
            41,420TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            74,098
            
            
            $
            66,393





The
accompanying notes are an integral part of these financial
statements.


39





Numerex
      Corp. and SubsidiariesConsolidated
      Statements of Earnings and Comprehensive Income(In
      thousands, except per share data)For
      the YearsEnded
      December 31,2007
            
            
            2006
            
            
            2005Hardware
            
            $
            43,408
            
            
            $
            34,525
            
            
            $
            14,573Service
            
            
            24,596
            
            
            
            18,263
            
            
            
            15,373Total
      net sales
            
            
            68,004
            
            
            
            52,788
            
            
            
            29,946Cost
      of hardware sales
            
            
            38,491
            
            
            
            27,967
            
            
            
            11,303Cost
      of services
            
            
            6,106
            
            
            
            5,899
            
            
            
            5,926Gross
      Profit
            
            
            23,408
            
            
            
            18,922
            
            
            
            12,717Selling,
      general, and administrative expenses
            
            
            16,320
            
            
            
            12,088
            
            
            
            8,663Research
      and development expenses
            
            
            1,459
            
            
            
            1,067
            
            
            
            1,106Bad
      debt expense
            
            
            635
            
            
            
            198
            
            
            
            325Depreciation
      and amortization
            
            
            2,493
            
            
            
            1,755
            
            
            
            1,662Goodwill
      impairment
            
            
            -
            
            
            
            2,140
            
            
            
            -Operating
      earnings
            
            
            2,500
            
            
            
            1,674
            
            
            
            961Net
      interest expense
            
            
            (1,365
            )
            
            
            (552
            )
            
            
            (311
            )Net
      other income and (expense)
            
            
            32
            
            
            
            31
            
            
            
            (5
            )Earnings
      before income taxes
            
            
            1,167
            
            
            
            1,153
            
            
            
            645Provision
      (benefit) for income taxes
            
            
            728
            
            
            
            (2,950
            )
            
            
            52Net
      earnings
            
            
            440
            
            
            
            4,103
            
            
            
            593Other
      comprehensive income, net of income taxes:Foreign
      currency translation adjustment
            
            
            8
            
            
            
            (10
            )
            
            
            20Comprehensive
      income
            
            $
            448
            
            
            $
            4,093
            
            
            $
            613Basic
      earnings per share
            
            $
            0.03
            
            
            $
            0.33
            
            
            $
            0.05Diluted
      earnings per share
            
            $
            0.03
            
            
            $
            0.32
            
            
            $
            0.05Weighted
      average common shares used in per share calculationBasic
            
            
            13,137
            
            
            
            12,502
            
            
            
            11,231Diluted
            
            
            13,700
            
            
            
            12,985
            
            
            
            11,482





The
accompanying notes are an integral part of these financial
statements.


40


NUMEREX CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF SHAREHOLDERS' EQUITYAccumulated
      OtherCommon
            
            
            
            
            
            Additional
      paid
            
            
            Treasury
            
            
            Comprehensive
            
            
            RetainedDESCRIPTION:
            
            Shares
            
            
            $
      Amount
            
            
            in
      capital
            
            
            Stock
            
            
            Income
      (loss)
            
            
            Earnings
            
            
            TOTALBalance
      @ 12/31/04
            
            
            13,204
            
            
            $
            36,872
            
            
            $
            809
            
            
            $
            (10,197
            )
            
            $
            12
            
            
            $
            (3,844
            )
            
            $
            23,652Issuance
      of shares under Directors Stock Plan
            
            
            7
            
            
            
            27
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27Issuance
      of shares in connection with employee stock purchase plan
            
            
            1
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0Issuance
      of shares in lieu of debt payment
            
            
            822
            
            
            
            3,151
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,151Translation
      adjustment
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            (20
            )
            
            
            
            
            
            
            (20
            )Warrants
            
            
            
            
            
            
            
            
            
            
            172
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            172Beneficial
      Conversion Feature
            
            
            
            
            
            
            
            
            
            
            154
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            154Net
      earnings
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            593
            
            
            
            593Balance
      @ 12/31/05
            
            
            14,034
            
            
            $
            40,050
            
            
            $
            1,135
            
            
            $
            (10,197
            )
            
            $
            (8
            )
            
            $
            (3,251
            )
            
            $
            27,729Issuance
      of shares under Directors Stock Plan
            
            
            9
            
            
            
            61
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            61Issuance
      of shares in connection with employee stock option plan
            
            
            75
            
            
            
            303
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            303Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
            
            
            348
            
            
            
            1,503
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,503Issuance
      of shares in lieu of debt payment
            
            
            885
            
            
            
            6,359
            
            
            
            (794
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,565Retirement
      of Treasury Shares
            
            
            (1,206
            )
            
            
            (5,143
            )
            
            
            -
            
            
            
            5,144
            
            
            
            -
            
            
            
            -
            
            
            
            1Translation
      adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10
            
            
            
            -
            
            
            
            10Share
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            462
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            462Warrants
            
            
            -
            
            
            
            -
            
            
            
            1,646
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,646Beneficial
      Conversion Feature
            
            
            -
            
            
            
            -
            
            
            
            37
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            37Net
      earnings
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,103
            
            
            
            4,103Balance
      @ 12/31/06
            
            
            14,145
            
            
            $
            43,133
            
            
            $
            2,486
            
            
            $
            (5,053
            )
            
            $
            2
            
            
            $
            852
            
            
            $
            41,420FIN
      48 Adoption
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (250
            )
            
            
            (250
            )Issuance
      of shares under Directors Stock Plan
            
            
            6
            
            
            
            62
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            62Issuance
      of shares in connection with employee stock option plan
            
            
            134
            
            
            
            569
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            569Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
            
            
            100
            
            
            
            1,018
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,018Issuance
      of shares in connection with purchase of assets of Orbit One
      Communications, Inc.
            
            
            321
            
            
            
            2,673
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,673Translation
      adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8
            )
            
            
            -
            
            
            
            (8
            )Share
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            941
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            941Net
      earnings
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            440
            
            
            
            440Balance
      @ 12/31/07
            
            
            14,706
            
            
            $
            47,455
            
            
            $
            3,427
            
            
            $
            (5,053
            )
            
            $
            (6
            )
            
            $
            1,042
            
            
            $
            46,865





The
accompanying notes are an integral part of these financial
statements.


41


NUMEREX CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      Thousands)For
      the years ended December 31,2007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Net
      earnings
              
              $
              440
              
              
              $
              4,103
              
              
              $
              593Adjustments
      to reconcile net loss to net cash (used in)provided
      by operating activities:Depreciation
              
              
              699
              
              
              
              668
              
              
              
              562Amortization
              
              
              1,794
              
              
              
              1,236
              
              
              
              1,279Allowance
      for Doubtful Accounts
              
              
              635
              
              
              
              229
              
              
              
              34Inventory
      Reserves
              
              
              (13
              )
              
              
              13
              
              
              
              (642
              )Non
      cash interest expense
              
              
              291
              
              
              
              439
              
              
              
              104Stock
      option compensation expense
              
              
              941
              
              
              
              462
              
              
              
              -Stock
      issued in lieu of directors fees
              
              
              62
              
              
              
              61
              
              
              
              65Warrants
      issued in addition to investor relation fees
              
              
              -
              
              
              
              64
              
              
              
              -Impairment
      of goodwill
              
              
              -
              
              
              
              2,140
              
              
              
              -Deferred
      income taxes
              
              
              528
              
              
              
              (3,062
              )Changes
      in assets and liabilities which provided(used)
      cash:Accounts
      and notes receivable
              
              
              (5,176
              )
              
              
              (2,976
              )
              
              
              (2,056
              )Inventory
              
              
              (6,129
              )
              
              
              134
              
              
              
              509Prepaid
      expenses & interest receivable
              
              
              411
              
              
              
              (504
              )
              
              
              129Other
      assets
              
              
              480
              
              
              
              (855
              )
              
              
              497Accounts
      payable
              
              
              2,586
              
              
              
              957
              
              
              
              1,311Other
      current liabilites
              
              
              377
              
              
              
              (244
              )
              
              
              742Deferred
      Revenue
              
              
              (492
              )
              
              
              (240
              )
              
              
              150Income
      taxes
              
              
              (738
              )
              
              
              38
              
              
              
              -Net
      cash (used in) provided by operating activities:
              
              
              (3,304
              )
              
              
              2,663
              
              
              
              3,277Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (613
              )
              
              
              (703
              )
              
              
              (517
              )Purchase
      of intangible and other assets
              
              
              (1,461
              )
              
              
              (1,262
              )
              
              
              (756
              )Purchase
      of short-term investment
              
              
              (8,051
              )
              
              
              -
              
              
              
              (1,538
              )Sale
      of short-term investment, net
              
              
              8,051
              
              
              
              1,538
              
              
              
              -Purchase
      of assets of Airdesk, Inc.
              
              
              -
              
              
              
              (3,683
              )
              
              
              -Purchase
      of assets of Orbit One Communications, Inc.
              
              
              (6,625
              )
              
              
              -
              
              
              
              -Net
      cash used in investing activities
              
              
              (8,699
              )
              
              
              (4,110
              )
              
              
              (2,811
              )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
              
              
              569
              
              
              
              304
              
              
              
              3Proceeds
      from note payable and debt
              
              
              -
              
              
              
              20,000
              
              
              
              1,500Principal
      payments on capital lease obligations
              
              
              (87
              )
              
              
              (81
              )
              
              
              (99
              )Principal
      payments on notes payable and debt
              
              
              (1,429
              )
              
              
              (1,223
              )
              
              
              (712
              )Net
      cash (used in) provided by financing activities:
              
              
              (947
              )
              
              
              19,000
              
              
              
              692Effect
      of exchange differences on cash
              
              
              (9
              )
              
              
              10
              
              
              
              (21
              )Net
      (decrease) increase in cash and cash equivalents
              
              
              (12,959
              )
              
              
              17,563
              
              
              
              1,137Cash
      and cash equivalents at beginning of year
              
              
              20,384
              
              
              
              2,821
              
              
              
              1,684Cash
      and cash equivalents at end of year
              
              $
              7,425
              
              
              $
              20,384
              
              
              $
              2,821


42





Supplemental Disclosures of Cash Flow
      InformationCash
      payments for:Interest
            
            
            1,444
            
            
            
            583
            
            
            
            231Income
      taxes
            
            
            17
            
            
            
            189
            
            
            
            52Disclosure
      of non-cash activities:Capital
      leases
            
            
            -
            
            
            
            182
            
            
            
            182Non-cash
      interest expense
            
            
            291
            
            
            
            439
            
            
            
            104Non-cash
      financing payments
            
            
            -
            
            
            
            3,634
            
            
            
            3,329Non-cash
      leasehold improvement
            
            
            140
            
            
            
            88
            
            
            
            158Disclosure
      of non-cash investing activities:Common
      stock issued for the purchase of the assets of Airdesk,
    Inc.
            
            
            1,018
            
            
            
            1,329
            
            
            
            -Common
      stock issued for the purchase of the assets of Orbit One,
    Inc.
            
            
            2,673
            
            
            
            -
            
            
            
            -





The
accompanying notes are an integral part of these financial
statements.


43





NUMEREX
CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Years
ended December 31, 2007, 2006 and 2005








NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





A
      summary of the significant accounting policies consistently applied in the
      preparation of the accompanying financial statements
    follows:





1.           Nature of
Business





Numerex Corp. is a leading single
source provider of solutions and network services for machine-to-machine (M2M)
applications. Numerex's platforms for asset tracking, intelligent monitoring and
security include a portfolio of monitoring devices and technologies, on-demand
cellular and satellite networks, and a full suite of back-office support
services. Numerex enables customers to bring M2M solutions to market faster and
with greater flexibility. The company is headquartered in Atlanta,
Georgia.





2.           Principles of
Consolidation





The consolidated financial statements
include the results of operations and financial position of Numerex and its
wholly owned subsidiaries.  Intercompany accounts and transactions
have been eliminated in consolidation.





3.Revenue
Recognition





The
Company’s revenue is generated from three sources:


·  the
supply of hardware, under non recurring agreements,


·  the
provision of services, under non recurring agreements and,


·  the
provision of data transportation services, under recurring or multi-year
contractually based agreements.





Revenue
is recognized when persuasive evidence of an agreement exists, the hardware or
service has been delivered, fees and prices are fixed and determinable, and
collectibility is probable and when all other significant obligations have been
fulfilled.





The
Company recognizes revenue from hardware sales at the time of shipment and
passage of title. Provision for rebates, promotions, product returns and
discounts to customers is recorded as a reduction in revenue in the same period
that the revenue is recognized. The Company offers customers the right to return
hardware that does not function properly within a limited time after delivery.
The Company continuously monitors and tracks such hardware returns and records a
provision for the estimated amount of such future returns, based on historical
experience and any notification received of pending returns. While such returns
have historically been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same return
rates that it has experienced in the past. Any significant increase in hardware
failure rates and the resulting credit returns could have a material adverse
impact on operating results for the period or periods in which such returns
materialize.





Numerex
recognizes revenue from the provision of services at the time of the completion,
delivery or performance of the service. In the case of revenue derived from
maintenance services the Company recognizes revenue ratably over the contract
term. In certain instances the Company may, under an appropriate agreement,
advance charge for the service to be provided. In these instances the Company
recognizes the advance charge as deferred revenue (classified as a liability)
and release the revenue ratably over future periods in accordance with the
contract term as the service is completed, delivered or
performed.  The Company’s revenues in the consolidated statement of
operations are net of sales taxes.





The
Company recognizes revenue from the provision of data transportation services
when it performs the services or processes transactions in accordance with
contractual performance standards. Revenue is earned monthly on the basis of the
contracted monthly fee and an excess message fee charge, should it apply, that
is volume based.  In certain instances the Company may, under an
appropriate agreement, advance charge for the data transport service to be
provided. In these instances the Company recognizes the advance charge (even if
nonrefundable) as deferred revenue (classified as a liability) and releases the
revenue over future periods in accordance with the contract term as the data
transport service is delivered or performed.


44





The
Company’s arrangements do not generally include acceptance clauses. However,
arrangements involving multiple element service agreements include certain
milestones and levels of certification.  Acceptance occurs upon the
Company’s certification of it’s completion of each of the various
elements.





4.           Cash and Cash
Equivalents





Cash
equivalents of $7.4 million and $20.4 million at December 31, 2007 and 2006,
respectively, consist of overnight repurchase agreements, money market deposit
accounts, amounts on deposit in a foreign bank and restricted cash held as a
letter of credit.  Cash of $26,000 and $48,000 at December 31, 2007
and 2006, respectively was held in our foreign bank
account.  Restricted cash of $0 and $63,000 was held as a letter of
credit on December 31, 2007 and 2006, respectively.





5.           Short-Term
Investments





Short-term
investments that have an original maturity between three months and one year and
a remaining maturity of less than one year are classified as either
held-to-maturity or available-for-sale. Held-to-maturity securities are stated
at amortized cost as it is our intent to hold these securities until maturity.
Available-for-sale securities are recorded at fair value and are classified as
current assets due to our intent and practice to hold these readily marketable
investments for less than one year.  Any unrealized holding gains and
losses related to available-for-sale securities are recorded, net of tax, as a
separate component of shareholders equity.





There
were no investment securities held by the Company at December 31, 2007 and
December 31, 2006.





6.           Intangible
Assets





Intangible
assetsconsist of
developed software, patents and acquired intellectual property, customer
relationships and goodwill.  These assets, except for goodwill, are
amortized over their expected useful lives.  Developed software is
amortized using the straight-line method over 3 to 5 years.  Patents
and acquired intellectual property are amortized using the straight-line method
over 7 to 16 years.  Customer relationships are amortized using the
straight-line method over 4 years.





Intangible
assets with determinable useful lives are amortized on a straight-line basis
over their estimated useful lives.  The estimated useful lives for
these assets are 10 years for proprietary software, 1 year for trademarks and 9
years for customer relationships.





We
adopted SFAS 142 on January 1, 2002.  In connection with the adoption,
we reviewed the classification of our goodwill and other intangible assets,
reassessed the useful lives previously assigned to other intangible assets, and
discontinued amortization of goodwill.  SFAS 142 also requires that an
impairment test be performed on goodwill at least annually.  This test
requires that the fair value of each reporting unit as a whole be compared to
its carrying value including goodwill.  If the reporting unit’s fair
value exceeds its carrying value, goodwill is not impaired.  If,
however, the carrying value of the reporting unit exceeds its fair value, a
second step of the impairment test is required. This second test requires that
an estimate of the implied fair value of goodwill be compared to its carrying
amount.  If the carrying amount of goodwill exceeds the implied value,
the goodwill is impaired and is written down to the implied fair
value.  The implied fair value of goodwill is the excess of the fair
value of the reporting unit as a whole, over the fair values that would be
assigned to its assets and liabilities in a purchase business combination. 
We tested goodwill for impairment as of December 31, 2007, using our 3-year
business plan and calculating a discounted cash flow based on that plan to
determine the fair value of the reporting units.  Based on our testing
we did not record any goodwill impairment for the year ended December 31,
2007.  In 2006, using the same process, we recorded a $2.1 million
pre-tax, non cash charge for impairment of goodwill in our Broadband Networks,
Inc (“BNI”) unit within the non-core Digital Multimedia, Networking and Wireline
segment.  BNI’s sales had declined in each of the past two
years.  Based on a discounted cash flow valuation of BNI and a fair
market value of its tangible and intangible assets, the $2.1 million impairment
was recorded.





We
capitalize software development costs when project technological feasibility is
established and conclude capitalization when the hardware is ready for
release.  Software development costs incurred prior to the
establishment of technological feasibility are expensed as incurred. At December
31, 2007 and 2006 the Company had capitalized approximately $971and $634 of
software development costs, respectively. Amortization of capitalized software
development costs for the years ended December 31, 2007 and 2006 was $319 and
$99, respectively.


45





The
following table provides a summary of the components of our intangible
assets:





December
      31,
            
            
            December
      31,(In
      thousands)
            
            2007
            
            
            2006Wireless
      M2M Data CommunicationsGoodwill
            
            $
            22,133
            
            
            $
            15,497Accumulated
      amortization
            
            
            (1,405
            )
            
            
            (1,405
            )Digital
      Multimedia and NetworkingGoodwill
            
            
            5,289
            
            
            
            5,289Accumulated
      amortization
            
            
            (3,414
            )
            
            
            (3,414
            )Goodwill,
      net
            
            $
            22,603
            
            
            $
            15,967Purchased
      and developed software
            
            
            6,921
            
            
            
            4,458Patents,
      trade and service marks
            
            
            12,673
            
            
            
            12,358Intangible
      and other assets
            
            
            1,951
            
            
            
            988Total
      intangible assets
            
            
            21,545
            
            
            
            17,804Accumulated
      amortization
            
            
            (11,119
            )
            
            
            (9,255
            )Intangible
      assets, net
            
            $
            10,426
            
            
            $
            8,549





The
increase in goodwill in the Wireless M2M Data Communications is due to the
acquisition of the assets of Orbit One Communications, Inc. in the amount of
$5.6 million.  The increase is also due to the issuance of 100,000 shares
of common stock in the amount $1.0 million related to the acquistion of the
assets of Airdesk, Inc. (see Note  B - Acquisitions).




The
Company expects amortization expense for the next five years and thereafter to
be as follows based on intangible assets as of December 31, 2007 (in
thousands):




2008
            $2.1
      million2009
            1.9
      million2010
            1.5
      million2011
            1.0
      million2012
            1.0
      millionThereafter
            $2.9
      million





7.           
Property and
Equipment





Depreciation
is provided in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives.  Leased property under
capital leases is amortized over the lives of the respective leases or over the
service lives of the assets for those leases, whichever is
shorter.  Depreciation for property and equipment is calculated using
the straight-line method over the following estimated lives:





·
            Short-term
      leasehold improvements over the term of the lease  3-10
      years


·
            Plant
      and
      machinery                                                                                               4-10
      years


·
            Equipment,
      fixtures and
      fittings                                                                            3-10
      years





8.             Impairment of Long-lived
Assets





In accordance with SFAS No. 144,
long-lived assets, such as property and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Assets to be disposed
of by sale would be separately presented in the consolidated balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated.  The assets and liabilities of a
disposed group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated balance
sheet.





46


9.           Income
Taxes





In
September 2006 the FASB issued Interpretation ("FIN") No. 48,Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No.
109  ("FIN 48"). FIN 48 provides detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in an enterprise's financial statements in accordance with
SFAS 109. Income tax positions must meet a more-likely-than-not recognition
threshold at the effective date to be recognized upon the adoption of FIN 48 and
in subsequent periods. The Company adopted FIN 48 effective January 1, 2007, and
the provisions of FIN 48 will be applied to all income tax positions commencing
from that date. The Company recognizes potential accrued interest and penalties
related to unrecognized tax benefits within operations as income tax expense.
The cumulative effect of applying the provisions of FIN 48 has been reported as
an adjustment to the opening balance of retained earnings as of January 1,
2007.





Upon
adoption of FIN 48, the Company recorded a liability for unrecognized tax
benefits of $250,000 inclusive of interest and penalties of $24,250 and
$11,700, respectively. The $250,000 unrecognized benefit also caused a
corresponding decrease to retained earnings as of January 1,
2007. The Company continues to accrue interest and
penalties for unrecognized tax benefits existing as of January 1,
2007. The Company has recorded an increase to the liability for
unrecognized tax benefits for the year ended December 31, 2007 of $140,000. This
amount is made up of an increase to total tax expense of $83,000, which is net
of federal benefit. The remaining addition to this liability is an accrual of
interest and penalties related to the exposure. The Company has made an
accounting policy election to treat interest and penalties as tax expense.
Because of the nature of the exposure, interest is also recorded net of federal
benefit, while penalties are recorded gross. For the year ended December 31,
2007, interest and penalties of $50,000 have been recorded related to exposure
that existed as of January 1, 2007 and interest of $7,000 has been recorded
related to incremental exposure for positions taken in the current year. The
Company's total unrecognized tax benefits as of December 31, 2007 were $385,000
inclusive of interest and penalties of $88,000. The company has not been able to
determine with reasonable accuracy what, if any, increase or decrease will be
recorded for uncertain tax positions during the next twelve months. If the
company were to recognize these tax benefits, all of the benefit would impact
the effective tax rate.





The
following table summarizes the activity related to the company's unrecognized
tax benefits, net of federal benefit, excluding interest and penalties (in
thousands):





Balance
      at January 1, 2007
            
            $
            214Increases
      as a result of positions taken during prior periods
            
            
            16Decreases
      as a result of positions taken during prior periods
            
            
            -Increases
      as a result of positions taken during the current period
            
            
            67Reductions
      in benefits from lapse in statute of limitations
            
            
            -Balance
      at December 31, 2007
            
            $
            297





The
company files U.S., state and foreign income tax returns in jurisdictions with
varying statutes of limitation. The 2004 through 2006 tax years generally remain
subject to examination by federal and most state tax authorities. However,
certain returns from years in which net operating losses have arisen are still
open for examination by the tax authorities.





10.           Inventory





Inventories are valued at the lower of
cost or market. Cost is generally determined on the first-in, first-out (“FIFO”)
basis.  We include raw material freight costs to manufacturers in
inventory and these costs are recognized in cost of sales when the product is
sold.  Lower of cost or market value of inventory is determined at the
operating unit level and evaluated periodically. Estimates for obsolescence or
slow moving inventory are maintained based on current economic conditions,
historical sales quantities and patterns and, in some cases, the specific risk
of loss on specifically identified inventories. Such inventories are recorded at
estimated realizable value net of the costs of disposal.





47


11.           Accounts Receivable and
related Allowance for Doubtful Accounts





Accounts
Receivables and related allowance for doubtful accounts as of December 31, 2007
and 2006, respectively, consist of:





December
      31,(In
      thousands)
            
            2007
            
            
            2006Accounts
      Receivable
            
            $
            16,243
            
            
            $
            12,104Unbilled
      Accounts Receivable
            
            
            1,162
            
            
            
            675Allowance
      for Doubtful Accounts
            
            
            (1,009
            )
            
            
            (935
            )Accounts
      Receivable
            
            $
            16,396
            
            
            $
            11,844





Credit is
extended to customers based on an evaluation of a customer’s financial condition
and, generally, collateral is not required. Accounts receivable are generally
due within 30-90 days and are stated at amounts due from customers net of an
allowance for doubtful accounts. We maintain an allowance for estimated losses
resulting from the inability of our customers to make required
payments.  The allowance for doubtful accounts is based principally
upon specifically identified amounts where collection is deemed doubtful.
Additional non-specific allowances are recorded based on historical experience
and management’s assessment of a variety of factors related to the general
financial condition and business prospects of our customer base. Management
reviews the collectibility of individual accounts and assesses the adequacy of
the allowance for doubtful accounts monthly.  Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.





12.           Prepaid Expenses and Other
Assets





Prepaid expenses and other assets as of
December 31, 2007 and 2006, respectively, consist of:





December
      31,
            
            
            December
      31,(In
      thousands)
            
            2007
            
            
            2006Notes
      Receivable
            
            $
            882
            
            
            $
            361Prepaid
      Expenses
            
            
            720
            
            
            
            786Prepaid
      Minutes
            
            
            75
            
            
            
            -Debt
      Issuance costs
            
            
            196
            
            
            
            175Misc.
      and Employee Receivable
            
            
            12
            
            
            
            355$
            1,885
            
            
            $
            1,677





We had
three notes receivables at December 31, 2007 in the amounts of $645,000,
$150,000, $87,000, respectively.  We had one notes receivables at December
31, 2006 in the amounts of $361,000.  These notes are payable to us in
installments.  Two of the notes are non-interest bearing and the other note
bears an interest rate of 12%.  However, we are only recognizing interest
on this note when interest payments are received.  For purposes of
valuation, the collectibility of notes receivable is evaluated separately to
determine if the notes are impaired.  Notes receivable are determined
to be impaired after all means of collection have been exhausted and the
potential for recovery is considered remote.  All of our notes receivable
were determined to be collectible and current.





Prepaid
expenses and Other assets increased by $209,000 for the year ended December 31,
2007.  The increase in Prepaid expenses and Other assets is primarily
related to an increase in Notes Receivable of $521,000, which was partially
offset by a decrease of $343,000 in Miscellaneous and Employee
Receivables.   The increase in Notes Receivable is due to the
Company entering into a loan agreement on June 1, 2007 for $1.1
million.  As of December 31, 2007 the balance of this note receivable
was $645,000.





In
connection with our Orbit One acquisition (see note B), on July 31, 2007 we
acquired prepaid satellite minutes totaling $400,000.  These prepaid
minutes are expenses when used and any unused minutes expire in May 2008. 
At December 31, 2007 we determined that we would not use all the prepaid minutes
remaining by their expiration, thus we expensed $250,000 of prepaid minutes as
service cost of sales in December 2007 leaving a balance of $75,000 in prepaid
minutes.


48





Debt issuance costs are deferred and
are amortized to interest expense over the terms of the related
debt.  The current portion of debt issuance costs were $196,000 for
the year ended December 31, 2007 and approximately $175,000, for the year ended
December 31, 2006.  The increase in current debt issuance costs was
related to the Company completing a private placement with The Laurus Master
Fund, Ltd. (see note 13).





13.           Other Assets – Long
term





Other Assets – Long term as of December
31, 2007 and 2006, respectively consists of:





December
      31,
            
            
            December
      31,(In
      thousands)
            
            2007
            
            
            2006Deposits
      Long term
            
            $
            112
            
            
            $
            122Notes
      Receivable Long term
            
            
            60
            
            
            
            139Debt
      Issuance costs
            
            
            354
            
            
            
            486$
            526
            
            
            $
            747





Notes Receivable Long term is related
to a revenue share agreement the Company has with a customer in
Australia.





Deferred
costs related to the issuance of debt are amortized to interest expense over the
terms of the related debt.  The long term portion of debt issuance
costs were $354,000, less accumulated amortization of approximately $202,000 at
December 31, 2007 and approximately $486,000, less accumulated amortization of
approximately $250,000 at December 31, 2006.  The increase in debt
issuance costs was related to the Company completing a private placement with
The Laurus Master Fund, Ltd. (see note 13).





14.           Notes
Payable





On
December 29, 2006, the Company completed a private placement to Laurus Master
Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal
amount of $10,000,000 (“Note C”), and (ii) a warrant to purchase up to
158,562 shares of our common stock.  Interest accrues on this note at
a rate of 9.50% annually. This note has a four year term and is secured by
substantially all of our assets.  Note C principal reductions began in
July 2007 and will continue for the next 42 months with final payment due in
December 2010. Interest and principal under convertible Note C may be paid in
either cash or, subject to certain conditions, in shares of our common
stock.  The Company may only use common stock to make payments on
convertible Note C if the price per share of the common stock for the required
number of trading days immediately prior to conversion is greater than
$11.41.  The holder of the convertible note may convert the entire
principal amount of the convertible note, and any accrued interest thereon, into
our common stock at a fixed conversion price equal to $10.37 per
share.  The fair value of the warrant associated with Note C on
December 29, 2006 was $735,000 and was calculated using the Black-Scholes fair
value pricing model. The fair value of the warrant is amortized on a
straight-line basis over the term of the note.





On
May 30, 2006, the Company completed a private placement to Laurus Master
Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal
amount of $5,000,000 (“Note A”) (ii) a non-convertible term note in the
principal amount of $5,000,000 (“Note B”), and (iii) a
warrant  to purchase up to 241,379 shares of our common
stock.  Interest accrues on each of the notes at a rate of 9.75%
annually.  Both notes have four year terms and are secured by
substantially all of our assets.  The fair value of the warrant
associated with Note A and Note B on May 30, 2006 was $846,000 and was
calculated using the Black-Scholes fair value pricing model.  The fair
value of the warrant is amortized on a straight-line basis over the term of the
note.





The
Company may only use common stock to make payments on convertible Note A if the
price per share of the common stock for the required number of trading days
immediately prior to conversion is greater than $8.70.  The holder of
the convertible note may convert the entire principal amount of the convertible
note, and any accrued interest thereon, into the Company’s common stock at a
fixed conversion price equal to $7.91 per share.




49


On August
31, 2006, Laurus converted $158,200 of Note A, which included $41,979 of accrued
interest into 20,000 shares of common stock.  On September 14, 2006
the Company voluntarily converted $1,249,994 of Note A into 158,027 shares of
common stock.  On October 9, 2006 the Company voluntarily converted
$1,249,994 of Note A into 158,027 shares of common stock.  On November
14, 2006 the Company voluntarily converted $1,249,994 of Note A into 158,027
shares of common stock. On December 19, 2006 the Company voluntarily converted
the remaining outstanding balance of $1,133,796 of Note A into 143,337 shares of
common stock.




Interest
under Note B must be paid in cash.  The principal balance on Note B is
due and payable in cash on May 30, 2010.




As of
December 31, 2007 the Company had $5,000,000 outstanding under Note B and
$8,571,430 outstanding under Note C.  As of December 31, 2007 the
Company had a balance of $255,000 for the unamortized warrant associated with
Note B and $551,000 for the unamortized warrant associated with Note
C.




The Company expects to make principal
payments on our note payable as follows based on our note payable balance as of
December 31, 2007:





2008
            
            $
            2,857,2602009
            
            
            2,857,2602010
            
            
            7,856,910





On August
1, 2007, Laurus Master Fund, Ltd. assigned to the Valens Fund, a principle
amount equal to $719,214.87 of Note B.  On August 3, 2007, Laurus
Master Fund, Ltd. assigned to the PSource Structured Debt Limited, a principle
amount equal to $2,777,433.35 of Note B.  Other than a change in the
remittance account, the Company’s rights and obligations have not been altered
as a result of these assignments.





The
warrant with Note C is exercisable by the holder until December 29,
2013.  Subject to adjustments described in the warrant, the holder
will be entitled to receive, upon exercise of the warrant in whole or in part,
shares of common stock at an exercise price of $10.13. In accordance with the
Warrant agreement, the common stock has been registered.





The
warrant with Note A and Note B is exercisable by the holder until May 30,
2013. Subject to adjustments described in the warrant, the holder will be
entitled to receive, upon exercise of the warrant in whole or in part, shares of
common stock at an exercise price of $7.73. The Company has registered the
common stock underlying the Warrant for resale by Laurus.  Note A also
contains a beneficial conversion feature with a contingent conversion
option.  The value of the Beneficial Conversion Feature, $38,000, was
measured as of the commitment date.





The
Company also completed two prior private placements with Laurus.  On
January 13, 2004, the Company completed it’s first private placement to Laurus
of (i) a Convertible Term Note in the aggregate principal amount of $4,500,000
(the “First Company Note”), and (ii) a warrant to purchase up to 300,000 shares
of the Company’s common stock (the “First Warrant”).  The First
Warrant is exercisable by Laurus until January 13, 2011, and has three separate
tranches.





The first
tranche is exercisable for up to 150,000 shares of common stock at a price of
$4.75 per share.  The second tranche is exercisable for up to 100,000
shares of common stock at a price of $5.17 per share.  The third
tranche is exercisable for up to 50,000 shares of common stock at a price of
$5.99 per share.  The Company also agreed to register the common stock
underlying the First Warrant for resale by Laurus, and have such registration
declared effective, by August 13, 2004.  Such registration statement
was declared effective on November 22, 2004.  As a result, under the
terms of the First Warrant, the Company issued warrants covering additional
66,000 shares pursuant to the registration rights agreement.  On July
6, 2005 the Company voluntarily converted $2,280,000 of the outstanding debt
associated with the First Company Note into 500,000 shares of common stock. On
August 1, 2005 the Company converted the $953,040 remaining outstanding portion
of the debt associated with the First Company Note into 209,000 shares of common
stock.


50





On
January 28, 2005, the Company completed a second private placement to Laurus of
(i) a Convertible Term Note in the original principal amount of $1,500,000 (the
“Second Company Note”), and (ii) a warrant to purchase up to 100,000 shares of
our common stock (the “Second Warrant”).  The Second Company Note
provided that Laurus may convert all or any portion of the outstanding principal
amount of the Second Company Note into shares of common stock, subject to
certain limitations.  The Second Warrant is exercisable by Laurus
until January 28, 2012, and has two separate pricing tranches.  The
first pricing tranche is exercisable for up to 50,000 shares of common stock at
a price of $5.51 per share.  The second pricing tranche is exercisable
for up to 50,000 shares of common stock at a price of $5.72 per
share.  The Company has registered the common stock underlying the
Second Company Warrant for resale by Laurus.  The Second Company Note
also contained a beneficial conversion feature with a contingent conversion
option.  The value of the beneficial conversion feature was measured
as of the commitment date.  The value at the commitment date was
$154,000.  On January 24, 2006, Laurus converted $53,100 of our
outstanding debt into 10,000 shares of common stock.  On February 6,
2006, Laurus converted $1,263,780 of our outstanding debt, including $8,944 of
accrued interest into 238,000 shares of common stock. The result of this
transaction was to eliminate our Second Company Note with Laurus, excluding the
warrants issued with the Second Company Note.  These warrants along
with the warrants issued with the First Company Note, which total 400,000,
remain outstanding.





Laurus is
an "accredited investor" as defined in Rule 501(d) of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act").  The
Company issued the securities to Laurus in reliance on the exemption from
registration provided by Section 4(2) under the Securities Act.





15.           Common
Stock





Common stock increased by $4.3 million
for the twelve months ended December 31, 2007.  The increase in Common
stock was due, to a $2.7 million issuance of common shares which was related to
the acquisition of the assets of Orbit One Communications, Inc.  The
increase was also related to the $1.0 million in issuance of common shares which
was related to the acquisition of Airdesk, Inc.  The increase was also
due to $569,000 related to the issuance of shares related to the employee stock
option plan and $62,000 of shares issued under the Director’s Stock
Plan.





16.           Fair Value of Financial
Instruments





Our financial instruments include cash,
accounts receivable, notes receivable, accounts payable and notes
payable.  The carrying value of the financial instruments approximates
fair value due to the relatively short period to maturity.  The
carrying value of the notes payable approximates fair value and bears cash
interest at 9.75% and 9.50%, which approximates market rates of similar
instruments.





17.           Use of
Estimates





In preparing our financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.





18.           Concentration of Credit
Risk





Financial instruments that
potentially subject us to a concentration of credit risk are primarily cash
investments and accounts receivable.  We maintain our cash and short
term investment balances in financial institutions,
which at times may exceed federally insured limits.  We had cash
balances in excess of these limits of $7,325,000 and $20,284,000 for the years
ended December 31, 2007 and 2006, respectively.  We have not
experienced any losses in such accounts and believe we are not exposed to any
significant credit risk on cash and cash equivalents.  Concentration
of credit risk with respect to accounts receivable from customers is limited. We
perform credit evaluations of prospective customers and we evaluate our trade
receivables periodically.  Our accounts receivable is at risk to the
extent that we may not be able to collect from some of our
customers.





51


19.            Foreign Currency
Translation





The
assets and liabilities of our foreign operations are translated into U.S.
dollars at current exchange rates, and revenues and expenses are translated at
the ending exchange rate from the prior period which materially approximates the
average exchange rates for each period. Resulting translation adjustments are
reflected as other comprehensive income within shareholders’ equity. Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency, are included in
the results of operations as incurred.  For the year ended December
31, 2007 the Company had a foreign currency gain of $8,000, a loss of $10,000
for the year ended December 31, 2006, and a gain of $20,000 for the year ended
December 31, 2005.





20.           
Research and
Development





Research and development expenses are
charged to operations in the period in which they are incurred.  For
the years ended December 31, 2007, 2006 and 2005 research and development costs
amounted to $ 1.5 million, $1.1 million, and $1.1 million,
respectively.





21.           Share-Based
Compensation







On January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and
recognition of compensation expense for all share-based payment awards made to
employees and directors.




The
Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of January 1,
2006.  The Company’s Consolidated Financial Statements as of and for
the year ended December 31, 2007 and December 31, 2006 reflect the impact of
SFAS 123(R).  Share-based compensation expense recognized under SFAS
123(R) for the year ended December 31, 2007 was $941,000 as compared to $462,000
for the year ended December 31, 2006.  Share-based compensation
consisted of expense related to employee equity awards.  Total
unrecognized compensation related to unvested share-based awards granted to
employees and members of our board of directors at December 31, 2007, net of
estimated forfeitures, is $2.3 million and is expected to be recognized over a
weighted-average period of 1.5 years.




Share-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. Share-based compensation expense recognized in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2007 and
2006 included compensation expense for share-based payment awards granted prior
to, but not yet vested as of December 31, 2005 based on the grant date fair
value estimated in accordance with the pro forma provisions of SFAS 123 and
compensation expense for the share-based payment awards granted subsequent to
December 31, 2005 based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).  With the adoption of
SFAS 123(R), the Company will continue to use the method of attributing the
value of share-based compensation costs to expense on the straight-line
method.  As stock-based compensation expense recognized in the
Consolidated Statement of Operations for the twelve months of fiscal 2007 and
2006 is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.





The fair
value of share-based payment awards is estimated at the grant date using the
Black-Scholes option valuation model. The Company’s determination of fair value
of share-based payment awards on the date of grant using the option-pricing
model is affected by the Company’s stock price as well as assumptions regarding
a number of highly complex and subjective variables. These variables include,
but are not limited to; the Company’s expected stock price volatility over the
term of the awards, and actual and projected employee stock option exercise
behaviors.




The
Company has outstanding stock options granted pursuant to four stock option
plans. The 1994 Long-Term Incentive Plan (the “1994 Plan”), which was adopted in
1994, the Non-Employee Director Stock Option Plan (the “Director Plan”) which
was adopted in 1996, the Long-Term Incentive Plan (the “1999 Plan”), which was
adopted in 1999 and the 2006 Long Term Incentive Plan (the “2006 Plan”) which
was adopted in 2006.  The 1994 Plan and the Director Plan were
terminated and replaced by the 1999 Plan which was effective for options granted
from October 25, 1999.  The 1999 Plan was terminated and replaced by
the 2006 Plan. Options outstanding under the 1994 Plan, the Director Plan and
the 1999 Plan remain in effect, but no new options may be granted under those
plans.  Options issued under the 2006 Plan and the 1999 Plan typically
vest ratably over a four-year period.  All options issued under the
1994 Plan are fully vested.


52





The
aggregate number of shares which may be issued under the 2006 plan is 750,000
shares of Class A Common Stock (“Shares”) plus (i) any available Shares
under the 1999 Plan as of its termination date and (ii) Shares subject to
options granted under the 1999 Plan that expire or terminate without having been
fully exercised.  A summary of the company's stock option activity and
related information for the twelve months ended December 31, 2007
follows:





Weighted
            
            
            Weighted
            
            
            AggregateAverage
            
            
            Average
      Remaining
            
            
            IntrinsicShares
            
            
            Ex.
      Price
            
            
            Contractual
      Life (Yrs)
            
            
            ValueOutstanding,
      at 12/31/06
            
            
            1,784,865
            
            
            
            5.55Options
      granted
            
            
            301,500
            
            
            
            8.47Options
      exercised
            
            
            (133,830
            )
            
            
            4.80
            
            
            
            
            
            $
            777,777Options
      cancelled
            
            
            (26,063
            )
            
            
            5.62Options
      expired
            
            
            (250
            )
            
            
            4.57Outstanding,
      at 12/31/07
            
            
            1,926,222
            
            
            
            6.06
            
            
            
            6.27
            
            
            $
            4,856,934Exercisable,
      at 12/31/07
            
            
            1,211,535
            
            
            
            5.16
            
            
            
            4.85
            
            
            $
            3,958,293





The
following table summarizes information related to fixed stock options
outstanding at December 31, 2007:





Options
      outstanding
            
            
            Options
      exercisableRange
      of exercise prices
            
            
            Number
      outstanding at December 31, 2007
            
            
            Weighted
      average remaining contractual life (years)
            
            
            Weighted
      average exercise price
            
            
            Number
      exercisable at December 31, 2007
            
            
            Weighted
      average exercise price$
            1.00
      –  4.00
            
            
            
            517,665
            
            
            
            4.97
            
            
            $
            3.02
            
            
            
            478,290
            
            
            $
            2.944.01
      –  8.00
            
            
            
            863,057
            
            
            
            6.63
            
            
            $
            5.76
            
            
            
            493,557
            
            
            $
            5.388.01
      –  12.94
            
            
            
            545,500
            
            
            
            6.95
            
            
            $
            9.70
            
            
            
            239,688
            
            
            $
            9.131,926,222
            
            
            
            6.27
            
            
            $
            6.06
            
            
            
            1,211,535
            
            
            $
            5.16







The fair
value of options at date of grant was estimated using the Black-Scholes option
pricing model. The fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting
period. Use of a valuation model requires management to make certain assumptions
with respect to selected model inputs. Expected stock price volatility was
calculated based on the historical volatility of our common stock over the
expected life of the option. The average expected life was based on the
contractual term of the option and expected employee exercise behavior. The
risk-free interest rate is based on U.S. Treasury zero-coupon issues with a
remaining term equal to the expected life assumed at the date of grant.
Forfeitures are estimated based on voluntary termination behavior, as well as an
analysis of actual option forfeitures.





53


A summary
of the status of the Company’s stock option plans as of December 31, 2007,
2006, and 2005 and changes during the years ended on those dates is presented
below:





For
      the years ended December 31,FYE
      12-31-07
            
            
            FYE
      12-31-06
            
            
            FYE
      12-31-05Weighted
            
            
            
            
            
            Weighted
            
            
            
            
            
            WeightedAverage
            
            
            
            
            
            Average
            
            
            
            
            
            AverageShares
            
            
            Ex.
      Price
            
            
            Shares
            
            
            Ex.
      Price
            
            
            Shares
            
            
            Ex.
      PriceOutstanding,
      beginning of year
            
            
            1,784,865
            
            
            
            5.55
            
            
            
            1,453,515
            
            
            
            4.76
            
            
            
            1,494,015
            
            
            
            4.85Options
      granted
            
            
            301,500
            
            
            
            8.47
            
            
            
            426,250
            
            
            
            7.89
            
            
            
            173,500
            
            
            
            4.53Options
      exercised
            
            
            (133,830
            )
            
            
            4.80
            
            
            
            (74,150
            )
            
            
            3.98
            
            
            
            -
            
            
            
            -Options
      cancelled
            
            
            (26,063
            )
            
            
            5.62
            
            
            
            (18,250
            )
            
            
            3.82
            
            
            
            (185,250
            )
            
            
            5.73Options
      expired
            
            
            (250
            )
            
            
            4.57
            
            
            
            (2,500
            )
            
            
            5.13
            
            
            
            (28,750
            )
            
            
            4.69Outstanding,
      end of year
            
            
            1,926,222
            
            
            
            6.06
            
            
            
            1,784,865
            
            
            
            5.55
            
            
            
            1,453,515
            
            
            
            4.76Exercisable,
      end of year
            
            
            1,211,535
            
            
            
            5.16
            
            
            
            1,024,928
            
            
            
            5.08
            
            
            
            838,078
            
            
            
            5.28







A summary
of the status of the Company’s nonvested shares as of December 31, 2007, and
changes during the year ended December 31, 2007, is presented
below:







WeightedAverageGrant-dateNonvested
      Shares
            
            Shares
            
            
            Fair
      ValueNonvested
      at January 1, 2007
            
            
            759,937
            
            
            
            3.33Options
      granted
            
            
            301,500
            
            
            
            4.69Options
      vested
            
            
            (320,687
            )
            
            
            3.72Options
      forfeited
            
            
            (26,063
            )
            
            
            2.95Nonvested
      at December 31, 2007
            
            
            714,687
            
            
            
            4.21







As of
December 31, 2007, there was $2.2 million of total unrecognized compensation
cost related to nonvested share-based compensation arrangements granted under
the Plan. That cost is expected to be recognized over a weighted-average period
of 1.5 years. The total fair value of shares vested during the years ended
December 31, 2007, 2006, and 2005, was $868,000, $353,000, and $537,000,
respectively.







The key
assumptions used in the valuation model during the twelve months ended December
31, 2007, 2006 and 2005 are provided below:





Twelve
      Months EndedDecember
      31,2007
            
            
            2006
            
            
            2005Valuation
      Assumptions:Volatility
            
            
            57.24
            %
            
            
            53.70
            %
            
            
            69.80
            %Expected
      term
            
            
            6.3
            
            
            
            6.3
            
            
            
            6.8Risk
      free interest rate
            
            
            4.29
            %
            
            
            4.62
            %
            
            
            4.35
            %Dividend
      yield
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %








Prior to
the adoption of SFAS 123(R), the Company accounted for stock based compensation
plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, Accounting for
Stock-Based Compensation, (APBO 25). Under APBO 25, no compensation
expense related to stock options was recognized in operations. For the purpose
of pro forma disclosure, the estimated fair value of options accounted for under
APBO 25 were calculated using the Black-Scholes method utilizing the valuation
assumptions above for the year ended December 31, 2005.





54


The
Company’s pro forma information is as follows:





December
      31,(In
      thousands, except per share data)
            
            2005Net
      earnings - as reported
            
            $
            593Less
      total stock-based compensation expense determinedunder
      fair value based method for all awards
            
            
            455Pro
      forma net earnings
            
            $
            138Basic
      earnings per share:As
      reported
            
            $
            0.05Pro
      forma
            
            $
            0.01Diluted
      earnings per share:As
      reported
            
            $
            0.05Pro
      forma
            
            $
            0.01





22.           Earnings Per
Share





Basic net earnings per common share
available to common shareholders is based on the weighted-average number of
common shares outstanding excluding the dilutive impact of common stock
equivalents.  For periods in which we have net earnings, we base
diluted net earnings per share on the weighted-average number of common shares
outstanding and dilutive potential common shares, such as dilutive employee
stock options.





The
numerator in calculating both basic and diluted net earnings per share for each
period is net earnings.  The denominator is based on the following
number of common shares:





For
      the years ended December 31,(In
      thousands, except per share data)
            
            2007
            
            
            2006
            
            
            2005Common
      Shares:Weighted
      average common shares outstanding
            
            
            13,137
            
            
            
            12,502
            
            
            
            11,231Dilutive
      effect of common stock equivalents
            
            
            563
            
            
            
            483
            
            
            
            251Total
            
            
            13,700
            
            
            
            12,985
            
            
            
            11,482Net
      earnings:
            
            $
            440
            
            
            $
            4,103
            
            
            $
            593Net
      earnings per common share:Basic
            
            $
            0.03
            
            
            $
            0.33
            
            
            $
            0.05Diluted
            
            $
            0.03
            
            
            $
            0.32
            
            
            $
            0.05





For the
twelve months ended December 31, 2007, 2006 and 2005, we excluded antidilutive
options of 239,692,  245,120 and 1,044,015 respectively, shares of
common stock and common stock equivalents from the computation of diluted
earnings per share.  We excluded these share amounts because the
exercise prices of those shares were greater than the average market price of
the common stock during the applicable period.





With the
acquisition of the assets of Airdesk, the Company could issue a total of 300,000
shares of the Company’s common stock over a three-year period.  On
April 1, 2007 the Company issued 100,000 of these shares.  The
remaining 200,000 shares are currently held in Escrow and are not included in
the basic and diluted share calculation.  With the acquisition of the
assets of Orbit One Communications, the Company could issue an additional
1,250,596 shares of the Company’s common stock over a two-year
period.  These shares are currently held in Escrow and are not
included in the basic and diluted share calculation.





As of
December 31, 2007, 2006, and 2005, we had a total of 1,926,222, 1,784,865, and
1,453,515 options outstanding, respectively.





23.  Advertising
Expenses





Advertising
expenses are charged to operations in the period in which they are
incurred.  For the years ended December 31, 2007, 2006 and 2005,
advertising costs amounted to $526,000, $420,000, and $391,000,
respectively.





55


24.  Recent Accounting
Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (SFAS No. 157). The purpose of SFAS No. 157 is to define
fair value, establish a framework for measuring fair value, and enhance
disclosures about fair value measurements. The measurement and disclosure
requirements are effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007.  In December 2007, the FASB
issued FASB Staff Position FAS 157-b, “Effective Date of FASB SFAS
No. 157,” which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) to fiscal years beginning after November 15,
2008. In accordance with the new rule, we will adopt SFAS No. 157 for all
nonfinancial assets and non financial liabilities in the first quarter of 2009.
We do not believe the effect of adopting Statement No. 157 will have a
material impact on our consolidated financial statements.





In
December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5,
“Accounting for Contingencies.” Adoption of FSP EITF 00-19-02 is required for
fiscal years beginning after December 15, 2006. The adoption of FSP EITF
00-19-2 as of January 1, 2007 did not have an impact on our financial
position, results of operations or cash flows.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). SFAS No. 159 allows companies to choose to
measure many financial instruments and certain other items at fair value. SFAS
No. 159 will become effective for us in the first quarter of fiscal 2009. We are
currently evaluating what effects the adoption of SFAS No. 159 will have on our
future results of operations and financial condition.





In June
2007, the EITF reached a consensus on EITF Issue No. 07-3 “Accounting for
Advance Payments for Goods or Services to be Received for Use in Future Research
and Development Activities” (“EITF 07-3”). EITF 07-3 provides
clarification surrounding the accounting for non-refundable research and
development advance payments, whereby such payments should be recorded as an
asset when the advance payment is made and recognized as an expense when the
research and development activities are performed. We will adopt the provisions
of EITF 07-3 on January 1, 2008. We are currently assessing the impact
of EITF 07-3 on its results of operations and financial
condition.





In
December 2007, the FASB issued SFAS No.160, “Non-controlling Interests in
Consolidated Financial Statements”, an amendment of Accounting Research Bulletin
No. 51. SFAS No.160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest, and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. Statement No. 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the non-controlling owners. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008.  We will adopt
SFAS No. 160 in the first quarter of fiscal 2009. We do not expect this
statement will have a material impact on our future results of operations and
financial condition.





On
December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007),
“Business Combinations.” Statement No. 141R requires that an acquiring
entity recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition date fair value with limited exceptions. SFAS
No. 141R will change the accounting treatment for acquisition costs,
non-controlling interests, contingent liabilities, in-process research and
development, restructuring costs, and income taxes. In addition, it also
requires a substantial number of new disclosure requirements.  SFAS
No. 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier adoption is
prohibited. We will adopt SFAS No. 141R in the first quarter of 2009. We do
not believe the effect of adopting SFAS No.141R will have a material impact on
our consolidated financial statements.








56


25.  Subsequent
Event





Subsequent to December 31, 2007, the
Airdesk asset purchase agreement (see Note B) was amended to remove the
performance targets on the remaining 200,000 un-issued shares with 60,000 shares
to be issued on April 1, 2008, 60,000 shares issued on April 1, 2009 and the
balance of 80,000 shares issued on April 1, 2010.   Since these shares
were only time contingent, we recognized the value of these shares on the date
of the amendment of January 1, 2008.  This resulted in a $1.7 million
increase in goodwill and a corresponding increase in common stock.  The
average selling price on the date of the amendment was $8.53 per
share.




Subsequent to December 31, 2007,
relating to our Orbit One acquisition (see Note B) $1.8 million in cash was paid
in January 2008 after certain customer agreements were renewed as well as other
conditions being met.




On
January 7, 2008 Orbit One Communications, Inc. (“Orbit One”) and David Ronsen
(“Ronsen”) filed an action against Numerex in New York State Supreme Court,
County of New York, alleging,inter alia,breach of contract in frustrating Orbit One’s ability achieve
earn out targets in the acquisition and employment agreements.  Plaintiffs
are claiming $20 million in damages.  On January 25, 2008 Numerex removed
the action to the United States District Court, Southern District of New
York.  On March 11, 2008 Numerex answered and counterclaimed asserting,
inter alia, breach of
fiduciary duty and declaratory relief.  Numerex believes that the
plaintiff’s claims are without merit and intends to defend against the
allegations, and to vigorously pursue its counterclaims.





NOTE
B – ACQUISTIONS





Orbit
One Communications, Inc. Acquisition





On July
31, 2007 the Company completed the acquisition of the assets of Orbit One
Communications, Inc. through its wholly owned subsidiary, Orbit One
Communications LLC (“Orbit One”).  The results of Orbit One’s
operations have been included in the consolidated financial statements from
August 1, 2007.  The assets relate to Orbit One’s satellite-based M2M
solutions it provides to government agencies and emergency services markets in
the United States.  These solutions include hardware, software, data
management, installation, maintenance, and use of its proprietary operational
support platform.  The acquisition expands the Company’s M2M
communications hardware and service technologies, its reach into the
governmental markets and global reach to enable M2M applications in remote areas
not well served by other terrestrial-based providers.





The
assets acquired consist of software (including Orbit One’s proprietary mapping
and operational support platform), inventory, equipment (primarily
communications related computer hardware) accounts receivable, trademarks and
other intellectual property.





Initial
consideration for the asset purchase was approximately $5.5 million paid in cash
plus $384,000 of transaction costs.   An additional $732,000 was
paid 60 days after closing based on satisfying a net working capital
test.  On December 31, 2007 certain revenue and EBITA targets were met
for the first measurement period, ending December 31, 2007.   As
a result, 320,833 shares of the Company’s Class A common stock were issued to
Orbit One Communications, Inc.  These shares were valued using the
average share price on the measurement date for meeting the contingencies on
December 31, 2007 of $8.33 per share, thus increasing goodwill by $2.7 million
and our common stock by the same amount. Subsequent to December 31, 2007
another $1.8 million in cash was paid in January 2008 after certain customer
agreements were extended as well as other conditions were met.  In
addition, if certain revenue and EBITDA performance objectives and milestones
are achieved, subsequent payments could include additional cash payments of $2.5
million as well as shares of Numerex Corp’s common stock.  If all
earn-out objectives are achieved stock payments could be up to 1,100,000 shares
of the Company’s Class A common stock.   If the performance
targets are exceeded, Orbit One may receive up to an additional 471,729 shares
of the Company’s Class A common stock and an additional cash payment of $2.5
million. The earn-out milestones are measured over three periods: (i) from the
closing date of the transaction through December 31, 2007; (ii) calendar year
2008; and (iii) calendar year 2009. The Company and Orbit One entered into an
escrow agreement, whereby 10% of the cash payments not subject to
performance-related milestones were placed in escrow for one year from the
closing date in order to settle any indemnification claims under the Agreement
and subject to the limitations described therein.  Any additional
payments of either cash or equity will be reflected as incremental
goodwill.





57


The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.





(in
      thousands)
            
            At
      July 31, 2007Net
      receivables
            
            $
            454Prepaid
      assets
            
            
            418Inventory
            
            
            1,162Property,
      plant and equipment
            
            
            647Other
      intangibles, net
            
            
            940Software,
      net
            
            
            1,283Deposits
            
            
            16Goodwill
            
            
            5,681Total
      assets acquired
            
            
            10,601Accrued
      liabilities
            
            
            (191
            )Capital
      lease obligations
            
            
            (8
            )Contract
      obligations
            
            
            (1,103
            )Total
      liabilities assumed
            
            
            (1,302
            )Net
      assets acquired
            
            $
            9,299





The $1.3
million of acquired software includes $1.2 million assigned to its proprietary
satellite communications, tracking and mapping software.  The $940,000
of acquired intangible assets was comprised of $170,000 assigned to trademarks,
and $770,000 assigned to customer relationships.  The estimated useful
lives for these assets are 10 years for proprietary software, 1 year for
trademarks and 9 years for customer relationships.





The $5.7
million of goodwill was assigned to the Wireless M2M Data communications
segment.  The goodwill does not include the subsequent $1.8 million
paid in January 2008 for the extension of certain customer
agreements.  The goodwill and intangible assets will be deductible for
income tax purposes.





The
following unaudited pro forma consolidated results of operations assume that the
acquisition of Orbit One assets was completed as of January 1 for each of
the 12 months periods shown below:





For
      the YearsEnded
      December 31,(In
      thousands, except per share data)
            
            2007
            
            
            2006
            
            
            2005Revenues
            
            $
            71,952
            
            
            $
            65,210
            
            
            $
            37,872Net
      Income
            
            $
            836
            
            
            $
            6,227
            
            
            $
            1,833Earnings
      Per Common Share
            
            $
            0.08
            
            
            $
            0.50
            
            
            $
            0.15Earnings
      Per Common Share - diluted
            
            $
            0.07
            
            
            $
            0.48
            
            
            $
            0.14





These pro
forma statements have been prepared for comparative purposes only and are not
intended to be indicative of what the Company’s results would have been had the
acquisition occurred at the beginning of the periods presented or the results
which may occur in the future.





58


Airdesk Acquisition





On
January 5, 2006 the Company completed the acquisition of the assets of
Airdesk, Inc. through its wholly owned subsidiary, Airdesk LLC
(“Airdesk”).  The results of Airdesk’s operations have been included
in the consolidated financial statements from January 1, 2006.  The
assets relate to Airdesk’s machine-to-machine (M2M) solutions and services
business in the United States and Canada.  The acquisition aligns
Airdesk’s digital M2M hardware and portfolio of industry leading radio modules
with our M2M network and services platform.





The
assets acquired consist of furniture, fixtures, equipment (consisting of
hardware and software), inventory, distribution rights agreements, accounts
receivable, trademarks and other intellectual property, including Airdesk’s
billing system and “Airsource” database library.





Initial
consideration for the asset purchase was approximately $4.2 million payable in
the form of shares of the Company’s common stock and the assumption of certain
existing indebtedness of Airdesk, Inc.  In addition, if certain
revenue and other performance targets are achieved, the Company could issue an
additional 300,000 shares of its common stock over the three-year period from
the date of acquisition.  At April 1, 2007 a portion of these targets
were achieved and accordingly 100,000 shares were issued at a value of $1.0
million which were valued using the average stock price on date of issuance
resulting in an increase to goodwill of $1.0 million and a corresponding
increase in common stock.  Subsequent to December 31, 2007, the asset
purchase agreement was amended to remove the performance targets on the
remaining 200,000 un-issued shares with 60,000 shares to be issued on April 1,
2008, 60,000 shares issued on April 1, 2009 and the balance of 80,000 shares
issued on April 1, 2010.   Since these shares were only time
contingent, we recognized the value of these shares on the date of the amendment
of January 1, 2008.  This resulted in a $1.7 million increase in goodwill
and a corresponding increase in common stock.  The average selling price on
the date of the amendment was $8.53 per share.





The
Company assumed approximately $2.5 million of debt, of which $1.2 million was
paid in cash at closing of the transaction as a reduction of part of the debt,
and the balance of $1.3 million was paid on August 17, 2006.  The
Company also issued shares of common stock valued at approximately $196,000 to
Airdesk, Inc. at closing and deposited the remaining shares of common stock,
valued at closing at approximately $1.3 million, with an Escrow
Agent.  Airdesk, Inc. retains voting and dividend rights to these
shares while held in escrow. The Escrow Agent will release the shares of common
stock to Airdesk, Inc. over a two-year period in accordance with the terms of
the Escrow Agreement. In addition, we incurred approximately $266,000 of direct
acquisition expenses that are in addition to the purchase price.





The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed on January 5, 2006 as updated for the additional issuance of
shares on April 1, 2007.





(in
      thousands)Current
      assets
            
            $
            2,410Property,
      plant and equipment
            
            
            444Other
      non-current assets
            
            
            12Intangible
      assets
            
            
            934Goodwill
            
            
            4,232Total
      assets acquired
            
            
            8,032Current
      liabilities
            
            
            (3,346
            )Long-term
      debt
            
            
            (700
            )Total
      liabilities assumed
            
            
            (4,046
            )Net
      assets acquired
            
            $
            3,986





The
$934,000 of acquired intangible assets was comprised of $668,000 assigned to
trademarks, $189,000 assigned to customer relationships and $77,000 assigned to
a non-compete agreement.  The estimated useful life of the customer
relationships is 4 years and the estimated useful life of the non-compete
agreement is 2 years.  The trademarks are not subject to
amortization.





The $4.2
million of goodwill was assigned to the wireless M2M data communications
segment.


59


NOTE
C – INVENTORY





Inventory
consisted of the following:





December
      31,(In
      thousands)
            
            2007
            
            
            2006Raw
      materials
            
            $
            4,086
            
            
            $
            871Work-in-progress
            
            
            51
            
            
            
            30Finished
      goods
            
            
            6,262
            
            
            
            2,207Less
      reserve for obsolescence
            
            
            (340
            )
            
            
            (353
            )Inventory
            
            $
            10,059
            
            
            $
            2,755








NOTE
D – PROPERTY AND EQUIPMENT





Property
and equipment consisted of the following:





December
      31,(In
      thousands)
            
            2007
            
            
            2006Leasehold
      improvements
            
            $
            1,049
            
            
            $
            853Plant
      and machinery
            
            
            9,597
            
            
            
            8,506Equipment,
      fixtures, fittings
            
            
            810
            
            
            
            696Total
      property and equipment
            
            
            11,456
            
            
            
            10,055Accumulated
      depreciation
            
            
            (9,453
            )
            
            
            (8,768
            )Property
      and equipment, net
            
            $
            2,003
            
            
            $
            1,287








NOTE
E – INCOME TAXES





For the
periods noted below, the provision for income taxes consists of the
following:





December
      31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Current:Federal
            
            $
            43
            
            
            $
            57
            
            
            $
            -State
            
            
            17
            
            
            
            55
            
            
            
            52Reserve
      for Uncertain Tax Positions
            
            
            140
            
            
            
            -
            
            
            
            -Foreign
            
            
            -
            
            
            
            -
            
            
            
            -Deferred:Federal
            
            
            529
            
            
            
            (2,941
            )
            
            
            -State
            
            
            (1
            )
            
            
            (121
            )
            
            
            -$
            728
            
            
            $
            (2,950
            )
            
            $
            52





60





Income taxes recorded by the Company
differ from the amounts computed by applying the statutory U.S. federal income
tax rate to income before income taxes. The following schedule reconciles income
tax expense (benefit) at the statutory rate and the actual income tax expense as
reflected in the consolidated statements of operations for the respective
periods:





December
      31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Income
      tax (benefit) computed atU.S.
      corporate tax rate of 34%
            
            $
            377
            
            
            $
            392
            
            
            $
            219Adjustments
      attributable toDeferred
      Balance True Up
            
            
            639
            
            
            
            -
            
            
            
            -State
      Net Operating Losses
            
            
            (93
            )
            
            
            -
            
            
            
            -Valuation
      allowance
            
            
            (554
            )
            
            
            (4,452
            )
            
            
            (241
            )State
      Tax
            
            
            11
            
            
            
            56
            
            
            
            34Foreign
      Tax
            
            
            (7
            )
            
            
            (3
            )
            
            
            6Reserve
      for Uncertain Tax Positions
            
            
            140
            
            
            
            -
            
            
            
            -Non-deductible
      expenses
            
            
            215
            
            
            
            958
            
            
            
            16Expiration
      of net operating loss
            
            
            -
            
            
            
            108
            
            
            
            -Other
            
            
            -
            
            
            
            (9
            )
            
            
            18$
            728
            
            
            $
            (2,950
            )
            
            $
            52





The
components of the Company’s net deferred tax assets and liabilities are as
follows:





(in
      thousands)
            
            December
      31,2007
            
            
            2006Current
      deferred tax assetInventories
            
            $
            122
            
            
            $
            120Accruals
            
            
            390
            
            
            
            358Net
      operating loss carry forward
            
            
            1,455
            
            
            
            2,381Other
            
            
            419
            
            
            
            379Valuation
            
            
            (1,616
            )
            
            
            (2,125
            )$
            770
            
            
            $
            1,113Non-Current
      deferred tax assetIntangibles
            
            
            (234
            )
            
            
            (338
            )Foreign
      NOL carry forward
            
            
            14
            
            
            
            65Net
      operating loss carry forward
            
            
            5,352
            
            
            
            5,853Tax
      credit carry forward
            
            
            1,300
            
            
            
            1,258Difference
      between book andtax
      basis of property
            
            
            160
            
            
            
            (43
            )Other
            
            
            109
            
            
            
            17Valuation
            
            
            (4,696
            )
            
            
            (4,742
            )$
            2,005
            
            
            $
            2,070Deferred
      Tax LiabilitiesGoodwill
            
            $
            (56)
            
            
            $
            -Net
      Deferred Tax Assets
            
            $
            2,719
            
            
            $
            3,183





61


Net
operating loss carry forwards available at December 31, 2007, expire as
follows:





(in
      thousands)
            
            
            
            
            Year
      ofAmount
            
            
            ExpirationFederal
      operating losses
            
            $
            11,247
            
            
            
            2021
      - 2025State
      operating losses
            
            $
            54,688
            
            
            
            2007
      - 2027Foreign
            
            $
            48
            
            
            
            N/A




The company has certain net operating losses that may be subject to limitation
as to use by IRC Section 382. The company has not determined the amount of the
potential limitation, if any.
  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management
considers projections of future taxable income, tax planning strategies and the
reversal of temporary differences in making this assessment.  During
the year ended December 31, 2007, management determined that certain deferred
tax assets previously offset by a valuation allowance had become unrealizable.
As such, both the deferred tax assets and the associated valuation allowance
were reduced. These reductions did not impact net income.





NOTE
F – SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED
PARTIES




One
customer accounted for approximately 13% of consolidated revenue for the year
ended December 31, 2007 principally from our Wireless M2M Data Communications
segment. Accounts receivable from this customer was $3.0 million at December 31,
2007, which is approximately 18% of total accounts receivable.  No
customer accounted for more than 10% of consolidated revenues for the year ended
December 31, 2006 and the year ended December 31, 2005.





We had two suppliers from which our
purchases were approximately 57% of our hardware cost of sales for the year
ended December 31, 2007.   Our accounts payable to these
suppliers was approximately $1.2 million at December 31, 2007.  We had
two suppliers from which our purchases were approximately 76% of cost of
hardware sales for the year ended December 31, 2006 and 69% of cost of hardware
sales for the year ended December 31, 2005.  Our accounts payable to
this supplier was approximately $2.2 million at December 31,
2006.  The components included in the hardware purchased from this
supplier can be sourced from other suppliers.





We conducted business with one related
party during the year ended December 31, 2006.  Mr. Ryan, a director
on the Company’s Board of Directors is also partner in the law firm of Salisbury
& Ryan LLP.  Salisbury & Ryan LLP provided legal services to
the Company in fiscal 2007 and will continue to provide such services during
fiscal 2008.  During the year ended December 31, 2007, 2006, and 2005
Salisbury & Ryan LLP charged legal fees of approximately $277,000, $172,000,
and 263,000, respectively.  Our accounts payable to Salisbury &
Ryan LLP was $33,000 and $34,000 at December 31, 2007 and 2006,
respectively.





62


NOTE
G – COMMITMENTS AND CONTINGENCIES





Capital
Leases





We conduct a portion of our operations
with leased equipment. For financial reporting purposes, minimum lease rentals
relating to the equipment have been capitalized.





The related assets and obligations have
been recorded using our incremental borrowing rate at the inception of the
lease.  The leases expire at various dates through 2011. The gross
value of the assets financed by the lease obligations at the inception of the
leases was $327,000.  The net carrying value of assets financed by
capital lease obligations is approximated $106,000 as of December 31,
2007.  The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of the net minimum
lease payments as of December 31, 2007, (in thousands).





2008
            
            $
            572009
            
            
            352010
            
            
            262011
            
            
            6Total
      minimum lease payments
            
            
            124Less
      amount representing interest
            
            
            (18
            )Present
      value of net minimum lease payments
            
            $
            106





Operating
Leases





We lease certain property and equipment
under non-cancelable operating leases with initial terms in excess of one year,
through 2012. Future minimum lease payments under such non-cancelable operating
leases subsequent to December 31, 2007, (in thousands) are as
follows:





2008
            
            $
            8452009
            
            
            8652010
            
            
            8862011
            
            
            8572012
            
            
            565Total
      minimum lease payments
            
            $
            4,018





Rent expense, including short-term
leases, amounted to approximately $938,000, $795,000, and $781,000 for the years
ended December 31, 2007, 2006, and 2005 respectively.





NOTE
H – BENEFIT PLANS





Savings
and Investment Plan





We sponsor a 401(k) savings and
investment plan, a plan that covers all eligible employees of Numerex Corp and
its subsidiaries.  Employees are eligible for participation on the
enrollment date following six months of service.  We contribute an
amount equal to 50% of the portion of the employee’s elective deferral
contribution that do not exceed 6% of the employee’s total compensation for each
payroll period in which an elective deferral is made.  Our
contribution is made in cash on a monthly basis.  Our matching
contributions are vested over a three year period at a rate of 33% per
year.  Approximately $151,000, $142,000, and $101,000 were expensed
for the years ended December 31, 2007, 2006 and 2005, respectively.





Employee
Stock Purchase Plan





All employees of Numerex and its
subsidiaries were entitled to participate in a discounted Employee Stock
Purchase Plan.  This plan was discontinued on March 1,
2006.  This plan allowed employees to elect to have an amount withheld
from their pay that is held in an account for the purchase of our common
stock.  The plan had two measurement dates per year – July 1 and
January 1, which is used to determine the stock price at a 15% discount and
number of shares issued to the employee.  There were a total of
500,000 shares authorized of which 1,504 were issued upon the cancellation of
the plan and 450 were issued at December 31, 2005.





63


NOTE
I – SEGMENT INFORMATION





SFAS
No. 131, Disclosures
About Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments in financial
statements.  The Company has two reportable operating
segments.  These segments are Wireless M2M Data Communications and
Digital Multimedia, Networking and Wireline Security.  The Wireless
M2M Data Communications segment is made up of all our cellular and satellite
machine-to-machine communications hardware and services.  The Digital
Multimedia, Networking and Wireline Security segment includes our networking
hardware and services, video conferencing hardware, and our wire-line security
detection hardware.




The
Company’s chief operating decision maker is the Chief Executive Officer (CEO).
While the CEO is apprised of a variety of financial metrics and information, the
Company’s business is principally managed on a segment basis, with the CEO
evaluating performance based upon segment operating profit or loss that includes
an allocation of common expenses, but excludes certain unallocated expenses. The
CEO does not view segment results below operating profit (loss) before
unallocated costs, and therefore unallocated expenses, interest income and
other, net, and the provision for income taxes are not broken out by segment.
Items below segment operating profit/(loss) are reviewed on a consolidated
basis.





Summarized
below are the Company’s revenues and net income (loss) by reportable
segment as of and for the years ended December 31, 2007, 2006 and
2005.





Certain
Corporate expenses are allocated to the segments based on segment
revenues.





For
      the years ended December 31,(In
      thousands, except per share data)
            
            2007
            
            
            2006
            
            
            2005Revenues:Wireless
      M2M Data Communications
            
            $
            62,825
            
            
            $
            46,321
            
            
            $
            22,328Digital
      Multimedia, Networking and Wireline Security
            
            
            5,179
            
            
            
            6,467
            
            
            
            7,618$
            68,004
            
            
            $
            52,788
            
            
            $
            29,946Operating
      earnings (loss) before taxesWireless
      M2M Data Communications
            
            $
            2,374
            
            
            $
            3,659
            
            
            $
            1,027Digital
      Multimedia, Networking and Wireline Security
            
            
            680
            
            
            
            (1,619
            )
            
            
            118Unallocated
      Corporate
            
            
            (554
            )
            
            
            (366
            )
            
            
            (184
            )$
            2,500
            
            
            $
            1,674
            
            
            $
            961Depreciation
      and AmortizationWireless
      M2M Data Communications
            
            $
            1,801
            
            
            $
            1,268
            
            
            $
            1,201Digital
      Multimedia, Networking and Wireline Security
            
            
            194
            
            
            
            220
            
            
            
            276Unallocated
      Corporate
            
            
            498
            
            
            
            267
            
            
            
            185$
            2,493
            
            
            $
            1,755
            
            
            $
            1,662Dec.
      31,
            
            
            Dec.
      31Identifiable
      Assets
            
            2007
            
            
            2006Wireless
      M2M Data Communications
            
            $
            57,271
            
            
            $
            37,380Digital
      Multimedia, Networking and Wireline Security
            
            
            3,972
            
            
            
            3,941Unallocated
      Corporate
            
            
            12,855
            
            
            
            25,072$
            74,098
            
            
            $
            66,393





64




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON






CONSOLIDATED
FINANCIAL STATEMENTS




Board of
Directors and Shareholders


Numerex
Corp.





We have
audited the accompanying consolidated balance sheets of Numerex Corp.
(a Pennsylvania company) and subsidiaries (the “Company”) as of December
31, 2007 and 2006, and the related consolidated statements of operations and
comprehensive income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2007. Our audits of the basic financial
statements included the financial statement schedule II listed in the index
appearing under Item 15 (a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management.Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Numerex Corp. and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related financial
statement schedule II, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.




As
discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 on January 1, 2007
and the provisions of Statement of Financial Accounting Standards No. 123
(revised 2004), “Share-Based
Payments” on January 1, 2006.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Numerex Corp. and
subsidiaries’ internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 12, 2008 expressed an
unqualified opinion thereon.












/s/ Grant
Thornton LLP





Atlanta,
Georgia


March 12,
2008





65


Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.





None.





Item
9A.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this Annual Report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer (its principal executive
officer and principal financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission and that such
information is accumulated and communicated to our management (including our
Chief Executive Officer and Chief Financial Officer) to allow timely decisions
regarding required disclosures. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded these disclosure controls are
effective as of December 31, 2007.





Changes
in Internal Control Over Financial Reporting





During the quarter ended
December 31, 2007, there were no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.




Management’s
Annual Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in the Securities
Exchange Act Rules 13a – 15(f).  Our internal control system is
designed to provide reasonable assurance to our management and the Board of
Directors regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance as to the reliability of financial
statement preparation and presentation.    Management has excluded
Orbit One Communications LLC (“Orbit One”) from our assessment of internal
controls over financial reporting as of December 31, 2007 because it was
acquired by the Company in July 2007.  Orbit One is a wholly-owned
subsidiary whose total assets and total revenues represent 16% and 5%,
respectively, of the related consolidated financial statement amounts as of and
for the year ended December 31, 2007.Our management assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2007.  In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control – Integrated
Framework.  Based on this assessment, management concludes that, as of
December 31, 2007, our internal control over financial reporting is
effective based on those criteria.  The effectiveness of our internal
control over financial reporting as of December 31, 2007 has been audited
by Grant Thornton LLP, an independent registered public accounting firm, as
stated in their report which is included herein.





66


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING





Board of
Directors and Shareholders


Numerex
Corp.





We have
audited Numerex Corp. (a Pennsylvania Corporation) and subsidiaries, internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Numerex Corp. and subsidiaries'
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Controls over Financial Reporting. Our responsibility is to
express an opinion on Numerex Corp.and subsidiaries' internal control over
financial reporting based on our audit.





As
described in Management’s Report on Internal Controls Over Financial Reporting,
management has excluded Orbit One Communications LLC (“Orbit One”) from its
assessment of internal controls over financial reporting as of December 31, 2007
because it was acquired by the Company in July 2007.  We have also
excluded Orbit One from our audit of internal control over financial
reporting.  Orbit One is a wholly-owned subsidiary whose total assets
and total revenues represent 16% and 5%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December
31, 2007.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Numerex Corp. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control—Integrated
Framework issued by COSO.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Numerex
Corp. and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations and comprehensive income, shareholders’
equity, and cash flows for each of the three years in the period ended December
31, 2007and our
report dated March 12, 2008 expressed an unqualified opinion on those financial
statements.








/s/ Grant
Thornton LLP





Atlanta,
Georgia


March 12,
2008





67




Item
9B.    Other Information.




None.





PART
III





Item
10.  Directors and Executive Officers of the Registrant.





Except as set forth above under
“Business - Executive Officers of the Registrant,” the information required by
Item 10 of Form 10-K is incorporated by reference from the Company's Proxy
Statement relating to the 2008 Annual Meeting of Shareholders to be filed
pursuant to General Instruction G (3) to Form 10-K. Also incorporated by
reference is the information under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance.”





Item
11.  Executive Compensation.





Incorporated
by reference from the our Proxy Statement relating to the 2008 Annual Meeting
of


Shareholders
to be filed pursuant to General Instruction G (3) to Form 10-K.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





Except as set forth below, the
information required by Item 12 of Form 10-K is incorporated by reference from
our Company's Proxy Statement relating to the 2008 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K.








Equity
Compensation Plan Information




The
following table provides information as of December 31, 2007 about the
securities authorized for issuance to our employees and non-employee directors
under our stock-based compensation plans:








(a)
            (b)
            (c)Plan
      category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)Equity
      compensation plans approved by security holders
            1,926,222
            $6.06
            323,778Equity
      compensation plans not approved by security holders
            -
            -
            -Total
            1,926,222
            $6.06
            323,778





Item
13.  Certain Relationships and Related Transactions.





Incorporated
by reference from our Proxy Statement relating to the 2008 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K.





Item
14.  Principal Accounting Fees and Services





Incorporated by reference from our
Proxy Statement relating to the 2008 Annual Meeting of Shareholders to be filed
pursuant to General Instruction G (3) to Form 10-K.


68





PART
IV





Item
15.  Exhibits, Financial Statement Schedules.





(a)  Documents
filed as part of this report:





1.
            Consolidated
      Financial Statements;  All financial statements of the Company
      as described in Item I of this report on Form
  10-K.


2.
            Financial
      statement schedule included in Part IV of this
  Form:


Page


Report of Independent Registered Public
Accounting Firm      65


Schedule II - Valuation and qualifying
accounts           72





3.   Exhibits





2.11
      Numerex Corp. and British Telecommunications plc, Agreement Relating to
      the sale and purchase of the whole of the issued shares capital of
      Bronzebase Limited, dated November 12,
1999





2.22
      Asset Transfer Agreement by and between Airdesk, LLC and Airdesk, Inc.,
      effective January 1, 2006




2.314Asset
      Purchase Agreement, by and between Orbit One Communications LLC and Orbit
      One Communications,    Inc., dated as of July 31,
      2007





3.13Amended
and Restated Articles of Incorporation of the Company





3.23Bylaws
of the Company





4.14Securities Purchase Agreement, dated May 30, 2006 by and between
      the Company and Laurus Master Fund,
Ltd.





4.24Secured Non-Convertible Term Note, dated May 30, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.





4.34Common Stock Purchase Warrant, dated May 30, 2006 by and between
      the Company and Laurus Master Fund,
Ltd.





4.44Master Security Agreement, dated May 30, 2006 by and among the
      Company, its U.S. subsidiaries, and Laurus Master Fund,
    Ltd.





4.54Subsidiary Guaranty, dated May 30, 2006 entered into by each of the
      Company’s U.S. Subsidiaries, in connection with the note payable issued to
      Laurus Master Fund, Ltd.





4.65Securities Purchase Agreement, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.





4.75Secured Convertible Term Note, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.





4.85Common Stock Purchase Warrant, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.





4.95Master Security Agreement, dated December 29, 2006 by and among the
      Company, its U.S. subsidiaries, and Laurus Master Fund,
    Ltd.





4.105Subsidiary Guaranty, dated December 29, 2006 entered into by each
      of the Company’s U.S. Subsidiaries, in connection with the note payable
      issued to Laurus Master Fund, Ltd.





4.115Registration Rights Agreement, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.





4.125Amended and Restated Grant of Security Interest in Patent and
      Trademarks, dated December 29, 2006 by and between the Company and Laurus
      Master Fund, Ltd.




4.135 Pledge
Agreement, dated December 29, 2006, by and between the Company and Laurus Master
Fund, Ltd.





4.146Common Stock Purchase Warrant, dated January 13, 2004 by and
      between the Company and Laurus Master Fund,
Ltd.


69





4.157Common Stock Purchase Warrant, dated January 28, 2005 by and
      between the Company and Laurus Master Fund,
Ltd.





10.18Amended and Restated 1994 Employee Stock Option Plan (Management
      Compensation Plan)





10.
      29Amended and Restated 1994 Stock Option Plan for Non-Employee
      Directors (Management Compensation
Plan)





10.
310Registration Agreement between the Company and Dominion dated July 13,
1992





10.
      49Letter Agreement between the Company and Dominion (now Gwynedd)
      dated October 25, 1994 re: designation of
  director


10.
      5111999 Long-Term Incentive Plan (Management Compensation
      Plan)





10.
      612
      2006 Long-Term Incentive Plan (2006
Plan)




10.
715
Form of Non-Qualified Stock Option Grant Agreement (consultants) under 2006
Long-Term Incentive Plan




10.
      815
      Form of Non-Qualified Stock Option Grant Agreement (non-employee
      directors) under 2006 Long-Term Incentive
Plan




10.
915
Form of Incentive Stock Option Grant Agreement (employees) under 2006 Long-Term
Incentive Plan





10.1013
      Severance Agreement, by and between Stratton Nicolaides and the Company
      dated November 1, 2006.  (Management Compensation
      Plan)





10.1113
      Severance Agreement, by and between Alan Catherall and the Company dated
      November 1, 2006.  (Management Compensation
  Plan)





10.1213
      Severance Agreement, by and between Michael Marett and the Company dated
      November 1, 2006.   (Management Compensation
      Plan)




10.1316
      Subcontract Agreement by and between Stratix Corporation and Orbit One
      Communications, Inc., dated as of June 1, 2007 (with certain information
      omitted pursuant to a request for confidential treatment and filed
      separately with the Securities and Exchange
  Commission).





11
            Computation
      of Earnings Per Share





21
            Subsidiaries
      of Numerex Corp.





23
            Consent
      of Grant Thornton LLP.





31.1
            Rule
      13a-14(a) Certification of Chief Executive
  Officer





31.2
            Rule
      13a-14(a) Certification of Chief Financial
  Officer





32.1
            Rule
      13a-14(b) Certification of Chief Executive
  Officer





32.2
            Rule
      13a-14(b) Certification of Chief Financial
  Officer








1
            Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K filed with the Securities and Exchange Commission on November 26,
      1999 (File No. 0-22920)





2
            Incorporated
      by reference to the Exhibits filed with the Current Report on Form 8-K
      filed with the Securities and Exchange Commission on January 11, 2006
      (File No. 0-22920)





3
            Incorporated
      by reference to the Exhibits filed with the Company's Annual Report on
      Form 10-K filed with the Securities and Exchange Commission for the year
      ended October 31, 1995 (File No.
0-22920)





4
            Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on June 5, 2006
      (File No. 0-22920)





5
            Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on January 5,
      2007 (File No. 0-22920)





6
            Incorporated
      by reference to the Exhibit filed with the Company's Current Report on
      Form 8-K filed with the Securities and Exchange Commission on January 15,
      2004 (File No. 0-22920)





70


7
            Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on February 3,
      2005, 2005 (File No. 0-22920)





8
            Incorporated
      by reference to the Exhibits filed with the Company's Annual Report on
      Form 10-K filed with the Securities and Exchange Commission on January 27,
      1997 for the year ended October 31, 1996 (File No.
  0-22920)





9
            Incorporated
      by reference to the Exhibits filed with the Company's Registration
      Statement on Form S-1 filed with the Securities and Exchange Commission
      (File No. 33-89794)





10
            Incorporated
      by reference to the Exhibit filed with the Company's Current Report on
      Form 8-K filed with the Securities and Exchange Commission on July 20,
      1994 (File No. 0-22920)





11
            Incorporated
      by reference to the Exhibits filed with the Company's Quarterly Report on
      Form 10-Q filed with the Securities and Exchange Commission on August 14,
      2000 (File No. 0-22920)





12
            Incorporated
      by reference to the Exhibits filed with the Company's Proxy Statement on
      Schedule 14A filed with the Securities and Exchange Commission on April
      10, 2006 (File No. 0-22920)





13
            Incorporated
      by reference to the Exhibits filed with the Company's Quarterly Report on
      Form 10-Q filed with the Securities and Exchange Commission on November
      14, 2006 (File No. 0-22920)




14
            Incorporated
      by reference to the Exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on August 6,
      2007 (File No. 0-22920)




15
            Incorporated
      by reference to the Exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on July 12,
      2007 (File No. 0-22920)







16
            Incorporated
      by reference to the Exhibits filed with the Company's Quarterly Report on
      Form 10-Q filed with the Securities and Exchange Commission on November
      14, 2007 (File No. 0-22920)


71





SCHEDULE
II





NUMEREX
CORP.





VALUATION
AND QUALIFYING ACCOUNTS





Years
ended December 31, 2007, 2006, 2005


(in
thousands)


Balance
      at beginning of Period
            Additions
      charged to expense
            Deductions
            
            Balance
      at end of PeriodDescriptionYear
      ended December 31, 2007:Accounts
      receivableAllowance
      for uncollectible accounts
            935
            635
            (561)
            a
            1,009InventoryAllowance
      for obsolescence
            353
            99
            (112)
            
            340Year
      ended December 31, 2006:Accounts
      receivableAllowance
      for uncollectible accounts
            704
            231
            
            
            935InventoryAllowance
      for obsolescence
            317
            36
            
            
            353Year
      ended December 31, 2005:Accounts
      receivableAllowance
      for uncollectible accounts
            702
            34
            (32)
            a
            704InventoryAllowance
      for obsolescence
            967
            66
            (716)
            b
            317(a)
      Amounts written off as uncollectible, net of recoveries.(b)
      Inventory physically disposed.





72








SIGNATURES








Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





NUMEREX CORP.








By:/s/Stratton
J.
Nicolaides


Stratton J.
Nicolaides, Chairman and


Chief Executive Officer


Date: March 17, 2008





Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





73
  Signature
                Title
                Date/s/ Stratton J. Nicolaides
                Chairman
      and Chief Executive Officer
                March
      17, 2008Stratton
      J. Nicolaides/s/ Brian C. Beazer
                Director
                March
      17, 2008Brian
      C. Beazer/s/ George Benson
                Director
                March
      17, 2008George
      Benson/s/ Matthew J. Flanigan
                Director
                March
      17, 2008Matthew
      J. Flanigan/s/ John G. Raos
                Director
                March
      17, 2008John
      G. Raos/s/ Andrew J. Ryan
                Director
                March
      17, 2008Andrew
      J. Ryan/s/ Nicholas Davidge
                Director
                March
      17, 2008Nicholas
      Davidge/s/ Alan B. Catherall
                Executive
      Vice President
                March
      17, 2008Alan
      B. Catherall
                Chief
      Financial OfficerPrinciple
      Financial and Accounting Officer
  74