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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 1934For the Fiscal Year ended December 31, 2002or[  ]
        
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________


Commission File No. 0-22920

NUMEREX CORP.

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(Exact Name of Registrant as Specified in its Charter)


Pennsylvania
        
        11-2948749(State or Other Jurisdiction of
        
        (IRS Employer Identification No.)Incorporation or Organization)1600 Parkwood CircleSuite 200Atlanta, Georgia
        
        30339-2119(Address of principal executive offices)
        
        (Zip Code)


Registrants Telephone Number, Including Area Code: (770) 693-5950

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Class A Common Stock, no par value(Title of Class)


Indicate by check mark whether
the Registrant (i) 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 (ii) has
been subject to such filing
requirements for the past 90
days.

Yes [ X ]              No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the 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. [  ]

Indicate by check mark whether the
Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).

Yes [ X ]              No [  ]

The aggregate market value of voting stock held by non-affiliates of the
Registrant as of June 30, 2002 is $96,335,983 1

The number of shares outstanding of the issuers Class A Common Stock, no
par value as of March 10, 2003: 11,404,999





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TABLE OF CONTENTS



|                                             |                                                                                                |  |  |  |  |  |  | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                      
|                                             | Item 1. Business                                                                              
|                                             | Item 2. Properties.                                                                           
|                                             | Item 3. Legal Proceedings.                                                                    
|                                             | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|PART II                                     
|                                             | Item 5. Market for the Registrants Common Stock and Related Shareholder Matters.             
|                                             | Item 6. Selected Financial Data.                                                              
|                                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                             | Item 7A. Quantitative and Qualitative Disclosures about Market Risk.                          
|                                             | Item 8. Financial Statements and Supplementary Data.                                          
|                                             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
|PART III                                    
|                                             | Item 10. Directors and Executive Officers of the Registrant.                                  
|                                             | Item 11. Executive Compensation.                                                              
|                                             | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                                             | Item 13. Certain Relationships and Related Transactions.                                      
|                                             | Item 14. Controls and Procedures.                                                             
|PART IV                                     
|                                             | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                     
|SIGNATURES                                  
|EX-21 SUBSIDIARIES OF NUMEREX CORP.         
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-99.2 SECTION 906 CERTIFICATION OF THE CFO



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DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Companys Annual Report to Shareholders for the
year ended December 31, 2002, are incorporated by reference in Part I and Part
II of this Report and certain provisions of the Companys Proxy Statement to be
filed in connection with its 2003 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Report.

Other documents incorporated by reference are listed in the Exhibit Index.



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|1 |  | The aggregate dollar amount of the voting stock set forth equals the
number of shares of the Companys Common Stock outstanding, reduced by the
amount of Common Stock held by officers, directors and shareholders owning
10% or more of the Companys Common Stock, multiplied by $8.95 the last
reported sale price for the Companys Common Stock on June 30, 2002. The
information provided shall in no way be construed as an admission that any
officer, director or 10% shareholder in the Company may be deemed an
affiliate of the Company or that such person is the beneficial owner of
the shares reported as being held by him, and any such inference is hereby
disclaimed. The information provided herein is included solely for record
keeping purposes of the Securities and Exchange Commission.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PRELIMINARY NOTE

Unless otherwise indicated or the context otherwise requires: (i) the
Company refers to Numerex Corp. and its wholly-owned and controlled
subsidiaries, (ii) all references to Common Stock in this report refer to the
Companys Class A Common Stock and (iii) all references in this report to
fiscal years are to the Companys fiscal years ended December 31, 2002, 2001,
and 2000 respectively.





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TABLE OF CONTENTS

PageTable of Contents
        
        
        (i
        )PART IItem 1.
        
        Business
        
        
        1Item 2.
        
        Properties
        
        
        12Item 3.
        
        Legal Proceedings
        
        
        12Item 4.
        
        Submission of Matters to a Vote of Security Holders
        
        
        12PART IIItem 5.
        
        Market for Registrants Common Equity and Related
Shareholder Matters
        
        
        12Item 6.
        
        Selected Financial Data
        
        
        13Item 7.
        
        Managements Discussion and Analysis of Financial
Condition and Results of Operations
        
        
        13Item 8.
        
        Financial Statements and Supplementary Data
        
        
        13Item 9.
        
        Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
        
        
        13PART IIIItem 10.
        
        Directors and Executive Officers of the Registrant
        
        
        13Item 11.
        
        Executive Compensation
        
        
        13Item 12.
        
        Security Ownership of Certain Beneficial Owners
and Management
        
        
        14Item 13.
        
        Certain Relationships and Related Transactions
        
        
        14Item 14.
        
        Controls and Procedures
        
        
        14PART IVItem 15.
        
        Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
        
        
        14List of Financial Statements
        
        
        14List of Exhibits
        
        
        14Signatures
        
        
        17Index to Financial Statements
        
        
        F-1


(i)





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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 raise additional capital or 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

Overview

Numerex Corp. (the Company) is a technology company comprised of
operating subsidiaries that develop and market a wide range of communications
products and services. The Companys primary focus is wireless data
communications utilizing proprietary network technologies. The Company
primarily offers products and services in wireless data communications through
Cellemetry® and Data1Source, and digital multimedia through PowerPlay. These
services enable customers around the globe to monitor and move information for
a variety of applications from home and business security to distance learning.
In addition, the Company offers wireline alarm security products and services,
as well as telecommunications network operational support systems.

The Companys primary strategic objectives are to:



| |  | Implement a wireless data communications strategy which incorporates the development, marketing and sale of Cellemetry®,
Uplink, MobileGuardian, Vending Solutions, FastTrack Wireless Solutions, Data1Source, and other
wireless network technology, applications, products and services.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Acquire or develop technologies, which complement and enhance the Companys wireless data communications strategy.
|- |  | ------------------------------------------------------------------------------------------------------------------



| |  | Acquire or develop lines of business, which complement the Companys technology strategies, and are designed to enhance
strategic objectives, and augment shareholder value.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Expand all business lines with a focus on a financial model of recurring revenues.
|- |  | ----------------------------------------------------------------------------------

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Through Cellemetry LLC (Cellemetry) the Company provides a cost
effective, two-way wireless data communication network throughout North
America, Argentina, Colombia, Dutch Antilles, Paraguay and Puerto Rico with
plans to further expand in international markets.

Through Uplink Security, Inc. (Uplink), a wholly owned subsidiary of
Cellemetry®, the Company provides a cost effective, alarm security products,
services, and related technical support utilizing Cellemetry® wireless data
communications technology. Utilizing Cellemetry®, as a means of data
communications, combined with proprietary message processing and interface
technologies, the Company believes that it has positioned Uplink to be an
industry leader for cost effective wireless alarm communication. Cellemetrys®
interface technology provides the foundation of design and development of
applications and solutions in certain business sectors other than fixed alarm
security. In addition, Uplink products and services complement the Companys
wireline technology for the fixed alarm security market.

Through MobileGuardian LLC, in February 2003 the Company introduced
MobileGuardian, a Web-based vehicle location and recovery solution that
combines the accuracy of GPS (Global Positioning System) and Cellemetry®
wireless data communications technology. MobileGuardian is sold through
automotive dealerships, is professionally installed, and is operated by the
consumer. The Company believes that MobileGuardians is well positioned from a
price point and that with its value added features, like on demand locating
capability, that MobileGuardian will be able to compete in the established
vehicle location and recovery markets.

Through Vending Solutions, the Company recently introduced its FT-V
Product, a cost effective vending machine wireless monitoring product and
service, initially targeted to the bottling industry. Installed in vending
machines, the Companys wireless device is designed to report on a real time
basis critical data such as inventory levels, machine operating information
(i.e.: temperature levels), coinage levels, and authorized / unauthorized entry
into the machine, via Cellemetry® wireless data communications technology. The
Company believes that this market offering presents a product feature set and
price points not currently available to the vending industry and positions the
Company to take a leading position in this developing market.

Through FastTrack Wireless Solutions the Company provides application
developers an interactive web-based wireless machine to machine (M2M) interface
solution, which when combined with a customer application can monitor and
control both fixed and mobile geographically remote systems. These applications
use the Companys wireless data technology Cellemetry® and deliver cost
effective and efficient product and service solutions. FastTrack Wireless
Solutions also provides application developers cost effective mobile asset
tracking capability using a combination of Global Positioning System (GPS)
technology and the Companys wireless data technology Cellemetry® as the
message delivery medium.

Through its Circuit Watch product offering the Company provides cost
effective T-1 telecommunication network integrity monitoring for users
requiring notification of critical wireline network circuit interruptions or
breaks. Status is provided by utilizing the Companys core wireless data
technology Cellemetry® as the message delivery medium. The Company is
currently not marketing or selling Circuit Watch, although it may re-introduce
this product line in the future.

Data1Source, a proprietary and patent pending technology of the Company,
provides the Company another cost-effective means of transporting data over
digital wireless data networks. Through a centralized service bureau, the
Data1Source offering of Short Message Service (SMS) provides TDMA, CDMA and
GSM wireless data carriers with a broad range of digital services including
web-based and e-mail-based text messaging, SMS Touch-Tone paging,
subscriber-customized Internet content services such as news headlines, ring
tones, sports scores, stock quotes, and other customer-specific information.

Through its subsidiaries, Broadband Networks, Inc. (Broadband) and BNI
Solutions LLC (BNI Solutions), the Company principally designs, develops,
markets, and sells PowerPlay its digital multimedia product. PowerPlay is
designed for a wide range of applications, which require high quality
interactive video, audio and data communication. With a focus on the distance
learning horizontal Power Play can schedule or produce on-demand multimedia
conferencing between any combination of desktop workstations, mobile roll about
projection units, or dedicated conference rooms. Each station has access to all
of the resources of the entire network. This includes: secure point-to-point,
or multiple participants full motion video conferencing with far end device
control; central media libraries or servers, which provide media retrieval and
video-on-demand capability; secure on-demand gateways to national sites, public
switched networks and the Internet; compatibility/connectivity between any
combination of desktops, conference rooms, servers, or gateways; data and
document collaboration combined with real time full motion video; and voice
over IP from any station to any station, or the world via a central gateway.

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The Companys digital multimedia business also provides systems design,
products, integration services, installation, and operator training for
interactive voice, video, and data via fiber optic transport. This integration
of the Companys Broadband fiber optic transport expertise, to date, has been
in the area of educational enhancement through distance learning.

In addition, the Company provides telecommunications network operational
support systems and services through its subsidiary Digilog, Inc. (Digilog),
to operating telephone companies and equipment and services through its
subsidiaries, DCX Systems, Inc. (DCX Systems) and DCX Systems (Australia) Pty
Limited (DCX Australia) to operating telephone companies and the security
industry.

Background

The Companys business began in July 1992 with the acquisition of the
derived channel technology that creates an inaudible frequency on an existing
telephone line below the voice communications spectrum for data transmission
(Derived Channel). The Company expanded its business primarily through the
acquisition of complementary businesses, product lines, and proprietary
technologies, including its investments in Digilog and DCX Systems in 1994,
Broadband and Uplink in 1997 and subsequent investments in Uplink in 1998 and
2001. In November 1999, the Company sold its Derived Channel technology to
British Telecommunications plc (BT).

In May 1998, the Company, BellSouth Wireless and BellSouth Corporation
completed a transaction whereby Cellemetry®, a joint venture between the
Company and Cingular, was formed. On March 28, 2003, the Company acquired
Cingulars interest in Cellemetry and the 625,000 shares of the
Companys common stock
owned by Cingular for $5 million (the Cellemetry Transaction).

MACHINE to MACHINE (M2M) COMMUNICATIONS (Telemetry)

Wireless Data Communications
Products and Services

Cellemetry®

Cellemetry®is a means of wireless data communications that taps the
unused capacity of the cellular telephone networks overhead control channels
and the SS7/IS-41 network protocol to deliver two-way short data messages,
without affecting the voice channels of the cellular network.

Using Cellemetry®technology, remote equipment or vehicles can be polled,
time-set, or autonomously exchange information with a customers central
locations through the cellular networks control channels. Information
gathered is relayed to and from the customers designated site for collection
or for response. Based on remote conditions, control actions can be relayed as
well. That means, for example, equipment can be turned on or off remotely,
switches and gates can be closed, and pumps triggered.

When used in combination with low-cost Global Positioning System (GPS)
applications, Cellemetry®radios can pinpoint the precise geographic location
of trucks, automobiles, railroad cars, barges, containers, or other movable
assets and signal control actions or operator response messages.

Cellemetry® Data Service is wireless telemetry, or remote monitoring, over
the cellular telephone network. It provides a means of sending short,
telemetry-like messages over the cellular telephone system in a manner that is
virtually transparent to the cellular operator. Cellemetry® Data Service does
not use or impact voice channels, and is a patented technology of Cellemetry®.
Licensing agreements have been negotiated with cellular carriers throughout
North America, Argentina, Colombia, Dutch Antilles, Paraguay and Puerto Rico to
make Cellemetry® services widely available. Licensing agreements have also
been negotiated with application developers and radio manufacturers to provide
Cellemetry®applications and equipment across urban, rural, and industrial
markets.

Cellemetry®Data Service enables messaging for many different business
applications. It can, for example, report alarm messages, utility meter
readings, vehicle and trailer location, and vending machine status. It is
unique because it uses the underutilized portion of the cellular system, the
overhead control channels, to convey short data messages without impacting or
using the voice channels. These control channels are used to transmit
necessary information for all call initiations (both incoming and outgoing)
between the cellular system and the cellular

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customers equipment. The message handling capacity of these control channels
is far greater than is required by the existing cellular system, even during
the busiest times of the day.

The Cellemetry® Data Service operates in the same manner in which roaming
telephones operate in the cellular system. A roaming cellular telephone is
defined as a cellular telephone operating in any system other than its home
system. When a roaming cellular telephone is turned on, it recognizes the fact
that it is not in its home system and accordingly registers by sending its
Mobile Identification Number (MIN) and its Electronic Serial Number (ESN) to
the cellular system via one of the control channels. The cellular system
recognizes the roamer number and routes the MIN and ESN to the roamers home
system for validation via a special network (SS7/IS41) which links all of the
cellular systems together across Canada, Mexico and the U.S. and parts of South
and Central America.

Cellemetry®radios behave like roaming telephones except the cellular
telephone switchs database is set to route the registrations (MIN and ESN
data) to the Cellemetry®Service Bureau, (the Service Bureau) connected to
the same intra-cellular network. The MIN serves to identify the Cellemetry®
radio and the ESN is the data field, which contains the 32-bit telemetry
message. In addition, Cellemetry®s centralized Service Bureau adds a timestamp
and the SS7/IS41 network adds point of origin data. The entire Cellemetry®
message, if expressed in binary, is 122 bits.

The centralized Service Bureau processes, stores, and routes the
Cellemetry®Data Service messages according to customer requirements. Some
applications may require immediate processing, as is the case with alarm
monitoring, while an application such as vending machine status may only need
the messages stored and transferred in a batch once a day.

Uplink

Uplink designs, develops, markets and sells interface and routing
technologies that use Cellemetry® for security alarm communications
applications. Because Cellemetry® utilizes the existing cellular network and
relatively inexpensive radio transmitters, Cellemetry® applications can quickly
and economically monitor and control equipment at remote locations.

Uplink markets wireless alarm communication equipment which is installed
at customer premises, administers and offers air time packages on a consistent
price basis, and provides technical services that route alarm signals from the
cellular networks to any Alarm Receiving Center (ARC) central station in North
America without requiring either modifications to the ARCs central stations
receiving equipment or dedicated receiving equipment.

The Company believes that Uplinks products and airtime communications
charges are competitively priced. As a result of combining Cellemetry®
technology with low cost communication equipment and routing technologies,
significant improvements in security communication services are now available
to the industry.

The Company also believes that Cellemetry® and Derived Channel technology,
as security alarm communications platforms, may be complementary. As a result,
the technologies can be implemented independently or collectively.

MobileGuardian

MobileGuardian, a product and service offering, is a Web-based vehicle
location and recovery solution that combines the accuracy of GPS (Global
Positioning System) and Cellemetry® wireless data communications technology.
The Companys sales channel for MobileGuardian is automotive dealerships,
where the wireless device is professionally installed in the owners vehicle.
Once the device is installed and service has been initiated, the vehicle owner
accesses the secure MobileGuardian Web site using a proprietary login and
password.

If the
cars alarm system is triggered, a message is sent to the
MobileGuardian device located in the vehicle, which will then wirelessly
transmit a theft alert notification over the Cellemetry® wireless data
communications network to the vehicles owner via their wireless phone, email
or pager. The owner may then log on to the secure MobileGuardian Web site to
send an immediate locate request to the vehicle. Owners may then remotely
disable the vehicle at the touch of a button and prevent it from being
re-started, while they call the police authorities to report the theft and give
them the location of the vehicle. This improves the prospects of vehicle
recovery and the time frames in which the recovery occurs. In addition, the
vehicles owner can utilize the MobileGuardian system for purposes of simply
tracking the vehicle, without the alarm system triggering. The

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owner can purchase, via the Web site, additional locates, or messaging,
beyond those allotted at the time of purchase in order to track or disable
their vehicle at anytime.

The Company believes MobileGuardians price point and valued added
features will allow it to compete in the established vehicle location and
recovery markets and, because of the nationwide coverage of Cellemetry®, allow
it to develop markets in areas of the country that currently do not have access
to such service offerings.

Vending Solutions

Numerex Vending Solutions, a product and service offering, is a Web-based
vending machine monitoring solution that combines the Companys wireless
monitoring devices and Cellemetry® wireless data communications technology.
Once installed in the vending customers machines, the Companys wireless device
will report on a real time basis critical data such as inventory levels,
machine operating information (i.e.: temperature levels), coinage levels, and
authorized / unauthorized entry into the machine. This application is
particularly valuable to vending operators that have machines widely dispersed
in large geographic areas or in remote locations and where wireline
communications are unavailable or unreliable.

The Company is initially targeting the bottling industry for this product
and service, but believes it can be marketed to an expanded audience utilizing
a variety of vending applications.

FastTrack Wireless Solutions

FastTrack Wireless Solutions, a product and service offering, is designed
to provide application developers with an interactive Web-based wireless
machine to machine (M2M) interface solutions, which monitor and control
geographically remote systems and applications.

The Company marketed FastTrack Wireless Solutions as a service offering
to Cellemetry® application and potential application partners as a means to
reduce the development and engineering time for applications by providing most
of the information and resources, including generic Cellemetry® product,
necessary to more speedily bring applications to market.

The Company is planning to limit its marketing and selling of this product
to current customers and to select potential application partners who have or
are in the process of developing an application utilizing the Cellemetry® Data
Service.

Circuit Watch

Circuit Watch, a product and service offering, is a wireless monitoring
system for high-speed data lines. Utilizing the Cellemetry® data network
Circuit Watch facilitates the remote monitoring and reporting of T-1 circuit
status. The Company is not currently marketing this product line, but may
re-introduce Circuit Watch in the future.

Data1Source

Data1Source, a service offering, is a wireless means of data
communications that utilizes the Short Message Service (SMS) messaging
capability of digital (TDMA, CDMA and GSM) cellular telephone networks and the
SS7/IS-41 network protocol to deliver digital data packets of approximately 200
bytes each, although multiple packets can be concatenated.

Data1Sources proprietary and patent pending centralized service
processes, buffers, and routes the Data1Source Service messages to enable a
broad range of digital services for wireless data carriers, including web-based
and e-mail-based text messaging, SMS Touch-Tone paging, subscriber-customized
Internet content services such as news headlines, ring tones, sports scores,
stock quotes, and other customer-specific information.

Sales and Marketing

The Company markets its wireless data communications services directly to
participating cellular carriers who share in the recurring revenue generated
from within their territories. The services are also marketed directly to

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application providers who are offered communications capability, and varying
degrees of router services, radio development and other ongoing support
services. A Customer Technical Assistance Center (CTAC) provides customer
support twenty-four hours a day, seven days a week.

The Company currently offers Cellemetry® service in North America,
Argentina, Colombia, Dutch Antilles, Paraguay, and Puerto Rico through
licensing agreements with both cellular carriers and local resellers. The
Company intends to offer Cellemetry® in various international markets directly
and through strategic partnerships, alliances and other channels of
distribution.

The Company markets its Data1Source SMS service offering to cellular
carriers on the basis of a competitive subscriber-based pricing model combined
with a usage fee structure, which may be content and volume related. The
primary benefit to cellular carriers utilizing the Companys SMS service
offering is the limited capital investment involved in establishing the service
and the competitive price points provided, combined with its widespread
availability.

Wireline Data Communications (Wireline Telemetry)

Although the Company has sold its Derived Channel technology to BT, the
Company retains the right to market this service in North, Central and South
America, South Korea and Australia. The Company provides this service through
its DCX Systems and DCX Australia subsidiaries.

As a result of technological advances in the telecommunications industry,
telephone companies (Telecomms) are able to broaden their product portfolios
by offering enhanced services to their customers. The Company believes that
Telecomms can be attracted to niche technologies, such as the Companys Derived
Channel technology that offer a cost effective solution for applications that
typically require dedicated lines, thereby providing a more productive use of
the existing telephone network.

The Company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. The Derived Channel technology
uses this inaudible or low tone frequency to transmit monitoring information
between a microprocessor at the users protected premises and a microprocessor
located at the telephone companys central office. 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 and dedicated lines with no interference, whether or not
the telephone is in use. In addition, the low tone signal can be encrypted for
additional security.

The Company believes that Derived Channel differs from most other alarm
transport technologies in three meaningful ways: 1) Derived Channel operates
over existing telephone lines, eliminating the need for a dedicated line
service to the telephone customer; 2) Derived Channel communicates by means of
an encrypted, continuous and inaudible signal and is transmitted even while the
telephone is otherwise in use; and 3) telephone line integrity and security
system operation are automatically monitored at frequent intervals through
polling generated by network equipment located at the telecommunication
companys central office. The continuous signaling originating at the protected
premises provides prompt reporting of line disruptions, telephone system
outages, or alarm conditions.

The Company believes that Derived Channel represents an improvement over
the most common monitored alarm signaling system, such as the automatic dialer
(also know as a digital communicator). These devices are reactive by nature.
When an intrusion is detected, an automatic dialer attempts to seize the
subscribers telephone line and dial the number of the alarm monitoring company
to report the intrusion. Generally, in the event the telephone line is in use
or has been cut, a standard automatic dialer will be unable to report the alarm
condition. Unlike the standard automatic dialer, Derived Channel is proactive.
As such, it continuously monitors line and system integrity, and automatically
reports any line disruption or failure to the ARC.

Sales and Marketing

The Company intends to provide a level of marketing support to the
Telecomms and alarm system distributors, in its licensed territories, and to
seek more comprehensive associations with Telecomms, enabling the Company to
market its Derived Channel security alarm transport directly to the industry in
an effort to capture a share of the recurring revenue generated by the
applications. The Company has a presence in the private market sector
(non-publicly switched traffic), and serving customers who have control and
ownership of their own telephone facilities. This segment of the market needs
smaller systems and has fewer connection points than the systems, which have
been marketed to the major telephone companies. The Company is not actively
marketing

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derived channel in the US, or any of its licensed territories other than
Australia, where it is expanding its relationship with a major Telecomm.

DIGITAL MULTIMEDIA AND NETWORKING

Digital Multimedia

Products and Services

The Company designs, develops, and markets complete digital multimedia
system solutions for high quality communications networks. The Company both
manufactures the products upon which its systems are based and incorporates
third party products where appropriate.

The Companys digital multimedia 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. The Company believes that its digital
multimedia systems enable the deployment of sophisticated architectures
generally at lower costs and with less hardware and complexity than competing
offerings.

The Company has developed and continues to enhance its line of software,
data, and fiber optic transmission products. In addition, the Company has
developed a digital multimedia solution, PowerPlay, which provides capability
for interactive videoconferencing over the same network platform that carries
standard data traffic. The Company believes that PowerPlay represents a
significant advance over the prior generation product EDCOMM, which was
targeted at the distance learning market, because of PowerPlays broader range
of potential uses.

System Solution Services. The Company designs and implements systems
utilizing in-house manufactured products and products supplied by third
parties. It also trains the end-users as an integral aspect of providing
complete system solutions. The Company believes its total system solution
focus differentiates it from competitors while providing an additional source
of revenue growth.

PowerPlay Solution.PowerPlay is the Companys digital multimedia
solution for high bandwidth private network applications. PowerPlay is an
integrated hardware-software system, which supports user-friendly control of
all network devices including VCRs, cameras, and switches. This product permits
the scheduling and conduct of video conferencing via a desktop workstation, a
roll about cart or a configured classroom or business environment. The
PowerPlay system incorporates proprietary software; both Company and third
party developed hardware, and is compatible with all standards based
transmission networks. The Company believes that PowerPlay is unique with
respect to its capability to deliver full motion video signals while using a
relatively small amount of bandwidth.

Data Solution. The Company also provides high-speed wide area network, or
WAN, data solution. This solution is offered as a data only capability or as
part of delivering the PowerPlay application. The data product line consists
of two main components. First is the data switch product, which the Company
obtains from other vendors. Second is the transport converter device, which
the Company manufactures.

Analog Products. The Company also offers an analog transport product
line, EDCOMM that consists of a variety of fiber optic transmitters and
receivers. The typical application is for the delivery of video over a private
network. The Company manufactures all of these products and the great majority
of the sales of these products are to existing customers.

Sales and Marketing

The Company markets its digital multimedia products and services through a
combination of system integrators and value added resellers. The Company
believes it will be necessary to expand its sales and marketing efforts in the
future to remain competitive and take advantage of market opportunities, as
well as to expand into international markets.

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The Company has established relationships with a number of multiple system
cable operators, or MSOs. MSOs have generally looked to these private networks
as a means of augmenting and extending their public networks, and as a source
of new revenues in the increasingly competitive environment.

The Company has developed relationships with a number of traditional
systems integrators under which it
has provided system design services and has assisted with the
installation. The Company believes that systems integrators provide a viable
avenue to the market and intends to continue to expand its efforts in this
area.

Networking

Products and Services

In the last decade the telecommunications industry has changed the
implementation of its networks regarding methods used to establish, control,
and track connections. The new control network is responsible for most of the
enhanced services implemented in the last few years. Using Signaling System
Seven (SS7) protocol, the new packet switched control network has added call
forwarding, last number re-dial, call blocking and many other features. In
addition, Federal guidelines now mandate that Local Number Portability (LNP), a
capability that will allow customers to keep the same telephone number as they
change their operating environment, be implemented by local carriers in an
immediate time frame.

The Company provides products, which assist the carriers in the
engineering, installation, and servicing of this new telecommunications control
network. These telecommunications network operational support systems and
services can be broken down into three categories: Test Access, Interconnecting
Devices, and Services including System Integration (rack and stack) and
Installation.

Test Access.The Digilog Network Analysis and Monitoring System, or
NAMS, is a network overlay system that enables a user to monitor the operation
of the SS7 network from a central site. The system provides prompt alarm
notification of a network failure, automatic activation of backup devices, and
a means to track down operational database errors. Verizon is one of the
largest users of this system in its tier I and tier II support operations. In
this application, the Company supplies the access products and the system
software in partnership with Agilent Technologies, which supplies the remote
controlled Protocol Analyzers.

Interconnecting Devices.The Digilog Channel Access Unit (CAU) is a
product used to provide the physical interconnection between the SS7 network
and complex monitoring devices such as the AcceSS7 system from Agilent
Technologies.

This product was developed to meet a strong need to interconnect several
applications monitoring computers to a single network tap point. In addition
to the CAU, the Companys interconnect products include resistor panels,
special cables, fuse panels, and the integration of other third-party equipment
for unique connection configurations.

System Integration (rack and stack) and Installation. The Company is an
approved installer for Verizon. As such, it provides installation services to
Verizon both directly and indirectly through Agilent Technologies. The Company
also provides System Integration services to both of these customers.
Integration Services are the assembly of both customer-supplied and Digilog
manufactured components into rack and cabinet configurations for installation
in the telephone central office. Through a partnership with Agilent
Technologies, the Company assembles and tests Agilent Technologies equipment
prior to installing it in central offices throughout the U.S.

Sales and Marketing

The Companys Digilog networking products are sold direct by the
Companys sales personnel, who work within the telephone central office and are
encouraged to develop practical solutions for the customers program managers.
The Company believes that this approach has proven to be very efficient. In
addition, the Company has developed partnerships with a major Telecom vendor
and other suppliers of monitoring equipment. Establishing relationships such
as these facilitates access to a much broader market without the additional
expense of a large and specialized sales force.

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GENERAL

Suppliers

The Company relies on third party subcontractors, both in the USA and
overseas, to manufacture some of the equipment used to provide its wireless
data product solutions, Derived Channel and networking equipment and products.
In addition, some of the Companys products are obtained from sole source
suppliers. The loss of a subcontractor or supplier could cause a disruption in
the Companys business due to the short lead-times demanded by certain of the
Companys customers.

Competition

The Company has one direct competitor for its wireless communications
business Cellemetry® technology  Aeris.net, formerly Aeris Communication,
Inc., which uses the service name Micro Burst. Numerous indirect competitors
are actively pursuing the short message wireless data transport market,
principally, two-way paging, dedicated packet radio, private radio, low earth
orbit satellites, and PCS. The Company believes that its ubiquitous North
American coverage, price points, and system performance will enable it to
effectively compete for market share. However, many of the competitors have
greater financial and other resources than the Company, 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.

The Companys Uplink security products and services have two primary
competitors in its existing channels of distribution, Ademcos Alarmnet C and
Telulars Teleguard Databurst, both of which use the Aeris.net wireless
communications solution. GE Interlogix and DSC Skyrate also offer competitive
hardware product solutions, but their service is provided by the Companys
Cellemetry® wireless communication solution. The Company believes that
Uplinks products and airtime communications charges are competitively priced.

The Company has two direct competitors in the vehicle location and
recovery business, LoJack Corporation, the incumbent and pioneer in the
industry, and OnStar Corp., a subsidiary of General Motors Corp., which offers
a full suite of services, including vehicle location and recovery. There are
also numerous other companies that currently offer or are developing other
wireless solutions in this area.

The market for the Companys digital multimedia high bandwidth broadband
transmission equipment and software solutions has been characterized by rapid
technological change. The principle competitive factors in this market include
product performance, reliability, price, breadth of product line, sales and
distribution capability, technical support and service, customer relations, and
general industry and economic conditions. The ability to provide complete
systems solutions including system integration, network management
capabilities, and the expertise to migrate existing systems to more complete
broadband networks, have also become critically important vendor selection
criteria in recent years. Additionally, users require applications to make
best use of these networks.

The Companys competitors for its digital multimedia products and services
include a number of companies that have developed videoconferencing technology,
including PictureTel, Polycom, Tandberg and VTEL. Other competitors include
manufacturers of fiber transmission equipment, who offer comparable products
but do not provide a complete system solution, including software. Many of the
competitors have greater financial and other resources than the Company.

Because of its proprietary nature, the Company believes that it is the
only licensed provider of Derived Channel products. The Companys principal
competition in the commercial security market consists of alternative methods
of monitoring line integrity, such as dedicated telephone line service.
Although security systems using a dedicated telephone line are considered
reliable, they are a more expensive alternative to the Companys Derived
Channel. The Company believes that Derived Channel represents, from a price
performance perspective, the most secure and most reliable form of primary
alarm data transport.

The Company believes that its networking business is unique among vendors
of support systems for SS7 in that it has been a long-term provider of both
diagnostic equipment and testing systems. The Company believes that its
presence in telephone central offices on a day-to-day basis gives its
networking business a unique perspective on the needs of the central office
project manager.

Research and Development

Technology is subject to rapid change, so the introduction of new
products, technologies and applications in the Companys markets could
adversely affect the Companys business. The Companys success will depend, in

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part, on its ability to enhance existing products and introduce new products
and applications on a timely basis. The Company plans to continue to devote a
portion of its resources to the research and development function.

The Company continues to invest in improvements to various Numerex
technologies, including Cellemetry® and its service capabilities on an ongoing
basis, focused primarily on the development of expanded service bureau
capabilities, further communications costs reductions, and additional
enhancement to application-specific capabilities.

Product Warranty and Service

The Companys wireless communications business, depending on the product,
provides a one-year to three-year, parts and labor warranty. The Companys
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- or two-year
labor and materials warranty. The Companys digital multimedia business
provides either a one- or two-year warranty on parts and labor, depending on
the scale and type of product provided. The Companys 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 to the Company of
its warranty programs have not been material.

Intellectual Property

The Company holds patents covering its Cellemetry® related technology in
the U.S. and various foreign countries. These patents expire between 2011 and
2016. The Company through Cellemetry licenses certain Cellemetry® related
technologies under licenses with BellSouth Corporation. The Company also owns
other intellectual property relating to its products. The Company also holds
patents through Cellemetry, which primarily cover the delivery of the
Cellemetry®wireless data communications service. These patents expire between
2010 and 2012. It is the Companys practice to apply for patents as new
products or processes suitable for patent protection are developed. No
assurance can be given as to the scope of the patent protection.

The Company believes that the rapid technological developments in the
telecommunications industry may limit the protection afforded by patents.
Accordingly, the Company believes that its success will also be dependent upon
its manufacturing, engineering and marketing know-how and the quality and
economic value of its products.

The mark Cellemetry® is a registered trademark of the Company. The Company
believes that no individual trademark or trade name is material to the
Companys competitive position in the industry.

Regulation

Federal, state and local communications laws and regulations have not
posed any significant impediments either to the delivery of wireless data
signals using the Cellemetry network or the provision of alarm services by
telephone companies using Derived Channel technology. The Company may be
subject to certain taxes and fees in connection with such communications laws
and regulations, including the federal universal service charge.

Within less than 5 years, the FCC likely will eliminate its requirement
that cellular carriers offer analog service pursuant to the Advanced Mobile
Phone Service, or AMPS standard. When this requirement is phased-out, cellular
carriers facing a spectrum shortage may stop offering analog AMPS cellular
service and use the spectrum for other purposes. Cellemetry®, which currently
uses the control channel of AMPS cellular service, would have to migrate its
service to the control channels of digital TDMA or CDMA wireless service or to
the Short Message Services of digital GSM wireless service, and customers that
use Cellemetry®-based services would have to replace incompatible radios. The
Companys wireless products and services that make use of Cellemetry® would be
similarly affected. The Company is moving towards a digital standard and is
developing and testing products to help customers with this transition.

The FCC also has eliminated most of its rules that restricted wireless
carriers from consolidating. Consolidation of wireless carriers could affect
demand for our Data1Source® service, whose principal customers are smaller
wireless carriers that want to offer Short Message Services but do not have
their own Short Message Service Center. Consolidation of wireless carriers
also could reduce the number of potential suppliers of control channel capacity
for our Cellemetry® service.

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In addition, the Companys products, such as derived channel STUs, Uplink
radios and certain digital multimedia products, require certification from the
FCC for compliance with standards designed to prevent damage to the telephone
network and to restrict radio frequency interference. The Companys products
currently used in the U.S., which are subject to these requirements, have
received all required certifications. However, anticipated design changes to
products sold in the U.S. will require compliance testing and certification.

In the U.S. the Companys products require certification from Underwriters
Laboratories in order to serve monitoring applications with higher levels of
insurance risk. Certain products of the Companys digital multimedia business
also require certification from Underwriters Laboratories. The Company has
obtained all required Underwriters Laboratories certifications for products
currently marketed in the U.S. and expects that future certifications will be
obtained as necessary in the ordinary course of business.

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

Employees

The Company, as of March 14, 2003, employs 79 employees in the U.S.,
consisting of 4 in manufacturing, 27 in sales, marketing and customer service,
25 in engineering and operations and 23 in management and administration. No
union represents any of the Companys employees. The Company believes that its
relationship with its employees is satisfactory.

Executive Officers and Key Employees of Registrant

The following sets forth the names, ages and positions of the executive
officers and certain key employees of the Company as of March 14, 2003:

Michael A. Marett, age 48, has been an Executive Vice President of the
Company since February 2001. From 1999 to 2001, Mr. Marett was Vice President,
Sales and Marketing of TManage, Inc. 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.

Stratton J. Nicolaides, age 49, has served as Chief Executive Officer of
the Company from 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 and provided consulting services to Dominion Group Limited.

Roland W. Rice, age 43, has been an Executive Vice President of the
Company since August 2001 having joined in February 2001 as Vice President,
Sales. From 1996 to 2001, Mr. Rice was Vice President, North American Sales,
for Sonicblue, Inc. (formerly, Diamond Multimedia). From 1993 to 1996, Mr. Rice
was General Manager, North American Sales of Hayes.

Kenneth W. Taylor, age 42, has been the Chief Financial Officer of the
Company since July 2002. From 2001 to 2002, Mr. Taylor served as Chief
Financial Officer of Rodenstock of North America. From 1987 until 2000, Mr.
Taylor served as Corporate Controller and executive team member of Scientific
Games Holdings Corp.

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Item 2. Properties.

All of the Companys facilities are leased. Set forth below is certain
information with respect to the Companys leased facilities:

Location
        
        Principal Business
        
        Square Footage
        
        Lease TermWillow Grove,
Pennsylvania
        
        Networking and
Wireline Data Communications
        
        
        10,000
        
        
        
        2003State College,
Pennsylvania
        
        Digital Multimedia
        
        
        10,788
        
        
        
        2003West Conshohocken,
Pennsylvania
        
        Executive Office 1
        
        
        2,815
        
        
        
        2002Atlanta, Georgia
        
        Wireless Data Communications
and Principal Executive Office
        
        
        14,027
        
        
        
        2010Atlanta, Georgia
        
        Wireless Data Communications
        
        
        6,946
        
        
        
        2010Atlanta, Georgia
        
        Wireless Data Communications
        
        
        1,658
        
        
        
        2005


1Executive office prior to relocation to Atlanta, was sub-leased. This lease
expired in 2002 and was not renewed.

The Company conducts manufacturing, sales and marketing, engineering and
administrative activities at many of these locations. The Company believes that
its existing facilities are adequate for its current needs. As the Company
grows and expands into new markets and develops additional products, it may
require additional space, which the Company believes will be available at
reasonable rates.

The Company engages in limited manufacturing, equipment and product
assembly and testing for certain of the Companys products. The Company also
uses contract manufacturers located near its facilities for production,
sub-assembly and final assembly of certain products. The Company believes
there are other manufacturers that could perform this work on comparable terms.

The semiconductors, microprocessors and other components used in the
Companys products are obtained from various suppliers and manufacturers, some
of which are the sole source of such component.




Item 3. Legal Proceedings.

From time to time, the Company is involved in routine legal proceedings in
the normal course of its business. The Company believes that no currently
pending legal proceeding will have a materially adverse effect on
its business. The Company believes that no currently pending legal proceeding
will have a materially adverse effect on the financial condition or results of
operations of the Company.




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 does not currently 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 the Companys earnings,
financial condition and working capital, capital expenditure requirements, any
restrictions contained in loan agreements and market factors and conditions.

The Cellemetry®Operating Agreement provides for certain restrictions on
dividends and distributions.

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The Companys Common Stock is quoted on the NASDAQ National Market and
traded under the symbol NMRX.

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

Fiscal 2002
        
        High
        
        LowFirst Quarter (January 1, 2002 to March 31, 2002)
        
        $
        9.50
        
        
        $
        7.00Second Quarter (April 1, 2002 to June 30, 2002)
        
        
        11.47
        
        
        
        7.11Third Quarter (July 1, 2002 to September 30, 2002)
        
        
        8.93
        
        
        
        3.99Fourth Quarter (October 1, 2002 to December 31,
2002)
        
        
        5.08
        
        
        
        2.00


Fiscal 2001
        
        High
        
        LowFirst Quarter (January 1, 2001 to March 31, 2001)
        
        $
        9.38
        
        
        $
        5.94Second Quarter (April 1, 2001 to June 30, 2001)
        
        
        9.60
        
        
        
        5.10Third Quarter (July 1, 2001 to September 30, 2001)
        
        
        9.04
        
        
        
        5.82Fourth Quarter (October 1, 2001 to December 31,
2001)
        
        
        7.65
        
        
        
        5.85


As of March 10, 2003, there were 75 shareholders of record of the
Companys Common Stock, which include shares held in street name by brokers or
nominees.




Item 6. Selected Financial Data.

Incorporated by reference from the Companys 2002 Annual Report to
Shareholders, pursuant to General Instruction G (2) to Form 10-K, the relevant
portions of which are filed as Exhibit 13 hereto.




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

Incorporated by reference from the Companys 2002 Annual Report to
Shareholders pursuant to General Instruction G (2) to Form 10-K, the relevant
portions of which are filed as Exhibit 13 hereto.




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

Not applicable.




Item 8. Financial Statements and Supplementary Data.

The Financial Statements and Supplementary Data of the Company required by
this Item are set forth at the pages indicated herein at Item 15(a).




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

Not applicable.




PART III




Item 10. Directors and Executive Officers of the Registrant.

Incorporated by reference from the Companys Proxy Statement relating to
the 2003 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 Companys Proxy Statement relating to
the 2003 Annual Meeting of

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




Item 12. Security Ownership of Certain Beneficial Owners and Management.

Incorporated by reference from the Companys Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G (3) to Form 10-K.

Equity Compensation Plan Information

(a)
        
        (b)
        
        (c)Number of securities to
        
        Weighted-average
        
        Number of securities remainingbe issued upon exercise
        
        exercise price of
        
        available for future issuance underof outstanding options,
        
        outstanding options,
        
        equity compensation plans (excludingPlan category
        
        warrants and rights
        
        warrants and rights
        
        securities reflected in column (a))Equity compensation
plans approved by
security holders
        
        
        1,058,873
        
        
        $
        6.18
        
        
        
        609,455Equity compensation
plans not approved
by security holders
        
        
        
        
        
        
        
        
        
        
        Total
        
        
        1,058,873
        
        
        $
        6.18
        
        
        
        609,455





Item 13. Certain Relationships and Related Transactions.

Incorporated by reference from the Companys Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G (3) to Form 10-K.




Item 14. Controls and Procedures.

Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Registrants management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective. No
significant changes were made in the Registrants internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation.




PART IV




Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) Documents filed as part of this report:



| | 1. |  | Consolidated Financial Statements. The following financial
statements and the notes thereto of the Company are attached hereto
beginning on page F-1.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Index to Financial Statements of the Company
| |  |  | --------------------------------------------



| |  |  | Report of Independent Certified Public Accountants
| |  |  | --------------------------------------------------



| |  |  | Consolidated Balance Sheets as of December 31, 2002, and 2001
| |  |  | -------------------------------------------------------------



| |  |  | Consolidated Statements of Operations for the years ended December 31,
2002, 2001, and 2000
| |  |  | -------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Shareholders Equity for the years ended
December 31, 2002, 2001, and 2000
| |  |  | -----------------------------------------------------------------------------------------------------

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| |  |  | Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000
| |  |  | -------------------------------------------------------------------------------------------



| |  |  | Notes to Consolidated Financial Statements
| |  |  | ------------------------------------------



| | 2. |  | Financial Statement Schedules
| | -- |  | -----------------------------



| |  |  | Report of Independent Certified Public Accountants
| |  |  | --------------------------------------------------



| |  |  | Schedule II  Valuation and qualifying accounts
| |  |  | -----------------------------------------------



| | 3. |  | List of Exhibits filed pursuant to Item 601 of Regulation
S-K. The following exhibits are incorporated by reference herein, or
are being filed herewith:
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

2.11
        
        Securities Purchase Agreement among Numerex Corp., Broadband Networks, Inc. and the Shareholders of
Broadband Networks, Inc. dated February 21, 19972.22
        
        Shareholders Agreement among Broadband Networks, Inc., Numerex Corp. and the Shareholders of
Broadband Networks, Inc. dated February 21, 19972.33
        
        Numerex Corp. and British Telecommunications plc, Agreement Relating to the sale and purchase of the
whole of the issued shares capital of Bronzebase Limited3.14
        
        Amended and Restated Articles of Incorporation of the Company, as amended3.24
        
        Bylaws of the Company10.14
        
        The Numerex Corp. Savings and Profit Sharing Plan  Summary Plan Description (Management
Compensation Plan)10.25
        
        Amended and Restated 1994 Employee Stock Option Plan (Management Compensation Plan)10.36
        
        Amended and Restated Stock Option Plan for Non-Employee Directors (Management Compensation Plan)10.47
        
        Registration Agreement between the Company and Dominion dated July 13, 199210.56
        
        Letter Agreement between the Company and Dominion (now Gwynedd) dated October 25, 1994 re:designation of director10.64
        
        Office Space Lease Agreement between the Company and LBA Associates dated May 31, 1995.10.710
        
        1999 Long-Term Incentive Plan. (Management Compensation Plan)10.88
        
        Formation Agreement among Numerex Corp., BellSouth Wireless, Inc. and BellSouth Corporation dated
February 25, 1998.10.99
        
        Operating Agreement between Numerex Corp. and BellSouth Wireless, Inc. dated May 15, 1998.10.103
        
        First Amendment to Operating Agreement of Cellemetry LLC between Numerex Corp. and BellSouth
Wireless, Inc. effective as of November 1, 1999.11
        
        Computation of Earnings Per Share13
        
        Pursuant to Note 2 of Instruction G (2) to Form 10-K, in response to Item 6. Selected Financial
Data, Selected Consolidated Financial Data and in response to Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations, Managements Discussion and Analysis of
Financial Condition and Results of Operations are incorporated by reference from the Companys 2002
Annual Report to Shareholders and are being filed in electronic format. No other sections of the
Companys 2002 Annual Report to Shareholders shall be deemed filed as part of this filing.


15



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21
        
        Subsidiaries of Numerex Corp.1
        
        Incorporated by reference to the Exhibits filed with the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 5, 1997 (File No. 0-22920)2
        
        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 29, 2000 for the year ended October 31, 1997
(File No. 0-22920)3
        
        Incorporated by reference to the Exhibits filed with the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 26, 1999 (File No. 0-22920)4
        
        Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended October 31, 1995 (File No. 0-22920)5
        
        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)6
        
        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)7
        
        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)8
        
        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 26, 1998 (File No. 0-22920)9
        
        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 1, 1998 (File No. 0-22920)10
        
        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)99.1
        
        Certification by Chief Executive Officer99.2
        
        Certification by Chief Financial Officer


(b) Reports on Form 8-K.

None.

16



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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 on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.

NUMEREX CORP.

Date: March 31, 2003
        
        By:
        
        /s/Stratton J. NicolaidesStratton J. Nicolaides, Chairman and
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K 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. NicolaidesStratton J. Nicolaides
        
        Chairman and
Chief Executive Officer
        
        March 31, 2003/s/ Brian C. BeazerBrian C. Beazer
        
        Director
        
        March 31, 2003/s/ George BensonGeorge Benson
        
        Director
        
        March 31, 2003/s/ Matthew J. FlaniganMatthew J. Flanigan
        
        Director
        
        March 31, 2003/s/ Allan H. LiuAllan H. Liu
        
        Director
        
        March 31, 2003/s/ John G. RaosJohn G. Raos
        
        Director
        
        March 31, 2003/s/ Andrew J. RyanAndrew J. Ryan
        
        Director
        
        March 31, 2003/s/Kenneth W. TaylorKenneth W. Taylor
        
        Executive Vice President,
Chief Financial Officer,
Principal Financial and
Accounting Officer
        
        March 31, 2003


17



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Certifications

Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stratton J. Nicolaides, certify that:

1. I have reviewed this annual report on Form 10-K of Numerex Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003/s/ Stratton J. NicolaidesStratton J. NicolaidesChief Executive Officer andChairman


18



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Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kenneth W. Taylor, certify that:

1. I have reviewed this annual report on Form 10-K of Numerex Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003
        
        /s/ Kenneth W. TaylorKenneth W. TaylorChief Financial Officer,Executive Vice President, andPrincipal Financial and Accounting Officer


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CONTENTS

|                                                  |                                                                                                                     |  |      |     | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                  |                                                                                                                     |  | Page
|                                                  |                                                                                                                     |  |     
|Consolidated Financial Statements of the Company: |                                                                                                                     |  |      |    
|                                                  | Report of Independent Certified Public Accountants                                                                  |  |      | F-2 | 
|                                                  | Consolidated Balance Sheets as of December 31, 2002 and 2001                                                        |  |      | F-3 | 
|                                                  | Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 2002, 2001 and 2000 |  |      | F-5 | 
|                                                  | Consolidated Statements of Shareholders Equity for the
years ended December 31, 2002, 2001, and 2000               |  |      | F-6 | 
|                                                  | Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000                         |  |      | F-7 | 
|                                                  | Notes to Consolidated Financial Statements                                                                          |  |      | F-9 | 

F-1



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Report of Independent Certified Public Accountants

To the Shareholders and Board of   Directors
of Numerex Corp. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Numerex Corp.
and subsidiaries (the Company) as of December 31, 2002, and 2001 and the
related consolidated statements of operations, shareholders equity and cash
flows for the years ended December 31, 2002, 2001, and 2000. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements 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 consolidated financial position
of Numerex Corp. and subsidiaries as of December 31, 2002, and 2001 and the
results of their operations and their cash flows for the years ended December
31, 2002, 2001, and 2000 in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note A-20 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangibles (SFAS) on January 1, 2002.

/s/ Grant Thornton LLP

Atlanta, Georgia
February 20, 2003 (except for Note M, as to which the date is
March 28, 2003)

F-2



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NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Number of Shares)

ASSETS

|               |                                                                                     |   |              |        |      |   |        |        | 
|-------------- | ----------------------------------------------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | 
|               |                                                                                     |   | December 31,
|               |                                                                                     |   |             
|               |                                                                                     |   | 2002         |        | 2001
|               |                                                                                     |   |              |        |     
|CURRENT ASSETS |                                                                                     |   |              |        |      |   |        |       
|               | Cash and cash equivalents (Note A-3)                                                |   | $            | 2,137  |      |   | $      | 5,401  | 
|               | Accounts receivable (net of allowances of
$1,272 and $534, respectively (Note A-10) |   |              | 4,459  |      |   |        | 7,676  | 
|               | Notes
receivable, net (Notes A-9 and A-10)                                          |   |              | 823    |      |   |        | 94     | 
|               | Inventory, net (Notes A-8 and E)                                                    |   |              | 5,189  |      |   |        | 5,077  | 
|               | Prepaid taxes (Notes A-7 and G)                                                     |   |              |       |      |   |        | 48     | 
|               | Prepaid expenses and interest receivable                                            |   |              | 976    |      |   |        | 1,045  | 
|               |                                                                                     |   |              |        |      |   |        |        | 
|               | Total current assets                                                                |   |              | 13,584 |      |   |        | 19,341 | 
|               |                                                                                     |   |              |        |     
|               | Property and equipment, net (Notes A-5 and F)                                       |   |              | 2,475  |      |   |        | 3,107  | 
|               | Goodwill, net (Notes A-4 and A-20)                                                  |   |              | 10,983 |      |   |        | 10,983 | 
|               | Intangible assets, net (Notes A-4)                                                  |   |              | 8,050  |      |   |        | 8,812  | 
|               | Software, net (Notes A-4)                                                           |   |              | 1,963  |      |   |        | 410    | 
|               | Notes receivable, long term                                                         |   |              | 48     |      |   |        | 204    | 
|               | Other assets                                                                        |   |              | 8      |      |   |        | 117    | 
|               |                                                                                     |   |              |        |      |   |        |        | 
|               |                                                                                     | $ | 37,111       |        |      | $ | 42,974 |       
|               |                                                                                     |   |              |        |      |   |        |        | 

The accompanying notes are an integral part of these statements.

F-3



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NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Number of Shares)

LIABILITIES AND SHAREHOLDERS EQUITY

|                              |                                                                                                            |   |              |        |      |   |        |        |  
|----------------------------- | ---------------------------------------------------------------------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | -
|                              |                                                                                                            |   | December 31,
|                              |                                                                                                            |   |             
|                              |                                                                                                            |   | 2002         |        | 2001
|                              |                                                                                                            |   |              |        |     
|CURRENT LIABILITIES           |                                                                                                            |   |              |        |      |   |        |       
|                              | Accounts payable                                                                                           |   | $            | 5,238  |      |   | $      | 6,652  |  
|                              | Deferred revenues                                                                                          |   |              | 819    |      |   |        | 658    |  
|                              | Other accrued liabilities                                                                                  |   |              | 1,866  |      |   |        | 758    |  
|                              | Obligations under capital leases, current portion (Note I)                                                 |   |              | 710    |      |   |        | 145    |  
|                              |                                                                                                            |   |              |        |      |   |        |        |  
|                              | Total current liabilities                                                                                  |   |              | 8,633  |      |   |        | 8,213  |  
|                              |                                                                                                            |   |             
|LONG-TERM DEBT                |                                                                                                            |   |              |        |      |   |        |       
|                              | Obligations under capital leases                                                                           |   |              | 863    |      |   |        | 327    |  
|                              |                                                                                                            |   |             
|MINORITY INTEREST (Note C)    |                                                                                                            |   |             |        |      |   | 326    |       
|                              |                                                                                                            |   |             
|COMMITMENTS AND CONTINGENCIES |                                                                                                            |   |              |        |      |   |        |       
|(Notes H and I)               |                                                                                                            |   |              |        |      |   |        |       
|                              |                                                                                                            |   |             
|SHAREHOLDERS EQUITY          |                                                                                                            |   |              |        |      |   |        |       
|                              | Preferred stock  no par value; authorized
3,000,000 shares; issued 0 and 30,000 shares                    |   |              |       |      |   |        | 3,000  |  
|                              | Class A common stock  no par value; authorized
30,000,000 shares; issued 13,168,889 and 12,286,419 shares |   |              | 36,769 |      |   |        | 32,590 |  
|                              | Class B common stock  no par value; authorized
5,000,000 shares; none issued                              |   |              |       |      |   |        |       |  
|                              | Additional paid-in capital                                                                                 |   |              | 439    |      |   |        | 439    |  
|                              | Treasury stock, at cost, 1,766,400 and 1,766,400 shares                                                    |   |              | (9,222 | )    |   |        | (9,222 | )
|                              | Accumulated other comprehensive loss                                                                       |   |              | (9     | )    |   |        | (27    | )
|                              | Retained earnings (deficit)                                                                                |   |              | (362   | )    |   |        | 7,328  |  
|                              |                                                                                                            |   |              |        |      |   |        |        |  
|                              | Total shareholders equity                                                                                 |   |              | 27,615 |      |   |        | 34,108 |  
|                              |                                                                                                            |   |              |        |      |   |        |        |  
|                              |                                                                                                            | $ | 37,111       |        |      | $ | 42,974 |       
|                              |                                                                                                            |   |              |        |      |   |        |        |  

The accompanying notes are an integral part of these statements.

F-4



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NUMEREX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)

|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |        |        | 
|---------------------------------------------------------------------------------------------------------- | ------------------------ | ------- | ------ | -------------------------------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                           |                          |         |        | For the years ended December 31,
|                                                                                                           |                          |         |        |                                 
|                                                                                                           |                          |         |        | 2002                             |        | 2001 |        | 2000  
|                                                                                                           |                          |         |        |                                  |        |      |        |       
|Net sales                                                                                                  |                          | $       | 24,501 |                                  |        | $    | 24,258 |        |        | $ | 20,290 |       
|Cost of sales                                                                                              |                          |         | 13,952 |                                  |        |      | 14,737 |        |        |   | 12,020 |       
|Depreciation and amortization                                                                              |                          |         | 328    |                                  |        |      | 267    |        |        |   | 270    |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           | Gross profit             |         |        | 10,221                           |        |      |        | 9,254  |        |   |        | 8,000  |       
|                                                                                                           |                          |         |        |                                 
|Research and development expenses                                                                          |                          |         | 1,097  |                                  |        |      | 2,755  |        |        |   | 3,430  |       
|Selling, general, administrative and
other expenses                                                        |                          |         | 12,509 |                                  |        |      | 10,710 |        |        |   | 10,983 |       
|Depreciation and amortization                                                                              |                          |         | 2,184  |                                  |        |      | 2,701  |        |        |   | 2,593  |       
|Costs related to non-recurring acquisition activity
(Note D)                                               |                          |         | 1,899  |                                  |        |      |       |        |        |   |       |       
|Non-recurring employee separation costs (Note D)                                                           |                          |         |       |                                  |        |      | 418    |        |        |   |       |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           | Operating loss           |         |        | (7,468                           | )      |      |        | (7,330 | )      |   |        | (9,006 | )     
|                                                                                                           |                          |         |        |                                 
|Interest and other income (expense), net                                                                   |                          |         | (212   | )                                |        |      | 934    |        |        |   | 1,900  |       
|Minority interest                                                                                          |                          |         | 326    |                                  |        |      | 3,139  |        |        |   | 3,146  |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           | Loss before income taxes |         |        | (7,354                           | )      |      |        | (3,257 | )      |   |        | (3,960 | )     
|                                                                                                           |                          |         |        |                                 
|Income tax expense (benefit) (Notes A-7 and G)                                                             |                          |         | 96     |                                  |        |      | (115   | )      |        |   |       |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           | Net loss                 |         |        | (7,450                           | )      |      |        | (3,142 | )      |   |        | (3,960 | )     
|                                                                                                           |                          |         |        |                                 
|Preferred stock dividend                                                                                   |                          |         | 240    |                                  |        |      | 240    |        |        |   | 240    |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Loss applicable to common
Shareholders                                                                     |                          | $       | (7,690 | )                                |        | $    | (3,382 | )      |        | $ | (4,200 | )     
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Other comprehensive income (loss),
net of income taxes
Foreign currency translation
adjustment (Note A-15) |                          |         | 18     |                                  |        |      | (7     | )      |        |   |       |       
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Comprehensive loss                                                                                         |                          | $       | (7,672 | )                                |        | $    | (3,389 | )      |        | $ | (4,200 | )     
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Basic loss per share (Note A-19)                                                                           |                          | $       | (0.71  | )                                |        | $    | (0.32  | )      |        | $ | (0.40  | )     
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Diluted loss per share                                                                                     |                          | $       | (0.71  | )                                |        | $    | (0.32  | )      |        | $ | (0.40  | )     
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|Weighted average number of shares used in
per share calculation (Note A-19):                               |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           |                          | Basic   |        |                                  | 10,766 |      |        |        | 10,446 |   |        |        | 10,512 | 
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       
|                                                                                                           |                          | Diluted |        |                                  | 10,766 |      |        |        | 10,446 |   |        |        | 10,512 | 
|                                                                                                           |                          |         |        |                                  |        |      |        |        |        |   |        |       

The accompanying notes are an integral part of these statements.

F-5



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NUMEREX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In Thousands)

|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |       |        |        | 
|---------------------------------------------------------------------------- | -------------------------------------- | -------------------------- | -------------------------- | - | --------- | -- | ------ | - | ------ | ----- | ------ | --- | ------- | ------ | -------- | ----- | ------------- | ------ | --------- | - | ----- | --- | ------ | - | ---------- | ------ | ----- | - | ----------- | --- | ------ | - | ------ | ------ | ------ | ----- | ------ | ------ | 
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   | Accumulated |     |        |   |        |        |        |       |       
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   | Additional |        | Other |   | Retained    |     |        |   |       
|                                                                             |                                        |                            |                            |   | Preferred |    | Stock  |   | Common |       | Stock  |     | Paid-In |        | Treasury |       | Comprehensive |        | Earnings  |  
|                                                                             |                                        |                            |                            |   | Shares    |    | Amount |   | Shares |       | Amount |     | Capital |        | Stock    |       | Loss          |        | (Deficit) |   | Total
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |      
|                                                                             |                                        |                            | Balance, December 31, 1999 |   |           | 30 |        |   | $      | 3,000 |        |     |         | 11,609 |          |       | $             | 29,870 |           |   | $     | 370 |        |   | $          | (5,222 | )     |   | $           | (20 | )      |   | $      | 14,910 |        |       | $      | 42,908 | 
|Issuance of shares in connection with
exercise of stock options and warrants |                                        |                            |                           |   |           |    |       |   |        |       | 548    |     |         |        | 2,194    |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 2,194  |      
|Purchase of treasury stock                                                   |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     | (4,000 | ) |            |        |      |   |             |     |       |   |        |        | (4,000 | )    
|Net loss                                                                     |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     | (4,200 | ) |        |        | (4,200 | )    
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |       |        |        | 
|                                                                             |                                        | Balance, December 31, 2000 |                            |   | 30        |    |        |   | 3,000  |       |        |     | 12,157  |        |          |       | 32,064        |        |           |   | 370   |     |        |   | (9,222     | )      |       |   | (20         | )   |        |   | 10,710 |        |        |       | 36,902 |       
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |      
|Issuance of shares in connection with
exercise of stock options              |                                        |                            |                           |   |           |    |       |   |        |       | 105    |     |         |        | 344      |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 344    |      
|Issuance of shares under Directors
Stock Plan                                |                                        |                            |                           |   |           |    |       |   |        |       | 1      |     |         |        | 9        |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 9      |      
|Issuance of shares in connection with
Stock Exchange Agreement               |                                        |                            |                           |   |           |    |       |   |        |       | 23     |     |         |        | 173      |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 173    |      
|Option repricing                                                             |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        | 69        |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 69     |      
|Translation adjustment                                                       |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     |       |   |            |        | (7    | ) |             |     |       |   |        |        | (7     | )    
|Net Loss                                                                     |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     | (3,382 | ) |        |        | (3,382 | )    
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |       |        |        | 
|                                                                             |                                        | Balance, December 31, 2001 |                            |   | 30        |    |        |   | 3,000  |       |        |     | 12,286  |        |          | $     | 32,590        |        |           | $ | 439   |     |        |   | (9,222     | )      |       |   | (27         | )   |        |   | 7,328  |        |        | $     | 34,108 |       
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |      
|Issuance of shares under Directors
Stock Plan                                |                                        |                            |                           |   |           |    |       |   |        |       | 3      |     |         |        | 12       |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        | 12     |      
|Issuance of shares in connection with                                        |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |      
|                                                                             | exercise of stock options and warrants |                            |                            |  |           |    |        |  |        |       |        | 255 |         |        |          | 1,167 |               |        |           |  |       |     |        |  |            |        |       |  |             |     |        |  |        |        |        | 1,167 |       
|Conversion of Preferred Stock to
common shares                               |                                        |                            | (30                        | ) |           |    | (3,000 | ) |        |       | 625    |     |         |        | 3,000    |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     |       |   |        |        |       |      
|Translation adjustment                                                       |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     |       |   |            |        | 18    |   |             |     |       |   |        |        | 18     |      
|Net Loss                                                                     |                                        |                            |                           |   |           |    |       |   |        |       |       |     |         |        |         |       |               |        |          |   |       |     |       |   |            |        |      |   |             |     | (7,690 | ) |        |        | (7,690 | )    
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |       |        |        | 
|                                                                             |                                        | Balance, December 31, 2002 |                            |   |          |    |        | $ |       |       |        |     | 13,169  |        |          | $     | 36,769        |        |           | $ | 439   |     |        | $ | (9,222     | )      |       | $ | (9          | )   |        | $ | (362   | )      |        | $     | 27,615 |       
|                                                                             |                                        |                            |                            |   |           |    |        |   |        |       |        |     |         |        |          |       |               |        |           |   |       |     |        |   |            |        |       |   |             |     |        |   |        |        |        |       |        |        | 

The accompany notes are an integral part of this statement.

F-6



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |        |        |        |  
|------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | ------------------------------------- | ----- | -------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                      |                                                                 |                                                               |                                          |                                       |       | For the years ended December 31,
|                                      |                                                                 |                                                               |                                          |                                       |       |                                 
|                                      |                                                                 |                                                               |                                          |                                       |       | 2002                             |        | 2001   |        | 2000  
|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |       
|Cash flows from operating activities: |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |       
|                                      | Net loss                                                        |                                                               | $                                        | (7,450                                | )     |                                  | $      | (3,142 | )      |        | $      | (3,960 | )     
|                                      | Adjustments to reconcile net loss
used in
operating activities: |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |       
|                                      |                                                                 | Depreciation                                                  |                                          |                                       | 1,312 |                                  |        |        | 1,454  |        |        |        | 1,374  |       
|                                      |                                                                 | Amortization                                                  |                                          |                                       | 1,200 |                                  |        |        | 1,514  |        |        |        | 1,488  |       
|                                      |                                                                 | Compensation expense                                          |                                          |                                       |      |                                  |        |        | 12     |        |        |        |       |       
|                                      |                                                                 | Minority interest                                             |                                          |                                       | (326  | )                                |        |        | (3,139 | )      |        |        | (3,146 | )     
|                                      |                                                                 | Changes in assets and liabilities
which provided (used) cash: |                                          |                                       |       |                                  |        |        |        |        |        |        |        |       
|                                      |                                                                 |                                                               | Accounts and notes receivable, net       |                                       |       | 2,692                            |        |        |        | (304   | )      |        |        | (912   | )     
|                                      |                                                                 |                                                               | Inventory                                |                                       |       | (112                             | )      |        |        | (959   | )      |        |        | (499   | )     
|                                      |                                                                 |                                                               | Prepaid expenses and
interest receivable |                                       |       | 69                               |        |        |        | (1,078 | )      |        |        | (191   | )     
|                                      |                                                                 |                                                               | Other assets                             |                                       |       | 61                               |        |        |        | (33    | )      |        |        |       |       
|                                      |                                                                 |                                                               | Accounts payable                         |                                       |       | (1,412                           | )      |        |        | 1,566  |        |        |        | 493    |       
|                                      |                                                                 |                                                               | Income taxes                             |                                       |       | 48                               |        |        |        | (10    | )      |        |        | (860   | )     
|                                      |                                                                 |                                                               | Other accrued liabilities                |                                       |       | 1,028                            |        |        |        | 882    |        |        |        | (1,089 | )     
|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |       
|                                      |                                                                 |                                                               |                                          | Net cash used in
operating activities |       |                                  | (2,890 | )      |        |        | (3,237 | )      |        |        | (7,302 | )
|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |       
|Cash flows from investing activities: |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |       
|                                      | Purchase of property and equipment                              |                                                               |                                          | (107                                  | )     |                                  |        | (1,075 | )      |        |        | (1,325 | )     
|                                      | Purchase of intangible and other assets                         |                                                               |                                          | (1,042                                | )     |                                  |        | (345   | )      |        |        | (245   | )     
|                                      | Acquisition of minority interest                                |                                                               |                                          |                                      |       |                                  |        | (794   | )      |        |        | (58    | )     
|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |       
|                                      |                                                                 |                                                               |                                          | Net cash used in
investing activities |       |                                  | (1,149 | )      |        |        | (2,214 | )      |        |        | (1,628 | )
|                                      |                                                                 |                                                               |                                          |                                       |       |                                  |        |        |        |        |        |        |       

The accompanying notes are an integral part of these statements.

F-7



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(In Thousands)

|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |   |     |        |  
|------------------------------------------------- | ----------------------------------------------- | ---------------------------------- | -------------- | --------------------------------------------------- | - | -------------------------------- | ------ | ---- | - | ---- | ------- | ------ | - | --- | ------ | -
|                                                  |                                                 |                                    |                |                                                     |   | For the years ended December 31,
|                                                  |                                                 |                                    |                |                                                     |   |                                 
|                                                  |                                                 |                                    |                |                                                     |   | 2002                             |        | 2001 |   | 2000
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |     
|Cash flows from financing activities:             |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |       
|                                                  | Proceeds from exercise of stock
options         |                                    | $              | 1,177                                               |   |                                  | $      | 362  |   |      | $       | 2,232  |  
|                                                  | Principal payments on capital lease
obligations |                                    |                | (420                                                | ) |                                  |        | (48  | ) |      |         | (38    | )
|                                                  | Payment of preferred stock dividends            |                                    |                |                                                    |   |                                  |        |     |   |      |         | (180   | )
|                                                  | Purchase of treasury stock                      |                                    |                |                                                    |   |                                  |        |     |   |      |         | (4,000 | )
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |  
|                                                  |                                                 |                                    |                | Net cash provided by (used in)
financing activities |   |                                  | 757    |      |   |      | 314     |        |   |     | (1,986 | )
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |  
|Effect of exchange differences on cash            |                                                 |                                    | 18             |                                                     |   |                                  | (29    | )    |   |      | (7      | )     
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |  
|Net (decrease) in cash and cash
equivalents       |                                                 |                                    | (3,264         | )                                                   |   |                                  | (5,166 | )    |   |      | (10,923 | )     
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |     
|Cash and cash equivalents,
beginning of year      |                                                 |                                    | 5,401          |                                                     |   |                                  | 10,567 |      |   |      | 21,490  |       
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |  
|Cash and cash equivalents, end of year            |                                                 | $                                  | 2,137          |                                                     |   | $                                | 5,401  |      |   | $    | 10,567  |       
|                                                  |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |        |  
|Supplemental Disclosures of Cash
Flow Information |                                                 |                                    |                |                                                     |   |                                  |        |      |   |      |         |       
|                                                  |                                                 | Cash (receipts) payments for:      |                |                                                     |   |                                  |        |      |   |      |         |        |   |    
|                                                  |                                                 |                                    | Interest       |                                                     | $ | 198                              |        |      | $ | 524  |         |        | $ | 916 |       
|                                                  |                                                 |                                    | Income taxes   |                                                     | $ | 97                               |        |      | $ | (115 | )       |        | $ | 536 |       
|                                                  |                                                 | Disclosure of non-cash activities: |                |                                                     |   |                                  |        |      |   |      |         |        |   |    
|                                                  |                                                 |                                    | Capital leases |                                                     | $ | 1,755                            |        |      | $ | 350  |         |        | $ | 66  |       

The accompanying notes are an integral part of these statements.

F-8



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

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. (the Company) is a technology company comprised of operating
subsidiaries that develop and market a wide range of communications products
and services. The Companys primary focus is wireless data communications
utilizing proprietary network technologies. The Company primarily offers
products and services in wireless data communications through Cellemetry® and
Data1Source, and digital multimedia networking through PowerPlay. These
services enable customers around the globe to monitor and move information for
a variety of applications from home and business security to distance
learning. In addition, the Company offers wireline alarm security products and
services, as well as telecommunications network operational support systems.



| | 2. |  | Principles of Consolidation
| | -- |  | ---------------------------



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated financial statements include the results of operations and
financial position of the Company and its wholly owned or controlled
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.



| | 3. |  | Cash and Cash Equivalents
| | -- |  | -------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For purposes of financial reporting, the Company considers all highly liquid
investments purchased with original maturities of less than three months to be
cash equivalents. As of December 31, 2002, cash and cash equivalents include
$669,000 restricted cash to support letters of credits. This cash is held in
the form of two time deposits, one for $447,000 maturing in February 2003,
when it will become accessible, and the other for $222,000 maturing in
November 2004, when it will become accessible.



| | 4. |  | Intangible Assets
| | -- |  | -----------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Intangible assets consist of developed software, patents and acquired
intellectual property, and goodwill. These assets, except for goodwill, are
amortized over its expected useful life. Developed software is amortized
using the straight-line method over 3 to 5 years. Patents and acquired
intellectual property is amortized using the straight-line method over 7 to 16
years. In accordance with the Statement of Financial Accounting Standards No.
142 (SFAS 142), there is no goodwill amortization in 2002 (see
Note A-20  Recent Accounting Pronouncements).
For the years ended December 31, 2001 and 2000, goodwill was amortized on the
straight-line method over 12 to 20 years.



| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company capitalizes software development costs when project technical
feasibility is established and concludes capitalization when the product is
ready for release. Software development costs incurred prior to the
establishments of technical feasibility are expensed as incurred.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company adopted SFAS 142 on January 1, 2002. In connection with the
adoption, the Company reviewed the classification of its goodwill and other
tangible assets, reassessed the useful lives previously assigned to other
intangible assets, and discontinued amortization of goodwill, which will
result in reduced expense of approximately $768,000 on an annualized basis.
The Company also tested goodwill for impairment by comparing the fair values
of the Companys reporting units to their carrying values as of January 1,
2001 and determined that there was no goodwill impairment at that time. The
components of intangible assets are as follows:

F-9



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 4. |  | Intangible Assets  Continued
| | -- |  | -----------------------------

|                                 |                         |              |        |        |      |   |        |        | 
|-------------------------------- | ----------------------- | ------------ | ------ | ------ | ---- | - | ------ | ------ | 
|(In thousands)                   |                         | December 31,
|                                 |                         |             
|                                 |                         |              | 2002   |        | 2001
|                                 |                         |              |        |        |     
|Goodwill                         |                         | $            | 13,600 |        |      | $ | 13,600 |       
|Purchased and developed software |                         |              | 2,768  |        |      |   | 854    |       
|Patents, trade and service marks |                         |              | 11,125 |        |      |   | 11,079 |       
|Intangible and other assets      |                         |              | 284    |        |      |   | 283    |       
|                                 |                         |              |        |        |      |   |        |       
|                                 | Total intangible assets |              |        | 27,777 |      |   |        | 25,816 | 
|Accumulated amortization         |                         |              | (6,781 | )      |      |   | (5,611 | )     
|                                 |                         |              |        |        |      |   |        |       
|                                 | Intangible assets, net  |              | $      | 20,996 |      |   | $      | 20,205 | 
|                                 |                         |              |        |        |      |   |        |       



| | 5. |  | Property and Equipment
| | -- |  | ----------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation is provided for 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, equipment and buildings is calculated
using the straight-line method over the following estimated lives.

|  |  |                                                              |  |           
|- |  | ------------------------------------------------------------ |  | ----------
| |  | Short-term leasehold improvements over the term of the lease |  | 3-10 years
| |  | Plant and machinery                                          |  | 4-10 years
| |  | Equipment, fixtures and fittings                             |  | 3-10 years



| | 6. |  | Impairment of Long-lived Assets
| | -- |  | -------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company periodically evaluates the recoverability of its long-lived assets
or when a specific event indicates that the carrying value of a long-lived
asset may not be recoverable. Recoverability is assessed based on estimates
of future cash flows expected to result from the use and eventual disposition
of the asset. If the sum of expected undiscounted cash flows is less than the
carrying value of the asset, an impairment loss is recognized for the amount
of such deficiency, using discounted cash methodologies. No such impairment
losses have been recognized during the years ended December 31, 2002, 2001,
and 2000, respectively.



| | 7. |  | Income Taxes
| | -- |  | ------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company accounts 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 temporary differences 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.



| | 8. |  | Inventory
| | -- |  | ---------



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

F-10



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 9. |  | Notes Receivable
| | -- |  | ----------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2002, the company converted $612,000 of accounts receivable to notes
receivable. These notes are payable to the company in installments for
periods ranging from 9 to 18 months. In 2001, the company had notes
receivable of $298,000 payable over 24 months. For purposes of valuation,
notes receivable and accounts receivable are considered in total in
determining the allowance for doubtful accounts.



| | 10. |  | Allowance for Doubtful Accounts
| | --- |  | -------------------------------



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of the accounts receivable and notes receivable. When
amounts are determined to be uncollectible, they will be charged to operations
when that determination is made.



| | 11. |  | Fair Value of Financial Instruments
| | --- |  | -----------------------------------



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys 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.



| | 12. |  | Use of Estimates
| | --- |  | ----------------



| |                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In preparing the Companys 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.



| | 13. |  | Concentration of Credit Risk
| | --- |  | ----------------------------



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company maintains its cash balances in financial institutions, which at
times may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.



| | 14. |  | Revenue Recognition
| | --- |  | -------------------



| |                                                       
| | ------------------------------------------------------
| | The Companys 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.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company recognizes revenue from product sales at the time of shipment and
passage of title. The Company offers customers the right to return products
that do not function properly within a limited time after delivery. The
Company continuously monitors and tracks such product returns and records a
provision for the estimated amount of such future returns, based on historical
experience and any notification received of pending returns. While such
returns have historically been within expectations and the provisions
established, the Company cannot guarantee that it will continue to experience
the same return rates that it has experienced in the past. Any significant
increase in 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.

F-11



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 14. |  | Revenue Recognition  Continued
| | --- |  | -------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company recognizes revenue from the provision of services at the time of
the completion, delivery or performance of the service. In the case of revenue
derived from maintenance services the Company recognizes revenue ratably over
the contract term. In certain instances the Company may under an appropriate
agreement advance charge for the service to be provided. In these instances
the Company recognizes the advance charge as deferred revenue (classified as a
liability) and releases the revenue ratably over future periods in accordance
with the contract term as the service is completed, delivered or performed.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company also recognizes revenue from the provision of multiple element
service agreements, which involve both the supply of product and the
provision of services over a multi-year arrangement. Accounting principles for
agreements involving multiple elements require the Company to allocate earned
revenue to each element based on the relative fair value of the elements. The
arrangement fee for multiple-element arrangements is allocated to each
element, such as design, product supply, product integration, installation,
maintenance, support and warranty services, based on the relative fair values
of the elements. The Company determines the fair value of each element in
multi-element arrangements based on vendor-specific objective evidence
(VSOE). VSOE for each element is based on the price charged when the same
element is sold separately or could be purchased from an unrelated supplier.
If evidence of fair value of all delivered elements exists but evidence does
not exist for one or more undelivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the
undelivered element is deferred and is recognized ratably over the contract
term on an earned basis. Regarding the supply of product the Company maintains
title to the product and transfers title at the completion of the contract
term.



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



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



| | 15. |  | Foreign Currency Transactions
| | --- |  | -----------------------------



| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some transactions of the Company and its subsidiaries are made in British
pounds sterling, Canadian dollars and Australian dollars. Gains and losses
from these transactions are included in income as they occur.



| | 16. |  | Research and Development
| | --- |  | ------------------------



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Research and development expenses are charged to operations in the period in
which they are incurred.



| | 17. |  | Provision for Warranty Claims
| | --- |  | -----------------------------



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

F-12



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 18. |  | Stock-Based Compensation
| | --- |  | ------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective November 1, 1996, the Company adopted the provisions of SFAS No.
123, Accounting for Stock-Based Compensation.SFAS No. 123 encourages, but
does not require, companies to record compensation cost for stock-based
compensation plans at fair value. The Company has elected to continue to
account for stock-based compensation in accordance with Accounting Principles
Board (APB) Opinion No. 25, Accounting For Stock Issued to Employees, and
related interpretations, as permitted by SFAS 123. Compensation expense for
stock options is measured as the excess, if any, of the quoted market price of
the Companys stock at the date of the grant over the amount an employee must
pay to acquire the stock (see Note K  Stock Option
Plans).



| |                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Had compensation expense for the Companys aforementioned stock option plans
been determined based on the fair value at the grant dates for awards under
those plans under the provisions of SFAS No. 123, the Companys net earnings
(loss) and earnings (loss) per share would have been changed to the following
pro forma amounts:

|                                     |  |                                  |        |      |  |      |        |   |  |  |        |  
|------------------------------------ |  | -------------------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|(In thousands except per share data) |  | For the years ended December 31,
|                                     |  |                                 
|                                     |  | 2002                             |        | 2001 |  | 2000
|                                     |  |                                  |        |      |  |     
|Net loss  as reported               |  |                                  | (7,672 | )    |  |      | (3,382 | ) |  |  | (4,200 | )
|Net loss  pro forma                 |  |                                  | (8,858 | )    |  |      | (4,503 | ) |  |  | (5,096 | )
|Loss per share  as reported         |  |                                  | (0.71  | )    |  |      | (0.32  | ) |  |  | (0.40  | )
|Loss per share  pro forma           |  |                                  | (0.82  | )    |  |      | (0.43  | ) |  |  | (0.48  | )



| |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The pro forma effect on net loss and loss per share for the years ended
December 31, 2002, 2001, and 2000, respectively, by applying SFAS No. 123, may
not be indicative of the pro forma effect on net earnings (loss) in future
years since SFAS No. 123 does not take into consideration pro forma
compensation expense related to awards made prior to November 1, 1995, and
since additional awards in future years are anticipated.



| | 19. |  | Earnings (Loss) Per Share
| | --- |  | -------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, and SFAS No. 128, which supersedes APB No. 15,
Earnings Per Share, requires a dual presentation of basic and diluted earnings
per share as well as other disclosures. Basic earnings per share excludes the
dilutive impact of common stock equivalents and is computed by dividing net
earnings (loss) by the weighted average number of shares of common stock
outstanding for the period.



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Diluted earnings (loss) per share includes the effect of potential dilution
from the exercise of outstanding common stock equivalents into common stock,
using the treasury stock method at the average market price of the Companys
common stock for the period.

F-13



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 19. |  | Earnings (Loss) Per Share  continued
| | --- |  | -------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the years ended December 31, 2002, 2001, and 2000, the Companys potential
common shares have an anti-dilutive effect on earnings (loss) per share and,
therefore, have not been used in determining the total weighted average number
of common shares outstanding. Potential common shares resulting from options
and warrants that would be used to determine diluted earnings (loss) per share
were 1,059,000, 1,985,000, and 1,739,000 for the years ended December 31,
2002, 2001 and 2000, respectively.



| | 20. |  | Recent Accounting Pronouncements
| | --- |  | --------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations(SFAS No. 141)
and No. 142, Goodwill and Other Intangible Assets(SFAS No. 142). SFAS No.
141 changed the accounting for business combinations, requiring that all
business combinations be accounted for using the purchase method and that
intangible assets be recognized as assets apart from goodwill if they arise
from contractual or other legal rights, or if they are separable or capable of
being separated from the acquired entity and sold, transferred, licensed,
rented or exchanged. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 specifies the financial accounting
and reporting for acquired goodwill and other intangible assets. Goodwill and
indefinite life intangible assets will not be amortized but rather will be
tested at least annually for impairment. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS 142
effective January 1, 2002. Pro forma results for the year ended December 31,
2001 and December 31, 2000 assuming the discontinuation of amortization of
Goodwill, is shown below:

|                                     |  |                                  |        |      |  |   |        |  
|------------------------------------ |  | -------------------------------- | ------ | ---- |  | - | ------ | -
|(In thousands except per share data) |  | For the years ended December 31,
|                                     |  |                                 
|                                     |  | 2001                             |        | 2000
|                                     |  |                                  |        |     
|Net loss  as reported               |  | $                                | (3,382 | )    |  | $ | (4,200 | )
|Goodwill amortization                |  |                                  | 713    |      |  |   | 673    |  
|                                     |  |                                  |        |      |  |   |        |  
|Net loss  pro forma                 |  |                                  | (2,669 | )    |  |   | (3,287 | )
|Loss per share  as reported         |  |                                  | (0.32  | )    |  |   | (0.40  | )
|Loss per share  pro forma           |  |                                  | (0.26  | )    |  |   | (0.31  | )



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 2002, the FASB issued SFAS No. 145. This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt,and
an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements.This Statement amends FASB
Statement No. 13, Accounting for Leases,to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions.
The Company does not believe SFAS 145 will have a material effect on its
financial statements.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal.SFAS No. 146 eliminates the definition and
requirements for recognition of exit costs in EITF Issue No. 94-3. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe SFAS 146 will have a material effect on its financial statements.

F-14



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued



| | 20. |  | Recent Accounting Pronouncements  Continued
| | --- |  | --------------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 31, 2002, the Financial Accounting Standards Board (FASB) issued
FAS No. 148, Accounting for Stock-Based CompensationTransition and
DisclosureThis Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation,to provide alternative methods of transition for
companies that voluntary change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company does not believe FAS 148 will have a material
effect on its financial statements.



| | 21. |  | Reclassification
| | --- |  | ----------------



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

NOTE B  LIQUIDITY



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As disclosed in the financial statements, the Companys operations used
significant amounts of cash in 2002. The Company continues to add products
and distribution channels for its products, but the Companys longer-term
success will depend upon increased cash flow. The Company believes that the
combination of additional funding provided by a certain shareholder via a line
of credit (see Note M  Subsequent Events) and cash generated from future
operations will be sufficient to meet the Companys operating requirements
through at least December 31, 2003, assuming no material adverse change in the
operation of the Companys business. The Company is also considering other
sources of funding, including the sale of certain non-core assets and
/ or the issuance of equity or debt securities, including without
limitation a rights offering.

NOTE C  INVESTMENTS



| |  | Broadband Networks, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On February 28, 1997, the Company acquired 100% of the outstanding common
stock of Broadband Networks, Inc. (Broadband). Certain employees of
Broadband continued to hold incentive stock options, which upon exercise would
have entitled them to own approximately 18% of Broadbands outstanding common
shares. These shares became exercisable in 2001. On July 6, 2001, the
Company completed (i) the acquisition of all of the shares held by the
minority shareholders of Broadband relative to the exercise of these stock
options and (ii) the exchange of all outstanding options held by employees of
Broadband to acquire shares in Broadband for options to acquire shares in the
Company. In connection with the acquisition of all of the shares held by the
minority shareholders in Broadband the Company issued 23,050 shares of
restricted Class A Common Stock of the Company.
|
| |  | Cellemetry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | On May 15, 1998, the Company, Bellsouth Wireless LLC (BellSouth Wireless),
formerly BellSouth Wireless, Inc., and Bellsouth Corporation completed a
transaction whereby Cellemetry LLC (Cellemetry) a joint venture between the
Company and BellSouth Wireless, was formed. Cellemetry, a Delaware limited
liability company, is owned 60% by the Company and 40% by BellSouth Wireless.
The parties entered into an operating agreement (the Operating Agreement),
which deals with, among other things, the conduct of the business of
Cellemetry.                                                                                                                                                                                                                                                                                                                                          

F-15



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE C -INVESTMENTS  Continued



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys subsidiary recorded the assets contributed to Cellemetry by
BellSouth Wireless at fair value on the date of contribution. The fair
value of the patents contributed was $10,603,000, which is being
amortized over their remaining life of 16 years. In addition, BellSouth
Wireless contributed property and equipment valued at $285,000. The
results of operations and financial position of Cellemetry were
consolidated with the Company effective May 15, 1998, since the Company
controls the operations of Cellemetry.



| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 18, 1999, effective as of November 1, 1999, the Company and
BellSouth Wireless completed the restructuring of the Cellemetry Operating
Agreement.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the restructuring, the operating agreement of Cellemetry
has been modified (First Amendment to the Operating Agreement) and the
Cellemetry Business Plan has been modified, revised and extended through
November 1, 2004, (Modified Business Plan). All respective rights under the
Operating Agreement that triggered on May 15, 2001, three years from the date
of the formation of Cellemetry, have been revised to trigger on November 1,
2002, and all financial performance tests have been amended to reflect the
Modified Business Plan. In addition, the price at which the Company may, at
its sole option, elect that BellSouth Wireless put its ownership interest in
Cellemetry to the Company has been revised and set at $17,000,000.
Additionally, the agreement provided for the cancellation of the Cellemetry
Share Option Plan with the intent that the Company exchanges all outstanding
options for options to acquire shares of the capital stock of the Company.



| |                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The restructuring also provided for Cellemetry to seek to find either a
foreign carrier or strategic investor (Third Party Investment) to invest new
capital in exchange for up to 15% of Cellemetry. In connection with any such
Third Party Investment, the Companys ownership interest in Cellemetry will
not be diluted below 51% and BellSouth Wirelesss will not be diluted below
34%.



| |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the First Amendment to the Operating Agreement, the Company, from
and including May 15, 1999, is no longer under an obligation to make any
additional capital contributions to Cellemetry. The Company committed to
provide up to $5,500,000 in interest bearing debt financing to Cellemetry. As
of December 31, 2002, the Company has provided total interest bearing
debt-financing amounting to $19,286,000.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Also, pursuant to the First Amendment to the Operating Agreement, the Company
conveyed 100% of the capital stock of its wholly owned subsidiary Uplink to
Cellemetry. In addition, the Company issued to BellSouth Wireless 30,000
Series A Convertible Redeemable Preferred Stock of the Company (Preferred
Stock) at 8% yield. The preferred stock was redeemable, at the Companys
option, commencing November 1, 2000, on the basis of a pre-set annual
redemption price per share. Also, the Preferred Stock, at BellSouth Wirelesss
option, commencing November 1, 2003, or November 1, 2002, should the Companys
common stock exceed a pre-set market price for a given period of time, is
convertible into 625,000 shares of common stock of the Company, approximately
6% of the Companys common stock. The Preferred Stock carries certain
registration rights for the common stock upon such conversion. At December
31, 2002, the company had a dividend payable to BellSouth Wireless of $540,000
on the preferred stock.



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 2, 2002, BellSouth Wireless exercised its option to convert the
30,000 Series A Convertible Redeemable Preferred Stock to 625,000 shares of
the Companies common stock. This was approximately 5.5% of the Companys
common stock outstanding at December 31, 2002.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 28, 2003, the Company acquired Cingulars interest in Cellemetry and
the 625,000 shares of the Companys stock owned by Cingular for $5 million
(see Note M  Subsequent Events).

F-16



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE D   COSTS RELATED TO NON-RECURRING ACQUISITION ACTIVITY AND EMPLOYEE SEPARATION COSTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For year ended December 31, 2002, the Company expensed $1,899,000 of costs
relating to a potential business acquisition. These costs were primarily
legal and accounting services incurred during due diligence. During the
three-month period ended June 30, 2002, management determined that
consummation of the business acquisition was unlikely; as a result, the costs
previously capitalized up to June 30, 2002 were expensed. Of these costs,
$172,000 was deferred in the year ended December 31, 2001. The balance of
$1,727,000 was incurred in the year ended December 31, 2002.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | During the year ended December 31, 2001, the Company recorded a pre tax charge
of $418,000 to cover employee separation costs.

NOTE E  INVENTORY



| |                                      
| | -------------------------------------
| | Inventory consisted of the following:

|                 |                |              |       |       |      |   |       |       | 
|---------------- | -------------- | ------------ | ----- | ----- | ---- | - | ----- | ----- | 
|(In thousands)   |                | December 31,
|                 |                |             
|                 |                |              | 2002  |       | 2001
|                 |                |              |       |       |     
|Raw materials    |                | $            | 1,346 |       |      | $ | 2,404 |      
|Work-in-progress |                |              | 20    |       |      |   | 186   |      
|Finished goods   |                |              | 3,823 |       |      |   | 2,487 |      
|                 |                |              |       |       |      |   |       |      
|                 | Inventory, net |              |       | 5,189 |      |   |       | 5,077 | 
|                 |                |              |       |       |      |   |       |      

NOTE F  PROPERTY AND EQUIPMENT



| |                                                   
| | --------------------------------------------------
| | Property and equipment consisted of the following:

|                                 |                              |              |        |       |      |   |        |       | 
|-------------------------------- | ---------------------------- | ------------ | ------ | ----- | ---- | - | ------ | ----- | 
|(In thousands)                   |                              | December 31,
|                                 |                              |             
|                                 |                              |              | 2002   |       | 2001
|                                 |                              |              |        |       |     
|Leasehold improvements           |                              | $            | 461    |       |      | $ | 415    |      
|Plant and machinery              |                              |              | 7,183  |       |      |   | 6,691  |      
|Equipment, fixtures and fittings |                              |              | 930    |       |      |   | 790    |      
|                                 |                              |              |        |       |      |   |        |      
|                                 | Total property and equipment |              |        | 8,574 |      |   |        | 7,896 | 
|Accumulated depreciation         |                              |              | (6,099 | )     |      |   | (4,789 | )    
|                                 |                              |              |        |       |      |   |        |      
|                                 | Property and equipment, net  |              | $      | 2,475 |      |   | $      | 3,107 | 
|                                 |                              |              |        |       |      |   |        |      

F-17



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE G  INCOME TAXES



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | For the periods noted below, the provisions for income taxes
consists of the following: (in thousands)

|          |         |   |                     |    |      |   |      |      |   |   |   |   | 
|--------- | ------- | - | ------------------- | -- | ---- | - | ---- | ---- | - | - | - | - | 
|          |         |   | For the years ended
|          |         |   | December 31,       
|          |         |   |                    
|          |         |   | 2002                |    | 2001 |   | 2000
|          |         |   |                     |    |      |   |     
|Current:  |         |   |                     |    |      |   |      |      |   |   |   |  
|          | Federal |   | $                   |   |      |   | $    | (115 | ) |   | $ |  | 
|          | State   |   |                     |   |      |   |      |     |   |   |   |  | 
|          | Foreign |   |                     | 96 |      |   |      |     |   |   |   |  | 
|Deferred: |         |   |                     |    |      |   |      |      |   |   |   |  
|          | Federal |   |                     |   |      |   |      |     |   |   |   |  | 
|          | Foreign |   |                     |   |      |   |      |     |   |   |   |  | 
|          |         |   |                     |    |      |   |      |      |   |   |   |   | 
|          |         | $ | 96                  |    |      | $ | (115 | )    |   | $ |  |  
|          |         |   |                     |    |      |   |      |      |   |   |   |   | 



| |                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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: (In
thousands)

|                                                                |                                 |   |              |    |      |   |        |      |   |   |        |   | 
|--------------------------------------------------------------- | ------------------------------- | - | ------------ | -- | ---- | - | ------ | ---- | - | - | ------ | - | 
|                                                                |                                 |   | December 31,
|                                                                |                                 |   |             
|                                                                |                                 |   | 2002         |    | 2001 |   | 2000  
|                                                                |                                 |   |              |    |      |   |       
|Income tax (benefit) computed at
U.S. corporate tax rate of 34% |                                 | $ | (2,500       | )  |      | $ | (1,107 | )    |   | $ | (1,346 | )
|                                                                | Foreign tax                     |   |              | 96 |      |   |        |     |   |   |        |  | 
|Adjustments attributable to
Valuation allowance                 |                                 |   | 2,500        |    |      |   | 1,107  |      |   |   | 1,346  |  
|                                                                | State tax benefit               |   |              |   |      |   |        |     |   |   |        |  | 
|                                                                | Recovery of previously paid tax |   |              |   |      |   |        | (115 | ) |   |        |  | 
|                                                                |                                 |   |              |    |      |   |        |      |   |   |        |  
|                                                                |                                 | $ | 96           |    |      | $ | (115   | )    |   | $ |       |  
|                                                                |                                 |   |              |    |      |   |        |      |   |   |        |  

F-18



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE G  INCOME TAXES  Continued



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The components of the Companys net deferred tax assets
and (liabilities)
are as follows: (In thousands)

|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |   | 
|----------------------------------- | ---------------------------------------------------------------- | ------------ | ------- | ----- | - | ---- | ------ | ----- | - |  | ------ | ----- | - | 
|                                    |                                                                  | December 31,
|                                    |                                                                  |              |         |      
|                                    |                                                                  |              |         | 2002  |   | 2001 |        | 2000 
|                                    |                                                                  |              |         |       |   |      |        |      
|Non-current Deferred tax liability: |                                                                  |              |         |       |   |      |        |       |   |  |        |      
|                                    | Differences between book and tax
basis of property and equipment |              | $       | (124  | ) |      | $      | (124  | ) |  | $      | (88   | )
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  
|                                    |                                                                  |              | (124    | )     |   |      | (124   | )     |   |  | (88    | )    
|Current deferred tax asset:         |                                                                  |              |         |       |   |      |        |       |   |  |        |      
|                                    | Inventories                                                      |              |         | 315   |   |      |        | 368   |   |  |        | 414   |  
|                                    | Accruals                                                         |              |         | 54    |   |      |        | 53    |   |  |        | 28    |  
|                                    | Other                                                            |              |         | 630   |   |      |        | 259   |   |  |        | 282   |  
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  
|                                    |                                                                  |              | 999     |       |   |      | 680    |       |   |  | 724    |      
|Non-current deferred tax asset:     |                                                                  |              |         |       |   |      |        |       |   |  |        |      
|                                    | Intangibles                                                      |              |         | 693   |   |      |        | 441   |   |  |        | 292   |  
|                                    | Net operating loss carry forward                                 |              |         | 8,871 |   |      |        | 5,806 |   |  |        | 3,932 |  
|                                    | Tax credit carry forwards                                        |              |         | 1,892 |   |      |        | 1,755 |   |  |        | 4,123 |  
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  
|                                    |                                                                  |              | 11,456  |       |   |      | 8,002  |       |   |  | 8,347  |      
|                                    |                                                                  |              |         |      
|Net deferred tax asset              |                                                                  |              | 12,331  |       |   |      | 8,558  |       |   |  | 8,983  |      
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  
|Valuation allowance                 |                                                                  |              | (12,331 | )     |   |      | (8,558 | )     |   |  | (8,983 | )    
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  
|                                    |                                                                  | Total        |         | $     |  |      |        | $     |  |  |        | $     |  | 
|                                    |                                                                  |              |         |       |   |      |        |       |   |  |        |       |  



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Net operating loss carry forwards for federal and state income taxes available
at December 31, 2002, expire as follows:

|                         |  |        |        |                     |  |  |           | 
|------------------------ |  | ------ | ------ | ------------------- |  |  | --------- | 
|                         |  | Amount |        | Years of Expiration
|                         |  |        |        |                    
|Federal operating losses |  | $      | 15,542 |                     |  |  | 2022      | 
|State operating losses   |  | $      | 44,837 |                     |  |  | 2007-2022 | 

F-19



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE H  SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED PARTIES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the year ended December 31, 2002 there were two customers each
comprising 10% or more of the Companys total revenues. Customer A comprised
12% and Customer B comprised 10% of the Companys total revenues for the year
ended December 31, 2002. Company A had an accounts receivable balance of
$472,000 at December 31, 2002. Company B had no accounts receivable balance
as of December 31, 2002. There were no such concentrations for the years
ended December 31, 2001, and 2000.



| |                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The company had one supplier from which the Companys purchases were
approximately 28% of cost of sales for the year ended December 31, 2002.
While most of the components included in the products purchased from this
supplier can be sourced from other suppliers, one key component is currently
obtained solely from this source. The Company is exploring alternative
sources for this component.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The company conducted business with two related parities during the year ended
December 31, 2002. BellSouth Wireless owned 40% of Cellemetry LLC and 5.5%
(see Note C  Investments) of Numerex Corp at December 31, 2002. BellSouth Wireless
provided $97,000 in communication services to the Company for the year ended
December 31, 2002 and the Company had an accounts payable balance with
BellSouth Wireless of $34,000 at December 31, 2002. Mr. Ryan, a director on
Numerex Corp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 2002 and will continue to provide such services during fiscal 2003.
During fiscal 2002, Salisbury & Ryan LLP charged the Company legal fees of
approximately $488,748. The Companys accounts payable to Salisbury & Ryan
LLP was $208,000 at December 31, 2002.

NOTE I  COMMITMENTS AND CONTINGENCIES



| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Capital Leases                                                                                                                                                                                                                                                                                                                                                                            
|
| | The Company conducts a portion of its 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 the Companys
incremental borrowing rate at the inception of the lease. The leases expire
at various dates through 2005. 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, 2002, (in thousands).

|                                            |  |   |       |   |  | 
|------------------------------------------- |  | - | ----- | - |  | 
|2003                                        |  | $ | 860   |  
|2004                                        |  |   | 841   |  
|2005                                        |  |   | 32    |  
|                                            |  |   |       |  
|Total minimum lease payments                |  |   | 1,733 |  
|Less amount representing interest           |  |   | (160  | )
|                                            |  |   |       |  
|Present value of net minimum lease payments |  | $ | 1,573 |  
|                                            |  |   |       |  
|Current portion                             |  |   | 744   |  
|Non-current portion                         |  |   | 829   |  
|                                            |  |   |       |  
|Total                                       |  | $ | 1,573 |  
|                                            |  |   |       |  

F-20



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE I  COMMITMENTS AND CONTINGENCIES  Continued



| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Operating Leases                                                                                                                                                                                                                                                        
|
| | The Company leases certain property and equipment under noncancelable
operating leases with initial terms in excess of one year. Future minimum
lease payments under such noncancelable operating leases subsequent to
December 31, 2002, (in thousands) are as follows:

|                             |  |   |       |  |  | 
|---------------------------- |  | - | ----- |  |  | 
|2003                         |  | $ | 688   | 
|2004                         |  |   | 503   | 
|2005                         |  |   | 515   | 
|2006                         |  |   | 522   | 
|2007                         |  |   | 534   | 
|Thereafter                   |  |   | 547   | 
|                             |  |   |       | 
|Total minimum lease payments |  | $ | 3,309 | 
|                             |  |   |       | 



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rent expense, including short-term leases, amounted to approximately $689,111,
$794,000, and $759,000 in the years ended December 31, 2002, 2001, and 2000
respectively.

NOTE J  BENEFIT PLANS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company sponsors a 401k savings and investment plan, a plan which covers
all Numerex Corp and its subsidiaries for employees who elect to participate.
Employees are eligible for participation on the enrollment date following six
months of service. The Company contributed 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. The Companys contribution is made in cash on a
monthly basis. Matching contributions of the Company are vested over a three
year period at a rate of 33% per year. Approximately $142,716, $121,754, and
$101,474 were expensed for the years ended December 31, 2002, 2001 and 2000.

NOTE K  STOCK OPTION PLANS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has a Long-Term Incentive Plan (the 1999 Plan), which provides
for the granting of incentive stock options and nonqualified stock options to
employees, officers, directors and consultants of the Company and its
subsidiaries at prices, which represent the closing market price at the grant
dates. The aggregate number of shares, which may be issued upon the exercise
of options under the 1999 Plan, is 1,500,000 shares of Class A Common Stock.
The 1999 Plan replaced the Amended and Restated 1994 Employee Stock Option
Plan (the 1994 Plan) effective for options granted as and from October 25,
1999.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Options issued under the 1999 Plan typically vest ratably over a four-year
period.



| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Options issued under the 1994 Plan typically vest over a five-year period.
Certain options issued under the 1994 Plan have cliff-vesting terms at the end
of a five-year period and terms which provide for the acceleration of vesting
upon the attainment of specified market prices for the Companys common stock
for a period of 60 days.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the event of a change in control as defined in the 1999 and 1994 Plans,
respectively, all outstanding options become fully vested and are subject to
exercise.

F-21



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE K  STOCK OPTION PLANS  Continued



| |                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Incentive stock options and nonqualified stock options granted under the 1999
and 1994 Plans, respectively, expire 10 years after the grant date unless an
option holders employment is terminated. Under such circumstances, the
options typically expire three months from the date of employment termination.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, 2001, and 2000, 1,741,701, 1,587,201, and
1,200,500, respectively, ratably vesting common share options under the 1999
and 1994 Plans, respectively, have been granted at prices ranging between
$1.00 and $10.25. Of these options 381,630 have been exercised, 661,648 have
either expired or been cancelled, 253,723 are currently exercisable, and the
remaining options will become exercisable in 2003 through 2006.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, 2001, and 2000, 685,000, 685,000, and 685,000
respectively, cliff-vesting options under the 1994 Plan have been granted at
prices ranging between $4.44 and $7.13. Of these options 360,000 have been
exercised, 210,000 have either expired and been cancelled or been cancelled,
67,375 are currently exercisable and the remaining options will become
exercisable beginning in 2002 or earlier if the accelerated vesting conditions
are met.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has a Non-Employee Director Stock Option Plan (the Director
Plan), which provides for the granting of stock options to non-employee
members of the Companys Board of Directors at the closing market price at the
grant dates. On April 1, 1996, and each anniversary date thereafter, each
non-employee director, who has served as a director for at least one year,
will receive an option to purchase 2,500 shares of the Companys common stock.
On December 5, 1997, the Director Plan was amended, and on February 26, 1998,
shareholders approved an increase to 4,000 the annual number of shares that
each director would receive. The aggregate number of shares, which may be
issued upon the exercise of options granted under the Director Plan, is 62,500
shares of common stock. Options issued under the Director Plan fully vest one
year after the grant date.



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the event of a change in control as defined in the Director Plan, all
outstanding options become fully vested and are subject to exercise. Options
granted under the Director Plan expire 10 years after the grant date, unless
an option holder ceases to be a director of the Company. Under such
circumstances, the options expire three months from the date that the option
holder ceases to be a director.



| |                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, 2001, and 2000, 60,700, 60,700, and 52,700,
respectively, options under the Director Plan have been granted to directors
of the Company at prices ranging between $3.38 and $12.94. Of these options
9,000 have been exercised, 47,700 are currently exercisable and the remaining
options will become exercisable in 2003.



| |                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, 2001, and 2000, options to purchase 193,750, 193,750,
and 143,750, respectively, of Class A Common Stock at prices ranging from
$3.50 to $10.00 were granted as nonqualified stock options in connection with
services rendered to the Company. Of these options 156,250 are currently
exercisable and the remaining options will become exercisable in 2003 through
2005.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of each option on the date of grant for 2002, 2001, and 2000
was estimated using the Black-Scholes options pricing model with the following
weighted average assumptions: no dividend yield for all years; expected
volatility of 143% for 2002, 121% for 2001, and 130% for 2000; risk-free
interest rate of 3.35% for 2002, 4.86% for 2001, and 5.28% for 2000; and
expected option lives of 7.3 years for 2002, 7.5 years for 2001 and 7 years
for 2000.



| |                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The exercise price for 525,048 options outstanding at December 31, 2002, is
between $1.00 and $12.94. Such options will expire on average in 7.3 years.
The weighted average fair value of options granted during 2002, 2001, and 2000
was $5.71, $5.76, and $12.70, respectively, on the date of grant.

F-22



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE K  STOCK OPTION PLANS  Continued



| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | The following table summarizes the activity of the stock option plans as of
and for the years ended December 31, 2002, 2001 and 2000.

|                               |  |                                  |           |           |  |          |      |           |  |        |           |           |  |   |      |  |  |          |           |   |  |   |       | 
|------------------------------ |  | -------------------------------- | --------- | --------- |  | -------- | ---- | --------- |  | ------ | --------- | --------- |  | - | ---- |  |  | -------- | --------- | - |  | - | ----- | 
|                               |  | For the years ended December 31,
|                               |  |                                 
|                               |  | 2002                             |           | 2001      |  | 2000    
|                               |  |                                  |           |           |  |         
|                               |  |                                  |           |           |  | Weighted |      |           |  |        |           | Weighted  |  |   |      |  |  | Weighted
|                               |  |                                  |           |           |  | Average  |      |           |  |        |           | Average   |  |   |      |  |  | Average 
|                               |  | Shares                           |           | Ex. Price |  | Shares   |      | Ex. Price |  | Shares |           | Ex. Price
|                               |  |                                  |           |           |  |          |      |           |  |        |           |          
|Outstanding,
beginning of year |  |                                  | 1,253,455 |           |  | $        | 5.91 |           |  |        | 1,007,384 |           |  | $ | 5.66 |  |  |          | 1,364,450 |   |  | $ | 4.48  | 
|Options granted                |  |                                  | 154,500   |           |  |          | 6.00 |           |  |        | 444,701   |           |  |   | 6.27 |  |  |          | 124,500   |   |  |   | 13.47 | 
|Options exercised              |  |                                  | (254,832  | )         |  |          | 4.56 |           |  |        | (104,601  | )         |  |   | 3.30 |  |  |          | (379,197  | ) |  |   | 4.34  | 
|Options cancelled              |  |                                  | (94,250   | )         |  |          | 6.87 |           |  |        | (94,029   | )         |  |   | 7.78 |  |  |          | (102,369  | ) |  |   | 4.32  | 
|                               |  |                                  |           |           |  |          |      |           |  |        |           |           |  |   |      |  |  |          |           |   |  |   |       | 
|Outstanding, end of year       |  |                                  | 1,058,873 |           |  | $        | 6.18 |           |  |        | 1,253,455 |           |  | $ | 5.91 |  |  |          | 1,007,384 |   |  | $ | 5.66  | 
|                               |  |                                  |           |           |  |          |      |           |  |        |           |           |  |   |      |  |  |          |           |   |  |   |       | 
|Exercisable, end of year       |  |                                  | 525,048   |           |  | $        | 5.80 |           |  |        | 489,130   |           |  | $ | 4.86 |  |  |          | 342,872   |   |  | $ | 4.32  | 
|                               |  |                                  |           |           |  |          |      |           |  |        |           |           |  |   |      |  |  |          |           |   |  |   |       | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As part of the restructuring of the Cellemetry Operation Agreement between the
Company and BellSouth Wireless the agreement provided for the cancellation of
the Cellemetry Share Option Plan with the intent that the Company exchange all
outstanding options for options to acquire shares of the capital stock of the
Company. Effective November 1, 1999, all options granted under the Cellemetry
Share Option Plan were cancelled and exchanged for options under the Companys
1999 Plan (See Note C  Investments).

NOTE L  GEOGRAPHIC INFORMATION



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates in a single industry segment. Information about the
Companys operations in different geographic areas for the years ended
December 31, 2002, 2001, and 2000 respectively, are as follows: (In
thousands)

|                         |             |  |      |        |           |  |              |       |  |  |   |        |  
|------------------------ | ----------- |  | ---- | ------ | --------- |  | ------------ | ----- |  |  | - | ------ | -
|                         |             |  | U.S. |        | Australia |  | Consolidated
|                         |             |  |      |        |           |  |             
|Net sales:               |             |  |      |        |           |  |              |       |  |  |   |       
|                         | 2002 - year |  | $    | 24,213 |           |  | $            | 288   |  |  | $ | 24,501 |  
|                         | 2001 - year |  |      | 23,907 |           |  |              | 351   |  |  |   | 24,258 |  
|                         | 2000 - year |  |      | 18,795 |           |  |              | 1,495 |  |  |   | 20,290 |  
|Operating profit (loss): |             |  |      |        |           |  |              |       |  |  |   |       
|                         | 2002 - year |  | $    | (7,553 | )         |  | $            | 85    |  |  | $ | (7,468 | )
|                         | 2001 - year |  |      | (7,353 | )         |  |              | 23    |  |  |   | (7,330 | )
|                         | 2000 - year |  |      | (9,040 | )         |  |              | 34    |  |  |   | (9,006 | )
|Identifiable assets:     |             |  |      |        |           |  |              |       |  |  |   |       
|                         | 2002 - year |  | $    | 37,057 |           |  | $            | 54    |  |  | $ | 37,003 |  
|                         | 2001 - year |  |      | 42,613 |           |  |              | 361   |  |  |   | 42,974 |  
|                         | 2000 - year |  |      | 45,702 |           |  |              | 240   |  |  |   | 45,942 |  

F-23



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##### Table of Contents



NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2002, 2001 and 2000

NOTE M  SUBSEQUENT EVENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In order to provide additional short-term liquidity to the Company, on March
28, 2003, Alethea Limited Partnership, an entity affiliated with the family of
the Companys chairman and CEO, agreed to provide to Digilog a one-year line of
credit for $1 million. Under its terms, the line is secured by a pledge of the
stock of Digilog and a lien on all the assets of Digilog. Interest on the line
of credit is at a rate of ten percent (10%) per annum. There are no
restrictions on the use of the line. The minimum amount of any draw under the
line is $100,000. The Company guarantees the line of credit.            
|
| | On March 28, 2003, the Company acquired Cingulars interest in Cellemetry and
the 625,000 shares of the Companys stock owned by Cingular for $5 million (the
Cellemetry Transaction). Under the terms of the agreement, the Company has
agreed to pay Cingular $1.5 million by December 15, 2003, $2.0 million by March
31, 2004 and $1.5 million by December 15, 2004. The Companys obligation is
secured by a pledge of the stock of all the Companys subsidiaries (except
Digilog) and a lien on the assets of all the Companys subsidiaries (except
Digilog) and bears interest at a rate of eight percent (8%) per annum.

F-24



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##### Table of Contents



Report of Independent Certified Public Accountants

To the Shareholders and Board of
   Directors of Numerex Corp. and Subsidiaries

In connection with our audit of the consolidated financial statements of
Numerex Corp. and Subsidiaries referred to in our report dated February 20,
2003 (except for Note M, as to which the date is March 28, 2003) which report expresses an unqualified opinion and includes an explanatory
paragraph related to the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangibles, effective January 1,
2002, which is included in the Part IV of this Form 10-K, we have also audited
Schedule II for each of the three years in the period ended December 31, 2002.
In our opinion, this schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/s/ Grant Thornton LLP

Atlanta, Georgia
February 20, 2003

S-1



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##### Table of Contents



NUMEREX CORP.

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE 11

(in thousands)

|                              |                                      |           |              |            |  |         |  |            |            |        |  |        |   |  |        |        |            |  |  |       | 
|----------------------------- | ------------------------------------ | --------- | ------------ | ---------- |  | ------- |  | ---------- | ---------- | ------ |  | ------ | - |  | ------ | ------ | ---------- |  |  | ----- | 
|                              |                                      |           | Balance      |            |  |         |  |            |            |        |  |        |   |  |        |        | Balance at
|                              |                                      |           | at beginning |            |  |         |  |            | Charges to |        |  |        |   |  | end of
|Description                   |                                      | of Period |              | Provisions |  | expense |  | Deductions |            | Period
|                              |                                      |           |              |            |  |         |  |            |            |       
|Year ended December 31, 2000: |                                      |           |              |            |  |         |  |            |            |        |  |        |   |  |        |        |            |  |  |      
|                              | Accounts
receivable                 
|                              | Allowance for
uncollectible accounts |           |              | 237        |  |         |  | 194        |            |        |  | 105    |   |  |        | (105   | )          |  |  | 431   | 
|                              | Inventory                           
|                              | Allowance for obsolescence           |           |              | 2,210      |  |         |  | 30         |            |        |  |       |   |  |        | (1,220 | )          |  |  | 1,020 | 
|                              | Other
liabilities                   
|                              | Accrued severance                    |           |              | 108        |  |         |  |           |            |        |  |       |   |  |        | (108   | )          |  |  |      | 
|Year ended December 31, 2001: |                                      |           |              |            |  |         |  |            |            |        |  |        |   |  |        |        |            |  |  |      
|                              | Accounts
receivable                 
|                              | Allowance for
uncollectible accounts |           |              | 431        |  |         |  | 158        |            |        |  | (55    | ) |  |        |       |            |  |  | 534   | 
|                              | Inventory                           
|                              | Allowance for obsolescence           |           |              | 1,020      |  |         |  |           |            |        |  |       |   |  |        | (89    | )          |  |  | 931   | 
|                              | Other
liabilities                   
|                              | Accrued severance                    |           |              |           |  |         |  |           |            |        |  |       |   |  |        |       |            |  |  |      | 
|Year ended December 31, 2002: |                                      |           |              |            |  |         |  |            |            |        |  |        |   |  |        |        |            |  |  |      
|                              | Accounts
receivable                 
|                              | Allowance for
uncollectible accounts |           |              | 534        |  |         |  | 2,575      |            |        |  | (1,837 | ) |  |        |       |            |  |  | 1,272 | 
|                              | Inventory                           
|                              | Allowance for obsolescence           |           |              | 931        |  |         |  | 358        |            |        |  |       |   |  |        | (513   | )          |  |  | 776   | 
|                              | Other
liabilities                   
|                              | Accrued severance                    |           |              |           |  |         |  |           |            |        |  |       |   |  |        |       |            |  |  |      | 

S-2



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##### Table of Contents



EXHIBIT 11

COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)



| |  | (a) Computation of the weighted average number of shares of common stock
outstanding for the fiscal years ended the years ended December 31, 2000, 2001
and 2002.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                  |       |  |              |        |                 |  |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----- |  | ------------ | ------ | --------------- |  | ------ | ------ | 
|                                                                                                                                                  |       |  | Shares of    |        | Weighted Shares
|                                                                                                                                                  |       |  | Common Stock |        | Outstanding    
|                                                                                                                                                  |       |  |              |        |                
|2000                                                                                                                                              |       |  |              |        |                 |  |        |       
|January 1, 2000 to December 31, 2000                                                                                                              |       |  | 10,343       |        |                 |  | 10,343 |       
|Shares issued on exercise of stock options
and warrants                                                                                           |       |  | 548          |        |                 |  | 399    |       
|Shares acquired and held in treasury                                                                                                              |       |  | (500         | )      |                 |  | (230   | )     
|                                                                                                                                                  |       |  |              |        |                 |  |        |       
|                                                                                                                                                  | Total |  |              | 10,391 |                 |  |        | 10,512 | 
|                                                                                                                                                  |       |  |              |        |                 |  |        |       
|2001                                                                                                                                              |       |  |              |        |                 |  |        |       
|January 1, 2001 to December 31, 2001                                                                                                              |       |  | 10,391       |        |                 |  | 10,391 |       
|Shares issued on exercise of stock options                                                                                                        |       |  | 105          |        |                 |  | 43     |       
|Shares issued under Directors Stock Plan                                                                                                          |       |  | 1            |        |                 |  | 1      |       
|Shares issued in connection with the July 6, 2001
Broadband Networks, Inc. Stock Exchange                                                         |       |  | 23           |        |                 |  | 11     |       
|                                                                                                                                                  |       |  |              |        |                 |  |        |       
|                                                                                                                                                  | Total |  |              | 10,520 |                 |  |        | 10,446 | 
|                                                                                                                                                  |       |  |              |        |                 |  |        |       
|2002                                                                                                                                              |       |  |              |        |                 |  |        |       
|January 1, 2002 to December 31, 2002                                                                                                              |       |  | 10,520       |        |                 |  | 10,520 |       
|Shares issued on exercise of stock options                                                                                                        |       |  | 255          |        |                 |  | 195    |       
|Shares issued under Directors Stock Plan                                                                                                          |       |  | 3            |        |                 |  | 1      |       
|Shares issued to BellSouth Wireless for the
conversion of 30,000 preferred stock shares into
625,000 common shares, converted on December 2,
2002 |       |  | 625          |        |                 |  | 50     |       
|                                                                                                                                                  |       |  |              |        |                 |  |        |       
|                                                                                                                                                  | Total |  |              | 11,403 |                 |  |        | 10,766 | 
|                                                                                                                                                  |       |  |              |        |                 |  |        |       

(b)  Computation of Earnings per Share

Computation of earnings per share is net earnings (loss) divided by the
weighted average number of shares of common stock outstanding for the years
ended December 31, 2000, 2001 and 2002.

|                                                              |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                              |  | 2000 |        | 2001 |  | 2002
|                                                              |  |      |        |      |  |     
|Net earnings (loss)                                           |  | $    | (4,200 | )    |  | $    | (3,382 | ) |  | $ | (7,690 | )
|Weighted average number of shares of
common stock outstanding |  |      | 10,512 |      |  |      | 10,446 |   |  |   | 10,766 |  
|Basic earnings (loss) per share                               |  | $    | (0.40  | )    |  | $    | (0.32  | ) |  | $ | (0.71  | )
|Diluted earnings (loss ) per share                            |  | $    | (0.40  | )    |  | $    | (0.32  | ) |  | $ | (0.71  | )

E-1



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward-Looking Statement

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.

Overview

Numerex Corp. (the Company) is a technology company comprised of
operating subsidiaries that develop and market a wide range of wireless and
wireline communications products and services. The Companys primary focus is
wireless data communications utilizing proprietary network technologies. The
Company primarily offers products and services in wireless data communications
through Cellemetry® and Data1Source, and digital multimedia through
PowerPlay. These services enable customers around the globe to monitor and
move information for a variety of applications from home and business security
to distance learning. In addition, the Company offers wireline alarm security
products and services, as well as telecommunications network operational
support systems.

The following is a discussion of the consolidated financial condition and
results of operations of the Company for the fiscal years ended December 31,
2002 and 2001 and 2001 and 2000. This discussion should be read in conjunction
with the Companys consolidated financial statements, the related notes
thereto, and other financial information included elsewhere in this report.

E-2



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

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 generally
accepted accounting principles 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

The Companys 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.

The Company generates substantially all of its net sales from the sale of
equipment, systems and software products and recurring network service revenues
to its customers. Products are typically shipped soon after order placement.
Therefore, sales order backlog historically has not been a meaningful indicator
for the Company.

The Company recognizes revenue from product sales at the time of shipment
and passage of title. The Company offers customers the right to return products
that do not function properly within a limited time after delivery. The Company
continuously monitors and tracks such product returns and records a provision
for the estimated amount of such future returns, based on historical experience
and any notification received of pending returns. While such returns have
historically been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same return
rates that it has experienced in the past. Any significant increase in 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.

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

E-3



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

The Company also recognizes revenue from the provision of multiple
element service agreements, which involve both the supply of product and the
provision of services over a multi-year arrangement. Accounting principles for
agreements involving multiple elements require the Company to allocate earned
revenue to each element based on the relative fair value of the elements. The
arrangement fee for multiple-element arrangements is allocated to each element,
such as design, product supply, product integration, installation, maintenance,
support and warranty services, based on the relative fair values of the
elements. The Company determines the fair value of each element in
multi-element arrangements based on vendor-specific objective evidence
(VSOE). VSOE for each element is based on the price charged when the same
element is sold separately or could be purchased from an unrelated supplier. If
evidence of fair value of all delivered elements exists but evidence does not
exist for one or more undelivered elements, then revenue is recognized using
the residual method. Under the residual method, the fair value of the
undelivered element is deferred and is recognized ratably over the contract
term on an earned basis. In the case of the supply of product the Company
maintains title to the product and transfers title at the completion of the
contract term.

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

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

Accounts Receivable and Allowance For Doubtful Accounts

The Companys estimate for its allowance for doubtful accounts related to
trade receivables is based on two methods. The amounts calculated from each of
these methods are combined to determine the total amount reserved.

     first, the Company evaluates specific accounts where information exists
that the customer may have an inability to meet its financial obligations
(bankruptcy, etc.). In these cases, the Company uses its judgment, based on the
best available facts and circumstances, and records a specific reserve for that
customer against amounts due 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; and,

     second, a general reserve is established 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 the Company), the Companys estimates of the
recoverability of amounts due the Company could be reduced by a material
amount.
The Company recognizes that material differences may result in the amount
and timing of expenses for any period if the Company made different judgments
or utilized different estimates. The Companys allowance for doubtful accounts
amounted to $1,272,000, as of December 31, 2002.

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

The Company values inventory at the lower of cost or market, which equates
to net realizable value. The Company continually evaluates the composition of
its inventory and identifies, with estimates, potential future excess, obsolete
and slow-moving inventories. The Company specifically identifies obsolete
products for reserve purposes and analyzes 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 the Company is not able to achieve its expectations
of the net realizable value of the inventory at its current value, the Company
would adjust its reserves accordingly.

E-4



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Material differences in estimates of excess, slow-moving and obsolete
inventory may result in the amount and timing of cost of sales for any period
if the Company made different judgments or utilized different estimates. The
Companys reserve for excess, slow-moving and obsolete inventory amounted to
$776,000, as of December 31, 2002.

Valuation of Goodwill and Other Intangible Assets

The Company assesses the impairment of goodwill and identifiable
intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors considered important which could
trigger an impairment review include the following:



| |  |  | significant underperformance relative to expected historical or
projected future operating results;           
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | significant changes in the manner of use of the acquired
assets or the strategy for the overall
business; and,
|
| |  |  | significant negative industry or economic trends.                                                             

When determined that the carrying value of goodwill and other intangible
assets may not be recoverable based upon the existence of one or more of the
above indicators of impairment, the Company measures any impairment based on a
projected discounted cash flow method using a discount rate determined by
management to be commensurate with the risk inherent in the Companys current
business model. Net goodwill and other intangible assets amounted to
$20,996,000 as of December 31, 2002.

In 2002, SFAS No. 142, Goodwill and Other Intangible Assets, became
effective and as a result, the Company ceased to amortize $10,983,000 of
goodwill. The Company had recorded $733,000 of amortization on these amounts
during 2001 and would have recorded approximately $768,000 of amortization
during 2002. In lieu of amortization, the Company was required to perform an
initial impairment review of goodwill in 2002 and an annual impairment review
thereafter. Based on this initial review the Company did not record an
impairment charge.

The above listing is not intended to be a comprehensive list of all of
Numerexs accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted
accounting principles, 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
the Companys audited consolidated financial statements and notes thereto which
begin on page F-1 of this Annual Report on Form 10-K which contain accounting
policies and other disclosures required by generally accepted accounting
principles.

E-5



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

SELECTED CONSOLIDATED STATEMENTS OF OPERATION

|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |        |       |        |        |  
|--------------------------------------------------- | ------------------------------------------ | ------------ | ------- | --------------- | ------ | -------------------------------------- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | -
|                                                    |                                            |              |         |                 |        | Twelve Month Period Ended December 31,
|                                                    |                                            |              |         |                 |        |                                       
|                                                    |                                            |              |         |                 |        | 2002                                   |        | 2001   |       | 2000  
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |       
|Net sales:                                          |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    | Wireless Data Communications               |              |         |                 |        |                                        |        |        |       |        |        |        |      
|                                                    |                                            |              | Product |                 | $      | 7,461                                  |        |        | $     | 7,007  |        |        | $     | 3,990  |       
|                                                    |                                            |              | Service |                 |        | 6,748                                  |        |        |       | 4,493  |        |        |       | 3,012  |       
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    |                                            |              |         | Sub-total       |        |                                        | 14,209 |        |       |        | 11,500 |        |       |        | 7,002  |  
|                                                    | Digital Multimedia and Networking          |              |         |                 |        |                                        |        |        |       |        |        |        |      
|                                                    |                                            |              | Product |                 |        | 5,668                                  |        |        |       | 7,948  |        |        |       | 8,466  |       
|                                                    |                                            |              | Service |                 |        | 3,686                                  |        |        |       | 3,696  |        |        |       | 2,264  |       
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    |                                            |              |         | Sub-total       |        |                                        | 9,354  |        |       |        | 11,644 |        |       |        | 10,730 |  
|                                                    | Wireline Security                          |              |         |                 |        |                                        |        |        |       |        |        |        |      
|                                                    |                                            |              | Product |                 |        | 230                                    |        |        |       | 392    |        |        |       | 768    |       
|                                                    |                                            |              | Service |                 |        | 708                                    |        |        |       | 722    |        |        |       | 1,790  |       
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    |                                            |              |         | Sub-total       |        |                                        | 938    |        |       |        | 1,114  |        |       |        | 2,558  |  
|                                                    | Total net sales                            |              |         |                 |        |                                        |        |        |       |        |        |        |      
|                                                    |                                            |              | Product |                 |        | 13,359                                 |        |        |       | 15,347 |        |        |       | 13,224 |       
|                                                    |                                            |              | Service |                 |        | 11,142                                 |        |        |       | 8,911  |        |        |       | 7,066  |       
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    |                                            |              |         | Total net sales |        |                                        | 24,501 |        |       |        | 24,258 |        |       |        | 20,290 |  
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|Cost of sales                                       |                                            |              | 13,952  |                 |        |                                        | 14,737 |        |       |        | 12,020 |       
|Depreciation and amortization                       |                                            |              | 328     |                 |        |                                        | 267    |        |       |        | 270    |       
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    |                                            | Gross profit |         |                 | 10,221 |                                        |        |        | 9,254 |        |        |        | 8,000 |       
|                                                    |                                            |              |         | %               |        |                                        | 41.7   | %      |       |        | 38.1   | %      |       |        | 39.4   | %
|Research and development expenses                   |                                            |              | 1,097   |                 |        |                                        | 2,755  |        |       |        | 3,430  |       
|Selling, general, administrative and
other expenses |                                            |              | 12,509  |                 |        |                                        | 10,710 |        |       |        | 10,983 |       
|Depreciation and amortization                       |                                            |              | 2,184   |                 |        |                                        | 2,701  |        |       |        | 2,593  |       
|Costs related to non-recurring
acquisition activity |                                            |              | 1,899   |                 |        |                                        |       |        |       |        |       |       
|Non-recurring employee separation costs             |                                            |              |        |                 |        |                                        | 418    |        |       |        |       |       
|                                                    | Operating loss                             |              |         | (7,468          | )      |                                        |        | (7,330 | )     |        |        | (9,006 | )    
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    | Net loss                                   |              |         | (7,450          | )      |                                        |        | (3,142 | )     |        |        | (3,960 | )    
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    | Net loss applicable to
common shareholders |              |         | (7,690          | )      |                                        |        | (3,382 | )     |        |        | (4,200 | )    
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    | Basic earnings per share                   |              |         | (0.71           | )      |                                        |        | (0.32  | )     |        |        | (0.40  | )    
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       
|                                                    | Weighted average shares outstanding        |              |         | 10,766          |        |                                        |        | 10,446 |       |        |        | 10,512 |      
|                                                    |                                            |              |         |                 |        |                                        |        |        |       |        |        |       

E-6



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Result of Operations

The following table sets forth, for the periods indicated, the percentage
of net sales represented by selected items in the Companys Consolidated
Statements of Operations.

|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |       |      |      |       |  
|--------------------------------------------------- | ------------------------------------------ | ------------ | ------- | --------------- | ---- | ------------------------- | ----- | ----- | ---- | ---- | ----- | ----- | ---- | ---- | ----- | -
|                                                    |                                            |              |         |                 |      | Twelve Month Period Ended
|                                                    |                                            |              |         |                 |      | December 31,             
|                                                    |                                            |              |         |                 |      |                          
|                                                    |                                            |              |         |                 |      | 2002                      |       | 2001  |      | 2000
|                                                    |                                            |              |         |                 |      |                           |       |       |      |     
|Net sales:                                          |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    | Wireless Data Communications               |              |         |                 |      |                           |       |       |      |      |       |       |     
|                                                    |                                            |              | Product |                 |      | 30.5                      | %     |       |      | 28.9 | %     |       |      | 19.7 | %    
|                                                    |                                            |              | Service |                 |      | 27.5                      | %     |       |      | 18.5 | %     |       |      | 14.8 | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    |                                            |              |         | Sub-total       |      |                           | 58.0  | %     |      |      | 47.4  | %     |      |      | 34.5  | %
|                                                    | Digital Multimedia and Networking          |              |         |                 |      |                           |       |       |      |      |       |       |     
|                                                    |                                            |              | Product |                 |      | 23.1                      | %     |       |      | 32.8 | %     |       |      | 41.7 | %    
|                                                    |                                            |              | Service |                 |      | 15.0                      | %     |       |      | 15.2 | %     |       |      | 11.2 | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    |                                            |              |         | Sub-total       |      |                           | 38.2  | %     |      |      | 48.0  | %     |      |      | 52.9  | %
|                                                    | Wireline Security                          |              |         |                 |      |                           |       |       |      |      |       |       |     
|                                                    |                                            |              | Product |                 |      | 0.9                       | %     |       |      | 1.6  | %     |       |      | 3.8  | %    
|                                                    |                                            |              | Service |                 |      | 2.9                       | %     |       |      | 3.0  | %     |       |      | 8.8  | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    |                                            |              |         | Sub-total       |      |                           | 3.8   | %     |      |      | 4.6   | %     |      |      | 12.6  | %
|                                                    | Total net sales                            |              |         |                 |      |                           |       |       |      |      |       |       |     
|                                                    |                                            |              | Product |                 |      | 54.5                      | %     |       |      | 63.3 | %     |       |      | 65.2 | %    
|                                                    |                                            |              | Service |                 |      | 45.5                      | %     |       |      | 36.7 | %     |       |      | 34.8 | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    |                                            |              |         | Total net sales |      |                           | 100.0 | %     |      |      | 100.0 | %     |      |      | 100.0 | %
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|Cost of sales                                       |                                            |              | 56.9    | %               |      |                           | 60.8  | %     |      |      | 59.2  | %    
|Depreciation and amortization                       |                                            |              | 1.3     | %               |      |                           | 1.1   | %     |      |      | 1.3   | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    |                                            | Gross profit |         |                 | 41.7 | %                         |       |       | 38.1 | %    |       |       | 39.4 | %   
|Research and development expenses                   |                                            |              | 4.5     | %               |      |                           | 11.4  | %     |      |      | 16.9  | %    
|Selling, general, administrative and
other expenses |                                            |              | 51.1    | %               |      |                           | 44.2  | %     |      |      | 54.1  | %    
|Depreciation and amortization                       |                                            |              | 8.9     | %               |      |                           | 11.1  | %     |      |      | 12.8  | %    
|Costs related to non-recurring
acquisition activity |                                            |              | 7.8     | %               |      |                           | 0.0   | %     |      |      | 0.0   | %    
|Non-recurring employee separation costs             |                                            |              | 0.0     | %               |      |                           | 1.7   | %     |      |      | 0.0   | %    
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    | Operating loss                             |              |         | (30.5           | %)   |                           |       | (30.2 | %)   |      |       | (44.4 | %)  
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    | Net loss                                   |              |         | (30.4           | %)   |                           |       | (13.0 | %)   |      |       | (19.5 | %)  
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      
|                                                    | Net loss applicable to
common shareholders |              |         | (31.4           | %)   |                           |       | (13.9 | %)   |      |       | (20.7 | %)  
|                                                    |                                            |              |         |                 |      |                           |       |       |      |      |       |      

See notes to consolidated financial statements



| |  |  | Note A  Summary of Significant Accounting Policies
| | - |  | ---------------------------------------------------
| |  |  | Note B  Investments                               

E-7



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Fiscal Years Ended December 31, 2002 and December 31, 2001

Net sales increased 1.0% to $24,501,000 for the year ended December 31,
2002 as compared to $24,258,000 for the year ended December 31, 2001. This
increase in total net sales was the result of increased net sales from Wireless
Data Communication products and services, partially offset by a decrease in net
sales from Digital Multimedia and Networking and Wireline Security products and
services. As a percentage of total net sales, services revenues of the Company
increased to 45.5% for the year ended December 31, 2002 compared to 36.7% in
the comparable period in 2001.

Net sales from Wireless Data Communications increased 23.6% to $14,209,000
for the year ended December 31, 2002 as compared to $11,500,000 for the year
ended December 31, 2001 and as a percentage of the Companys total net sales,
Wireless Data Communications increased to 58.0% for the year ended December 31,
2002 compared to 47.4% in the comparable period in 2001. This increase in net
sales was primarily due to higher services revenues from increased connections
on the Companys Cellemetry® network, primarily related to security monitoring,
and from an increase in digital subscribers utilizing the Companys
Data1Source mobile messaging service. Also contributing to the increase in net
sales was higher product sales, primarily in the Companys wireless security
devices and from the introduction of mobile wireless devices in the beginning
of 2002.

Net sales from Digital Multimedia and Networking decreased 19.7% to
$9,354,000 for the year ended December 31, 2002 as compared to $11,644,000 for
the year ended December 31, 2001. This decrease in net sales was primarily due
to lower product sales as the result of decreases in capital spending by
distant learning customers.

Net sales from Wireline Security decreased 15.8% to $ 938,000 for the year
ended December 31, 2002 as compared to $1,114,000 for the year ended December
31, 2001. This decrease was the result of continued decline in derived channel
sales activity resulting from the divestment of Companys derived channel
technology in November 1999 and the resulting de-emphasis on the sale and
marketing of derived channel technology.

Cost of sales decreased 5.3% to $13,952,000 for the year ended December
31, 2002 as compared to $14,737,000 for the year ended December 31, 2001. This
decrease was primarily due to the lower product sales volume in Digital
Multimedia and Networking and lower product costs due to the redesign of the
certain wireless devices that were introduced in the first quarter of 2002.

Cost of sales depreciation and amortization expense increased 23.2% to
$328,000 for the year ended December 31, 2002 as compared to $267,000 for the
year ended December 31, 2001.

Gross profit, as a percentage of net sales, was 41.7% for the year ended
December 31, 2002 as compared to 38.1% for the year ended December 31, 2001.
The reason for the increase in the gross profit rate for the year was primarily
attributable to the higher service activities of Wireless Data Communications,
along with the lower product costs due to the redesign of certain wireless
devices.

Research and development expenses decreased 60.2% to $1,097,000 for the
year ended December 31, 2002 as compared to $2,755,000 for the year ended
December 31, 2001. The principal reasons for the decrease in research and
development expenses was the reduced requirement for development efforts in
2002 for the Companys product and services and the capitalization of
development costs of $872,000 during the year for new products and services
that reached technical feasibility and for internal use software developed
during these periods.

Selling, general, administrative and other expenses increased 16.8% to
$12,509,000 for the year ended December 31, 2002 as compared to $10,701,000 for
the year ended December 31, 2001. As a percentage of sales, selling, general,
administrative and other expenses increased to 51.1% for the year ended
December 31, 2002 as compared to 44.2% for the year ended December 31, 2001.
The primary reason for the increase in expenses for 2002 was due to the
recording of $1,837,000 in bad debt expense related to customer product
repossessions and increases in allowances for doubtful accounts. This compared
to $589,000 in 2001.

E-8



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Operating expense depreciation and amortization expense decreased 19.1% to
$2,184,000 for the year ended December 31, 2002 as compared to $2,701,000 for
the year ended December 31, 2001. The principal reason for the decrease is due
to the reduction in goodwill amortization expense resulting from the
implementation of SFAS 142 on January 1, 2002.

Costs related to non-recurring acquisition activity were $1,899,000 for
the year ended December 31, 2002. This write-off was the result of the Company
reaching an impasse in the second quarter of 2002 in its negotiations with BT
Group plc to acquire their RedCARE division, its security products and service
business. These costs were primarily related to legal and accounting expenses
incurred during diligence and negotiations.

Non-recurring employee separation costs amounted to $418,000 for the year
ended December 31, 2001.

Interest and other income for the year ended December 31, 2002 was
$(212,000) compared to $934,000 for the year ended December 31, 2001. This
decrease in net interest and other income were primarily the result of a
decrease in income earned on cash balances and an increase in interest expense
from capital leases established in the first quarter of 2002.

Minority interest for the year ended December 31, 2002 was $326,000
compared to $3,139,000 for the year ended December 31, 2001. The principle
reason for the decrease in Minority interest was the depletion of Minority
Interest on the Companys balance sheet related to a joint venture.

The Company, due to the loss position from operations, did not record a
tax provision in the years ended December 31, 2002 and 2001, respectively. The
$96,000 in income tax expense recorded for 2002 relates principally to an
income tax withholding on an international product and service sale and the
$(115,000) provision for the recovery of income tax recorded in the 2001
followed the completion and submission of the Companys federal income tax
returns in connection with an assessed over payment of federal income tax
installments in connection with the sale of the Companys derived channel
technology.

The Company recorded a net loss of $7,450,000 for the year ended December
31, 2002 compared to a net loss of $3,142,000 for the year ended December 31,
2001.

The Company recorded a net loss applicable to common shareholders of
$7,690,000 for the year ended December 31, 2002 as compared to net loss
applicable to common shareholders of $3,382,000 for the year ended December 31,
2001.

Basic and diluted earnings (loss) per common share decreased to $(0.71)
for year ended December 31, 2002 as compared to $(0.32) for the year ended
December 31, 2001.

The weighted average and diluted shares outstanding increased to
10,766,000 for the year ended December 31, 2002 as compared to
10,446,000 for
the year ended December 31, 2001. The increase in shares outstanding was
primarily due to the exercise of stock options.

Fiscal Years Ended December 31, 2001 and December 31, 2000

Net sales increased 19.6% to $24,258,000 for the year ended December 31,
2001, as compared to $20,290,000 for the year ended December 31, 2000.

The 19.6% increase in net sales in fiscal 2001 as compared to fiscal 2000
embodies an increase of 16.4% in product sales revenues predominantly derived
from increased sales from Wireless Data Communications and, to a lesser extent,
Digital Multimedia offset by a decrease in Wireline Data Communications
(Derived Channel) product sales revenues and an increase of 26.1% in service
revenues predominantly derived from increased service revenues from Wireless
Data Communications offset by a decrease in Networking service revenues.

E-9



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Digital Multimedia and Networking product and service sales and revenues
increased 8.5% to $11,644,000 for the year ended December 31, 2001, as compared
to $10,730,000 for the year ended December 31, 2000.

The principal reason for the increase in product and service sales and
revenues in fiscal 2001 as compared to fiscal 2000 was a 19.3% increase in
Digital Multimedia product and service sales and revenues resulting from the
transition to the marketing and sale of the digital hardware and software based
product platform, PowerPlay. In addition, product and service sales and
revenues from Digital Multimedia were also positively impacted by continued
growth in network or data solution product sales and related services.
Networking product and service sales and revenues decreased 7.7% resulting from
a reduction in sales activity from the telecommunications industry.

Wireline Data Communications (Derived Channel) product and service sales
and revenues decreased 56.5% to $1,114,000 for the year ended December 31,
2001, as compared to $2,558,000 for the year ended December 31, 2000.

The principal reason for the decrease in sales in fiscal 2001 as compared
to fiscal 2000 was the ongoing decline in Wireline Data Communications (Derived
Channel) sales activity resulting from the divestment of Companys derived
channel technology in November 1999 and the resulting de-emphasis on the sale
and marketing of derived channel technology. One-time product and service
contract sales and revenues generated from Australia in the three-month period
ended March 31, 2000, impacted on the fiscal year comparison. Excluding the
Australian one-time product and services contract sales and revenues, Wireline
Data Communications (Derived Channel) product and service sales and revenues
decreased 22.5%.

Wireless Data Communications product and service sales and revenues
increased 64.2% to $11,500,000 for the year ended December 31, 2001, as
compared to $7,002,000 for the year ended December 31, 2000.

The principal reason for the increase in product and service sales and
revenues in fiscal 2001 as compared to fiscal 2000 was the continued growth in
product sales, driven by the Companys Circuit Watch, Fast Track Wireless
Solutions and Uplink product offerings and service revenues, driven by the
Companys Cellemetry®, Data1Source, Fast Track Wireless Solutions and Uplink
service offerings, resulting from the marketing and sales effort to establish
the Company as a recognized national and international wireless data
communications service provider.

Cost of sales increased 22.6% to $14,737,000 for the year ended December
31, 2001, as compared to $12,020,000 for the for the year ended December 31,
2000.

The principal reason for the increase in cost of sales in fiscal 2001 as
compared to fiscal 2000 resulted from the combined impact of the Companys
increased level of sales activity and in particular the increased levels of
product sales from Digital Multimedia and Wireless Data Communications offset,
to an extent, by the decrease in Networking and Wireline Data Communications
(Derived Channel) product sales activity, particularly the one-time product and
service contract sales and revenues generated from Australia in the three-month
period ended March 31, 2000. In addition, inventory write-downs amounted to
$191,000 for the year ended December 31, 2001, and represented a one-time
non-cash charge to cover the write-down of excess and obsolete Digital
Multimedia analog product inventory.

Cost of sales depreciation and amortization decreased 1.1% to $267,000 for
the year ended December 31, 2001, as compared to $270,000 for the for the year
ended December 31, 2000.

Gross profit as a percentage of net sales decreased to 38.1% for the year
ended December 31, 2001, as compared to 39.4% for the year ended December 31,
2000.

The principal reason for the decrease in gross profit in fiscal 2001 as
compared to fiscal 2000 was the combined impact of the one-time product and
service contract sales and revenues generated from Australia in the three-month
period ended March 31, 2000, and the one-time non-cash charge to cover the
write-down of excess and obsolete Digital Multimedia analog product inventory
offset, to a lesser extent, by the gross profit earned on the increased levels
of product sales from Digital Multimedia and Wireless Data Communications.

E-10



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Research and development expenses decreased 19.7% to $2,755,000 for the
year ended December 31, 2001, as compared to $3,430,000 for the year ended
December 31, 2000.

The principal reason for the decrease in research and development expenses
in fiscal 2001 as compared to fiscal 2000 resulted primarily from decreased
Digital Multimedia and Wireless Data Communications expenditures following the
completion of a number of projects.

Selling, general, administrative and other expenses decreased 2.5% to
$10,710,000 for the year ended December 31, 2001, as compared to $10,983,000
for the year ended December 31, 2000.

The principal reason for the decrease in selling, general, administrative
and other expenses in fiscal 2001 as compared to the fiscal 2000 resulted from
an overall decrease in administration, management and organizational expenses
and sales and marketing activity and expenditures.

Operating expense depreciation and amortization increased 4.2% to
$2,701,000 for the year ended December 31, 2001, as compared to $2,593,000 for
the year ended December 31, 2000.

The increase in operating expense depreciation and amortization in fiscal
2001 as compared to fiscal 2000 resulted primarily from increased fixed asset
additions.

Non-recurring employee separation costs amounted to $418,000 for the year
ended December 31, 2001.

Interest and other income decreased 50.8% to $934,000 for the year ended
December 31, 2001, as compared to $1,900,000 for the year ended December 31,
2000.

The decrease in interest and other income in fiscal 2001 as compared to
fiscal 2000 is primarily related to decreased interest income earned on cash
balances and the impact in fiscal 2000 of the release of funds held in escrow
and an over provision for federal and state taxes in connection with the
divestment of the Companys derived channel technology.

Minority interest decreased 0.2% to $3,139,000 for the year ended December
31, 2001, as compared to $3,146,000 for the year ended December 31, 2000. The
gain represents that portion of the losses of the Companys Wireless Data
Communications business that is not accounted for by the Company.

The Company, due to its loss position from operations, did not record a
tax provision for the years ended December 31, 2001, and 2000, respectively.
However, the Company has recorded the recovery of income tax amounting to
$115,000 following the completion and submittal of the Companys federal income
tax returns in connection with an assessed over payment of federal income tax
installments in connection with the sale of the Companys derived channel
technology.

The Company recorded a net loss of $3,142,000 for the year ended December
31, 2001, as compared to a net loss of $3,960,000 for the year ended December
31, 2000.

The principal reason for the decrease in the net loss for fiscal 2001 as
compared to 2000 was the increase in product and service sales and revenues and
associated underlying gross profit and the decrease in operating expenses.

The Company recorded a net loss applicable to common shareholders of
$3,382,000 for the year ended December 31, 2001 as compared to net loss
applicable to common shareholders of $4,200,000 for the year ended December 31,
2000.

Basic and diluted earnings (loss) per common share decreased to $(0.32)
for year ended December 31, 2001 as compared to $(0.40) for the year ended
December 31, 2000.

The weighted average and diluted shares outstanding decreased to
10,446,000 for the year ended December 31, 2001, as compared to weighted
average and diluted shares outstanding of 10,512,000 for the year ended
December 31, 2000.

E-11



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Selected Quarterly Financial Data

The following tables detail certain unaudited financial data of the
Company for each quarter of the last two fiscal years ended December 31, 2002,
and 2001, respectively.

The Companys financial results may fluctuate from quarter to quarter as a
result of factors, including the timing of product shipments, new product
introductions and equipment, product and system sales that historically have
been of a non-recurring nature.

The information has been prepared from the books and records of the
Company 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.

E-12



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Selected Quarterly Financial Data (Unaudited)

|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |       |  |        |       | 
|---------- | --------------------------------------------------- | --------------------------------- | ----------------------------------- | --------------- |  | ------------------------------------- | ----- | -------- |  | ------------- | ----- | ------------ | - | ------ | ----- | ----- |  | ------ | ----- | 
|           |                                                     |                                   |                                     |                 |  | Three Months Ended                   
|           |                                                     |                                   |                                     |                 |  |                                      
|           |                                                     |                                   |                                     |                 |  | March 31,                             |       | June 30, |  | September 30, |       | December 31,
|           |                                                     |                                   |                                     |                 |  | 2002                                  |       | 2002     |  | 2002          |       | 2002        
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |             
|           |                                                     |                                   |                                     |                 |  | (in thousands, except per share data)
|Net sales: |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     | Wireless Data Communications      |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  | $                                     | 2,658 |          |  | $             | 2,211 |              |   | $      | 2,215 |       |  | $      | 374   | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 1,591 |          |  |               | 2,303 |              |   |        | 1,539 |       |  |        | 1,315 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 4,249 |          |  |               | 4,514 |              |   |        | 3,754 |       |  |        | 1,689 | 
|           |                                                     | Digital Multimedia and Networking |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 2,199 |          |  |               | 1,748 |              |   |        | 952   |       |  |        | 749   | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 437   |          |  |               | 987   |              |   |        | 1,086 |       |  |        | 1,196 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 2,636 |          |  |               | 2,735 |              |   |        | 2,038 |       |  |        | 1,945 | 
|           |                                                     | Wireline Security                 |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 81    |          |  |               | 173   |              |   |        | 58    |       |  |        | 125   | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 128   |          |  |               | 86    |              |   |        | 188   |       |  |        | 102   | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 209   |          |  |               | 259   |              |   |        | 246   |       |  |        | 227   | 
|           |                                                     | Total net sales                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 4,938 |          |  |               | 4,132 |              |   |        | 3,225 |       |  |        | 1,248 | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 2,156 |          |  |               | 3,376 |              |   |        | 2,813 |       |  |        | 2,613 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   |                                     | Total net sales |  |                                       | 7,094 |          |  |               | 7,508 |              |   |        | 6,038 |       |  |        | 3,861 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           | Cost of sales                                       |                                   |                                     | 3,535           |  |                                       |       | 3,569    |  |               |       | 3,761        |   |        |       | 3,087 | 
|           | Depreciation and amortization                       |                                   |                                     | 49              |  |                                       |       | 54       |  |               |       | 105          |   |        |       | 120   | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   | Gross profit                        |                 |  | 3,510                                 |       |          |  | 3,885         |       |              |   | 2,172  |       |       |  | 654    |      
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           | Research and development expenses                   |                                   |                                     | 602             |  |                                       |       | 188      |  |               |       | (63          | ) |        |       | 370   | 
|           | Selling, general, administrative and other
Expenses |                                   |                                     | 2,456           |  |                                       |       | 2,952    |  |               |       | 3,805        |   |        |       | 3,296 | 
|           | Depreciation and amortization                       |                                   |                                     | 518             |  |                                       |       | 549      |  |               |       | 552          |   |        |       | 565   | 
|           | Costs related to non-recurring acquisition
Activity |                                   |                                     |                |  |                                       |       | 1,714    |  |               |       | 185          |   |        |       |      | 
|           | Non-recurring employee separation costs             |                                   |                                     |                |  |                                       |       |         |  |               |       |             |   |        |       |      | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   | Operating loss                      |                 |  | (66                                   | )     |          |  | (1,518        | )     |              |   | (2,307 | )     |       |  | (3,577 | )    
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   | Net loss                            |                 |  | 199                                   |       |          |  | (1,642        | )     |              |   | (2,338 | )     |       |  | (3,669 | )    
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      
|           |                                                     |                                   | Basic earnings (loss) per share     |                 |  | 0.02                                  |       |          |  | (0.16         | )     |              |   | (0.22  | )     |       |  | (0.33  | )    
|           |                                                     |                                   | Weighted average shares outstanding |                 |  | 10,582                                |       |          |  | 10,729        |       |              |   | 10,773 |       |       |  | 10,973 |      
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |   |        |       |      

E-13



---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Selected Quarterly Financial Data (Unaudited)

|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |       |  |        |       | 
|---------- | --------------------------------------------------- | --------------------------------- | ----------------------------------- | --------------- |  | ------------------------------------- | ----- | -------- |  | ------------- | ----- | ------------ |  | ------ | ----- | ----- |  | ------ | ----- | 
|           |                                                     |                                   |                                     |                 |  | Three Months Ended                   
|           |                                                     |                                   |                                     |                 |  |                                      
|           |                                                     |                                   |                                     |                 |  | March 31,                             |       | June 30, |  | September 30, |       | December 31,
|           |                                                     |                                   |                                     |                 |  | 2001                                  |       | 2001     |  | 2001          |       | 2001        
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |             
|           |                                                     |                                   |                                     |                 |  | (in thousands, except per share data)
|Net sales: |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     | Wireless Data Communications      |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  | $                                     | 1,295 |          |  | $             | 1,314 |              |  | $      | 2,053 |       |  | $      | 2,187 | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 743   |          |  |               | 1,402 |              |  |        | 1,165 |       |  |        | 1,341 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 2,038 |          |  |               | 2,716 |              |  |        | 3,218 |       |  |        | 3,528 | 
|           |                                                     | Digital Multimedia and Networking |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 2,213 |          |  |               | 2,735 |              |  |        | 2,007 |       |  |        | 1,829 | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 803   |          |  |               | 474   |              |  |        | 852   |       |  |        | 731   | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 3,016 |          |  |               | 3,209 |              |  |        | 2,859 |       |  |        | 2,560 | 
|           |                                                     | Wireline Security                 |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 105   |          |  |               | 105   |              |  |        | 22    |       |  |        | 331   | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 143   |          |  |               | 60    |              |  |        | 146   |       |  |        | 202   | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   |                                     | Sub-total       |  |                                       | 248   |          |  |               | 165   |              |  |        | 168   |       |  |        | 533   | 
|           |                                                     | Total net sales                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |       |  |       
|           |                                                     |                                   |                                     | Product         |  |                                       | 3,613 |          |  |               | 4,154 |              |  |        | 4,082 |       |  |        | 4,347 | 
|           |                                                     |                                   |                                     | Service         |  |                                       | 1,689 |          |  |               | 1,936 |              |  |        | 2,163 |       |  |        | 2,274 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   |                                     | Total net sales |  |                                       | 5,302 |          |  |               | 6,090 |              |  |        | 6,245 |       |  |        | 6,621 | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           | Cost of sales                                       |                                   |                                     | 3,181           |  |                                       |       | 4,054    |  |               |       | 3,928        |  |        |       | 3,574 | 
|           | Depreciation and amortization                       |                                   |                                     | 73              |  |                                       |       | 72       |  |               |       | 64           |  |        |       | 58    | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   | Gross profit                        |                 |  | 2,048                                 |       |          |  | 1,964         |       |              |  | 2,253  |       |       |  | 2,989  |      
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           | Research and development expenses                   |                                   |                                     | 844             |  |                                       |       | 689      |  |               |       | 584          |  |        |       | 638   | 
|           | Selling, general administrative and other
Expenses  |                                   |                                     | 2,704           |  |                                       |       | 2,828    |  |               |       | 2,549        |  |        |       | 2,558 | 
|           | Depreciation and amortization                       |                                   |                                     | 670             |  |                                       |       | 744      |  |               |       | 689          |  |        |       | 669   | 
|           | Costs related to non-recurring acquisition
Activity |                                   |                                     |                |  |                                       |       |         |  |               |       |             |  |        |       |      | 
|           | Non-recurring employee separation costs             |                                   |                                     | 101             |  |                                       |       | 317      |  |               |       |             |  |        |       |      | 
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   | Operating loss                      |                 |  | (2,271                                | )     |          |  | (2,614        | )     |              |  | (1,569 | )     |       |  | (876   | )    
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   | Net loss                            |                 |  | (1,025                                | )     |          |  | (1,337        | )     |              |  | (621   | )     |       |  | (159   | )    
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      
|           |                                                     |                                   | Basic earnings (loss) per share     |                 |  | (0.10                                 | )     |          |  | (0.13         | )     |              |  | (0.06  | )     |       |  | (0.02  | )    
|           |                                                     |                                   | Weighted average shares outstanding |                 |  | 10,391                                |       |          |  | 10,396        |       |              |  | 10,481 |       |       |  | 10,515 |      
|           |                                                     |                                   |                                     |                 |  |                                       |       |          |  |               |       |              |  |        |       |      

E-14



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources

The Company has been able to fund its operations and working capital
requirements from cash flow generated by operations, the proceeds from a public
offering completed in April 1995, the proceeds from the sale of its derived
channel technology in November 1999, the proceeds from capital leases, and the
proceeds from the exercise of stock options.

Net cash used in operating activities decreased to $2,890,000 for the year
ended December 31, 2002 as compared to $3,237,000 for the year ended December
31, 2001. The decrease in cash used was primarily due to a reduction in
minority interest to $326,000 in fiscal 2002 compared to $3,139,000 in fiscal
2001 and changes in assets and liabilities which provided cash of
$2,374,000 in
fiscal 2002 and compared to $64,000 in fiscal 2001 offset by an increase in net
losses to $7,450,000 in fiscal 2002 compared to a net loss of $3,142,000 in
fiscal 2001.

Net cash used in
investing activities decreased to $1,149,000 for the year
ended December 31, 2002 as compared to $2,214,000 for the year ended December
31, 2001. The decrease in cash used was primarily the result of
reduced acquisition of minority interest.

Net cash provided by
financing activities increased to $757,000 for the
year ended December 31, 2002 as compared to $314,000 for the year ended
December 31, 2001. The increase in cash was primarily due to the receipt of
$1,177,000 in fiscal 2002 from the exercise of stock options which resulted in
the issuance of an additional 255,529 shares of the Companys Class A Common
Stock against the receipt of $362,000 in fiscal 2001 from the exercise of stock
options which resulted in the issuance of an additional 104,601 shares of the
Companys Class A Common Stock, respectively.

The Company had working capital balances, including cash balances, of
$4,951,000 and $11,128,000, respectively, as of December 31, 2002 and December
31, 2001. Included in these working capital balances were notes receivable
with certain customers of $823,000 and $94,000, respectively, as of December
31, 2002 and December 31, 2001. The Company had cash balances of $2,137,000 and
$5,401,000, respectively, as of December 31, 2002 and December 31, 2001. In
order to provide additional short-term liquidity to the Company, on March 28,
2003, Alethea Limited Partnership, an entity affiliated with the family of the
Companys chairman and CEO, agreed to provide to Digilog a one-year line of
credit for $1 million. Under its terms, the line is secured by a pledge of the
stock of Digilog and a lien on all the assets of Digilog. Interest on the line
of credit is at a rate of ten percent (10%) per annum. There are no
restrictions on the use of the line. The minimum amount of any draw under the
line is $100,000. The Company guarantees the line of credit.

The Companys business has traditionally not been capital intensive and,
accordingly, capital expenditures have not been material. To date, the Company
has funded all capital expenditures from working capital, capital lease and
other long-term obligations, proceeds from the public offering and the proceeds
from the sale of its derived channel technology in November 1999.

The Company is obligated under the First Amendment to the Operating
Agreement of Cellemetry LLC (Cellemetry) to fund the operations of Cellemetry
to an amount of $5,500,000 by way of interest bearing debt financing to be
available to fund the operations of Cellemetry and its wholly owned subsidiary
Uplink Security, Inc. The Company has provided the full amount of the facility
to Cellemetry and the Company may, but is not obligated to continue to fund
Cellemetry with additional interest bearing debt financing. All borrowings
carry the Prime Rate of interest. At December 31, 2002 the Company had provided
total interest bearing debt-financing amounting to $19,286,000.

On March 28, 2003, the Company acquired Cingulars interest in Cellemetry
and the 625,000 shares of the Companys stock owned by Cingular for $5 million
(the Cellemetry Transaction). Under the terms of the agreement, the Company
has agreed to pay Cingular $1.5 million by December 15, 2003, $2.0 million by
March 31, 2004

E-15



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

and $1.5 million by December 15, 2004. The Companys obligation is
secured by a pledge of the stock of all the Companys subsidiaries (except
Digilog) and a lien on the assets of all the Companys subsidiaries (except
Digilog) and bears interest at a rate of eight percent (8%) per annum.

The Company intends to fund the Cellemetry Transaction through a
combination of operating cash flow, cash on hand, and additional funding
sources. Such additional funding sources could include the public or private
sale of securities or proceeds from the sale of assets. If the Company is
successful in raising additional funds through the issuance of equity
securities, stockholders may experience dilution, or the equity securities may
have rights, preferences or privileges senior to those of the common
stockholders. If the Company raises funds through the issuance of debt
securities, those securities would have rights, preferences and privileges
senior to those of the common stockholders. There can be no assurance, however, that
additional funding will be available on terms favorable to the Company or at
all or that the Company will raise significant proceeds from the sale of
assets.

The Companys operations used significant amounts of cash in 2002. The
Company continues to add products and distribution channels for its products,
but the Companys longer-term success will depend upon increased cash flow.
The Company believes that the combination of additional funding provided by
establishment of the March 28, 2003 $1 million line of credit, along with cash
generated from future operations, will be sufficient to meet the Companys
operating requirements through at least December 31, 2003, assuming no material
adverse change in the operation of the Companys business. The Company is also
considering other sources of funding, including the sale of certain non-core
assets.

Additionally, cash requirements for future expansion of the Companys
operations will be evaluated on an as-needed basis and may involve additional
external financing. The Company does not expect that such additional
financing, should it occur, will have a materially negative impact on the
Companys ability to fund its existing operations.

Effect of Inflation

Inflation has not been a material factor affecting the Companys business.
In recent years the cost of electronic components has remained relatively
stable, due to competitive pressures within the industry, which has enabled the
Company to contain its manufacturing and operations costs. The Companys
general operating expenses, such as salaries, employee benefits, and facilities
costs are subject to normal inflationary pressures.

Foreign Currency

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

E-16