**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, 2006


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. 0-22920**NUMEREX
                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)
                693-5950Securities
                Registered Pursuant to Section 12(b) of the Act:NoneSecurities
                Registered Pursuant to Section 12(g) of the Act:Class
                A Common Stock, no par value(Title
                of Class)







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. o





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


Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer þ





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 (8,899,999 shares) based on the closing
      price of the registrant’s common stock as reported on the NASDAQ National Market
      on June 30, 2006, was $63,634,993. 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 16, 2007, was 13,050,399 shares.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Certain
      portions of the Company’s Proxy Statement to be filed in connection with its
      2006 Annual Meeting of Shareholders are incorporated by reference in Part III
      of
      this Report.














**NUMEREX
      CORP.**


**ANNUAL
      REPORT ON FORM 10-K**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2006**





**TABLE
      OF CONTENTS**


**Page****PART
                I****Item
                1.**
            **Business**
            **4****Item
                1A.**
            **Risk
                Factors**
            **13****Item
                1B.**
            **Unresolved
                Staff Comments**
            **18****Item
                2.**
            **Properties**
            **18****Item
                3.**
            **Legal
                Proceedings**
            **18****Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            **18****PART
                II****Item
                5.**
            **Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity****Securities**
            **19****Item
                6.**
            **Selected
                Consolidated Financial Data**
            **21****Item
                7.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of Operations**
            **22****Item
                7A.**
            **Quantitative
                and Qualitative Disclosures about Market Risk**
            **34****Item
                8.**
            **Financial
                Statements and Supplementary Data**
            **35****Item
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**
            **60****Item
                9A.**
            **Controls
                and Procedures**
            **60****Item
                9B.**
            **Other
                Information**
            **60****PART
                III****Item
                10.**
            **Directors
                and Executive Officers of the Registrant**
            **60****Item
                11.**
            **Executive
                Compensation**
            **60****Item
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**
            **60****Item
                13.**
            **Certain
                Relationships and Related Transactions**
            **60****Item
                14.**
            **Principal
                Accounting Fees and Services**
            **60****PART
                IV****Item
                15.**
            **Exhibits,
                Financial Statement Schedules**
            **61**





****  ****  ****  ****  ****


****
















***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; 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**





**Item
      1. Business**





Numerex
      Corp. is a wireless machine-to-machine (M2M) communications, technology and
      solutions business. The Company combines its network services, technology,
      products, and application development capabilities to create innovative packaged
      and 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 solutions, vehicle location and tracking, fleet management,
      telemedicine, meter reading, utilities,
      vending, remote device monitoring, and more.





M2M
      is
      defined as electronic (wireless) data communication between people, devices
      and
      systems that turns data into information and addresses the needs of such
      industries as security, vending, the automotive aftermarket, healthcare, gas
      and
      oil, utilities and others. While the industry emerged in force just a few years
      ago, the underlying network and technology infrastructure has been a part of
      Numerex’s business for several years. Today, many mission-critical M2M solutions
      are deployed by Fortune 100 companies worldwide.





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 through Value Added Resellers (VARs) and Original
      Equipment Manufacturers (OEMs) who choose to integrate our products and services
      into their own offerings. We market and sell these products and services through
      our Airdesk WirelessTM and UplinkTM Divisions.





Numerex
      has developed industry-specific expertise in wireless network services,
      back-office support services, wireless device technology and distribution,
      wireless security products and services, mobile tracking and asset recovery,
      as
      well as remote asset management. As a result, leading businesses with M2M
      requirements partner with Numerex for our proven solutions. We help companies
      by
      removing the complexities associated with the design, development, deployment
      and support of M2M solutions so that our customers can focus on their primary
      business objectives and speed the time to market.





Numerex
      provides much more than network connectivity to our partners. We are always
      looking 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, hiring expertise, or via acquisition. Our strategic vision is
      to
      be recognized as the “Perfect Partner” and leading provider of M2M networks,
      technology and end-to-end wireless solutions for customers in our target markets
      by:





·
            Providing
                best-in-class technology, networks and end-to-end solutions to the
                M2M
                market, expanding our success in network services, mobile and fixed
                applications, wireless security and remote monitoring into new market
                segments across all industries;





·
            Creating
                a culture of excellence in customer
                service;





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





·
            Striving
                to be “The Perfect Partner” - a single stop shop for M2M technology,
                solutions and support; and





·
            Enhancing
                shareholder value through long term recurring revenue
                growth.





**Background**





Numerex
      Corp., a corporation organized under the laws of the Commonwealth of
      Pennsylvania, began in July 1992 with the acquisition of technology referred
      to
      as “Derived Channel”, which 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.





Cellemetry
      has evolved into Numerex, with two distinct business divisions:





·
            Uplink,
                the Wireless Security Division of Numerex provides products and services
                that report security alarm messages reliably and securely to central
                monitoring stations. Uplink offers wireless security solutions through
                a
                nationwide network of independent dealers and distributors for over
                200,000 subscribers in North America. Uplink is delivered to the
                market
                under the Uplink brand as well as our customers own brand for sale
                to
                other distributors of security products, including Fortune 500
                companies.





·
            Airdesk,
                the M2M Wireless Division of Numerex provides flexible, scalable
                machine-to-machine (M2M) technology, network, services and integration
                capabilities to partners and customers across a wide range of industries.
                With individual applications and comprehensive end-to-end solutions,
                Airdesk serves the utilities, security, automotive, healthcare,
                manufacturing, and retail markets. Airdesk combines its extensive
                wireless
                industry expertise with Numerex’s network services, technology, and
                support services, to deliver packaged and custom-designed M2M products
                and
                services for asset tracking, inventory control, point-of-sale systems
                and
                a host of emerging M2M applications. Airdesk is also the leading
                North
                American distributor for a variety of wireless radios including Wavecom
                and Sony-Ericsson.





Numerex
      completed the acquisition of Airdesk in January 2006. We believe the acquisition
      of Airdesk, with its years of experience in the M2M market and extensive
      distribution reach, has helped position Numerex as a premier provider of
      wireless M2M products and services.





Numerex’s
      activities are focused on two segments:





·
            Core
                Business Segment: Wireless Data Communications;
                and





·
            Non-Core
                Business Segment: Digital Multimedia, Networking and Data
                Communications.








**CORE
      BUSINESS SEGMENT: WIRELESS DATA COMMUNICATIONS**





**Machine-to-Machine
      Communications (M2M)**





Airdesk
      now serves as Numerex’s wireless M2M products and services division, offering
      all components of the M2M value chain, including networks, technology, and
      fixed
      and mobile solutions. Wireless data solutions historically delivered under the Cellemetry or CellemetryXG brand
      are
      now delivered under the Airdesk Wireless brand. Also, Numerex
      NetworksTM is offered through Airdesk to customers and industry partners with
      network-only requirements. Numerex will continue to market and sell its wireless
      security solutions through its Uplink division under the Uplink brand
      name.





Wireless
      data communications at Numerex encompass:





·
            Fixed
                end-to-end solutions;





·
            Mobile
                end-to-end solutions;





·
            Networks
                and network services; and





·
            Technology
                Development and Distribution.








Fixed
      End-to-End Solutions





**Uplink** **’** **:
      Wireless Security Communications**





Uplink
      is
      a dedicated wireless communications solution for security monitoring that
      reports all alarms, status, and 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 activates and manages the service for its
      dealers.





Numerex
      launched Digital Uplink in 2006, with new technology including the DigiCell *Any* NET
      device and the Digital 1650 device. The network services used for Digital Uplink
      are provided by SMSXpressTM from Numerex Networks. In 2006, we also began a
      concerted effort to provide both business and technology solutions to move
      legacy analog Uplink customers to Digital Uplink. We also are developing new
      mobile and security solutions to better serve our existing customers and enter
      new markets.





**Uplink
      Sales and Marketing**





Uplink
      is
      distributed through master distributors to a network of over 4,500 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.
      Product initiatives planned for Uplink in 2007 include added certifications
      that
      will allow us to enter new security markets as well as added hardware and
      service features.





Mobile
      End-to-End Solutions





**MobileGuardian**





In
      2006,
      the MobileGuardian brand was discontinued. The brand was used primarily by
      a
      certain mobile tracking customer targeting the new car dealer market. The
      customer recently replaced the brand with their own private label. Their private
      label offering is based upon Numerex’s new mobile solution, Airdesk Mobile.








**Airdesk
      Mobile**





Airdesk
      Mobile (formerly known as MobileGuardian) provides
      advanced features and functions. Airdesk Mobile includes new device technology
      well suited for multiple automotive and security markets and applications.
      It delivers vehicle
      location and recovery solutions that combine the accuracy of GPS (Global
      Positioning System), Numerex NetworksTM and wireless communications technology to
      improve the prospect of vehicle recovery and the timeframe in which the recovery
      occurs. Alert notifications, including excess speed and geo-fence boundary
      violations are delivered via Numerex Networks to Web-based interfaces that
      allow
      for immediate action on the part of the user.





If
      the
      vehicle’s alarm system is triggered, a message is sent to the Airdesk Mobile
      device located in the vehicle, which then wirelessly transmits a ‘theft’ alert
      notification over Numerex Networks to the vehicle’s owner via the owner’s
      wireless phone, email, or pager. The owner may then log on to the secure,
      private-labeled Web site to pinpoint the vehicle location and track its recent
      travel. At that point, the owner may choose to remotely disable the vehicle
      with
      a mouse click and prevent it from being restarted while he or she calls the
      authorities to report the theft.





The
      Airdesk Mobile solution is also applicable for non-theft recovery applications
      and markets. The technology and associated services can be used for fleet
      management, asset tracking and recovery, teen driver monitoring, rental
      tracking, and more.





For
      new
      car markets Airdesk Mobile includes bundled hardware and services at a single
      price point. With each device, integrated vehicle monitoring and recovery
      services are provided for a period of time. This includes access to the Customer
      Theft Recovery Call Center. Additional premium network services, including
      locates and service transactions, are available online directly from Numerex
      at
      the time of activation and later.





Airdesk
      Mobile is typically installed at the auto dealership location by the
      dealer/distributor. Application and network support is provided to dealers
      by
      the Numerex Network Operations Center in Atlanta. Comprehensive service coverage
      and distribution spans the US and Canada, with potential expansion into Mexico
      using the existing Numerex Networks.





**Airdesk
      Mobile Sales & Marketing**





The
      distribution strategy for Airdesk Mobile is designed as an indirect model that
      involves multiple distributors and expeditors serving auto dealerships and
      financial services providers. The product is only available as a private-labeled
      offering through these channels and is not marketed to the end user. Currently,
      we have a certain distributor that is the primary product sales channel for
      Airdesk Mobile in the new car market. We have several distributors/expeditors
      that serve the financial services markets. Our strategy involves expanding
      our
      distribution reach within our existing markets, as well as to certain
      international markets.





Numerex
      is also focused on delivering Airdesk Mobile to the sub-prime finance, or
‘Buy-Here-Pay-Here’, auto market through a network of distributors and dealers
      that service this market. The primary sub-prime finance application is the
      tracking and recovery of vehicles whose owners have defaulted on loans.
      Currently, Numerex has several distributors servicing this market.





Numerex’s
      industry partners market and sell our mobile products on a private-labeled
      basis
      using a number of channels. For example, a key customer, focused on the new
      car
      dealer channel, launched a program to market and sell a mobile tracking and
      recovery solution based upon the Airdesk Mobile platform. Others are addressing
      the sub-prime markets or regional fleet markets and have launched their own
      branded products which are based on Airdesk Mobile, each one containing a unique
      set of features.





We
      believe that Airdesk Mobile is competitively priced and offers value-added
      features, such as extensive network coverage, vehicle tracking, and immediate
      notification of a breach and/or activation of the vehicle’s alarm system. We
      believe Airdesk Mobile is well positioned in the established vehicle location
      and recovery markets as a private-labeled, digital mobile tracking and recovery
      solution.





In
      2007,
      we seek to complete the development of a next-generation, lower-cost device
      that
      is expected to increase distribution of our mobile products and establish
      alternate distribution channels.








Networks
      and Network Services





**Airdesk
      M2M Solutions and Numerex Networks**





Numerex’s
      M2M wireless division, Airdesk, brings to market M2M solutions, and an array
      of
      products that support the M2M value chain. Core to these offerings and services
      is the Company’s wireless data network service, Numerex NetworksTM, which is a
      Mobile Virtual Network Operator (MVNO). MVNOs are operating companies that
      sell
      cellular services without owning the physical networks over which data are
      transmitted. While we own the network gateway, other message transmission
      infrastructure that allows us to move information or data across the cellular
      infrastructure, 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 can 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 our Numerex
      Networks and services. Numerex services offered through Airdesk 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
      voice and Web services.





We
      see it
      as our charter to go beyond providing specific products and 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.





With
      the
      establishment of the Airdesk Division, Numerex evolved and re-branded its legacy
      CellemetryXG network solutions as Numerex NetworksTM, making our core network
      offerings an integral part of the Airdesk wireless M2M platform.





**Numerex
      NetworksTM**





Serving
      Airdesk and Uplink, Numerex Networks is capable of supporting a variety of
      remote applications that are either fixed or mobile. From Global System for
      Mobile Communications (GSM) and Code Division Multiple Access (CDMA) digital
      and
      Cellemetry network offerings, to premium 24/7/365 network support services,
      Numerex Networks supports continued expansive coverage, legacy network
      interoperability, and extended gateway capabilities for higher bandwidth M2M
      applications. Through a myriad of 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
      launched multiple, state-of-the art, digital networks in 2006. Numerex Networks
      supports multiple technologies, providing unique, value added services to
      fulfill varied customer data and application requirements.





**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
      SMSC (Short Message Service Center) 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 U.S. 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.








**‘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 a “’round-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 the Airdesk
                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 provided through our focus on, and investment in:
      infrastructure; network management; redundancy and reliability; and support
      services:





·
            ***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;





·
            ***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. This helps our Technical Support Center
                develop
                priorities that resolve customer issues based on business requirements
                and
                translates into higher customer satisfaction and quality of
                service;





·
            ***Redundancy
                and Reliability:***The operations sites are geographically diverse and are interconnected
                over Synchronous Optical Network (SONET) bidirectional, fault-tolerant
                facilities. 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;
                and





·
            ***Network
                Support Services:***Building on a solid technological foundation, Numerex Networks brings
                capable systems and processes for GSM / SMS service activation, service
                provisioning, inventory planning and management, and supply chain
                logistical support.





Technology
      Development and Distribution





**Numerex
      Network Access Technology**





Numerex
      designs, develops, manufactures and markets 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 the DigiCell 11650, Uplink DigiCell *Any* NET,
      and *Any* NET
      (VAR
      version) for security applications, 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.





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








With
      the
      acquisition of Airdesk, Numerex became the number one distributor of Wavecom
      radio modules in North America. Wavecom is a leading manufacturer of compact,
      rugged and reliable radio modules. Airdesk technology distribution serves VARs,
      system integrators and enterprise customers across several M2M market segments.
      Numerex also intends to enhance the Airdesk distribution model for Wavecom
      and
      other radio modules by offering added services, network and end-to-end solutions
      to this growing customer base.





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





The
      ADM3500 is an in-vehicle tracking module that incorporates digital cellular
      and
      GPS location tracking technologies. With all-in-one GSM/SMS and GPRS capability,
      it offers cost-effective wireless communication, while advanced motion filtering
      algorithms provide sensitivity in motion detection and interpretation. The
      ADM3500 also supports geo-fencing, on-demand position reporting via the Internet
      or interactive voice systems, ‘speed-threshold crossed’ notifications and
      more.





**Sales
      and Marketing**





Airdesk
      Wireless M2M solutions and Numerex Networks employ an indirect sales model
      through private label/OEM agreements, channel partners, system integrators,
      and
      VARs (collectively referred to, on occasion, as ‘industry partners’). We also
      indirectly market and sell certain Numerex branded products and services through
      distribution and dealer channels, specifically Uplink security.





Our
      network products are integrated and bundled with Numerex technology and services
      to provide private-labeled solutions for both fixed and mobile 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, allowing
      them to deliver additional products and services outside of their primary
      business objectives.





Our
      private-label solutions are designed and marketed for specific vertical markets.
      Typically these customers are sales and marketing organizations without
      technical resources that are seeking rapid entry into a market. We are currently
      concentrating on mobile solutions for the automotive market and sub-prime
      finance markets. Another area of focus is private labeling the Uplink service
      and technology for VARs and integrators that are servicing a variety of M2M
      customers.








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





Numerex’s
      primary focus is wireless M2M networks and solutions as described above. We
      operate three non-core, legacy businesses that make up the balance of our
      business and comprise about 13% of our revenue base. These are: Digital
      Multimedia, Networking Integration and Wireless Data Communications through
      DCX.





**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 include *PowerPlayTM* ,
      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. These services are provided
      primarily through our subsidiary, BNI Solutions LLC.





**Networking
      Integration**





We
      provide products under the Digilog  brand
      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. These products
      and services are provided through our subsidiary, Digilog Inc.








**Wireline
      Data Communications through DCX**





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. We
      provide this service through our subsidiaries, DCX Systems and DCX Australia.





**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 Agilent
      and other 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**





**Suppliers**





We
      rely
      on third-party subcontractors, both in the United States and overseas, to
      manufacture most of the equipment used to provide our wireless M2M solutions,
      networking equipment and products. In addition, some of our technology products
      are obtained from sole-source suppliers. The loss of a subcontractor or supplier
      could cause a disruption in our business due to the short lead times demanded
      by
      certain customers.





**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 uniquely 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 and Aeris as M2M network providers, and to some extent the major
      wireless carriers. We believe that the purchase of Airdesk, combined with the
      continuing development of Numerex Network offerings and services, positions
      us
      to compete with emerging providers of M2M solutions using GSM and CDMA
      technology. Other potentially competitive offerings include “wireless fidelity”
(Wi-Fi), World Interoperability for Microwave Access (WiMAX) and other emerging
      technologies and networks. 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, extended through various agreements with wireless
      operators/carriers, together with our pricing, end-to-end solution offerings,
      and system performance, can enable us to effectively maintain and increase
      our
      current market share. Specifically, the Airdesk acquisition brings us a new
      customer base that will provide additional opportunities for added network
      and
      service sales. It will also interject Numerex earlier in the customers’
decision-making processes. However, many of the competitors 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.





Our
      Uplink security products and services have two primary competitors in the
      existing channels of distribution — Ademco’s AlarmNet and Telular’s Teleguard,
      both of which introduced new digital competing products in 2006. The principal
      competitive factors when making a product selection in the business and consumer
      security industry are price, reliability, and industry certification status.
      GE
      Interlogix and DSC Skyroute also offer competitive hardware product solutions
      with their network service provided by Numerex wireless communication solution.
      With the launch of Digital Uplink in 2006, we believe that Uplink’s products and
      services are competitively positioned and priced.








There
      are
      several competitors offering vehicle location and recovery services, but our
      principal direct competitor in the new car after-market vehicle location and
      recovery business is LoJack Corporation, the industry’s market leader. There are
      also numerous other small companies that currently offer or are developing
      other
      wireless products and services in this area. 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. 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 solution for this market is competitive.





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 technology and end-to-end
      solutions -- including integration, network and service management -- has set
      Numerex apart. Our master distribution agreement with Wavecom gives us an
      advantage for technology sales and an opportunity for increased network and
      solutions sales. Our primary competition for radio modules comes from Siemens
      and an assortment of smaller manufacturers.





**Research
      and Development**





Technology
      is subject to rapid 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 of expanded service capabilities; further
      communications costs reductions, and additional enhancement to
      application-specific capabilities.





We
      have
      focused 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
      wireless communications business provides a one-year parts and labor warranty
      on
      all 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, the cost of our warranty programs have not been
      material.





**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 using
      our network or the provision of alarm services by telephone companies using
      Derived Channel technology. We may be subject to certain governmentally imposed
      telecommunications taxes, surcharges, and fees, including the federal universal
      service charge.





By
      February 2008, the FCC plans to eliminate its requirement that cellular carriers
      offer analog service pursuant to the Advanced Mobile Phone Service (AMPS)
      standard. At that time, cellular carriers may stop offering analog AMPS cellular
      service and use the spectrum for other purposes. Services that we provide
      utilizing the control channel of AMPS cellular service would have replaced
      with
      digital services capable of utilizing the control channels or Short Messaging
      Services of digital CDMA wireless service, or digital GSM wireless service
      Customers that use services dependent upon the control channel of AMPS cellular
      services would have to replace or modify incompatible radios to utilize the
      new
      newer services. While we expect that the AMPS standard will remain available
      for
      a period of time after 2008, we have been successful in developing digital
      solutions that do not rely on the control channel of AMPS cellular services
      and
      are deploying those solutions now. As a consequence, we will be able to provide
      all of the functionality of our Cellemetry-based services, whether utilizing
      analog or digital protocols, into the foreseeable future. By moving to the
      digital standard, we will also be able to add additional
      functionality.





In
      addition, some of our products, including derived-channel STUs, Uplink radios,
      and certain digital multimedia products, require FCC certification for
      compliance with standards designed to prevent damage to the telephone network
      and to restrict radio frequency interference. Any of our products currently
      used
      in the United States and subject to these requirements have received all
      required certifications. However, anticipated design changes will require
      additional compliance testing and certification.




We
      intend
      to obtain certification from Underwriters Laboratories for our products sold
      in
      the United States in order to serve monitoring applications with higher levels
      of insurance risk, such as bank security alarm systems and fire alarm monitoring
      systems. Certain of our digital multimedia products also require certification
      from Underwriters Laboratories. We intend to obtain any required Underwriters
      Laboratories certifications.





Regulations
      similar to the above may exist in other countries. In the event that we did
      not
      comply with any such regulations, or if our current or future products do not
      meet various regulatory standards or receive and maintain all required
      certifications, our business could be adversely affected.




**Employees**





As
      of
      March 16, 2007, we had 110 employees in the U.S., consisting 37 in sales,
      marketing and customer service, 51 in engineering and operations and 22 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.com* our
      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.







**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, 2007, are as follows:





**Name**
            **Age**
            **Position**Stratton
                J. Nicolaides*
            53
            Chairman
                of the Board of Directors, Chief Executive OfficerMichael
                A. Marett
            52
            Executive
                Vice President, Chief Operating OfficerAlan
                B. Catherall
            53
            Executive
                Vice President, Chief Financial
                Officer





*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.




**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, 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.





We
      are a
      holding company. Our only material assets are our ownership interests in our
      subsidiaries. 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 45% 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.





**Risks
      Related to Our Business**





*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.*





We
      operate in industries that are subject to evolving industry standards, rapid
      technological changes, and rapid changes in customer demands. These changes,
      individually or collectively, can adversely affect our business. If the demand
      for our products declines due to changes in technology, and we are unable to
      develop new products and services that successfully address market demand,
      our
      business will be adversely affected. In the event we keep pace with
      technological change, any delays in the development, introduction, and marketing
      of new wireless or digital multimedia products and services by us, or our
      suppliers, could have an adverse effect on our business.





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





Over
      the
      past three years 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, and enhanced “back end” services among other
      initiatives.. 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.








*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.





*We
      may require additional capital to fund further development, and our competitive
      position could decline if we are unable to obtain additional
      capital.*





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, as we were successful in doing in 2006, 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.





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





Our
      products and services 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
      impacted.





*We
      depend on contract manufacturers to manufacture substantially all of our
      products, and any delay or interruption in manufacturing would result in delayed
      or reduced shipments to 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.





*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.





*If
      we
      do not adapt to changing regulations that affect us, our business would
      suffer.*





We
      operate in a technological environment characterized by rapid change in
      products, capabilities, and both consumer and societal expectations. As a
      result, the regulatory environment in which we operate is continually changing
      as it adjusts to address new issues in a rapidly changing industry. Future
      regulations could make our products illegal or obsolete, or may require us
      to
      make substantial changes to our products in order to continue to market them.
      For example, by February 18, 2008, cellular carriers in the United States will
      no longer be required by the FCC to provide analog service pursuant to the
      Advanced Mobile Phone Service (AMPS) standard. (No date has been set for ending
      analog service in Canadian provinces. However,





cellular
      carriers in Canada have made the determination to follow the U.S. and have
      begun
      their transition from analog to digital networks as well.) Cellular carriers
      may
      stop offering analog AMPS cellular service. Cellemetry, which currently operates
      using AMPS cellular service, would have to begin operating on other wireless
      service channels, and customers who use services that involve Cellemetry would
      have to replace incompatible equipment. Other products and services that we
      make
      and that depend on Cellemetry, such as Airdesk Mobile, would be similarly
      affected. While we have developed a digital standard, we might not be successful
      in transitioning our existing customer base to such standard. 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 regulations that could
      prompt adverse action by regulators in the event of an alleged violation of
      those laws.





Many
      of
      the ultimate consumers of our PowerPlay products 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”) administered by the Universal Service Fund, which is administered by
      the Universal Service Administrative Company (USAC) under the direction of
      the
      Federal Communications Commission (FCC). Changes in this program could affect
      demand for our PowerPlay products and services.





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





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, 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.





*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 the cellular telephone network
      and our network’s reliance on the cellular network. 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.





*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, Puerto Rico, and Japan.
      Accordingly, we are subject to international regulation and business
      uncertainties. International sales and operations may be subject to additional
      risks than those risks in the United States, such as the following:





·
            imposition
                of government controls,





·
            political
                instability,





·
            export
                license requirements,


·
            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 products 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.
      These factors may have a material adverse effect on our future international
      sales and, consequently, on our business and results of operations.





*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.*





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.





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.





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 infringing on their patents or 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 and licensees. We cannot guarantee
      you that the other 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.





**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
                Term******Atlanta,
                Georgia
            Wireless
                Data Communications and Principal Executive Office
            24,135
            2011Warminster,
                Pennsylvania
            Wireless
                Data Communication
            18,000
            2011Willow
                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 products, we may require
      additional space, which we believe will be available at reasonable rates.





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





**Item
      3. Legal Proceedings.**





None
      other than in the ordinary course of business.




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





Not
      applicable.





**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 National Market System
      under the symbol NMRX. 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.





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
                2006**
            
            **High**
            
            **Low**First
                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**Fiscal
                2005**
            
            
            **High**
            
            
            **Low**First
                Quarter (January 1, 2005 to March 31, 2005)
            
            $
            5.30
            
            $
            4.36Second
                Quarter (April 1, 2005 to June 30, 2005)
            
            
            5.15
            
            
            4.00Third
                Quarter (July 1, 2005 to September 30, 2005)
            
            
            6.19
            
            
            4.56Fourth
                Quarter (October 1, 2005 to December 31, 2005)
            
            
            5.50
            
            
            4.22











**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, 2001, 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 END**12/31/01
            12/31/02
            12/31/03
            12/31/04
            12/31/05
            12/31/06NMRX
            $100.00
            $
                32.61
            $
                46.06
            $
                56.97
            $
                57.33
            $125.60NASDAQ
                US Index
            $100.00
            $
                54.06
            $
                81.09
            $
                88.06
            $
                89.27
            $123.84NASDAQ
                Telecomm Index
            $100.00
            $
                23.47
            $
                39.61
            $
                42.78
            $
                39.69
            $
                99.32








As
      of
      March 15, 2007, there were 62 holders of record of our Common Stock,
      approximately 7 beneficial shareholders and 13,050,399 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.





We
      have
      no plans now or in the foreseeable future to declare or pay cash dividends
      on
      our common stock








**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, 2006, 2005, 2004, 2003 and
      2002.





December
                31, 2006
            
            December
                31, 2005
            
            December
                31, 2004
            
            December
                31, 2003
            
            December
                31, 2002(in
                thousands)**Statement
                of Operations Data**Revenues
            
            $
            52,788
            
            $
            29,946
            
            $
            22,993
            
            $
            20,157
            
            $
            24,501Gross
                profit
            
            
            18,922
            
            
            12,717
            
            
            10,039
            
            
            9,029
            
            
            10,221Operating
                income (loss)
            
            
            1,674
            
            
            961
            
            
            (1,631
            )
            
            (2,726
            )
            
            (7,468
            )Net
                income (loss)
            
            
            4,103
            
            
            593
            
            
            (2,079
            )
            
            (1,404
            )
            
            (7,450
            )Earnings
                (loss) per common share (diluted)
            
            
            0.32
            
            
            0.05
            
            
            (0.19
            )
            
            (0.13
            )
            
            (0.71
            )**Balance
                Sheet Data**Cash,
                cash equivalents and short-term investments
            
            $
            20,384
            
            $
            4,359
            
            $
            1,684
            
            $
            734
            
            $
            2,137Total
                Assets
            
            
            66,394
            
            
            36,348
            
            
            32,612
            
            
            33,970
            
            
            37,111Total
                Debt and capital lease obligations (short and long term)
            
            
            14,337
            
            
            1,326
            
            
            3,848
            
            
            3,782
            
            
            1,573Shareholders'
                equity
            
            
            41,420
            
            
            27,729
            
            
            23,652
            
            
            25,366
            
            
            27,615**Cash
                Flow Data**Net
                cash provided by (used in) operations
            
            $
            2,663
            
            $
            3,277
            
            $
            1,520
            
            $
            706
            
            $
            (2,890
            )





**Item
      7. Management's Discussion and Analysis of Financial Condition and Results
      of
      Oper** **ations.**





**Overview**





Numerex
      Corp is a wireless machine-to-machine communications, technology and solutions
      business. The Company combines its network services, products and applications
      development capabilities to create innovative packaged and custom designed
      machine-to-machine solutions for customers across multiple market
      segments.





Fiscal
      year 2006 represented an improvement over prior periods. Full year revenues
      of
      almost $53 million increased $22.8 million or 76% from 2005. All of this
      increase came from our wireless division where 2006 revenues grew 107% compared
      to 2005.





Gross
      margins for 2006 were 35.9% compared with 42.5% in 2005. This was due to strong
      acceleration in wireless data product sales which typically earn a lower margin
      than that generated by service revenue. These product sales, however, should
      result in enhanced recurring service revenue in subsequent periods.





For
      fiscal year 2006 overheads, which include selling, general and administrative
      (SG&A) costs as well as research and development expenses and bad debt
      costs, collectively were $13.4 million or $3.3 million higher than for 2005.
      This increase in SG&A expenses is primarily related to our acquisition of
      the assets of AIRDESK, Inc. SG&A expenses, which represented almost 34% of
      revenues in 2005, were less than 26% in 2006.





As
      a
      result of strengthening revenues, a decrease in gross margins and continued
      control over costs, we recorded a $3.5 million improvement in net earnings
      in
      2006, from approximately a $600,000 profit for the year ended December 31,
      2005
      to a profit of $4.1 million for the comparative period for 2006. For the year
      ended December 31, 2006 we released approximately $2.9 million of our valuation
      allowance, but this release of the valuation allowance was partially offset
      by a
      goodwill impairment charge of $2.1 million.





Our
      balance sheet also shows similar improvement in 2006. For example, our working
      capital was $25.9 million on December 31, 2006 compared to $4.8 million at
      December 31, 2005. In late December 2006, the Company entered into a $10 million
      Convertible Term Note with the Laurus Master Fund, Ltd. to provide additional
      funds primarily for strategic initiatives.





The
      following is a discussion of our consolidated financial condition and results
      of
      operations for the fiscal years ended December 31, 2006 and 2005 and 2004.
      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 products, recurring services (most billed on a monthly basis)
      and
      on-demand services. Product 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 one month in advance. We defer the advance billing
      for the service and recognize the revenue when the services are provided. 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. Again, 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.





**Accounts
      Receivable and Allowance for Doubtful Accounts**





Our
      estimate for our allowance for doubtful accounts related to trade receivables
      is
      calculated based on two methods which are combined to determine the total amount
      reserved. First, we evaluate specific accounts where information exists that
      the
      customer may have an inability to meet its financial obligations. In these
      cases, we use our judgment, based on the best available facts and circumstances,
      and record a specific reserve for that customer to reduce the receivable to
      the
      amount that is expected to be collected. These specific reserves are reevaluated
      and adjusted as additional information is received that impacts the amount
      reserved. Second, we establish a general reserve for all customers based on
      a
      range of percentages applied to aging categories. These percentages are based
      on
      historical collection and write-off experience. If circumstances change, (i.e.
      higher than expected defaults or an unexpected material adverse change in a
      major customer’s ability to meet its financial obligation to us), our estimates
      of the recoverability of amounts due to us could be changed by a significant
      amount.


**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
      products 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 would adjust
      our reserves accordingly.





**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 long-lived and 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.




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
      in
      February 2007, and as a result 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
      have declined in each of the past two years, and this trend is expected to
      continue. Based on a discounted cash flow valuation of BNI and a fair market
      value of its tangible and intangible assets, the $2.1 million charge to goodwill
      was taken. The non-cash charge has no impact on our liquidity or our future
      operations. After the charge, our net goodwill balance is $16.0 million.




**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, 2006, management determined that it was more likely than not that
      the benefit of a portion of the net operating loss carryforwards would be
      realized by the Company.





A
      portion
      of the valuation allowance was reversed, which reflects the amount of net
      operating loss carryforwards projected to be utilized during the years ending
      December 31, 2006, 2007, and 2008. The total tax affected amount of valuation
      allowance reversed was $4,572,000, which includes projected utilization of
      net
      operating loss carryforwards in 2006, 2007, and 2008 and a deferred tax
      liability related to intangibles of $338,000.





The
      entire amount of the valuation allowance reversal was taken in the current
      year
      as an income tax benefit with the exception of $120,000. This amount reflects
      net operating loss carryforwards that were acquired and accordingly the reversal
      of the valuation allowance on this amount resulted in a reduction to
      goodwill.





**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.


(in
                thousands, except per share amounts)
            
            **For
                the years ended December 31,**
            
            **2006
                vs. 2005**
            
            **2005
                vs. 2004****2006**
            
            **2005**
            
            **2004**
            
            **%
                Change**
            
            **%
                Change**Net
                sales:Wireless
                Data CommunicationsProduct
            
            $
            32,383
            
            $
            11,919
            
            $
            5,913
            
            
            171.7
            %
            
            101.6
            %Service
            
            
            13,938
            
            
            10,409
            
            
            8,687
            
            
            33.9
            %
            
            19.8
            %Sub-total
            
            
            46,321
            
            
            22,328
            
            
            14,600
            
            
            107.5
            %
            
            52.9
            %Digital
                Multimedia, Networking and Wireline ServicesProduct
            
            
            2,141
            
            
            2,654
            
            
            3,784
            
            
            -19.3
            %
            
            -29.9
            %Service
            
            
            4,326
            
            
            4,964
            
            
            4,609
            
            
            -12.9
            %
            
            7.7
            %Sub-total
            
            
            6,467
            
            
            7,618
            
            
            8,393
            
            
            -15.1
            %
            
            -9.2
            %Total
                net salesProduct
            
            
            34,524
            
            
            14,573
            
            
            9,697
            
            
            136.9
            %
            
            50.3
            %Service
            
            
            18,264
            
            
            15,373
            
            
            13,296
            
            
            18.8
            %
            
            15.6
            %Total
                net sales
            
            
            52,788
            
            
            29,946
            
            
            22,993
            
            
            76.3
            %
            
            30.2
            %Cost
                of product sales (excluding depreciation)
            
            
            27,967
            
            
            11,303
            
            
            7,626
            
            
            147.4
            %
            
            48.2
            %Cost
                of services (excluding depreciation and amortization)
            
            
            5,750
            
            
            5,748
            
            
            4,943
            
            
            0.0
            %
            
            16.3
            %Depreciation
                and amortization
            
            
            149
            
            
            178
            
            
            385
            
            
            -16.3
            %
            
            -53.8
            %**Gross
                Profit**
            
            
            18,922
            
            
            12,717
            
            
            10,039
            
            
            48.8
            %
            
            26.7
            %**Gross
                Profit %**
            
            
            35.8
            %
            
            42.5
            %
            
            43.7
            %Selling,
                general, and administrative expenses
            
            
            12,088
            
            
            8,663
            
            
            8,625
            
            
            39.5
            %
            
            0.4
            %Research
                and development expenses
            
            
            1,067
            
            
            1,106
            
            
            906
            
            
            -3.5
            %
            
            22.1
            %Bad
                debt expense
            
            
            198
            
            
            325
            
            
            475
            
            
            -39.1
            %
            
            -31.6
            %Depreciation
                and amortization
            
            
            1,755
            
            
            1,662
            
            
            1,664
            
            
            5.6
            %
            
            -0.1
            %Goodwill
                impairment
            
            
            2,140
            
            
            -
            
            
            -
            
            
            NA
            
            
            NA**Operating
                earnings (loss)**
            
            
            1,674
            
            
            961
            
            
            (1,631
            )
            
            74.2
            %
            
            -158.9
            %Interest
                expense, net
            
            
            (552
            )
            
            (311
            )
            
            (637
            )
            
            77.5
            %
            
            -51.2
            %Other
                income and (expense), net
            
            
            31
            
            
            (5
            )
            
            (52
            )
            
            -720.0
            %
            
            -90.4
            %Gain
                on sale of business
            
            
            
            
            
            
            
            
            250Provision
                for income taxes
            
            
            2,950
            
            
            (52
            )
            
            (9
            )
            
            -5773.1
            %
            
            477.8
            %**Net
                earnings (loss)**
            
            
            4,103
            
            
            593
            
            
            (2,079
            )
            
            591.9
            %
            
            -128.5
            %**Net
                earnings (loss) applicable to common shareholders**
            
            $
            4,103
            
            $
            593
            
            $
            (2,079
            )
            
            591.9
            %
            
            -128.5
            %Basic
                earnings (loss) per common share
            
            $
            0.33
            
            $
            0.05
            
            $
            (0.19
            )Diluted
                earnings (loss) per common share
            
            $
            0.32
            
            $
            0.05
            
            $
            (0.19
            )Basic
            
            
            12,502
            
            
            11,231
            
            
            10,798Diluted
            
            
            12,985
            
            
            11,482
            
            
            10,798





See
      notes
      to consolidated financial statements





**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 product sales and an 18.9% increase in service revenue.
      The product sales and service revenue increase for the year ended December
      31,
      2006, compared to the same period in 2005, was in Wireless Data Communications
      in the amount of $24.0 million. These increases were partially offset by a
      decrease in Digital Multimedia, Networking & Wireline Security product sales
      and service revenue of $1.2 million.





Cost
      of
      product 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 product sales
      volume in Wireless Data Communications.





Cost
      of
      services was flat at $5.8 million for the years ended December 31, 2006 and
      2005.





Cost
      of
      sales depreciation and amortization expense decreased 16% to $149,000 for the
      year ended December 31, 2006 as compared to $178,000 for the year ended December
      31, 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 twelve month period
      ended December 31, 2006 compared to the same period in 2005 because product
      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 product sales than for service revenue, the
      increase in product 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. 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.





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 (13) 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.








**Fiscal
      Years Ended December 31, 2005 and December 31, 2004**





Net
      sales
      increased 30.2% to $29.9 million for the year ended December 31, 2005 from
      $23.0
      million for the year ended December 31, 2004. The increase in net sales in
      2005
      is attributable to a 50.3% increase in total product sales and a 15.6% increase
      in service sales. Substantially all of this increase is attributable to a $7.7
      million increase in product and service sales in Wireless Data Communications
      in
      2005, partially offset by an $800,000 decrease in Digital Multimedia, Networking
      and Wireline product sales.





Cost
      of
      product sales increased 48.2% to $11.3 million for the year ended December
      31,
      2005 from $7.6 million for the year ended December 31, 2004. This increase
      was
      primarily the result of higher product sales volume in the Wireless Data
      Communications, partially offset by lower Digital Multimedia, Networking and
      Wireline product sales.





Cost
      of
      services increased 16.3% to $5.7 million for the year ended December 31, 2005
      from $4.9 million for the year ended December 31, 2004. This increase was
      primarily the result of higher service sales volume in Wireless Data
      Communications, Digital Multimedia, Networking and Wireline and Wireline.





Cost
      of
      sales depreciation and amortization expense decreased 53.8% to $178,000 for
      the
      year ended December 31, 2005 from $385,000 for the year ended December 31,
      2004.
      This decrease was primarily the result of assets in our Digital Multimedia,
      Networking and Wireline division becoming fully depreciated during 2005.





Gross
      profit as a percentage of net sales was 42.5% for the year ended December 31,
      2005 as compared to 43.7% for the year ended December 31, 2004. The gross profit
      percentage decreased slightly in 2005 because product sales as a percentage
      of
      total sales increased to 37.7% for the year ended December 31, 2005 compared
      to
      33.2% for the year ended December 31, 2004. Since product sales entail higher
      costs of sale, gross profit as a percentage of sales is generally less on
      product sales than service sales, and so the increase in product sales in 2005
      resulted in a slight decrease in the total gross profit percentage. The decrease
      in gross profit as a percentage of sales for the period ended December 31,
      2005
      versus the comparable period in 2004 was partially offset by a reduction in
      depreciation expense due to some assets in Digital Multimedia, Networking and
      Wireline becoming fully depreciated during 2005.





Selling,
      general, and administrative expenses increased 0.4% to $8.7 million for the
      year
      ended December 31, 2005 from $8.6 million for the year ended December 31, 2004.
      As a percentage of sales, selling, general, and administrative expenses
      decreased to 28.9% for the year ended December 31, 2005 from 37.5% for the
      year
      ended December 31, 2004. Selling, general, and administrative expenses decreased
      as a percentage of revenue for the year primarily because our revenues increased
      while these costs essentially remained flat.





Research
      and development expenses increased 22.1% to $1.1 million for the year ended
      December 31, 2005 from $906,000 for the year ended December 31, 2004. Research
      and development expenses increased primarily due to the reclassification of
      certain personnel to research and development from selling, general and
      administrative positions. We expect research and development costs to continue
      at current levels.





Bad
      debt
      expense decreased 31.6% to $325,000 for the year ended December 31, 2005 from
      $475,000 for the comparable 2004 period. Bad debt expense continued to decrease
      during 2005 as a result of our implementation of more stringent credit policies
      and collections processes in 2004.





Operating
      expense depreciation and amortization expense remained constant at $1.7 million
      for the year ended December 31, 2005 as compared to the year ended December
      31,
      2004.





Interest
      expense (net) decreased to $311,000 in 2005 from $637,000 in 2004. This decrease
      was primarily the result of reduced interest expense on a note held by the
      Laurus Master Fund (“Laurus”) initially issued on January 15, 2004 in the amount
      of $4.5 million. On July 6, 2005 we voluntarily converted $2.3 million of the
      outstanding debt associated with the note into 500,000 shares of our common
      stock. On August 1, 2005 we converted the remaining outstanding portion of
      the
      debt associated with the note into 209,000 shares of our common stock. As a
      result, we have reduced our total interest expense. The majority of ongoing
      interest expense is related to a second $1,500,000 note that we issued to Laurus
      on January 28, 2005. Please see Note A (13) to our Consolidated Financial
      Statements for additional information about our transactions with
      Laurus.





Foreign
      currency loss decreased to $5,000 for the year ended December 31, 2005 from
      $52,000 for the year ended December 31, 2004. This decrease was the result
      of
      decreased foreign currency loses on sales to Canadian customers.




Basic
      and
      diluted earnings per common share was $0.05 per share for year ended December
      31, 2005 as compared to a basic and diluted loss per common share of $0.19
      per
      share for the year ended December 31, 2004.





Weighted
      average basic shares outstanding increased to 11,231,000 at December 31, 2005
      from 10,798,000 at December 31, 2004. This increase is primarily due to our
      issuance of 709,000 million shares to Laurus in connection with the conversion
      of our $4.5 million note, as discussed above.








**Segment
      Information**





**Net
                Sale by Segment:**
            
            **For
                the years ended December 31,**
            
            **2006
                vs. 2005**
            
            **2005
                vs. 2004**(In
                thousands)
            
            **2006**
            
            **2005**
            
            **2004**
            
            **%
                Change**
            
            **%
                Change**Net
                sales:Wireless
                Data CommunicationsProduct
            
            $
            32,383
            
            $
            11,919
            
            $
            5,913
            
            
            171.7
            %
            
            101.6
            %Service
            
            
            13,938
            
            
            10,409
            
            
            8,687
            
            
            33.9
            %
            
            19.8
            %Sub-total
            
            
            46,321
            
            
            22,328
            
            
            14,600
            
            
            107.5
            %
            
            52.9
            %Digital
                Multimedia, Networking and WirelineProduct
            
            
            2,141
            
            
            2,654
            
            
            3,784
            
            
            -19.3
            %
            
            -29.9
            %Service
            
            
            4,326
            
            
            4,964
            
            
            4,609
            
            
            -12.9
            %
            
            7.7
            %Sub-total
            
            
            6,467
            
            
            7,618
            
            
            8,393
            
            
            -15.1
            %
            
            -9.2
            %Total
                net salesProduct
            
            
            34,524
            
            
            14,573
            
            
            9,697
            
            
            136.9
            %
            
            50.3
            %Service
            
            
            18,264
            
            
            15,373
            
            
            13,296
            
            
            18.8
            %
            
            15.6
            %Total
                net sales
            
            
            52,788
            
            
            29,946
            
            
            22,993
            
            
            76.3
            %
            
            30.2
            %**Percent
                of Total Sales****2006**
            
            
            **2005**
            
            
            **2004**Net
                sales:Wireless
                Data CommunicationsProduct
            
            
            61.3
            %
            
            39.8
            %
            
            25.7
            %Service
            
            
            26.4
            %
            
            34.8
            %
            
            37.8
            %Sub-total
            
            
            87.7
            %
            
            74.6
            %
            
            63.5
            %Digital
                Multimedia and NetworkingProduct
            
            
            4.1
            %
            
            8.9
            %
            
            16.5
            %Service
            
            
            8.2
            %
            
            16.6
            %
            
            20.0
            %Sub-total
            
            
            12.3
            %
            
            25.4
            %
            
            36.5
            %Total
                net salesProduct
            
            
            65.4
            %
            
            48.7
            %
            
            42.2
            %Service
            
            
            34.6
            %
            
            51.3
            %
            
            57.8
            %Total
                net sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %

















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





Net
      revenues from Wireless Data Communications increased 107.5% to $46.3 million
      for
      the year ended December 31, 2006 including our Airdesk 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 product sales and a 34.0% increase in service revenues
      compared to the same period last year. The increase in Wireless Data
      Communications product 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 Airdesk modules, our vehicle security products and tracking services, Airdesk
      Mobile®, and increased sales of our Uplink Security devices used for wireless
      communications between alarm installations and central monitoring stations.
      The
      increase in the Wireless 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 products 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.





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 product sales to $2.1 million, primarily due to decreased
      sales of our interactive videoconferencing products (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 product sales for the year ended December
      31, 2006.





**Fiscal
      Years Ended December 31, 2005 and December 31, 2004**





Net
      revenues from Wireless Data Communications increased 52.9% to $22.3 million
      for
      the year ended December 31, 2005 as compared to $14.6 million for the year
      ended
      December 31, 2004. This increase was the result of a 101.6% increase in product
      sales and a 19.8% increase in service revenues compared to the same period
      last
      year. The increase in Wireless Data Communications product sales of $6.0 million
      for the year ended December 31, 2005 versus the same period in 2004 was
      primarily the result of increased sales of our vehicle security products and
      tracking services, Airdesk Mobile® and increased sales of our Uplink Security
      devices used for wireless communications between alarm installations and central
      monitoring stations. The increase in the Wireless 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
      products 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.





Net
      revenue from Digital Multimedia, Networking and Wireline Security decreased
      9.2%
      to $7.6 million for the year ended December 31, 2005 as compared to $8.4 million
      for the year ended December 31, 2004. This decrease was primarily due to a
      29.9%
      decrease in product sales to $2.1 million, primarily due to decreased sales
      of
      our interactive videoconferencing products (PowerPlayTM) to distance-learning
      customers. The decrease in product sales was partially offset by an increase
      of
      7.7% to $5.0 million in service revenue as compared to $4.6 million for the
      year
      ended December 31, 2004. 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.








**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, 2006, and 2005,
      respectively.





Our
      financial results may fluctuate from quarter to quarter as a result of certain
      factors related to our business, including the timing of product shipments,
      new
      product introductions and equipment, and product 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.





**For
                  the Three Months Ended**(in
                  thousands)
              
              **March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****2006**
              
              **2006**
              
              **2006**
              
              **2006**Net
                  sales:Wireless
                  Data CommunicationsProduct
              
              $
              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 NetworkingProduct
              
              
              309
              
              
              463
              
              
              1,008
              
              
              362Service
              
              
              1,136
              
              
              1,218
              
              
              1,009
              
              
              962Sub-total
              
              
              1,445
              
              
              1,681
              
              
              2,017
              
              
              1,324Total
                  net salesProduct
              
              
              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 product sales (excluding depreciation)
              
              
              6,154
              
              
              6,716
              
              
              6,761
              
              
              8,336Cost
                  of services (excluding depreciation and amortization)
              
              
              1,443
              
              
              1,471
              
              
              1,541
              
              
              1,295Depreciation
                  and amortization
              
              
              44
              
              
              40
              
              
              38
              
              
              27**Gross
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              2,140**Operating
                  earnings (loss)**
              
              
              639
              
              
              968
              
              
              1,135
              
              
              (1,067
              )Interest
                  income (expense)
              
              
              (137
              )
              
              (73
              )
              
              (193
              )
              
              (119
              )**Net
                  earnings (loss)**
              
              
              502
              
              
              895
              
              
              942
              
              
              (1,186
              )Provision
                  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 earnings
                  per common share
              
              $
              0.04
              
              $
              0.07
              
              $
              0.08
              
              $
              0.14Diluted earnings
                  per common share
              
              $
              0.04
              
              $
              0.07
              
              $
              0.07
              
              $
              0.13Basic
              
              
              12,243
              
              
              12,307
              
              
              12,492
              
              
              12,958Diluted
              
              
              12,868
              
              
              13,021
              
              
              13,363
              
              
              13,695
















**Selected
      Quarterly Financial Data (Unaudited)**


**For
                  the Three Months Ended**(in
                  thousands)
              
              **March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****2005**
              
              
              **2005**
              
              
              **2005**
              
              
              **2005**Net
                  sales:Wireless
                  Data CommunicationsProduct
              
              $
              2,310
              
              $
              2,474
              
              $
              3,059
              
              $
              4,077Service
              
              
              2,546
              
              
              2,531
              
              
              2,558
              
              
              2,772Sub-total
              
              
              4,856
              
              
              5,005
              
              
              5,617
              
              
              6,849Digital
                  Multimedia and NetworkingProduct
              
              
              312
              
              
              1,052
              
              
              962
              
              
              328Service
              
              
              1,009
              
              
              1,306
              
              
              1,430
              
              
              1,220Sub-total
              
              
              1,321
              
              
              2,358
              
              
              2,392
              
              
              1,548Total
                  net salesProduct
              
              
              2,622
              
              
              3,526
              
              
              4,021
              
              
              4,405Service
              
              
              3,555
              
              
              3,837
              
              
              3,988
              
              
              3,992Sub-total
              
              
              6,177
              
              
              7,363
              
              
              8,009
              
              
              8,397Cost
                  of product sales (excluding depreciation)
              
              
              2,186
              
              
              2,505
              
              
              2,991
              
              
              3,622Cost
                  of services (excluding depreciation and amortization)
              
              
              1,255
              
              
              1,548
              
              
              1,533
              
              
              1,413Depreciation
                  and amortization
              
              
              51
              
              
              53
              
              
              41
              
              
              46**Gross
                  Profit**
              
              
              2,685
              
              
              3,257
              
              
              3,444
              
              
              3,316Selling,
                  general, and administrative expenses
              
              
              2,152
              
              
              2,094
              
              
              2,215
              
              
              2,194Research
                  and development expenses
              
              
              270
              
              
              286
              
              
              278
              
              
              273Bad
                  debt expense
              
              
              58
              
              
              101
              
              
              83
              
              
              83Depreciation
                  and amortization
              
              
              454
              
              
              438
              
              
              386
              
              
              371**Operating
                  earnings (loss)**
              
              
              (249
              )
              
              338
              
              
              482
              
              
              395Interest
                  income (expense)
              
              
              (192
              )
              
              (94
              )
              
              (62
              )
              
              27**Net
                  earnings (loss)**
              
              
              (441
              )
              
              244
              
              
              420
              
              
              422Provision
                  for Income taxes
              
              
              39
              
              
              4
              
              
              9
              
              
              -**Net
                  earnings (loss)**
              
              $
              (480
              )
              $
              240
              
              $
              411
              
              $
              422Foreign
                  currency translation adjustment
              
              
              (6
              )
              
              (1
              )
              
              (1
              )
              
              20**Comprehensive
                  earnings (loss)**
              
              $
              (486
              )
              $
              239
              
              $
              410
              
              $
              442Basic
                  earnings (loss) per common share
              
              $
              (0.04
              )
              $
              0.02
              
              $
              0.04
              
              $
              0.04Diluted
                  earnings (loss) per common share
              
              $
              (0.04
              )
              $
              0.02
              
              $
              0.03
              
              $
              0.04Basic
              
              
              10,837
              
              
              10,903
              
              
              11,528
              
              
              11,642Diluted
              
              
              10,837
              
              
              11,957
              
              
              12,023
              
              
              11,873













**Liquidity
      and Capital Resources** ****





We
      had
      working capital of $25.9 million as of December 31, 2006 compared to working
      capital of $4.8 million at December 31, 2005. We had cash balances of $20.3
      million and $2.8 million, respectively, as of December 31, 2006 and December
      31,
      2005.





The
      majority of the increase in working capital reflects the increase in our cash
      balances as well as an increase in accounts receivable related to increased
      sales.





Net
      cash
      provided by operating activities was $2.7 million for the year ended December
      31, 2006 as compared to $3.3 million for the year ended December 31, 2005.
      The
      decrease was primarily due to an increase in deferred income taxes of $3.0
      million, an increase in accounts receivable of $3.0 million and an increase
      in
      accounts payable of $1.0 million. This was partially offset by an increase
      in
      net earnings of $3.5 million, and a decrease in goodwill of $2.1 million.





Net
      cash
      used in investing activities was $4.1 million for the year ended December 31,
      2006 as compared to $2.8 million for the year ended December 31, 2005. The
      increase in cash used in investing activities was primarily due to the
      acquisition of AIRDESK, Inc. ****





Net
      cash
      provided by financing activities was $19.0 million for the twelve months ended
      December 31, 2006 as compared to $692,000 for the twelve months ended December
      31, 2005. The increase was primarily due to proceeds from the notes payable
      we
      issued to Laurus in May 2006 and December 2006.





Our
      business has traditionally not been capital intensive and, 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, and the proceeds from notes payable we have issued.





We
      paid
      principal and interest of approximately $1.8 million on our notes payable during
      the twelve months ended December 31, 2006.





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, 2007. This belief could be affected by future operating
      losses in excess of expectations, a material adverse change in our operating
      business or a default under the Company Notes.





**Contractual
      Obligations**





The
      table
      below sets forth our contractual obligations at December 31, 2006.





Payments
                due by period(in
                thousands)
            
            Total
            
            Less
                than 1 Year
            
            1
                -
                3 Years
            
            3
                -
                5 Years
            
            More
                than 5 YearsLong-term
                Debt*
            
            $
            15,000
            
            $
            1,429
            
            $
            13,571Capital
                lease obligations
            
            
            224
            
            
            111
            
            
            107
            
            
            6Operating
                lease obligations
            
            
            3,066
            
            
            589
            
            
            1,860
            
            
            617
            
            
            -Total
            
            $
            18,290
            
            $
            2,129
            
            $
            15,538
            
            $
            623
            
            $
            -





*
      $10,000,000 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.





**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2006, 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.**





**Effect
      of Inflation**





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 manufacturing
      and operations 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.






















**ITEM
      8.**  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page****Consolidated
                Balance Sheets as of December 31, 2006 and 2005**
            **36****Consolidated
                Statements of Operations of the Years ended December 31, 2006, 2005
                and
                2004**
            **37****Consolidated
                Statements of Shareholders’ Equity for the Years ended December 31, 2006,
                2005 and 2004**
            **38****Consolidated
                Statements of Cash Flows for the Years ended December 31, 2006, 2005
                and
                2004**
            **40****Notes
                to Consolidated Financial Statements**
            **42****Report
                of Independent Registered Public Accounting Firm**
            **59**











**NUMEREX
                CORP.****CONDENSED
                CONSOLIDATED BALANCE SHEET**(In
                thousands, except share information)**December
                31,**
            
            **December
                31,****2006**
            
            
            **2005****ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            20,384
            
            $
            2,821Short-term
                investments
            
            
            -
            
            
            1,538Accounts
                receivable, less allowance for doubtful accounts of $933 at December
                31,
                2006 and $704 at December 31, 2005:
            
            
            11,844
            
            
            6,046Inventory
            
            
            2,755
            
            
            1,694Prepaid
                expenses and other current assets
            
            
            1,677
            
            
            517Deferred
                tax asset - current
            
            
            1,113
            
            
            -TOTAL
                CURRENT ASSETS
            
            
            37,773
            
            
            12,616Property
                and Equipment, Net
            
            
            1,287
            
            
            986Goodwill,
                Net
            
            
            15,967
            
            
            15,014Other
                Intangibles, Net
            
            
            6,734
            
            
            6,268Software,
                Net
            
            
            1,815
            
            
            1,020Deferred
                tax asset - LT
            
            
            2,070
            
            
            -Other
                assets
            
            
            747
            
            
            444**TOTAL
                ASSETS**
            
            $
            66,393
            
            $
            36,348**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            7,651
            
            $
            3,911Other
                current liabilities
            
            
            2,270
            
            
            2,326Note
                payable, current
            
            
            1,139
            
            
            490Deferred
                revenues
            
            
            715
            
            
            1,056Obligations
                under capital leases, current portion
            
            
            96
            
            
            58TOTAL
                CURRENT LIABILITIES
            
            
            11,871
            
            
            7,841LONG
                TERM LIABILITIESObligations
                under capital leases and other long term liabilities
            
            
            339
            
            
            60Note
                Payable
            
            
            12,763
            
            
            718TOTAL
                LONG TERM LIABILITIES
            
            
            13,102
            
            
            778SHAREHOLDERS’
                EQUITYPreferred
                stock - no par value; authorized 3,000,000; none issued
            
            
            -
            
            
            -Class
                A common stock - no par value; authorized 30,000,000; issued 14,445,234
                shares at December 31, 2006 and 14,033,877 shares at December 31,
                2005
            
            
            43,133
            
            
            40,050Additional
                paid-in-capital
            
            
            2,486
            
            
            1,136Treasury
                stock, at cost, 1,184,900 shares on December 31, 2006 and 2,391,400
                on
                December 31, 2005
            
            
            (5,053
            )
            
            (10,197
            )Class
                B common stock - no par value; authorized 5,000,000; none
                issued
            
            
            -
            
            
            -Accumulated
                other comprehensive income (loss)
            
            
            2
            
            
            (8
            )Accumulated
                earnings (deficit)
            
            
            852
            
            
            (3,252
            )TOTAL
                SHAREHOLDERS' EQUITY
            
            
            41,420
            
            
            27,729**TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY**
            
            $
            66,393
            
            $
            36,348





See
      accompanying notes to consolidated financial statements.








**NUMEREX
                CORP. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**(In
                thousands, except per share data)**FOR
                THE YEARS****ENDED
                DECEMBER 31,****2006**
            
            
            **2005**
            
            
            **2004****Net
                sales:**Product
            
            $
            34,524
            
            $
            14,573
            
            $
            9,697Service
            
            
            18,264
            
            
            15,373
            
            
            13,296**Total
                net sales**
            
            
            **52,788**
            
            
            **29,946**
            
            
            **22,993**Cost
                of product sales (excluding depreciation)
            
            
            27,967
            
            
            11,303
            
            
            7,626Cost
                of services (excluding depreciation and amortization)
            
            
            5,750
            
            
            5,748
            
            
            4,943Depreciation
                and amortization
            
            
            149
            
            
            178
            
            
            385**Gross
                Profit**
            
            
            **18,922**
            
            
            **12,717**
            
            
            **10,039**Selling,
                general, and administrative expenses
            
            
            12,088
            
            
            8,663
            
            
            8,624Research
                and development expenses
            
            
            1,067
            
            
            1,106
            
            
            906Bad
                debt expense
            
            
            198
            
            
            325
            
            
            476Depreciation
                and amortization
            
            
            1,755
            
            
            1,662
            
            
            1,664Goodwill
                impairment
            
            
            2,140
            
            
            -
            
            
            -**Operating
                earnings (loss)**
            
            
            **1,674**
            
            
            **961**
            
            
            **(1,631**
            **)**Net
                interest expense
            
            
            (552
            )
            
            (311
            )
            
            (637
            )Gain
                on sale of assets
            
            
            -
            
            
            -
            
            
            250Net
                other income and (expense)
            
            
            31
            
            
            (5
            )
            
            (52
            )**Earnings
                (loss) before income taxes**
            
            
            **1,153**
            
            
            **645**
            
            
            **(2,070**
            **)**Provision
                for income taxes
            
            
            (2,950
            )
            
            52
            
            
            9**Net
                earnings (loss)**
            
            
            **4,103**
            
            
            **593**
            
            
            **(2,079**
            **)****Other
                comprehensive income (loss), net of income taxes:****Foreign
                currency translation adjustment**
            
            
            (10
            )
            
            21
            
            
            (84
            )**Comprehensive
                earnings (loss)**
            
            **$**
            **4,093**
            
            **$**
            **614**
            
            **$**
            **(2,163**
            **)****Basic
                earnings (loss) per share**
            
            **$**
            **0.33**
            
            **$**
            **0.05**
            
            **$**
            **(0.19**
            **)****Diluted
                earnings (loss) per share**
            
            **$**
            **0.32**
            
            **$**
            **0.05**
            
            **$**
            **(0.19**
            **)**Weighted
                average common shares used in per share calculationBasic
            
            
            12,502
            
            
            11,231
            
            
            10,798Diluted
            
            
            12,985
            
            
            11,482
            
            
            10,798





See
      accompanying note to consolidated financial statements





**NUMEREX
                  CORP. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENT OF SHAREHOLDERS'EQUITY**Common
              
              
              
              
              
              Treasury
              
              Accumulated
                  Other
              
              RetainedDESCRIPTION:
              
              Shares
              
              $
                  Amount
              
              APIC
              
              Stock
              
              Comprehensive
              
              Earnings
              
              TOTALBalance
                  @ 12/31/03
              
              13,182
              
              $
                  36,793
              
              $
                  439
              
              $
                  (10,197)
              
              $
                  97
              
              $
                  (1,766)
              
              $
                  25,366Issuance
                  of shares under Directors Stock Plan
              
              
              7
              
              
              28
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              28Issuance
                  of shares in connection with employee stock purchase plan
              
              
              5
              
              
              5
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5Issuance
                  of shares in connection with warrants
              
              
              
              
              
              
              
              
              370
              
              
              
              
              
              
              
              
              
              
              
              370Issuance
                  of shares in lieu of debt payment
              
              
              10
              
              
              46
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              46Translation
                  adjustment
              
              
              0
              
              
              0
              
              
              
              
              
              
              
              
              (84
              )
              
              
              
              
              (84
              )Net
                  loss
              
              
              0
              
              
              0
              
              
              
              
              
              
              
              
              
              
              
              (2,079
              )
              
              (2,079
              )Balance
                  @ 12/31/04
              
              
              13,204
              
              $
              36,872
              
              $
              809
              
              $
              (10,197
              )
              $
              13
              
              $
              (3,845
              )
              $
              23,652Issuance
                  of shares under Directors Stock Plan
              
              
              7
              
              
              27
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27Issuance
                  of shares in connection with employee stock purchase plan
              
              
              1
              
              
              0
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Issuance
                  of shares in lieu of debt payment
              
              
              822
              
              
              3,151
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,151Translation
                  adjustment
              
              
              0
              
              
              0
              
              
              
              
              
              
              
              
              (21
              )
              
              
              
              
              (21
              )Warrants
              
              
              
              
              
              
              
              
              172
              
              
              
              
              
              
              
              
              
              
              
              172Beneficial
                  Conversion Feature
              
              
              
              
              
              
              
              
              154
              
              
              
              
              
              
              
              
              
              
              
              154Net
                  earnings
              
              
              0
              
              
              0
              
              
              
              
              
              
              
              
              
              
              
              593
              
              
              593Balance
                  @ 12/31/05
              
              
              14,034
              
              $
              40,050
              
              $
              1,135
              
              $
              (10,197
              )
              $
              (8
              )
              $
              (3,252
              )
              $
              27,729Issuance
                  of shares under Directors Stock Plan
              
              
              9
              
              
              61
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              61Issuance
                  of shares in connection with employee stock purchase plan
              
              
              75
              
              
              303
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              303Issuance
                  of shares in connection with purchase 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
              )
              
              -
              
              
              5,143
              
              
              -
              
              
              -
              
              
              -Translation
                  adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10
              
              
              -
              
              
              10FAS
                  123 Compensation
              
              
              -
              
              
              -
              
              
              462
              
              
              -
              
              
              -
              
              
              -
              
              
              462Warrants
              
              
              -
              
              
              -
              
              
              1,646
              
              
              -
              
              
              -
              
              
              -
              
              
              1,646Beneficial
                  Conversion Feature
              
              
              -
              
              
              -
              
              
              38
              
              
              -
              
              
              -
              
              
              -
              
              
              38Net
                  earnings
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,103
              
              
              4,103Balance
                  @ 12/31/06
              
              
              14,145
              
              $
              43,133
              
              $
              2,487
              
              $
              (5,053
              )
              $
              2
              
              $
              852
              
              $
              41,420


See
      accompanying notes to consolidated financial statement





**NUMEREX
                CORP. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****For
                the years ended December 31,****2006**
            
            **2005**
            
            **2004**Cash
                flows from operating activities:Net
                earnings (loss)
            
            $
            4,103
            
            $
            593
            
            $
            (2,079
            )Adjustments
                to reconcile net earnings (loss) to net cash provided byoperating
                activities:Depreciation
            
            
            668
            
            
            562
            
            
            671Amortization
            
            
            1,236
            
            
            1,279
            
            
            1,380Allowance
                for Doubtful Accounts
            
            
            229
            
            
            34
            
            
            476Inventory
                Reserves
            
            
            13
            
            
            (642
            )
            
            284Non
                cash interest expense
            
            
            439
            
            
            104
            
            
            255Stock
                option compensation expense
            
            
            462
            
            
            -
            
            
            -Stock
                issued in lieu of directors fees
            
            
            61
            
            
            65
            
            
            71Warrants
                issued in addition to investor relation fees
            
            
            64
            
            
            -
            
            
            -Gain
                on Sale of business unit
            
            
            -
            
            
            -
            
            
            (250
            )Impairment
                of goodwill
            
            
            2,140
            
            
            -
            
            
            -Deferred
                income taxes
            
            
            (3,062
            )Changes
                in assets and liabilities which provided(used)
                cash:Accounts
                and notes receivable
            
            
            (2,976
            )
            
            (2,056
            )
            
            (1,310
            )Inventory
            
            
            134
            
            
            509
            
            
            1,615Prepaid
                expenses & interest receivable
            
            
            (504
            )
            
            129
            
            
            79Other
                assets
            
            
            (855
            )
            
            497
            
            
            -Accounts
                payable
            
            
            957
            
            
            1,311
            
            
            101Other
                current liabilities
            
            
            (244
            )
            
            742
            
            
            96Deferred
                Revenue
            
            
            (240
            )
            
            150
            
            
            131Income
                taxes
            
            
            38
            
            
            -
            
            
            -Net
                cash provided by operating activities:
            
            
            2,663
            
            
            3,277
            
            
            1,520Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (703
            )
            
            (517
            )
            
            (215
            )Purchase
                and capitalization of intangible and other assets
            
            
            (1,262
            )
            
            (756
            )
            
            (386
            )Purchase
                of short-term investment
            
            
            -
            
            
            (1,538
            )Sale
                of short-term investment, net
            
            
            1,538
            
            
            -
            
            
            -Proceeds
                the from sale of a business
            
            
            -
            
            
            -
            
            
            200Increase
                (decrease) in deposits and long term receivables
            
            
            -
            
            
            -
            
            
            (169
            )Purchase
                of Airdesk, Inc.
            
            
            (3,683
            )
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (4,110
            )
            
            (2,811
            )
            
            (570
            )Cash
                flows from financing activities:Proceeds
                from exercise of common stock options
            
            
            304
            
            
            3
            
            
            33Proceeds
                from note payable and debt
            
            
            20,000
            
            
            1,500
            
            
            4,283Principal
                payments on capital lease obligations
            
            
            (81
            )
            
            (99
            )
            
            (309
            )Principal
                payments on notes payable and debt
            
            
            (1,223
            )
            
            (712
            )
            
            (3,922
            )Net
                cash provided by financing activities:
            
            
            19,000
            
            
            692
            
            
            84Effect
                of exchange differences on cash
            
            
            10
            
            
            (21
            )
            
            (84
            )Net
                increase in cash and cash equivalents
            
            
            17,563
            
            
            1,137
            
            
            950Cash
                and cash equivalents at beginning of year
            
            
            2,821
            
            
            1,684
            
            
            734Cash
                and cash equivalents at end of year
            
            $
            20,384
            
            $
            2,821
            
            $
            1,684








Supplemental
                Disclosures of Cash Flow InformationCash
                (receipts) payments for:Interest
            583
            231
            360Income
                taxes
            189
            52
            26Disclosure
                of non-cash activities:Goodwill
                impairment
            2,140
            -
            -Provision
                for income taxes
            (2,950)
            -
            -Capital
                leases
            182
            182
            32Non
                cash interest expense
            334
            104
            255Non
                cash conversion of debt to equity
            3,634
            3,329Non
                cash leasehold improvement
            88
            158





See
      accompanying notes to consolidated financial statements.











**NUMEREX
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Years
      ended December 31, 2006, 2005 and 2004**








**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. provides wireless fixed and mobile machine-to-machine (M2M) solutions,
      as
      well as a broad range of network services and technology. A single-source
      provider for M2M requirements, Numerex enables real-time wireless data
      communications, monitoring, tracking, and service management tailored to the
      needs of each application, customer and industry, from vehicle location and
      tracking, to vending, to security and utilities. Wireless M2M network services
      and solutions are delivered through the Airdesk Wireless division. Wireless
      security solutions are delivered through the Uplink Security division. In
      addition to its core M2M business, Numerex markets proprietary digital
      multimedia and collaboration products to the educational and distance learning
      markets. It also provides networking and integration services to major
      telecommunications companies. Numerex primarily serves customers throughout
      the
      United States, Canada and Latin America. 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.**  **Cash
      and Cash Equivalents**





Cash
      equivalents of $20.4 million and $2.8 million at December 31, 2006 and 2005,
      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 $48,000 and $35,000 at December 31, 2006 and 2005,
      respectively was held in our foreign bank account. Restricted cash of $63,000
      was held as a letter of credit on December 31, 2006.





**4.**  **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, 2006. The
      fair
      value of the investment securities at December 31, 2005 was $1,538,000. This
      security matured on February 13, 2006 and was transferred to our money market
      account.





**5.**  **Intangible
      Assets**





Intangible
      assets ** consist
      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. The $3,205,000 increase in goodwill in Wireless Data Communications
      was
      due to the acquisition of the assets of AIRDESK, Inc. on January 5, 2006 (see
      Note C - Acquisitions).





Intangible
      assets with determinable useful lives are amortized on a straight-line basis
      over their estimated useful lives. The increase in other intangible assets
      was
      primarily due to the acquisition of AIRDESK, Inc. which is 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.





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.
       In
      prior
      years all the entities that comprise our wireless segment were evaluated at
      the
      individual entity level. For our current year evaluation we consolidated our
      wireless entities and evaluated them as one reporting unit due to the fact
      that
      all of our business plans consolidate the individual entities and consider
      them
      as one reporting unit.We tested goodwill for impairment as of December
      31, 2006, 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, and
      as a
      result 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 have declined in each
      of the past two years, and this trend is expected to continue. 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. After the
      impairment charge our consolidated net goodwill balance was $16 million.





We
      capitalize software development costs when project technological feasibility
      is
      established and conclude capitalization when the product is ready for release.
      Software development costs incurred prior to the establishment of technological
      feasibility are expensed as incurred. The following table provides a summary
      of
      the components of our intangible assets:








**December
                31,**
            
            **December
                31,**(In
                thousands)
            
            **2006**
            
            **2005**Wireless
                Data CommunicationsGoodwill
            
            $
            15,377
            
            $
            12,284Accumulated
                Amortization
            
            
            (1,405
            )
            
            (1,405
            )Digital
                Multimedia, Networking and Wireline SecurityGoodwill
            
            
            5,409
            
            
            5,409Accumulated
                Amortization
            
            
            (3,414
            )
            
            (1,274
            )Goodwill,
                net
            
            $
            15,967
            
            $
            15,014Purchased
                and developed software
            
            
            4,458
            
            
            3,268Patents,
                trade and service marks
            
            
            12,358
            
            
            11,452Intangible
                and other assets
            
            
            988
            
            
            503Total
                intangible assets
            
            
            17,804
            
            
            15,223Accumulated
                amortization
            
            
            (9,254
            )
            
            (7,935
            )Intangible
                assets, net
            
            $
            8,550
            
            $
            7,288





The
      Company expects amortization expense for the next five years and thereafter
      to
      be as follows based on intangible assets as of December 31, 2006 (in thousands):




2007
            
            $
            1.1
                million2008
            
            
            976,0002009
            
            
            913,0002010
            
            
            826,0002011
            
            
            746,000Thereafter
            
            
            746,000














**6.**  **** **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 lease3-10
                years


·
            Plant
                and machinery4-10
                years


·
            Equipment,
                fixtures and fittings3-10
                years





**7.**  **** **Impairment
      of Long-lived Assets**





We
      adopted SFAS No. 144 on January 1, 2002. 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.




**8.**  **Income
      Taxes**  ****





We
      account for income taxes using the asset and liability method in accordance
      with
      SFAS 109, Accounting for Income Taxes. Under the asset and liability method,
      deferred income taxes are recognized for the tax consequences of 2 temporary
      differences 2 by
      applying enacted statutory tax rates applicable to future years to differences
      between the financial statement carrying amounts and the tax bases of existing
      assets and liabilities. A valuation allowance is provided for deferred tax
      assets when it is more likely than not that the assets will not be
      realized.





**9.**  **Inventory**





Inventory
      and work-in progress are stated at the lower of cost (first-in, first-out
      method) or market.





**10** .  **Notes
      Receivable**





As
      of
      December 31, 2006 we had a note receivable in the amount of $361,000. We did
      not
      have any notes receivable at December 31, 2005.





**11.**  **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.**  **Other
      Assets**





In
      May
      2003, we shipped $583,000 of wire-line security detection equipment to a
      customer in Australia. This equipment has been installed at several sites based
      on an equipment supply agreement (the “Agreement”) with this customer. The
      Agreement allows the customer to generate additional revenues by providing
      additional services to its customers. We will share in these revenues as payment
      for the equipment. While this customer retains title to this equipment from
      acceptance (which occurred May 2003), it must meet certain obligations under
      the
      Agreement or pay amounts specified in the Agreement. Since the actual revenue
      that will be generated by the sale of the equipment is uncertain at this time,
      we are recognizing revenue on the sale of the equipment equal to the payments
      received from this customer from this revenue share. We also recognized cost
      of
      sales equal to the payments received from the





customer
      and reduced the value of this asset. We received our first payments from this
      customer in September 2004. Currently we expect to receive at least the full
      value of the equipment from this revenue share, however, as more information
      becomes available, we will reassess the accounting treatment for the project.
      At
      June 30, 2003, the value of the wire-line equipment was transferred from
      inventory to other assets. The carrying value of the equipment was $140,000
      at
      December 31, 2006, $304,000 at December 31, 2005 and $477,000 at December 31,
      2004.





**13.**  **Notes
      Payable**





As
      part
      of the acquisition of AIRDESK, Inc. (see Note C - Acquisitions), we assumed
      a
      note payable to Motorola for $1,700,000 of which $500,000 was paid at closing
      on
      the acquisition on January 5, 2006, the remaining balance of $1,200,000 was
      paid
      in full on August 17, 2006.





On
      December 29, 2006, we 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 will begin 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. We 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.




On May 30,
      2006, we 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.





We
      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 our common stock at a fixed conversion price equal to
      $7.91 per share.




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 we
      voluntarily converted $1,249,994 of Note A into 158,027 shares of common stock.
      On October 9, 2006 we voluntarily converted $1,249,994 of Note A into 158,027
      shares of common stock. On November 14, 2006 we voluntarily converted $1,249,994
      of Note A into 158,027 shares of common stock. On December 19, 2006 we
      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
      March 15, 2007 we had $5,000,000 outstanding under Note B and $10,000,000
      outstanding under Note C.




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. We are required to register the common
      stock underlying the Warrant for resale by Laurus.





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. We have 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.





We
      also
      completed two prior private placements with Laurus. On January 13, 2004, we
      completed our 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. We 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, we issued warrants covering additional
      66,000 shares pursuant to the registration rights agreement. On July 6, 2005
      we
      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 we
      converted the $953,040 remaining outstanding portion of the debt associated
      with
      the First Company Note into 209,000 shares of common stock.




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. We have 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 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.








**14.**  **Shareholders’
      Equity**





Shareholders’
      equity increased by $13.7 million for the twelve months ended December 31,
      2006.
      The increase in Shareholders’ equity was due, in part, to a $6.4 million
      issuance of common shares which was related to the conversion of the Second
      Company Note and Note A. The increase was also related to the $1.5 million
      in
      issuance of common shares which was related to the acquisition of Airdesk,
      Inc.
      These increases were partially offset by the $5.1 million decrease related
      to
      the retirement of treasury shares. Shareholders’ equity also increased due to
      net earnings of $4.1 million and a $1.4 million increase in additional paid
      in
      capital. The increase in addition paid in capital was due to $1.6 million
      increase related to the warrants issued with Notes A, B and C. The increase
      in
      additional paid in capital was also related to $462,000 for stock option expense
      as required by FAS 123(R). This increase in additional paid in capital was
      partially offset by a decrease of $794,000 related to the conversions of the
      Second Company Note and Note A.





**15.**  **Fair
      Value of Financial Instruments**





Our
      financial instruments include cash, accounts receivable, notes receivable and
      accounts 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.





**16.**  **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.





**17.**  **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 $20,306,000 and $4,259,000 for the years ended
      December 31, 2006 and 2005, 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.








**18.**  ******Revenue
      Recognition**





Our
      revenue is generated from three sources:


·  the
      supply of product, 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 product
      or
      service has been delivered, fees and prices are fixed and determinable,
      collectibility is probable and when all other significant obligations have
      been
      fulfilled.





We
      recognize revenue from product sales at the time of shipment and passage of
      title. We offer customers the right to return products that do not function
      properly within a limited time after delivery. We continuously monitor and
      track
      such product returns and record 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, we cannot guarantee that we will continue to
      experience the same return rates that we have experienced in the past. Any
      significant increase in product 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.




We
      recognize 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 we recognize revenue ratably over the contract term. In
      certain instances we may under an appropriate agreement advance charge for
      the
      service to be provided. In these instances we recognize 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.





Our
      arrangements do not generally include acceptance clauses. However, arrangements
      involving multiple element service agreements include certain milestones and
      levels of certification, acceptance occurs upon our certification of our
      completion of each of the various elements.





We
      recognize revenue from the provision of our data transportation services when
      we
      perform the services or process 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 we may under an appropriate agreement advance charge
      for the data transport service to be provided. In these instances we recognize
      the advance charge (even if nonrefundable) as deferred revenue (classified
      as a
      liability) and release the revenue over future periods in accordance with the
      contract term as the data transport service is delivered or performed.





**19.**  **** **Foreign
      Currency Transactions**





While
      the
      majority of our transactions and the transactions of our subsidiaries occur
      in
      the United States in U.S. dollars, a limited number are made in Canadian
      dollars, Australian dollars, and British pounds sterling. Such transactions
      include recurring service revenues billed to customers in Canada that are
      denominated in Canadian dollars, some transactions between Numerex Corp. and
      its
      small subsidiary in Australia are denominated in Australian dollars. Gains
      and
      losses from these transactions are included in income as they occur. For the
      year ended December 31, 2006 the Company had a foreign currency loss of $10,000,
      a loss of $5,000 for the year ended December 31, 2005, and a loss of $52,000
      for
      the year ended December 31, 2004.





**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, 2006, 2005 and 2004 research
      and
      development costs amounted to $ 1.1 million, $1.1 million, and $906,000,
      respectively.





**21.**  **Provision
      for Warranty Claims**





Estimated
      warranty expense is charged over the warranty period of the warranted products.
      Warranty expenses have not been significant.





**22.**  **Stock-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 including equity
      awards related to the Long-Term Incentive Plan (the “1999 Plan”) based on
      estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting
      under Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March
      2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
      No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the
      provisions of SAB 107 in its adoption of SFAS 123(R).




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 Condensed Consolidated Financial Statements as of and for
      the twelve months ended December 31, 2006 reflect the impact of SFAS 123(R).
      In
      accordance with the modified prospective transition method, the Company’s
      Condensed Consolidated Financial Statements for prior periods have not been
      restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based
      compensation expense recognized under SFAS 123(R) for the twelve months ended
      December 31, 2006 was $462,000, which consisted of stock-based compensation
      expense related to employee equity awards. Total unrecognized compensation
      related to unvested stock-based awards granted to employees and members of
      our
      board of directors at December 31, 2006, net of estimated forfeitures, is $1.9
      million and is expected to be recognized over a weighted-average period of
      4.2
      years.  There
      was
      no stock-based compensation expense related to employee equity awards recognized
      during the twelve months ended December 31, 2005 and December 31, 2004.




SFAS
      123(R) requires companies to estimate the fair value of share-based payment
      awards on the date of grant using an option-pricing model. The value of the
      portion of the award that is ultimately expected to vest is recognized as
      expense over the requisite service period in the Company’s Condensed
      Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R),
      the
      Company accounted for employee equity awards using the intrinsic value method
      in
      accordance with APB 25 as allowed under Statement of Financial Accounting
      Standards No. 123, “Accounting for Stock-Based Compensation” 
(“SFAS 123”). Under the intrinsic value method, no stock-based compensation
      expense had been recognized in the Company’s Condensed Consolidated Statement of
      Operations, because the exercise price of the Company’s stock options granted to
      employees and directors equaled the fair market value of the underlying stock
      at
      the date of grant.




Stock-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. Stock-based compensation expense recognized in the Company’s
      Condensed Consolidated Statement of Operations for the twelve months ended
      December 31, 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 stock-based compensation costs to expense on the straight-line method.
      As stock-based compensation expense recognized in the Condensed Consolidated
      Statement of Operations for the fiscal year 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. In the Company’s pro forma information required under SFAS 123 for
      the periods prior to fiscal 2006, the Company accounted for forfeitures as
      they
      occurred.





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 an 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
      impact of adopting SFAS 123(R) on January 1, 2006, was to lower the Company’s
      earnings before taxes and net earnings for the year ended December 31, 2006
      by
      $462,000. Basic and diluted net earnings per share for the year ended December
      31, 2006 were lower by $0.04 as a result of adopting SFAS 123(R).





We
      have
      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.





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, 2006 follows:





Weighted
            Weighted
            AggregateAverage
            Average
                Remaining
            IntrinsicShares
            Ex.
                Price
            Contractual
                Life (Yrs)
            ValueOutstanding,
                at 12/31/05
            1,453,515
            4.76Options
                granted
            426,250
            7.89Options
                exercised
            (74,150)
            3.98Options
                cancelled
            (18,250)
            (3.82)Options
                expired
            (2,500)
            5.13Outstanding,
                at 12/31/06
            1,784,865
            5.55
            6.43
            $
                6,973,855Exercisable,
                at 12/31/06
            1,024,928
            5.07
            4.88
            $
                4,506,120








The
      following table summarizes information related to fixed stock options
      outstanding at December 31, 2006:





**Options
                outstanding**
            
            **Options
                exercisable****Range
                of exercise prices**
            **Number
                outstanding at December 31, 2006**
            **Weighted
                average remaining contractual life (years)**
            **Weighted
                average exercise price**
            
            **Number
                exercisable at December 31, 2006**
            **Weighted
                average exercise price**$1.00
                -   4.00
            537,165
            5.99
            $3.05
            
            389,040
            $2.974.01
                -   8.00
            816,950
            6.25
            $5.24
            
            467,388
            $5.418.01
                -   12.94
            430,750
            7.34
            $9.25
            
            168,500
            $9.001,784,865
            6.43
            $5.55
            
            1,024,928
            $5.07







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.





A
      summary
      of the status of the Company’s stock option plans as of December 31, 2006,
      2005, and 2004 and changes during the years ended on those dates is presented
      below:








For
                the years ended December 31,FYE
                12-31-06
            FYE
                12-31-05
            FYE
                12-31-04Weighted
            
            Weighted
            
            WeightedAverage
            
            Average
            
            AverageShares
            Ex.
                Price
            Shares
            Ex.
                Price
            Shares
            Ex.
                PriceOutstanding,
                beginning of year
            1,453,515
            4.76
            1,494,015
            4.85
            1,255,515
            5.21Options
                granted
            426,250
            7.89
            173,500
            4.53
            458,250
            4.47Options
                exercised
            (74,150)
            3.98
            -
            -
            -
            -Options
                cancelled
            (18,250)
            3.82
            (185,250)
            5.73
            -
            -Options
                expired
            (2,500)
            5.13
            (28,750)
            4.69
            (219,750)
            5.86Outstanding,
                end of year
            1,784,865
            5.55
            1,453,515
            4.76
            1,494,015
            4.85Exercisable,
                end of year
            1,024,928
            5.07
            838,078
            5.28
            854,828
            5.83





In
      January 2006, the Company awarded 30,000 warrants to our investor relations
      firm in exchange for services. These warrants vest over a one year period.
      The
      Company used the fair value based method of accounting for these warrants and
      is
      ratably amortizing the $64,000 to expense over the vesting period. A total
      of
      $64,000 was included in selling, general and other expense for the twelve months
      ended December 31, 2006 in relation to these warrants.





The
      key
      assumptions used in the valuation model during the twelve months ended December
      31, 2006, 2005 and 2004 are provided below:





**Twelve
                Months Ended****December
                31,****2006**
            **2005**
            **2004**Valuation
                Assumptions:Volatility
            53.7%
            69.80%
            69.84%Expected
                term in years
            6.3
            8
            8Risk
                free interest rate
            4.62%
            4.35%
            3.98%Dividend
                yield
            0.00%
            0.00%
            0.00%







The
      Company recognized $462,000 of stock based compensation expense for the twelve
      months ended December 31, 2006. 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 twelve months
      ended December 31, 2005 and December 31, 2004.








The
      Company’s pro forma information is as follows:





**December
                31,**(In
                thousands, except per share data)
            
            **2005**
            
            **2004**Net
                earnings (loss) - as reported
            
            $
            593
            
            $
            (2,079
            )Less
                total stock-based compensation expense determinedunder
                fair value based method for all awards
            
            
            455
            
            
            637Pro
                forma net earnings (loss)
            
            $
            138
            
            $
            (2,716
            )Basic
                earnings (loss) per share:As
                reported
            
            $
            0.05
            
            $
            (0.19
            )Pro
                forma
            
            $
            0.01
            
            $
            (0.25
            )Diluted
                earnings (loss) per share:As
                reported
            
            $
            0.05
            
            $
            (0.19
            )Pro
                forma
            
            $
            0.01
            
            $
            (0.25
            )





**23.**  **Earnings
      (Loss) 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)
            
            **2006**
            
            **2005**
            
            **2004**Common
                Shares:Weighted
                average common shares outstanding
            
            
            12,502
            
            
            11,231
            
            
            10,798Dilutive
                effect of common stock equivalents
            
            
            483
            
            
            251
            
            
            -Total
            
            
            12,985
            
            
            11,482
            
            
            10,798Net
                earnings (loss):
            
            $
            4,103
            
            $
            593
            
            $
            (2,079
            )Net
                earnings (loss) per common share:Basic
            
            
            0.33
            
            
            0.05
            
            
            (0.19
            )Diluted
            
            
            0.32
            
            
            0.05
            
            
            (0.19
            )





For
      the
      twelve months ended December 31, 2006 and 2005, we excluded antidilutive options
      of 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.





Because
      of the antidulitive effect of the net loss, potential common shares resulting
      from options, convertible debt and warrants were excluded from the calculation
      of diluted earnings per share for the twelve months ended December 31, 2004.
      For
      the twelve months ended December 31, 2004, options to purchase 200,710 shares
      of
      common stock and common stock equivalents would have been taken into account
      in
      calculating diluted earnings per share were it not for the antidilutive effect
      of the net loss.





As
      of
      December 31, 2006 we had a total of 1,784,865 outstanding options, as of
      December 31, 2005, we had a total of 1,453,515 options outstanding, and as
      of
      December 31, 2004, we had a total of 1,494,015 options
      outstanding.





**24.** **Advertising
      Expenses**





Advertising
      expenses are charged to operations in the period in which they are incurred.
      For
      the Years ended December 31, 2006, 2005 and 2004, advertising costs amounted
      to
      $420,000, $391,000, and $314,000, respectively.





**25.** **Recent
      Accounting Pronouncements**







In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
      for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
      No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
      simplify the accounting for certain hybrid instruments by permitting fair value
      remeasurement for any hybrid financial instrument that contains an embedded
      derivative, as well as, clarifies that beneficial interests in securitized
      financial assets are subject to FAS 133. In addition, FAS 155 eliminates a
      restriction on the passive derivative instruments that a qualifying
      special-purpose entity may hold under FAS 140. FAS 155 is effective for all
      financial instruments acquired, issued or subject to a new basis occurring
      after
      the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. We believe that the adoption of this statement will not
      have a material effect on our financial condition or results of operations.





In
      June
      2006, the FASB issued FASB Interpretation No. (FIN) 48, “Accounting for
      Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in
      income taxes recognized in financial statements in accordance with
      SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 requires that we recognize in our consolidated financial
      statements, the impact of a tax position, if that position is more likely than
      not of being sustained on audit, based on the technical merits of the position.
      The provisions of FIN 48 also provide guidance on derecognition,
      classification, interest and penalties, accounting in interim periods, and
      disclosure. The provisions of FIN 48 are effective beginning
      January 1, 2007, with the cumulative effect of the change in accounting
      principle recorded as an adjustment to the opening balance of retained earnings.
      We estimate the adoption of this standard will increase/reduce the opening
      balance of retained earnings for 2007 by approximately $200,000 to
      $300,000.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108, *“Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements”,* (“SAB No. 108”).
      SAB No. 108 requires quantification of errors using both a balance
      sheet approach and an income statement approach in the determination of
      materiality in relation to a misstatement. SAB No. 108 is effective
      the first fiscal year ending after November 15, 2006. Management has
      determined that SAB No. 108 will not have a material impact on the
      Company.





The
      above
      discussion is not intended to be a comprehensive list of all of our accounting
      policies. In many cases, the accounting treatment of a particular transaction
      is
      specifically dictated by accounting principles generally accepted in the United
      States of America, with no need for management’s judgment in their application.
      There are also areas in which management’s judgment in selecting any available
      alternative would not produce a materially different result. See our audited
      consolidated financial statements and notes which begin on page 33 of this
      Annual Report on Form 10-K which contains accounting policies and other
      disclosures required by accounting principles generally accepted in the United
      States of America.





**26.** **Reclassification**




Certain
      prior year amounts have been reclassified to conform to the current period
      presentation.







**NOTE
      B - LIQUIDITY** ****





As
      disclosed in the financial statements, our operations generated cash in 2006.
      We
      completed two financing transactions during 2006 which generated gross proceeds
      of $20 million.





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, 2007.








**NOTE
      C - ACQUISTIONS**





**Acquisition
      of AIRDESK, Inc.**





On
      January 5, 2006 we 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 products 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.





Total
      consideration for the asset purchase was approximately $4,222,000 payable in
      the
      form of shares of our common stock and the assumption of certain existing
      indebtedness of AIRDESK, Inc. In addition, if certain revenue and other
      performance targets are achieved, we
      could
      release an additional 300,000 shares of our common stock over a three-year
      period.





We
      assumed approximately $2,453,000 of debt, of which $1,199,000 was paid in cash
      at closing of the transaction as a reduction of part of the debt, and the
      balance of $1,254,000 was paid on August 17, 2006. We also issued shares of
      common stock valued at approximately $196,000 to AIRDESK at closing and
      deposited the remaining shares of common stock, valued at closing at
      approximately $1,307,000, with an Escrow Agent. AIRDESK retains voting and
      dividend rights to these shares while held in escrow. The Escrow Agent will
      release the shares of common stock to AIRDESK 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 at the date of acquisition.





(in
                thousands)
            
            **At
                January 5, 2006**Current
                assets
            
            $
            2,410Property,
                plant and equipment
            
            
            444Other
                non-current assets
            
            
            12Intangible
                assets
            
            
            934Goodwill
            
            
            3,214Total
                assets acquired
            
            
            7,014Current
                liabilities
            
            
            (3,346
            )Long-term
                debt
            
            
            (700
            )Total
                liabilities assumed
            
            
            (4,046
            )Net
                assets acquired
            
            $
            2,968





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
      $3,214,000 of goodwill was assigned to the wireless data communications segment.
      The goodwill and intangible assets will not be deductible for income tax
      purposes, thus resulting in a $635,000 lowering of the consolidated valuation
      allowance on deferred tax assets.







**NOTE
      D - INVENTORY**





Inventory
      consisted of the following:




**December
                31,**(In
                thousands)
            
            **2006**
            
            **2005**Raw
                materials
            
            $
            871
            
            $
            349Work-in-progress
            
            
            30
            
            
            8Finished
                goods
            
            
            2,207
            
            
            1,654Less
                reserve for obsolescence
            
            
            (353
            )
            
            (317
            )Inventory
            
            $
            2,755
            
            $
            1,694








**NOTE
      E - PROPERTY AND EQUIPMENT**





Property
      and equipment consisted of the following:




**December
                31,**(In
                thousands)
            
            **2006**
            
            **2005**Leasehold
                improvements
            
            $
            853
            
            $
            645Plant
                and machinery
            
            
            8,506
            
            
            7,925Equipment,
                fixtures, fittings
            
            
            696
            
            
            572Total
                property and equipment
            
            
            10,055
            
            
            9,142Accumulated
                depreciation
            
            
            (8,768
            )
            
            (8,156
            )Property
                and equipment, net
            
            
            1,287
            
            
            986








**NOTE
      F - INCOME TAXES**





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





**December
                31,**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **2004**Current:Federal
            
            $
            57
            
            $
            -
            
            $
            -State
            
            
            55
            
            
            52
            
            
            9Foreign
            
            
            -
            
            
            -
            
            
            -Deferred:Federal
            
            
            (2,941
            )
            
            -
            
            
            -State
            
            
            (121
            )
            
            -
            
            
            -$
            (2,950
            )
            $
            52
            
            $
            9









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)
            
            **2006**
            
            **2005**
            
            **2004**Income
                tax (benefit) computed atU.S.
                corporate tax rate of 34%
            
            $
            392
            
            $
            219
            
            
            ($704
            )Adjustments
                attributable toValuation
                allowance
            
            
            (4,452
            )
            
            (241
            )
            
            677State
                Tax
            
            
            56
            
            
            34
            
            
            9Foreign
                Tax
            
            
            (3
            )
            
            6
            
            
            6Non-deductible
                expenses
            
            
            958
            
            
            16
            
            
            21Expiration
                of net operating loss
            
            
            108Other
            
            
            (9
            )
            
            18
            
            
            -$
            (2,950
            )
            $
            52
            
            $
            9





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





(in
                thousands)
            
            **December
                31,****2006**
            
            **2005**Current
                deferred tax assetInventories
            
            $
            120
            
            $
            115Accruals
            
            
            358
            
            
            642Net
                operating loss carry forward
            
            
            2,381Other
            
            
            379
            
            
            292Valuation
            
            
            (2,125
            )
            
            (1,049
            )1,113
            
            
            -Non-Current
                deferred tax assetIntangibles
            
            
            (338
            )
            
            (270
            )Foreign
                NOL carry forward
            
            
            65
            
            
            88Net
                operating loss carry forward
            
            
            5,853
            
            
            9,084Tax
                credit carry forward
            
            
            1,258
            
            
            1,202Differences
                between book andtax
                basis of property & equipment
            
            
            (43
            )
            
            286Other
            
            
            17Valuation
            
            
            (4,742
            )
            
            (10,390
            )2,070
            
            
            -Total
            
            $
            3,183
            
            $
            -





The
      change in the valuation allowance is attributable to reversal of a portion
      of
      the valuation allowance, current year book/tax differences, and state net
      operating losses presented on a gross rather than net basis.





Net
      operating loss carry forwards available at December 31, 2006, expire as follows:





(in
                thousands)
            
            
            
            Year
                ofAmount
            
            ExpirationFederal
                operating losses
            
            $
            15,005
            
            
            2007
                - 2024State
                operating losses
            
            $
            52,328
            
            
            2007
                - 2024Foreign
            
            $
            216
            
            
            N/A








We
      are
      entitled to the benefits of certain net operating loss carry forwards for income
      tax purposes. Subject to applicable regulations, net operating loss carry
      forwards may be offset against income in future years to reduce our future
      tax
      liability. In March 2004, we filed a ruling request with the Internal Revenue
      Service (IRS) for an extension of time to file an election to carry forward
      some
      net operating losses that were in question.  In July 2004, we received
      permission to carry the net operating losses forward and we are therefore
      entitled to the benefits of the net operating loss carry forwards.




**NOTE
      G - SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED
      PARTIES**





We
      had
      two suppliers from which our purchases were approximately 76% of our product
      cost of sales for the year ended December 31, 2006. Our accounts payable to
      these suppliers was approximately $2.2 million at December 31, 2006. We had
      one
      supplier from which our purchases were approximately 69% of cost of product
      sales for the year ended December 31, 2005 and 37% of cost of product sales
      for
      the year ended December 31, 2004. Our accounts payable to this supplier was
      approximately $2.2 million at December 31, 2005. The components included in
      the
      products 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 2006 and will continue to provide such
      services during fiscal 2007. During fiscal 2006 and 2005, Salisbury & Ryan
      LLP charged legal fees of approximately $172,000 and $263,000. Our accounts
      payable to Salisbury & Ryan LLP was $34,000 and $49,000 at December 31, 2006
      and 2005, respectively. During fiscal 2004, Salisbury & Ryan LLP charged us
      approximately $175,000.





In
      conjunction with the acquisition of AIRDESK, Inc. on January 1, 2006, we assumed
      a $250,000 promissory note with an 8% annual interest rate due to Michael Lang,
      AIRDESK, Inc. President.








**NOTE
      H - 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 net carrying value of assets financed by capital lease
      obligations is approximated $169,000 as of December 31, 2006. 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,
      2006
      (in thousands).




2007
            
            $
            1112008
            
            
            502009
            
            
            312010
            
            
            262011
            
            
            6Total
                minimum lease payments
            
            
            224Less
                amount representing interest
            
            
            (33
            )Present
                value of net minimum lease payments
            
            $
            191







**Operating
      Leases**





We
      lease
      certain property and equipment under non-cancelable operating leases with
      initial terms in excess of one year. Future minimum lease payments under such
      non-cancelable operating leases subsequent to December 31, 2006, (in thousands)
      are as follows:




2007
            
            $
            5892008
            
            
            6042009
            
            
            6202010
            
            
            6362011
            
            
            617Total
                minimum lease payments
            
            $
            3,066





Rent
      expense, including short-term leases, amounted to approximately $795,000,
      $781,000, and $777,000 for the years ended December 31, 2006, 2005, and 2004
      respectively.





**NOTE
      I - 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 $142,000, $101,000,
      and $82,000 were expensed for the years ended December 31, 2006, 2005 and 2004.





**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.





**NOTE
      J - GEOGRAPHIC INFORMATION**





**Segment
      Information**





Beginning
      in fiscal year 2006, the Company adopted a new business strategy, which focuses
      on three distinct segments: Wireless Data Communications; Digital Multimedia,
      Networking and Wireline Security; and Unallocated Corporate. The Wireless Data
      Communications segment is made up of all our wireless machine-to-machine
      communications products and services. The Digital Multimedia, Networking and
      Wireline Security includes our networking products and services, video
      conferencing products, and our wire-line security detection products. There
      are
      expenses, such as depreciation and amortization at the corporate level that
      are
      not allocated to the other reportable segments. In prior years Digital
      Multimedia, Networking and Wireline Security was two separate segments. With
      the
      acquisition of Airdesk, the Wireless Data Communications segment has become
      the
      primary focus of the Company. As two separate segments, Digital Multimedia
      and
      Network Services and Wireline Security did not make up individually 10% of
      the
      Company’s operations. As a consolidated segment, Digital Multimedia, Networking
      and Wireline Security makes up approximately 12% of revenues, and 6% of
      identifiable assets. Prior year segment data has been reclassified to conform
      to
      the current period presentation.





***Wireless
      Data Communications Segment***





The
      Wireless Data segment provides wireless machine-to machine (M2M) communications,
      delivering comprehensive wireless solutions over the company’s proprietary
      wireless data network. Our wireless data network is dedicated to the delivery
      of
      M2M communications throughout the United States, Canada, Mexico, the Caribbean
      and much of Latin America. M2M is defined as electronic data communications
      between people, devices, and systems that turn data into information that
      companies can act upon.





The
      Wireless Data segment develops, operates, markets, and sells products and
      services CellemetryXGTM, Cellemetry®, UplinkTM, Airdesk MobileTM, and VendViewTM
brands, as well as distribution through Value Added Resellers (VARs) who have
      integrated the Numerex Network and components into their own offerings.





***Digital
      Multimedia, Networking and Wireline Security Segment***


The
      Digital Multimedia, Networking and Wireline segment systems permit network
      operators to provide a wide range of video and data services, including Internet
      access, high-speed data transfer, and interactive video conferencing and voice
      service. The use of fiber optics in the broadband transmission network provides
      improved signal quality for long-distance transmission, increased bandwidth,
      immunity to interfering signals, and significant cost savings and reliability
      over coaxial cable-based network technologies. We market our digital multimedia
      products and services through a combination of system integrators and
      VARs.





In
      addition, Digital Multimedia, Networking and Wireline segment provides products
      under the DigilogTM brand that assist both wireline and wireless carriers in the
      engineering, installation, and servicing of this new telecommunications control
      network. These telecommunications network operational support systems and
      services include system integration (rack and stack) and installation, Test
      Access, and Interconnecting Devices.





The
      Wireline segment’s 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. Derived Channel operates over a regular voice telephone line with no
      interference, whether or not the telephone is in use. The Company provides
      this
      service through its DCX Systems and DCX Australia subsidiaries.





Summarized
      below are the Company’s revenues and net income (loss) by reportable
      segment as of and for the years ended December 31, 2006, 2005 and 2004.





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





**For
                the years ended December 31,**(In
                thousands, except per share data)
            
            **2006**
            
            **2005**
            
            **2004**Revenues:Wireless
                Data Communications
            
            $
            46,321
            
            $
            22,328
            
            $
            14,600Digital
                Multimedia, Networking and Wireline Security
            
            
            6,467
            
            
            7,618
            
            
            8,393$
            52,788
            
            $
            29,946
            
            $
            22,993Operating
                earnings (loss) before taxesWireless
                Data Communications
            
            $
            3,659
            
            $
            1,027
            
            $
            (1,420
            )Digital
                Multimedia, Networking and Wireline Security
            
            
            (1,619
            )
            
            118
            
            
            417Unallocated
                Corporate
            
            
            (368
            )
            
            (184
            )
            
            (628
            )$
            1,674
            
            $
            961
            
            $
            (1,631
            )Depreciation
                and AmortizationWireless
                Data Communications
            
            $
            1,268
            
            $
            1,201
            
            $
            1,314Digital
                Multimedia, Networking and Wireline Security
            
            
            369
            
            
            453
            
            
            602Unallocated
                Corporate
            
            
            267
            
            
            185
            
            
            132$
            1,904
            
            $
            1,839
            
            $
            2,048**Dec.
                31**
            
            
            **Dec.
                31**Identifiable
                Assets
            
            
            **2006**
            
            
            **2005**Wireless
                Data Communications
            
            $
            37,380
            
            $
            23,244Digital
                Multimedia, Networking and Wireline Security
            
            
            3,941
            
            
            7,360Unallocated
                Corporate
            
            
            25,072
            
            
            5,744$
            66,363
            
            $
            36,348





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Shareholders and Board of


Directors
      of Numerex Corp. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Numerex Corp. (a
      Pennsylvania company) and subsidiaries (the “Company”) as of December 31, 2006
      and 2005, 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, 2006. ** These
      financial statements are the responsibility of the Company's
      management. ** Our
      responsibility is to express an opinion on these financial statements 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. ** The
      Company is not required to have, nor were we engaged to perform an audit of
      its
      internal control over financial reporting. ** Our
      audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. ** Accordingly,
      we express no such opinion. ** An
      audit
      also includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, 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, 2006 and 2005, and the results of its operations
      and its cash flows for each of the three years in the period ended December
      31,
      2006 in conformity with accounting principles generally accepted in the United
      States of America.





As
      described in Note A-22 to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No. 123
      (revised 2004), “Share-Based Payments” on January 1, 2006.





Our
      audit
      was conducted for the purpose of forming an opinion on the basic financial
      statements taken as a whole. ** The
      Schedule II for the years ended December 31, 2006, 2005 and 2004, listed in
      the
      Index at Item 15(a) is presented for purposes of additional analysis and is
      not
      a required part of the basic financial statements. ** This
      schedule has been subjected to the auditing procedures applied in the audit
      of
      the basic financial statements and, in our opinion, is fairly stated in all
      material respects in relation to the basic financial statements taken as a
      whole.











/s/
      GRANT
      THORNTON LLP




Atlanta,
      Georgia


March
      22,
      2007
















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





Not
      applicable.





**Item
      9A. Controls and Procedures.**





Under
      the
      supervision and with the participation of our Chief Executive Officer and Chief
      Financial Officer, management has evaluated the effectiveness of the design
      and
      operation of our disclosure controls and procedures.  Based upon that
      evaluation, the Chief Executive Officer and Chief Financial Officer concluded
      that these disclosure controls and procedures are effective as of December
      31,
      2005.  No changes were made in the Company’s internal control over
      financial reporting during the year ended December 31, 2005 that have materially
      affected, or are reasonably likely to materially affect, the internal control
      over financial reporting.








**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 2005 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 2006 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
      2006 Annual Meeting of Shareholders to be filed pursuant to General Instruction
      G (3) to Form 10-K.








**Equity
      Compensation Plan Information**





(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
            2,650,000
            $5.98
            551,763Equity
                compensation plans not approved by security holders
            -
            -
            -Total
            2,650,000
            $5.98
            551,763





**Item
      13. Certain Relationships and Related Transactions.**





Incorporated
      by reference from our Proxy Statement relating to the 2006 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 2006 Annual Meeting of
      Shareholders to be filed pursuant to General Instruction G (3) to Form
      10-K.











**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
 
 
  3.
        Exhibits
 2.1 1 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
 
 2.2 2 Asset
          Transfer Agreement by and between Airdesk, LLC and Airdesk, Inc., effective
          January 1, 2006
 
 3.1 3 Amended
          and Restated Articles of Incorporation of the Company
 
 3.2 3 Bylaws
          of
          the Company
 
 4.1 4 Securities
          Purchase Agreement, dated May 30, 2006 by and between the Company and Laurus
          Master Fund, Ltd.
 
 4.2 4 Secured
          Non-Convertible Term Note, dated May 30, 2006 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 4.3 4 Common
          Stock Purchase Warrant, dated May 30, 2006 by and between the Company and
          Laurus
          Master Fund, Ltd.
 
 4.4 4 Master
          Security Agreement, dated May 30, 2006 by and among the Company, its U.S.
          subsidiaries, and Laurus Master Fund, Ltd.
 
 4.5 4 Subsidiary
          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.
 
 4.6 5 Securities
          Purchase Agreement, dated December 29, 2006 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 4.7 5 Secured
          Convertible Term Note, dated December 29, 2006 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 4.8 5 Common
          Stock Purchase Warrant, dated December 29, 2006 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 4.9 5 Master
          Security Agreement, dated December 29, 2006 by and among the Company, its
          U.S.
          subsidiaries, and Laurus Master Fund, Ltd.
 
 4.10 5 Subsidiary
          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.
 
 4.11 1 Registration
          Rights Agreement, dated December 29, 2006 by and between the Company and
          Laurus
          Master Fund, Ltd.
 
 4.12 5 Amended
          and Restated Grant of Security Interest in Patent and Trademarks, dated
          December
          29, 2006 by and between the Company and Laurus Master Fund, Ltd.
 
 4.13 6 Common
          Stock Purchase Warrant, dated January 13, 2004 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 4.14 7 Common
          Stock Purchase Warrant, dated January 28, 2005 by and between the Company
          and
          Laurus Master Fund, Ltd.
 
 10.1 8 Amended
          and Restated 1994 Employee Stock Option Plan (Management Compensation Plan)
 
 10.
          2 9 Amended
          and Restated 1994 Stock Option Plan for Non-Employee Directors (Management
          Compensation Plan)
  10.
          3 10 Registration
          Agreement between the Company and Dominion dated July 13, 1992
  10.
          4 9 Letter
          Agreement between the Company and Dominion (now Gwynedd) dated October
          25, 1994
          re: designation of director
 10.
          5 11 1999
          Long-Term Incentive Plan (Management Compensation Plan)
 
 10.
          6 12 2006
          Long-Term Incentive Plan (2006 Plan)
 
 10.7 13 Severence Agreement, by and between Stratton Nicolaides and the Company
          dated
          November 1, 2006. (Management Compensation Plan)
 
 10.7 13 Severence Agreement, by and between Alan Catherall and the Company dated
          November 1, 2006. (Management Compensation Plan)
 
 10.7 13 Severence Agreement, by and between Michael Marett and the Company dated
          November 1, 2006. (Management Compensation Plan)
 
 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 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 on 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)
 
 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)







SCHEDULE
      II





**NUMEREX
      CORP.**





**VALUATION
      AND QUALIFYING ACCOUNTS**





**Years
      ended December 31, 2006, 2005, 2004**


(in
      thousands)




Balance
                at beginning of Period
            
            Additions
                charged to expense
            
            Deductions
            
            
            
            Balance
                at end of PeriodDescriptionYear
                ended December 31, 2006:Accounts
                receivableAllowance
                for uncollectible accounts
            
            
            704
            
            
            198
            
            
            (24
            )
            
            a
            
            
            878Allowance
                for uncollectible accounts
            
            
            
            
            
            
            
            
            57
            
            
            c
            
            
            57Accounts
                receivable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            935InventoryAllowance
                for obsolescence
            
            
            317
            
            
            36
            
            
            
            
            
            
            
            
            353Year
                ended December 31, 2005:Accounts
                receivableAllowance
                for uncollectible accounts
            
            
            702
            
            
            325
            
            
            (323
            )
            
            a
            
            
            704InventoryAllowance
                for obsolescence
            
            
            967
            
            
            66
            
            
            (716
            )
            
            b
            
            
            317Year
                ended December 31, 2004:Accounts
                receivableAllowance
                for uncollectible accounts
            
            
            227
            
            
            475
            
            
            
            
            
            
            
            
            702InventoryAllowance
                for obsolescence
            
            
            681
            
            
            286
            
            
            
            
            
            
            
            
            967(a)
                Amounts written off as uncollectible, net of recoveries.(b)
                Inventory physically disposed.(c)
                Additions due to acquisition of Airdesk, Inc.











**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 15, 2007





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.




Signature
              Capacity
              Date*/s/
                  Stratton J. Nicolaides*
              Chairman
                  and Chief Executive Office
              March
                  23, 2007Stratton
                  J. Nicolaides*/s/
                  Brian C. Beazer*
              Director
              March
                  23, 2007Brian
                  C. Beazer*/s/
                  George Benson*
              Director
              March
                  23, 2007George
                  Benson*/s/
                  Matthew J. Flanigan*
              Director
              March
                  23, 2007Matthew
                  J. Flanigan*/s/
                  Allan H. Liu*
              Director
              March
                  23, 2007Allan
                  H. Liu*/s/
                  John G. Raos*
              Director
              March
                  23, 2007John
                  G. Raos*/s/
                  Andrew J. Ryan*
              Director
              March
                  23, 2007Andrew
                  J. Ryan*/s/
                  Nicholas Davidge*
              Director
              March
                  23, 2007Nicholas
                  Davidge*/s/
                  Alan B. Catherall*
              Executive
                  Vice President,
              March
                  23, 2007Alan
                  B. Catherall
              Chief
                  Financial Officer, PrincipalFinancial
                  and Accounting Officer