UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

                   For the Fiscal Year ended October 31, 1998
                                             ----------------
                                       or

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


            For the transition period from ___________ to ___________

                           Commission File No. 0-22920

                                  NUMEREX CORP.
   ---------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

            Pennsylvania                               11-2948749
  -------------------------------           ---------------------------------
  (State or Other Jurisdiction of           (IRS Employer Identification No.)
   Incorporation or Organization)


          1600 Parkwood Circle
               Suite 200
            Atlanta, Georgia                           30339-2119
 ----------------------------------------              ----------
 (Address of principal executive offices)              (Zip Code)


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

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

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

   Class A Common Stock, no par value                   10,366,092
   ----------------------------------         -----------------------------
            (Title of Class)                  (Number of Shares Outstanding
                                                  as of January 15, 1999)


     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. [ ]

     The aggregate market value of voting stock held by non-affiliates of the
Registrant is $22,393,845.(1)


<PAGE>


<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
                                                                                          Page
                                                                                          ----
<S>          <C>                                                                         <C>
Table of Contents                                                                          (i)
Exchange Rate Data                                                                         (i)

                                     PART I

Item 1.      Business                                                                        1
Item 2.      Properties                                                                     26
Item 3.      Legal Proceedings                                                              26
Item 4.      Submission of Matters to a Vote of Security Holders                            26
Item 4.1     Certain Executive and Key Employees of the Registrant                          27

                                     PART II

Item 5.      Market for Registrant's Common Equity and Related Shareholder Matters          27
Item 6.      Selected Financial Data                                                        28
Item 7.      Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                                        28
Item 8.      Financial Statements and Supplementary Data                                    28
Item 9.      Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure                                                       28

                                    PART III

Item 10.     Directors and Executive Officers of the Registrant                             29
Item 11.     Executive Compensation                                                         29
Item 12.     Security Ownership of Certain Beneficial Owners and Management                 29
Item 13.     Certain Relationships and Related Transactions                                 29

                                     PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K               29
             List of Financial Statements                                                   29
             List of Exhibits                                                               30
             Signatures                                                                     35
             Index to Financial Statements                                                 F-1
</TABLE>

                               EXCHANGE RATE DATA

    The following table sets forth certain exchange rates for British pounds
sterling based on the noon buying rate in New York City for cable transfers, as
certified for customs purposes by the Federal Reserve Bank of New York. Such
rates are set forth as U.S. dollars per British pound sterling. On January 15,
1999, the noon buying rate was U.S. $1.6515 per (pound)100.

                                            Fiscal Years Ended October 31,
                                      ------------------------------------------
                                       1998     1997     1996     1995     1994
                                      ------   ------   ------   ------   ------
Exchange rate at end of period        1.6542   1.6743   1.6278   1.5805   1.6350
Average exchange rate during period   1.6609   1.6444   1.5506   1.5884   1.5250
Highest exchange rate during period   1.6995   1.7123   1.6278   1.6355   1.6368
Lowest exchange rate during period    1.6308   1.6020   1.5083   1.5505   1.4615

    The Company currently publishes its consolidated financial statements in
British pounds sterling, the functional currency of the country in which
substantial majority of the Company's revenues have historically been generated.


                                      (i)

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the Company's Annual Report to Shareholders for the
year ended October 31, 1998 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 1999 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.

-----------------
(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 $3.875, the last reported
     sale price for the Company's Common Stock on January 15, 1999. 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
     recordkeeping 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 subsidiaries, (ii) all
references to Common Stock in this report refer to the Company's Class A Common
Stock, (iii) all information in this report has been adjusted to reflect a
five-for-two stock split paid in October 1994, (iv) all references in this
report to fiscal years are to the Company's fiscal year ended October 31 of each
year, and (v) all references in this report to "pounds sterling" or "(pound)"
are to British pounds sterling.


                                      (ii)

<PAGE>


                                     PART I

Item 1. Business.

                                   THE COMPANY

     NumereX is a telecommunications company comprised of business entities
providing an array of information transport products and services. The Company's
primary focus is on information products and services utilizing transport
technologies representing wireline, broadband, and wireless communications.
Through its business units, the Company has developed products and services for
wireline communications (proprietary Derived Channel technology), broadband
communications (Fiber Optic and proprietary EDCOMM software), and wireless
communications (patented Cellemetry(R) technology. Additionally, the Company
provides network management systems to operating telephone companies.

The Company's primary strategic objectives are to:

     o    Increase coverage and penetration for all business lines.


     o    Transition from product revenues to recurring revenues wherever
          possible

     o    Acquire or develop applications which can add profitably to existing
          businesses.

     Through Cellemetry LLC (a joint venture with BellSouth Wireless Inc., 60%
owned by the Company), the Company provides low-cost, two-way wireless data
transport in the U.S. and Canada, with plans to expand to international markets.

     The Company, through its investment in UPLINK Security, Inc. ("UPLINK"), is
positioned to provide low cost, reliable fixed security services and assisted
services via wireless transport utilizing Cellemetry(R) technology.
Cellemetry(R), as a means of data transport, combined with uniquely developed
message processing and interface technologies, has positioned Uplink to become
an industry leader for low cost wireless alarm transport. Additionally, from an
application perspective, the Cellemetry(R)/UPLINK synergy is an excellent
compliment to the Company's Derived Channel technology for security alarm
purposes.

     The Company's Network Management products are used to test and monitor the
performance of data and voice communications networks. The Company's high-end
network fault management product line is marketed to customers in North America,
South America, Western Europe, and the Pacific Rim. Through its network
management products the Company has developed relationships with major
telecommunications companies internationally.

     The Company's largest wireline communications customer, British
Telecommunications plc ("British Telecom"), has been successfully deploying the
Company's Derived Channel technology for the purposes of providing enhanced
alarm reporting services to customers through its telephone network in the
United Kingdom. The service, referred to by British Telecom as "RedCARE", now
supports more than 270,000 subscribers and is available to more than 98% of the
commercial marketplace in the United Kingdom. The Company continues to pursue
various wireline opportunities in the U.S. and other worldwide markets.


<PAGE>


     The Company's Broadband Communications business unit provides systems
design, products, integration services, installation and operator training for
interactive voice, video, and data via fiber optic transport. The principal
application for the Company's fiber optic transport expertise to date has been
in the area of educational enhancement, through distance learning. With more
than 1,000 existing distance learning and campus sites, serving more than 1.2
million students, the Company believes it is well positioned to capitalize on
the public need for enhanced education and the anticipated growth of the
distance learning market. The Company also believes that a corporate market will
further develop for its distance learning products.

     The Company's history began in July 1992 when Bronzebase Limited
("Bronzebase"), a newly formed corporation acquired 90% of the outstanding stock
of Versus Technology Limited ("Versus Technology UK") and certain proprietary
intellectual property rights, including rights to derived channel technology and
rights to market such technology in certain countries, including the United
Kingdom. Bronzebase acquired the remaining Versus Technology UK stock in
September 1993. In February 1994, as a result of a stock exchange, Bronzebase
and its subsidiary Versus Technology UK, became subsidiaries of NumereX
Corporation.

     In July 1994, the Company acquired all of the outstanding stock of Digital
Audio Limited ("DA Systems"). Also in July 1994, the Company purchased certain
network management assets, through a newly formed subsidiary of the Company,
Digilog Inc. ("Digilog"). In November 1994, the Company's subsidiary, DCX
Systems, Inc. ("DCX Systems"), completed the acquisition of certain derived
channel business assets, including the rights to manufacture, market and sell
the Company's Derived Channel technology in North America, South America,
Eastern Europe, and parts of the Pacific Rim. Along with these rights, the
Company assumed relationships with six of the seven Regional Bell Operating
Companies and GTE Corporation in the United States, each of which has purchased
and installed systems using earlier versions of the Derived Channel technology.

     In February 1997, the Company acquired 100% of the outstanding stock of
Broadband Networks, Inc. ("BNI") of State College, Pennsylvania. Certain
employees of BNI hold stock options which if fully exercised will result in
NumereX's interest being reduced to 82%. In addition, the Company has certain
rights to purchase the shares upon exercise of the options.

     In May 1997, the Company sold all of the stock of its wholly owned
subsidiary, DA Systems, to Detection Systems, Inc. ("DSI") of Rochester, N.Y. In
a companion transaction, a subsidiary of the Company entered into a License
Agreement with DSI whereby DSI may manufacture and distribute certain of the
Company's products in the United Kingdom in return for royalty payments.

     On July 17, 1997, the Company invested (pound)605,000 ($1,000,000) in
return for 19.5% of the common stock of Uplink Security, Inc. In addition, the
Company extended UPLINK a $5,000,000 Line of Credit that could be drawn against
a defined set of milestones over a 24-month period. Various options contained in
the agreements provided the Company a means of acquiring a controlling interest
in UPLINK. On May 18, 1998, the Company acquired an additional 78,795 shares of
UPLINK Security, Inc. from certain existing shareholders for approximately
(pound)873,000 ($1,444,000) and 89,763 NumereX common stock warrants with a
strike price of $6.00. This stock purchase increased the Company's ownership
interest in UPLINK to 85% and, as a result, UPLINK was consolidated with the
Company effective May 18, 1998.

     On May 15, 1998, the Company, BellSouth Wireless, Inc. ("BellSouth
Wireless") and BellSouth Corporation completed a transaction whereby Cellemetry
LLC ("Cellemetry") a joint venture between NumereX and BellSouth Wireless, was
formed. Cellemetry LLC, a Delaware limited liability company,


                                       2

<PAGE>


is owned 60% by NumereX and 40% by BellSouth Wireless. The parties have entered
into an operating agreement (the "Operating Agreement") which deals with, among
other things, the conduct of the business of Cellemetry LLC. Pursuant to the
Operating Agreement, the Company will make cash contributions of up to $15.5
million during the first two years of Cellemetry LLC's operations. According to
the Operating Agreement, at the end of the three years if certain revenue
targets have been met by Cellemetry LLC, no additional contribution from the
Company will be required. However, if, at the end of three years, the revenue
targets are not met, the Company will be required to make an additional $3.75
million cash contribution or contribute certain equity interests it has in
UPLINK. Also, according to the Operating Agreement, Cellemetry LLC must achieve
certain specific cumulative revenue and operating goals by the third anniversary
of the formation date. If these performance goals are not met, the Company may,
at its sole option, elect that BellSouth put its ownership interest in
Cellemetry LLC to the Company for $15.33 million, plus interest at a 13% annual
compound rate or begin a process to dissolve Cellemetry which would include a
transfer of the initially contributed intellectual property to BellSouth. In
addition, the Operating Agreement provides certain restrictions as to
distributions and the right to transfer ownership interests in Cellemetry LLC.
Cellemetry LLC has elected to be taxed as a partnership for federal, state and
foreign income tax purposes. The results of operations and financial position of
Cellemetry LLC were consolidated with the Company effective May 15, 1998, since
the Company controls the operations of Cellemetry LLC.

     The Company is a Pennsylvania Corporation with executive offices located at
1600 Parkwood Circle, Suite 200, Atlanta, Georgia, 30339-2119. The Company's
telephone number is 770-693-5950.


                                       3

<PAGE>


                                  RISK FACTORS

     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. Any one, or any combination of
factors could have a material adverse effect on the Company's results of
operations. These factors include: competitive pressures, economic conditions,
changes in consumer spending, currency exchange fluctuations, tariffs, political
instability, interest rate fluctuations, trade restrictions, and other
conditions affecting capital markets. The following factors should be carefully
considered, in addition to other information contained in this document. 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. Also, they include statements regarding increases in user and
customer base (see Item 1. "Business" - "The Company", "Wireless
Communications", "Broadband Communications" and "Derived Channel
Communications"); statements relating to expansion opportunities (see Item 1.
"Business" - "The Company", "Wireless Communications", "Broadband
Communications" and "Derived Channel Communications"); statements related to
growth through a variety of sales and marketing efforts, technological
developments, the introduction of new and enhanced products and new product
applications (see Item 1. "Business" - "The Company", "Wireless Communications",
"Broadband Communications", "Derived Channel Communications" and "Network
Management Products"); statements regarding positive results relating to
acquisitions (see Item 1. "Business" - "The Company", "Wireless Communications",
"Broadband Communications" and "Derived Channel Communications"); statements
regarding various aspects of competition (see Item 1. "Business" - "Wireless
Communications" - "Competition", "Broadband Communications" - "Competition",
"Derived Channel Communications" - "Competition", and "Network Management
Products" - "Competition"); statements regarding future results of operations,
profitability, exchange rates and activities relating thereto (see Item 7.
"Management's Discussion and Results of Operations" - "General" and "Foreign
Currency"); statements regarding increased interest and growth in industries and
markets served by the Company and demand for the Company's product offerings
(see Item 1. "Business" - "The Company", "Wireless Communications", "Broadband
Communications" and "Derived Channel Communications"); statements regarding
sufficiency of cash flow, funding operations and availability of additional
capital (see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operation" - "Liquidity and Capital Resources");
statements regarding the Company's ability to retain key employees (see Item 1.
"Business" - "Derived Channel Communications" - "Sales and Marketing" and
"Broadband Communications"); statements concerning the nature of applicable
regulatory restrictions and limitations (see Item 1. "Business" - "General" -
"Regulation"); and statements relating to the availability of supplies used in
the Company's business (see Item 2. "Properties." 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. Any investment in the Company's securities
involves a high degree of risk. 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 filed with the Securities and Exchange
Commission.

     The following factors, in addition to the other information contained in
this report should be considered carefully in evaluating an investment in the
Company.

     Limited Operating History; Acquisition History. The Company commenced
operations in July 1992 with the acquisition of Versus Technology UK, which
conducts the Company's Derived Channel


                                       4

<PAGE>


System business in the United Kingdom. The Company acquired its network
management products business in July 1994. In November 1994, the Company
acquired the rights to market its Derived Channel System in North America and
several other worldwide markets. In addition, the Company acquired BNI in
February 1997 and made an investment in UPLINK in July 1997. In May of 1998, the
Company acquired a controlling interest in UPLINK and a 60% interest in
Cellemetry LLC. Due to the Company's limited operating history and the limited
history in connection with its recent acquisitions, there can be no assurance as
to the level of gross profit margin or operating results which the Company will
achieve, nor can there be any assurance that the Company's operations will be
profitable in the future.

     Dependence Upon British Telecom. Direct sales to the Company's major
customer, British Telecom, accounted for approximately 19.4% and 16.4% the
Company's sales for the fiscal years ended October 31, 1998 and 1997,
respectively. Such sales, in fiscal 1998 and 1997 consisted of network equipment
deployed by British Telecom in connection with its RedCARE alarm reporting
service and revenues pursuant to a software contract between the Company and
British Telecom. The Company's agreement to supply certain network equipment to
British Telecom relating to its RedCARE service will expire in August 1999.
Under such agreement, British Telecom is not required to purchase any minimum
amount of equipment. In addition to direct sales to British Telecom, a
substantial majority of the Company's remaining Derived Channel System sales
consists of STUs sold to alarm system distributors and installers for resale to
British Telecom's RedCARE subscribers. The Company is dependent upon the
marketing efforts of British Telecom to generate demand for the enhanced alarm
reporting service or other applications, which in turn results in sales of the
Company's network equipment to British Telecom and customer premises equipment
(STUs) to alarm system distributors and installers. There can be no assurance
that British Telecom will take any further steps to increase the market
penetration of its RedCARE service or other applications by attracting
additional subscribers or by offering its RedCARE service in new regions of the
United Kingdom or that any market development or geographic expansion efforts
undertaken by British Telecom will be successful. In the event that British
Telecom fails to attract additional RedCARE subscribers or does not otherwise
expand its RedCARE service and other applications in the United Kingdom, the
Company's sales of Derived Channel System products would be expected to decrease
over time. Also, as market penetration approaches more complete coverage, the
Company believes sales may grow at a lower rate. A reduction of sales to British
Telecom, a reduction by British Telecom in its marketing efforts for its RedCARE
service or other applications, a failure by British Telecom to offer its RedCARE
service in new regions, or an impairment of British Telecom's ability to add new
subscribers, would have a material adverse effect on the Company. See "Item 1.
Business -- Sales and Marketing -- United Kingdom Security Market for the
Derived Channel System."

     Risks of the Company's Geographic Expansion Program. To date, a substantial
amount of the Company's revenues has been generated from Derived Channel product
sales within the United Kingdom. The Company has undertaken efforts to increase
its market penetration in North America, South America and the Pacific Rim and
to expand into other parts of Western Europe. Each country typically has its own
technical certification and network standards, local distribution channels, and
local competitive dynamics. The Company has devoted several years of sales and
technical efforts in both the Canadian and Argentinean markets that have
resulted in contracts which, to date, are non-performing. Additionally,
technical infrastructure differences in each country will likely increase the
cost associated with expansion efforts. In order for the Company's Derived
Channel expansion efforts to be successful, the Company's products will need to
be selected for use in the new geographic markets by telephone companies and
alarm system distributors and installers. To date, the Company has not
experienced significant expansion in connection with its Derived Channel
business and there can be no assurance that the Company's products will be
selected for deployment in these markets or that the Company will be able to
successfully expand into new geographic markets. In addition, international
expansion opportunities may be pursued by BNI and Cellemetry LLC which would
likely result in increased start-up costs and involve


                                       5

<PAGE>


many of the above factors. Unless, and until, the Company is able to generate
new sales from these efforts, the start-up costs and other expenses arising from
the Company's expansion activities may adversely affect the Company's future
results of operations.

     Risks Associated with the Company's Wireless Business. The success of the
Company's wireless strategy depends upon the successful generation of a national
footprint, its ability to become the data transport service provider of choice
for a wide array of applications providers, and the ability to provide the
necessary funding which may be required to support these activities. There can
be no assurances that the Company's efforts to achieve these objectives will be
successful.

     Transitioning Product Revenue to Recurring Revenue. As part of the
Company's strategy, it is attempting, where possible, to transition the Company
from receiving revenue from the sale of certain products, to sharing in
recurring revenues, primarily with telephone companies and other service
providers. This may result in the Company's revenues from the sale of products
to be adversely affected, while potentially increasing future revenues. The
growth prospects for Cellemetry LLC are entirely dependent on the Company's
ability to generate a recurring base with various wireless data transport
customers. There can be no assurances that the Company's efforts to transition
this business will be successful or that future revenues and profitability will
be enhanced.

     Risks Associated with the Availability, Funding, Timing, Terms and Effects
of Possible Acquisitions. One of the elements of the Company's strategy is to
consider the acquisition of complementary businesses and or product lines. There
can be no assurance that appropriate acquisition opportunities will be
identified or available; that the Company will have, or be able to obtain,
sufficient resources to fund any such acquisition; that financing for any such
acquisition will be available to the Company on acceptable terms, if at all;
that any such acquisition will be consummated, or, if consummated, the timing
thereof; or that any such acquisition will be beneficial to the Company. In the
event the Company obtains financing for any such acquisition, the Company may
become subject to restrictive loan covenants or other unfavorable terms if funds
are borrowed or dilution if equity securities are sold. In addition, the
diversion of senior management's time and attention associated with any future
acquisitions could have an adverse effect on the Company's operations. Further,
once acquired these acquired businesses must be integrated by the Company. Such
integration will place further demands on management and may require the Company
to increase staffing at the management level. There can be no assurance that
these acquisitions, including the Company's recent acquisitions, can be
successfully integrated or that additional management personnel will be
available to the Company. In this regard the Company recently acquired a
controlling interest in UPLINK and a 60% interest in a newly formed joint
venture, Cellemetry LLC. Presently, the Company is obligated to fund the
operations of Cellemetry LLC, which will require $8 million in FY 1999 and $2
million in FY 2000. The Company also has an ongoing working capital funding
commitment to all of its other operating subsidiaries. On January 8, 1999, the
Company terminated its revolving credit facility and repaid amounts due
including interest totaling $6,008,733. In order to meet the Company's expected
1999 funding requirements, additional financing will be necessary. The Company
does not presently have a borrowing facility in place and while management
believes that the Company will be successful in meeting its 1999 funding needs
there can be no assurance that if the Company seeks to secure such a facility,
that its efforts will be successful, or that such facility can be obtained on
favorable terms. Also, there can be no assurances that the Company's return on
its investment will justify its investments.

     Reliance on Key Personnel. The Company's future performance depends in
large part upon the services of certain executive officers and other key
personnel. The Company presently maintains employment agreements with two of its
executive officers. During fiscal 1998, the Company experienced several changes
at the executive management level as well as the Chairman of the Board.
Presently, Gordon T. Ray is serving as Chairman, President and Chief Executive
Officer of the Company. The loss 


                                       6

<PAGE>


of the services of one or more of these individuals could have an adverse effect
upon the Company. The Company's future performance will also depend upon its
ability to attract and retain other highly qualified management, engineering,
marketing, finance and sales personnel. There can be no assurance that the
Company will be able to continue to attract and retain such persons. See "Item
4.1 -- Certain Executive Officers of the Registrant" and "Proposal One --
Election of Directors" contained in and incorporated by reference from the
Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders.

     Potential Adverse Effect of Competition in Products and Technologies. The
Company's operations are characterized by significant competition with other
companies offering alternative products and/or technologies. In certain cases,
competing products and technologies may offer price or performance
characteristics rendering them more attractive to potential customers than the
Company's products or services. Many of the Company's competitors have greater
financial, technical, manufacturing and marketing resources than the Company.
There can be no assurance that customers will not elect to use alternatives to
the Company's products or that the Company's competitors will not develop new
products, product features or pricing policies which are more attractive to
customers than those offered by the Company. The Company's financial results may
be negatively impacted as a result of increased competition. See "Item 1.
Business."

     Failure to Effect Technological Changes. Technology is subject to rapid
change, and the introduction of new products, technologies and applications in
the Company's markets could adversely affect the Company's business. Also,
technical infrastructure differences within each market will increase the cost
of deployment. The Company's success will be dependent upon its ability to
enhance existing products and introduce new products and applications on a
timely basis. If the Company is unable to design, develop, manufacture and
introduce additional enhancements to existing products and competitive new
products and applications on a timely basis, its business could be adversely
affected.

     Foreign Exchange Translation and Liquidity Risk. Historically, a
substantial portion of the Company's operations currently has been conducted in
the United Kingdom. In the past, most of the Company's transactions were
denominated in pounds sterling and did not involve routine exchange into other
currencies. However, a portion of the Company's production costs are denominated
in United States dollars even though the bulk of its revenues currently are
denominated in pounds sterling. As a result, the Company is exposed to
fluctuations in exchange rates in the event these transactions are not properly
hedged. The Company does not have an on-going currency hedging program. The
exchange rate between United States dollars and the British pound sterling has
varied significantly over the last several years and may continue to vary
significantly in the future. In addition, any appreciation in the value of the
dollar relative to the pound sterling (i.e., a decrease in the number of dollars
into which pounds sterling may be exchanged) will have the effect of reducing
the Company's reported earnings in dollars when compared to pounds sterling, the
result of which could have an adverse effect on the market price for the
Company's Common Stock. As the Company enters new geographic markets outside the
United States, the Company will be subject to additional foreign exchange
translation and liquidity risks.

     Product and Other Liability Risks. The Company's products involve the risk
of liability to the telephone company employing a Derived Channel System, in the
event the Company's products damage the telephone company's network or
equipment, and to the end-user of the Company's alarm reporting equipment, in
the event the Company's products malfunction and fail to report an intrusion.
Potential liability risks are also associated with the Company's wireless
communications products, broadband communications and network management
products. The Company has further potential liability risks in conjunction with
the operation of the Cellemetry LLC wireless data network. In the event of a
product liability claim, other manufacturers, distributors and installers of the
Company's products may bear some or all of the liability. Although the Company
maintains product liability insurance, there can be no


                                       7

<PAGE>


assurance that if the Company were to incur substantial liability for product
claims, its insurance would provide adequate coverage against such liability.
Accordingly, the Company's results of operations could be materially adversely
affected in the event of any product liability judgment or settlement in excess
of available insurance coverage.

     Possible Lack of Patent Protection. The Company holds patents covering
primary Derived Channel and Cellemetry(R) related technologies used by the
Company in systems installed in the United Kingdom, the United States and
various foreign countries. The United Kingdom Derived Channel related patent
expires in October 2002 and the United States patent expires in December 2001.
In addition, the Company also holds patents through Cellemetry LLC which
primarily cover the delivery of the Cellemetry(R) wireless data transport
service. These patents expire between 2007 and 2016. There can be no assurance
that any additional patents will be issued to the Company in any or all
appropriate jurisdictions, that litigation will not be commenced seeking to
challenge such patent protection or that any such challenges will not be
successful, that processes or products of the Company do not or will not
infringe upon the patents held by third parties or that the scope of the patents
issued to the Company will successfully prevent third parties from developing
similar or competitive products or technologies. See "Item 1. Business --
Intellectual Property."

     Reliance on Limited Manufacturing Facilities and Sources of Supply. A fire
or other disaster at the Company's manufacturing facilities or those of its
subcontractors would cause major disruptions to the Company's operations due to
the short lead-times demanded by certain of the Company's customers. A
substantial disruption at the Company's manufacturing facilities or those of its
subcontractors could have a material adverse effect on the Company's business.
In addition, certain of the components used in the Company's products are
obtained from sole source suppliers. In the event that the Company could not
obtain any of these components on a timely basis or at all, the Company's
business could be adversely affected. See "Item 2. Properties."

     Failure to Comply with Standards and Certification Requirements. Many of
the Company's products are subject to a variety of standards and certification
requirements, including those applicable to products connected to the public
telephone network in the countries in which it conducts business. In the event
that the Company's current or future products did not comply with any such
standards or in the event that all required certifications were not received and
maintained, the sale of such products would be delayed and the Company's
operating results could be adversely affected. See "Item 1. Business --
Regulation."

     Relationship with Dominion and Gwynedd; Conflicts of Interest. The Company
has entered into various transactions and arrangements with Dominion Group
Limited, a Member Company of Dominion Holdings or a corporation which previously
carried on certain activities of such entity (collectively, "Dominion").
Dominion is an investment and merchant banking firm which has provided financial
advisory and investment banking services to the Company. Gwynedd owns
approximately 30.9% of the outstanding Common Stock of the Company. The
shareholders of Dominion are also shareholders of Gwynedd. Gwynedd has the right
to designate one member of the Company's Board of Directors (two members if the
Board consists of more than seven directors) as long as Gwynedd owns at least
ten percent of the outstanding Common Stock. Mr. Ryan serves as Gwynedd's
designee. During the fiscal year ended October 31, 1997, the Company paid
$234,000 to Dominion for investment banking related services. No fees were paid
in 1998. During fiscal 1995 the Company's subsidiary, DA Systems, manufactured
certain products for CellTel Data Services, Inc. ("CellTel"), a company in which
Dominion owns a controlling interest. Sales to CellTel approximated $368,500
during fiscal 1995. In October 1996 Numerex invested $375,000 in return for an
initial 10% equity interest in CellTel. These funds were used by CellTel to
repay the account receivable relating to the 1995 product sales. In 1999 Numerex
has the


                                       8

<PAGE>


right to put its initial equity interest to Dominion and Dominion can call this
interest for $500,000. In addition, in 1999, if the above-referenced call is not
exercised by Numerex, it may acquire an additional 10% interest in CellTel for
$1.00. There can be no assurance that conflicts of interest will not arise in
connection with present and future transactions and arrangements between the
Company, Dominion and Gwynedd that may have a material adverse effect on the
Company. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management", and ("Proposal One -- Election of Directors" and "Certain
Relationships and Related Transactions" contained in and incorporated by
reference from the Company's Proxy Statement relating to the 1999 Annual Meeting
of Shareholders.)

     Concentration of Share Ownership. At October 31, 1998 Gwynedd owned
approximately 30.9% of the outstanding Common Stock of the Company. Accordingly,
Gwynedd at October 31, 1998 had the ability to substantially influence the
outcome of the election of directors of the Company as well as other proposals
requiring shareholder approval by a simple majority. Such influence by Gwynedd
may be considered to have anti-takeover effects and may delay, defer or prevent
a takeover attempt that a shareholder might consider in its best interest. In
addition, the Company has entered into an agreement which gives Gwynedd the
right to designate one director on the Board of Directors (two directors if the
Board consists of more than seven directors) as long as Gwynedd owns at least
ten percent of the outstanding Common Stock. In addition to Gwynedd's ownership
of Common Stock, Kenneth F. Manser, a director and executive officer of the
Company, at October 31, 1998, owned approximately 12.9% of the outstanding
Common Stock . See "Item 12. Security Ownership of Certain Beneficial Owners and
Management," "Proposal One -- Election of Directors" and "Certain Relationships
and Related Transactions" contained in and incorporated by reference from the
Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders.

     "Anti-Takeover" and "Anti-Greenmail" Provisions. The Company's Articles of
Incorporation and Bylaws, as well as the laws of the Company's state of
incorporation, contain provisions which may have the effect of deterring
takeovers and making it more difficult to gain control of the Company, including
provisions restricting the right of any person or entity, other than current ten
percent shareholders, to hold or vote more than ten percent of the Company's
outstanding voting securities without the approval of the Board of Directors. In
addition provisions on certain employment and severance agreements as well as
certain provisions under the Company Employee Stock Option Plan and Non-Employee
Director Option Plan may be deemed to have an "anti-takeover" effect. See
"Executive Compensation - Employment and Related Agreements" and "Stock Option
Plans" contained in and incorporated by reference from the Company's Proxy
Statement relating to the 1999 Annual Meeting of Shareholders.

     Potential Adverse Effect on Market Price Due to Shares Eligible for Sale.
At October 31, 1998, the Company had a total of 10,366,092 shares of Common
Stock outstanding. Although a significant number of these shares are deemed
"restricted securities"within the meaning of the Securities Act of 1933 (the
"Act") and may not be sold in the absence of registration under the Act unless
an exemption from registration is available, such as Rule 144 under the Act
("Rule 144"), nonetheless, they are presently eligible to be sold pursuant to
Rule 144. The Company has granted Gwynedd the right to one demand and an
unlimited number of "piggyback" registrations with respect to 1,228,905
restricted shares of Common Stock held by Gwynedd which became eligible for sale
under Rule 144 under the Securities Act of 1933 beginning in July 1996. The
Company, at October 31, 1998, had outstanding options to purchase 1,019,500
shares of Common Stock, of which 261,700 are currently exercisable. Sales of
substantial amounts of Common Stock could adversely affect the prevailing market
price of the Common Stock.


                                       9

<PAGE>


                             WIRELESS COMMUNICATIONS

Background

     In July 1997, NumereX expanded its information transport strategy by
acquiring a 19.5% in Uplink for $1 million pursuant to certain agreements (the
"Agreements") with UPLINK and the shareholders of Uplink. In May 1998, the
Company increased its ownership in UPLINK to 85%.

     UPLINK has developed interface and routing technologies, and has an
exclusive license to utilize BellSouth Corporation's patented cellular telemetry
technology, known as Cellemetry(R), for security alarm transport applications.

     In addition, in May 1998, the Company formed a joint venture, Cellemetry
LLC, owned 60% by the Company and 40% by BellSouth Wireless, Inc.

Cellemetry(R)

     Using Cellemetry(R) technology, remote radios can be polled, time-set to or
autonomously exchange information with application's central locations through
the cellular network. 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(R) radios can pinpoint the precise geographic location
of trucks, railroad cars, barges, containers or other movable assets and signal
control actions or operator response messages.

     Cellemetry(R) Data Service is a patented technology of Cellemetry LLC.
Licensing agreements have been negotiated with cellular carriers throughout the
U.S. and Canada to make Cellemetry Services widely available. Licensing
agreements have also been negotiated with application developers to provide
Cellemetry(R) applications across urban, rural and industrial markets.

     Cellemetry(R) Data Service is telemetry 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(R) Service can enable messaging for many different businesses.
It can 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. These control channels are used to transmit
necessary information for all call initiations (both incoming and outgoing)
between the cellular system and the cellular 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 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 roamer
cellular telephone is turned on, it recognizes the fact that it is not


                                       10

<PAGE>


in its home system and accordingly sends 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
which links all of the cellular systems together across the United States.

     Cellemetry(R) radios respond exactly like roamer telephones except the MINs
are specially assigned so that the MIN and ESN are routed to the Cellemetry(R)
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.

     The centralized Service Bureau processes, stores and routes the
Cellemetry(R) 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.

The Uplink System

     Uplink's system offers wireless alarm transport utilizing Cellemetry(R)
technology over existing analog cellular networks. Cellemetry(R) is a wireless
means of data transport that uses cellular overhead control channels and the
IS-41 network protocol to deliver short data messages. By using the excess
capacity in the cellular control channel, two way messaging can occur without
effecting the voice channels of the cellular network. Because Cellemetry(R)
utilizes the existing cellular network and inexpensive radio transmitters,
Cellemetry(R) applications can quickly and economically monitor and control
equipment at remote locations.

     UPLINK assembles wireless alarm transmission 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 central station in the country, without requiring
modifications to the station's receiving equipment.

     UPLINK believes its products and air time transport charges are
competitively priced. As a result of combining Cellemetry(R) technology with low
cost transmission equipment and routing technologies significant improvements in
security transport services are now available to the industry.

Cellemetry(R) and Derived Channel

     Cellemetry(R) and Derived Channel, as security alarm transport
technologies, are complimentary. As a result, the technologies can be
implemented independently or collectively.

International Markets

     Cellemetry(R) is presently available in Canada. It is the Company's
intention to offer Cellemetry(R) service in various international markets
through direct sales, partnerships and other channels of distribution.

Sales and Marketing

     The Company markets its service directly to participating cellular carriers
who share in the recurring revenue generated from within their territories. The
service is also marketed directly to application providers who are offered
transport capability, and varying degrees of router services, radio


                                       11


<PAGE>


development and other ongoing support services. A network operations center
provides customer support 24 hours a day, seven days a week.

Competition

     The Company has one direct competitor for control channel technology -
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 coverage, price points and system
performance will enable it to effectively compete for market share. Many of the
competitors have greater financial and other resources than the Company.

Research and Development

     Cellemetry LLC continues to invest in improvements of its service
capability on an ongoing basis, through development of expanded service bureau
capabilities, further communications costs reductions, and additional
enhancements to application specific capabilities.


                                       12
<PAGE>


                            BROADBAND COMMUNICATIONS

Industry Background

     Historically, cable television systems operators (MSOs) have been the sole
providers of video delivery systems. Today, there are more than 10,000 separate
cable TV systems in the United States providing video delivery services to more
than 95% of the households in the United States. Internationally, the
availability of cable TV services varies greatly from country to country with
approximately 33% penetration in Western Europe and considerably less
availability in Asia, Latin America, and Eastern Europe. Much like international
telephone service, international cable TV has been highly regulated with a
limited number of operators in each country with very little competition.

     The emergence of wireless cable, Direct Broadcast Satellite (DBS) systems
and other alternative video delivery systems has threatened the preeminence of
the MSOs in the home entertainment market. In addition, the Telecommunications
Act of 1996, which has substantially removed the legal barriers for telephone
companies in the United States to enter the video delivery market, has posed yet
another competitive threat to the MSOs.

     As these competitive pressures have mounted in the United States, MSOs have
been forced to respond by upgrading or rebuilding their networks to provide more
advanced services such as interactive video, data services, Internet access, and
video-on-demand, while controlling their costs. The resulting network expansions
often involve the incorporation of digital fiber optic technology. At the same
time, in an effort to take advantage of the perceived opportunity, telephone
companies are upgrading traditional copper based local-loop technology, with
video and data communications capabilities comparable to fiber optic technology.
In contrast to the past, where consumers were generally limited to a single
source for video service and a single source for local telephone service,
consumers will increasingly be able to choose between two or more providers of
highly integrated services in the future.

     In addition to the competitive landscape changes in the United States cable
TV and telephony markets, governmental initiatives and deregulation of overseas
communications markets have fostered growth and competition in many
international markets. Because of the early stage of development of many of
these markets and stringent system performance criteria established by
government regulators, the provision of cable TV service in many countries will
require significant investment in advanced video transmission equipment. Major
United States-based MSOs and operating telephone companies have seized this
opportunity to expand their international presence through partnerships, joint
ventures, and other initiatives.

     One of the competitive responses of the MSOs has been the development and
introduction of private fiber optic networks. Private networks are defined as
being independent of the primary public subscriber network, and are sometimes
referred to as "Institutional or Intra Networks." These networks are typically
found in campus environments or are implemented for distance learning and video
conferencing applications. Users include large corporations, colleges,
universities, military, government, municipalities and medical institutions.

     The Company believes its Broadband Communications Business Unit, BNI, is
well positioned to capitalize on the opportunities presented by the above
described set of market dynamics. Competition between MSOs and telephone
companies in the United States and in the international market is expected to
make the performance and reliability of transmission networks a critical
component of provider success. By positioning itself in the market as a provider
of fully integrated, value-added interactive


                                       13

<PAGE>


video and data systems, including campus media retrieval and internet access,
the Company believes it has a significant advantage over other participants in
the market which tend to be product suppliers.

Broadband Networks, Inc.

     BNI designs, develops, and markets complete system solutions for broadband
communications networks employed in cable television, high speed data, and other
communications applications. The Company generally manufactures the products
upon which its systems are based but also incorporates third party products
where appropriate.

     Broadband transmission systems permit network operators to provide
additional channels of television programming as well as enhanced services that
include full motion interactive video, video-on-demand, video switching, data
networks, internet access, fax service and network management. 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. BNI believes its systems enable the deployment of
sophisticated architectures generally at lower costs and with less hardware and
complexity than competing offerings.

     BNI, as one of the pioneers in the design and development of products for
interactive video and LAN connectivity, has been involved in the developing
market for video-on-demand applications and internet access.

Products and Services

     BNI has developed and continues to enhance its comprehensive line of
software and fiber optic transmission products which addresses a wide variety of
modern network requirements.

System Solution Services

     BNI designs and implements systems utilizing BNI 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 the BNI
total system solution focus differentiates BNI from its competitors while
providing BNI with an additional source of profitable revenue. A recent example
of the total system solution focus is embodied in the BNI partnership with
Galaxy Cable which resulted in a winning bid for the implementation of a
distance learning network for the State of Nebraska. BNI provided the complete
system design, all of the necessary equipment, and system integration services
for a comprehensive set of offerings which include full motion video
conferencing, high speed data transfer, internet access and fax services to
twenty-four (K through 12 and college) locations.

EDCOMM(TM) System

     EDCOMM(TM) is BNI's network management, scheduling and video switching
system for private network applications. EDCOMM(TM) is a software system which
supports user-friendly control of all network devices, including VCRs, cameras,
and switches, and permits the scheduling and conduct of video conferencing via a
handheld remote control device. The EDCOMM(TM) system incorporates BNI software,
both BNI and third party developed hardware, and is compatible with analog and
digital transmission networks. BNI believes EDCOMM(TM) is unique with respect to
its comprehensive functionality, ease of use, and compatibility with other
standard equipment, and that it facilitates the Company's ability to offer
complete systems solutions. EDCOMM(TM) does not require the creation of a
centralized network administration center - a requirement in other competitive
offerings.


                                       14

<PAGE>


     The following products are often included as part of BNI's integrated
system solution, but can also be sold on a stand alone basis.

TR1000 Series

     TR1000 Series products enable bi-directional high quality full-motion video
and 10MB data transmissions over one or two single mode fiber strands. These
products are typically used on the inbound segment of an interactive network so
that one site can transmit a signal to a central point where all signals are
combined and retransmitted over the network.

CyberFiber

     The CyberFiber 1000 fiber optic transmitter economically delivers two
bi-directional video and two data (10MB) signals over a single strand of fiber.
This product is designed for full motion video conferencing and high speed data
LAN or internet service.

     The CyberFiber product was developed as a direct response to announcements
from many top MSOs regarding their plans to create "cyber" schools with high
speed links to the internet.

TR2000 Series

     The TR2000 product line includes transmitters and receivers that can
deliver up to 110 channels per fiber over 750 MHz of bandwidth using high power
lasers. BNI's expertise with such lasers (both high power and low power) has
resulted in a comprehensive product line of transmitters and receivers which
allow for versatility and cost effectiveness in systems design.

TR3000 Series

     The TR3000 product line provides FM multi-channel video and audio services
for up to 16 channels per fiber strand. These products are used in locations
that require high quality transmission of more than one inbound channel
simultaneously, or for long distance transmissions (greater than 26 kilometers).
BNI believes this product line to be more economical than comparable competitive
products and, as such, offers BNI an important price advantage in designing
regional interactive networks.

OEM

     BNI has developed and manufactured products which have been sold under
another vendor's name. Examples of products produced under these circumstances
include ROB multiplexers and demultiplexers, RF broadband switches, and a
product that switches video channels from one transmission location to another.

Data Modems

     BNI has developed several data modem products that have been incorporated
into EDCOMM(TM) and OEM product lines.

Sales and Marketing

     BNI markets its products and services directly and through a combination of
manufacturers' representatives, 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 to take advantage of market
opportunities.


                                       15

<PAGE>


Key Customer Relationships

     MSOs. BNI has established relationships with a number of MSOs which were
initially based in the private network segment of the MSOs respective
businesses. 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.

     Telephone Companies. Operating Telephone Companies compete with cable
operators for the delivery of distance learning and other private network
services. BNI has successfully provided product to several RBOCs and hopes to
replicate these efforts in other areas.

     Systems Integrators. BNI has developed relationships with a number of
traditional systems integrators under which BNI 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.

International Markets

     To date BNI's activity outside the United States has been minimal. However,
the Company believes there is an opportunity to leverage its developing
reputation as a supplier of high performance and reliable system solutions in
the international arena. Accordingly, future marketing and sales efforts may
include selected international markets.

Competition

     The market for broadband transmission equipment 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.

     BNI's primary competition is the Grass Valley Group, which provides a high
speed/high capacity (DS-3) distance learning solution used by a number of
telephone companies because it utilizes the public network. 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.

Research and Development

     BNI plans to continue to devote a substantial portion of its resources to
the research and development function. In the near term, BNI will continue to
enhance its EDCOMM(TM) system, expand its data product offerings to include high
speed fiber transceivers, and introduce a version of EDCOMM(TM) which will be
capable of retrieving media in a campus environment. BNI is also developing a
sophisticated digital service offering for certain markets.


                                       16

<PAGE>


                             DERIVED CHANNEL SYSTEM

Industry Background

     As a result of technological advances in the telecommunications industry,
telephone companies are able to broaden their product portfolios by offering
enhanced services to their customers. Many of these new services, such as call
waiting, call forwarding, voice mail and security monitoring services, are being
offered by telephone companies to customers on a fee basis across substantial
portions of their user base. The Company believes that the add-on services which
can be offered using existing equipment on an overlay basis without requiring
additional telephone line construction may be of some interest to telephone
companies and their customers. In addition, the Company believes that telephone
companies can be attracted to niche technologies, such as the Company's Derived
Channel System, that offer a cost effective solution for applications that
typically require dedicated lines, thereby providing a more productive use of
the existing telephone network.

     At the same time, the Company believes that people all over the world are
becoming more security conscious, and that these concerns have increased the
demand for security systems. Additionally, in recent years, more sophisticated
methods have been used to defeat security systems that use a telephone line to
signal an alarm. Intruders are increasingly cutting telephone lines and
disabling other parts of security systems. Under these circumstances, many
security systems are compromised, thereby providing the intruder undetected
access to the premises. In an effort to better manage the underwriting risks,
insurance companies, particularly in the United Kingdom, have required
commercial and high-end residential customers to incorporate security systems
meeting certain specifications, such as a line interruption detection
capability, as a condition of providing lower cost insurance. Consequently, more
sophisticated alarm systems are being utilized, including wireless
communications devices, dedicated lines and the Company's Derived Channel
System.

Technology

     The Company's patented 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. The Derived Channel System
operates over a regular voice telephone line whether or not the telephone is in
use and does not interfere with a voice telephone call. In addition, the low
tone signal can be encrypted for additional security. The Derived Channel System
is a two-way communication system that continuously monitors the integrity of a
user's telephone line and security system.

     The Company believes that its Derived Channel System differs from most
other technologies in three meaningful ways: (1) the Derived Channel System
operates over existing telephone lines, thereby sparing the telephone company
the cost of additional line installation and system overhead, and eliminating
the need for costly dedicated line service to the telephone customer; (2) the
Derived Channel System communicates by means of a continuous and inaudible
signal, which can be encrypted, 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
the network equipment located at the telephone company's central office and
continuous signaling


                                       17

<PAGE>


originating at the protected premises, thereby providing protection and prompt
reporting of line disruptions, telephone system outages or alarm conditions.

     The Company believes that the Derived Channel System represents a marked
improvement over the most common monitored alarm signaling system, which is an
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, the
Derived Channel System is proactive. As such, it continuously monitors line and
system's integrity, and automatically reports any line disruption or failure to
the alarm monitoring company. The Derived Channel works whether or not the
telephone line is otherwise engaged.

Products

     The Company's Derived Channel System permits the implementation of a secure
alarm reporting service using existing telephone lines. The Derived Channel
System links the protected premises, message switch software, and the customer's
alarm monitoring company utilizing standard telephone lines. The Derived Channel
System consists of:

     The Message Switch. The Message Switch is comprised of two minicomputers
(for redundancy purposes) which house the Company's switching software. This
software is designed to identify and transmit information to the appropriate
alarm monitoring company following receipt of an alarm signal from a Scanner.
The Company typically sells or licenses the switching software while the
minicomputers are independently manufactured and can be purchased directly or
through the Company.

     The Scanner. The Scanner is a pair of microprocessors situated in a
telephone company's central office which monitors multiple Subscriber Terminal
Units (STU) and transmits alarm conditions to a message switch. The Scanner
interrogates or polls each STU, at proscribed intervals, using the subscriber's
standard telephone line. The response to the poll indicates that the system is
functioning properly or that an alarm condition exists. When an alarm condition
is detected, the Scanner transmits the appropriate information to the Message
Switch for routing to the designated alarm monitoring company. Scanners have
historically been sold to telephone companies for installation in secure
locations within the central office.

     Subscriber Terminal Unit (STU). The STU is a single printed circuit board
containing a microprocessor, signal recognition circuits, and terminals for
multiple alarm inputs. The STU is located on the protected premises and connects
the subscriber's alarm panel to the Scanner using the customer's telephone line.
The STU continuously communicates with the Scanner to indicate that the
telephone line and the STU are working properly, and to transmit alarm signals
as they are generated. The Company sells STUs to alarm system distributors and
installers for resale to owners of the protected premises.

     The Company's Derived Channel System operates continuously even while the
telephone line is engaged. In the event telephone service is interrupted or the
STU malfunctions, the Scanner transmits a message via the Message Switch to the
alarm company to advise that an out-of-service condition exists, allowing the
monitoring company to take appropriate action.


                                       18

<PAGE>


Sales and Marketing

     In marketing its Derived Channel System, the Company has historically sold
networking equipment (Message Switches and Scanners) to telephone companies for
installation on telephone company premises, and has concentrated its marketing
efforts on major telephone companies in the United Kingdom, the United States,
and Australia. Prior to 1994, at which time the Company completed its
acquisition of the Derived Channel business, several telephone companies
installed and continue to have Derived Channel Systems operating, including
British Telecom, four of the five Regional Bell Operating Companies in the
United States, and Telstra Australia.

     Once a Derived Channel System has been installed, the Company typically
markets customer premises equipment (STUs) directly to alarm system distributors
and installers. Historically, the Company has depended upon telephone companies
and alarm system distributors and installers to market the Derived Channel
System alarm reporting service. In the future, the Company intends to provide a
level of marketing support to telephone companies and alarm system distributors,
and to seek more comprehensive associations with telephone companies to enable
the Company to market Derived Channel security alarm transport directly to the
industry in an effort to capture a share of the recurring revenue generated by
the applications.

     Set forth below is a summary of telephone companies with Derived Channel
Systems deployed and the Company's estimate of the installed STU base.

                       Derived Channel Technology Deployed


            Telephone Company                            Estimated STU Base
---------------------------------------------        --------------------------
Ameritech                   Manitoba Tel             Australia           25,000
Bell Atlantic/Nynex         Pacific Telesis          North America       60,000
BellSouth                   Telstra Australia        United Kingdom     270,000
British Telecom             US West
GTE Corporation

The United Kingdom Security Market for the Derived Channel System

     The Company's largest customer, British Telecom, has been successful in
implementing the Company's Derived Channel System by offering an enhanced alarm
reporting service known as RedCARE through its telephone network in the United
Kingdom. The Company believes that the RedCARE service is now available to more
than 98% of the potential commercial subscribers served by British Telecom.

     The Company believes there are approximately 2.7 million alarm systems
installed in the United Kingdom. Of these, the Company believes approximately
700,000 are monitored alarm systems. Of the 700,000 monitored alarm systems, the
Company believes approximately 270,000 utilize British Telecom's RedCARE
service. With service already provided to an estimated 38% of the monitored
alarm market, the Company believes sales in the United Kingdom will grow at a
slower rate in the future. The Company believes additional growth potential in
the United Kingdom exists in areas such as fire alarm reporting and other
telemetry applications. However, there can be no assurances that British Telecom
will pursue these opportunities.

     The Company has had a long standing relationship with British Telecom.
British Telecom purchases Message Switches and Scanners from the Company to
expand its RedCARE alarm reporting service. The 


                                       19

<PAGE>


Company is a party to an agreement with British Telecom that establishes the
terms of purchase for Derived Channel System network equipment. Under the
agreement British Telecom is required to provide a rolling forecast of the
quantity of network equipment likely to be ordered during specific periods, but
is not required to order any minimum amount of such equipment. This agreement
expires in August 1999. A prior agreement with British Telecom has also been
extended to cover certain additional network equipment.

     Direct sales to British Telecom for the fiscal years ended October 31, 1998
and 1997, were approximately (pound)2.9 million in each year. Direct sales to
British Telecom accounted for approximately 19.4% and 16.4% of the Company's net
sales for the fiscal years ended October 31, 1998 and 1997, respectively.

     British Telecom is the primary marketer of RedCARE service to its
customers. In addition, several major insurance companies in the United Kingdom
have required the use of an alarm reporting service, such as the RedCARE system,
that can detect telephone line disruption, as a condition of policy renewal. As
a result, the Company has not engaged in extensive marketing efforts in the
United Kingdom. Accordingly, the Company has been dependent upon the sales
efforts of British Telecom to attract RedCARE subscribers and the resulting
network equipment and STU sales. Approximately 49.5% of Derived Channel Systems
sales over the last four fiscal years represented sales to British Telecom. STU
sales to alarm systems distributors and installers for use with the RedCARE
system and all sales in the United States by DCX Systems accounted for
substantially all of the balance.

The United States Security Market for the Derived Channel System

     The Company believes the United States market represents an opportunity for
its Derived Channel System for use in alarm reporting services and other
applications. According to industry sources as of December 1997, more than 24
million alarm systems have been installed in the United States, more than 50% of
which are monitored systems.

     Through its current relationships with Ameritech, Bell Atlantic/NYNEX,
BellSouth, GTE, Pacific Telesis, and U.S. West, Derived Channel Systems have
been installed which now support approximately 60,000 subscribers. The Company
intends to continue working with these Operating Companies, and alarm systems
distributors and installers in the United States for the purposes of maintaining
the existing Derived Channel Systems and increasing the number of subscribers.

     The Company is also developing a presence in the private market sector (non
publicly-switched traffic) serving customers who have control and ownership of
their own telephone facilities (i.e. governmental/military and educational).
This market needs smaller systems and has fewer connection points than the
systems which have been marketed to the major telephone companies.

Other Markets for the Derived Channel System

     The Company has been involved in trial activities for its Derived Channel
System in Canada and has experienced some difficulties. In addition, the market
which the Company had anticipated in Argentina has been slow to develop.

     The Company has scaled back its expectations in both of these markets and,
as a result, has written off certain assets related to transactions in Canada
and Argentina. The Company is continuing to pursue business arrangements in
these and other international markets, but no assurances can be given that these
efforts will be successful.


                                       20

<PAGE>


Competition

     Because of its proprietary nature, management believes that the Company is
the only provider of Derived Channel System 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 System. The
Company believes that Derived Channel represents, from a price performance
perspective, the most secure and most reliable form of primary alarm data
transport.

     While the automatic dialer typically used in an alarm system is less
expensive than the Company's STU, it lacks the ability to communicate when the
telephone line is cut or becomes inoperable. It cannot communicate the existence
of a line problem to an alarm monitoring center and most cannot be polled to
determine the status of the alarm system. In those security applications where
communications integrity and constant monitoring are important, the Company
believes that its Derived Channel System competes effectively both in terms of
price and performance.

Research and Development

     The Company historically has contracted with third parties to conduct,
under the Company's supervision, research and development projects related to
the Derived Channel System. The Company anticipates that an increase in future
research and development expenditures will be necessary to remain competitive in
the rapidly changing telecommunications industry and that more development work
will be done in-house.

     Link Guard. The Company recently completed work on the development of a
means (referred to as Link Guard) of reducing the number of dedicated circuits
required by a Derived Channel Systems services provider to connect deployed
Scanners to a related Message Switch. This project can materially reduce the
operating costs associated with managing a Derived Channel network.

     Serial Data. Traditional alarm systems communicate data in zoned formats.
The Company believes the next generation of alarm systems, and other
applications, will require data to be transmitted in serial formats.
Accordingly, the Company has been adapting all aspects of the Derived Channel
System to accept serial data transmissions in the future.


                                       21

<PAGE>


                           NETWORK MANAGEMENT PRODUCTS

     The Company entered the network management products business in July 1994
with its acquisition of Digilog. Digilog historically designed, manufactured and
marketed products used to test and monitor the performance of data and voice
communication networks. During fiscal 1996, the Company discontinued a number of
under-performing products in this area to focus on NAMS, the Company's
network/fault management product line.

Industry Background

     With the development of smaller and more powerful computers, companies are
becoming increasingly reliant upon networks consisting of multiple personal
computers and work stations, each of which is capable of processing data and
sharing information with other users on the network. Many companies link
computer equipment by means of local area networks or "LANs" or wide area
networks or "WANs." At the same time, to realize greater efficiencies, the
management and maintenance of computer networks has become increasingly
centralized even though the networks may be global in scope. The increased
complexity of networks has created a need for cost-effective network management
software and hardware which can assist companies in the operation of their
networks to minimize network failures and improve efficiency. A network
administrator, typically located at a central site, must be able to effectively
pinpoint a network problem and take appropriate action to keep the network
operating efficiently. The Company offers solutions to these network analysis
and fault management requirements.

Products

     The Company's principal network management products monitor and perform
tests to determine whether data and protocols are being accurately transmitted
and received over WANs. This particular product allows multiple network
administrators remote access to a widely dispersed network from a central
control site. The Company's products are sold either on a stand alone basis or
as integrated systems.

     Network Analysis and Management System (NAMS). The Company's network
management system, is a network overlay that enables a user to monitor the
continuous operation of a WAN from a central control site. The system provides
prompt alarm notification of network failure or degradation, automatic
activation of backup devices or facilities upon failure detection and a means to
accurately identify defective network components. Because WANs often contain
system components from a variety of vendors, NAMS is designed to function with a
variety of manufacturers' products.

Sales and Marketing

     The Company provides its network management products and services to
certain Regional Bell Operating Companies and certain private network operators.
NAMS products are sold by the Company's technically trained direct sales force
which works with customers to determine the optimal testing solution for their
particular network. This initial sales effort usually involves customization of
the NAMS system to match the customer's network design. Considerable technical
support is provided to NAMS users over an extended period of time. The Company
provides training, help desk, installation and project management services to
its customers. For those selling efforts which involve applications of WAN test
products and NAMs as integrated systems, the Company's direct sales force works
in conjunction with the independent sales representatives to facilitate the
sale.


                                       22

<PAGE>


     The Company, in its network management products business, is focusing on
the complex test and analysis needs of emerging large scale public and private
data and voice communication networks. The Company believes that operations of
complex telecommunication networks are migrating to a centralized network
management systems architecture which requires permanently installed test and
analysis products, such as those offered by the Company.

Competition

     The network management products market is highly competitive and is
comprised primarily of providers of either test equipment and software or
providers of intelligent network equipment that come with self-diagnostic
capability. Many of the Company's competitors have substantially greater
resources than the Company. The Company believes that it is unique among vendors
in that it has a long history of being a provider of both diagnostic equipment
and testing systems. The Company also believes that its ability to successfully
integrate both of these technologies enables it to compete effectively in this
marketplace.

                                     GENERAL

Product Warranty and Service

     The Company provides customers with limited one-year warranties on its
scanners and message switch software. In addition, under the terms of the
contract with British Telecom, the Company has agreed to maintain and support
its scanners for a period of up to ten years after the expiration of the
warranty period on a time and materials basis. STUs are typically sold with a
one or two year labor and materials warranty. The Company provides a one-year
warranty on all network management products. In addition, a "help desk" and
training support is offered to all users of network management products. BNI
provides a one-year parts and labor warranty on stand alone products and a
two-year parts and labor warranty on large scale EDCOMM(TM) system. UPLINK and
Cellemetry LLC provide three-year parts and labor warranties on all wireless
radios. To date, the cost to the Company of its warranty program has not been
material.

License Agreements

     The Company has granted a license to Radionics, Inc. ("Radionics"), an
alarm manufacturer/distributor. The license generally permits the licensee to
make, use and sell within prescribed territories, certain products used in the
Derived Channel System. The Radionics agreement provides a non-exclusive license
to sell STUs in the United States and Canada. The license agreement has been
extended to December 31, 1999, and is subject to possible extension thereafter.
Under the license agreement, the Company indemnifies the licensee for certain
circumstances, including allegations of patent infringement. Royalty payments
from these licenses have not been material nor does the Company expect material
royalty payments in the future. In addition, the Company has granted to British
Telecom a non-exclusive, non-transferable and irrevocable license in the United
Kingdom for developed software. Bronzebase, a subsidiary of the Company, is
party to a technology license with Detection Systems, Inc. ("DSI") dated May 7,
1997. Pursuant to the technology license agreement DSI may manufacture STUs,
import STUs into the defined territory (United Kingdom and Ireland) and supply
and offer to supply STUs manufactured by or on behalf of DSI within the
territory. During the initial five year term Bronzebase shall not grant a
license equivalent to the subject license within the territory, provided certain
performance criteria are satisfied. However this does not otherwise restrict
Bronzebase from engaging in the licensed activities. Certain indemnifications
are also provided by the licensee and licensor. See "Item 1. Business - Sales
and Marketing."


                                       23

<PAGE>


Intellectual Property

     The Company holds patents covering primary derived channel technology used
by the Company in systems installed in the United Kingdom, the United States and
various foreign countries. The United Kingdom patent expires October 2002 and
the United States patent expires December 2001. In addition, the Company holds
other patents relating to the Derived Channel System in certain of the foregoing
jurisdictions. The Company also holds patents covering its Cellemetry related
technology in the United States and various foreign countries, which primarily
cover the delivery of the Cellemetry(R) wireless data transport service. These
patents expire between 2007 and 2016. The Company through Cellemetry LLC,
licenses certain cellemetry related technologies under licenses with BellSouth
Corporation. The Company also owns other intellectual property relating to its
products. 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 marks STU(Registered) Subscriber Terminal Unit(Registered), and
Cellemetry(Registered) are registered trademarks of the Company. The Company
believes that no individual trademark or trade name is material to the Company's
competitive position in the industry.

Employees

     The Company currently employs 121 employees (of which 38 are based in the
United Kingdom and 83 in the United States), consisting of 48 in manufacturing
and customer service, 18 in sales and marketing, 33 in engineering and 22 in
management and administration. None of the Company's employees is represented by
a union. The Company believes that its relationship with its employees is
satisfactory.

Regulation

     The Company's products are subject to a variety of standards and
certification requirements applicable to products connected to public telephone
networks in the countries in which it conducts business. For example, in the
United Kingdom, any product that is intended to be connected to the public
switched telephone network requires compliance with certain British standards
and must be approved by the British Approval Board for Telecommunications
("BABT"). Currently, each of the Company's products that requires BABT approval
has received such approval. There are new European Union regulations on
electromagnetic compatibility which took effect in January 1996. The Company's
European wireline products comply with such European Union regulations.
Additionally, it is expected that the European Union will issue compliance
standards for telecommunications equipment in the future.

     The provision of enhanced telecommunications services in the United States
by telephone companies is subject to regulations promulgated by the Federal
Communications Commission (the "FCC") and to restrictions imposed by the United
States District Court for the District of Columbia in its decree divesting the
Bell companies from AT&T Corporation. These regulations and restrictions have
not resulted in any significant impediments to the provision of alarm reporting
services by telephone companies using derived channel technology or for the
delivery of wireless data signals using the Cellemetry(R) network. In addition,
the Company's products, such as STUs, Uplink radios and certain BNI 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 United States which
are subject to these requirements have received all required certifications.


                                       24

<PAGE>


However, anticipated design changes to products sold in the United States will
require compliance testing and certification.

     In addition, in the United States, the Company's products require
certification from Underwriters Laboratories in order to serve monitoring
applications with higher levels of insurance risk. Certain products of BNI also
require certification from Underwriters Laboratories. The Company has obtained
Underwriters Laboratories certifications for all products currently marketed in
the United States and expects that future certifications will be obtained 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.


                                       25

<PAGE>


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:

<TABLE>
<CAPTION>

Location                   Principal Business                 Square Footage         Lease Term
--------                   ------------------                 --------------         ----------
<S>                        <C>                                     <C>                 <C>
Farnborough, England       Derived Channel System                  14,000              2006(1)
Willow Grove,              Network Management                      10,000              2000
Pennsylvania               Products and Derived
                           Channel System

State College,             Broadband Technologies                  13,845              2000
Pennsylvania

West Conshohocken          Executive Office (2)                     2,815              2002
Pennsylvania

Atlanta, Georgia           Wireless Products                       14,027              2003
                           and Principal Executive Office

Atlanta, Georgia           Wireless Products                       12,268              2002
</TABLE>

-----------------
(1)  Assumes the exercise of any renewal options.
(2)  Executive office prior to relocation to Atlanta.

     The Company conducts manufacturing, sales and marketing, engineering and
administrative activities at many of these locations. The Company's total annual
rent expense for the year ended October 31, 1998 was approximately
(pound)377,000. 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 will require additional space which the Company
believes will be available at reasonable rates.

     The Company engages in limited manufacturing for certain Derived Channel
System network equipment and STUs and certain broadband communications products
and final equipment 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 semi conductors, 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 the financial
condition or results of operations of the Company.

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

     None.


                                       26

<PAGE>


Item 4.1 Certain Executive Officers and Key Employees of the Registrant.

     Set forth below is certain information concerning the executive officers
and key employees of the Company who are not also directors.

      Name            Age      Position

Charles L. McNew..... 46       Vice President, Chief Operating Officer and
                                  Chief Financial Officer

     Charles L. McNew has been Vice President and Chief Financial Officer of the
Company since July 1994 and has been Chief Operating Officer since July, 1998.
Mr. McNew served as Vice President -- Finance, Chief Financial Officer and
Treasurer of InterDigital Communications Corporation, a company engaged in the
development of advanced digital wireless telecommunications systems, from June
1993 to July 1994. From March 1990 to May 1993, Mr. McNew served as the Chief
Financial Officer of International Computaprint Corporation, a company engaged
in electronic publishing. From 1982 to 1990, Mr. McNew held various positions
with the Digilog Division of CXR Telecom Corporation, or its predecessor, most
recently as Vice President and Chief Financial Officer.

                                     PART II

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

     During fiscal 1996 three quarterly cash dividends on its Common Stock of
$.05 per share each were declared and paid. In September 1996, the Board of
Directors discontinued this cash dividend. 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 Operating Agreement between the Company and BellSouth Wireless, Inc.
provides for certain restrictions on distributions by Cellemetry LLC.

     The Company's Common Stock is included in the Nasdaq National Market 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 1998                                                 High           Low
-----------                                                 ----           ---

First Quarter (November 1, 1997 to January 31, 1998)       $ 7.50        $ 5.69
Second Quarter (February 1, 1998 to April 30, 1998)          7.38          5.13
Third Quarter (May 1, 1998 to July 31, 1998)                 6.88          4.13
Fourth Quarter (August 1, 1998 to October 31, 1998)          4.38          2.56


Fiscal 1997                                                 High           Low
-----------                                                 ----           ---

First Quarter (November 1, 1996 to January 31, 1997)       $ 4.75        $ 3.39
Second Quarter (February 1, 1997 to April 30, 1997)          5.13          3.65
Third Quarter (May 1, 1997 to July 31, 1997)                 6.80          4.06
Fourth Quarter (August 1, 1997 to October 31, 1997)          9.25          6.50


                                       27

<PAGE>


     As of January 15, 1999 there were 62 shareholders of record of the
Company's Common Stock which include shares held in street name by brokers or
nominees.

Recent Sales of Unregistered Securities

     In September, 1998, the Company entered into an engagement letter with
Raymond James & Associates ("Raymond James"), whereby Raymond James agreed to
provide certain investment banking services to the Company. As part of the
consideration, the Company issued to Raymond James a warrant to purchase 100,000
shares of class A common stock at an exercise price of $2.75, per share. The
term of the warrants is five years. These warrants were issued pursuant to an
exemption from registration pursuant to Section 4(2) under the Securities Act of
1933.

Item 6. Selected Financial Data.

     Incorporated by reference from page 4 of the Company's 1998 Annual Report
to Shareholders, pursuant to General Instruction G(2) to Form 10-K.

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

     Incorporated by reference from pages 5-13 of the Company's 1998 Annual
Report to Shareholders to be filed pursuant to General Instruction G(2) to Form
10-K.

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

     N/A

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 at Item 14(a).

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

     None.


                                       28

<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     Incorporated by reference from the Company's Proxy Statement relating to
the 1999 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G(3) to Form 10-K, except information concerning certain executive
officers of the Company which is set forth in Item 4.1 hereof.

Item 11. Executive Compensation.

     Incorporated by reference from the Company's Proxy Statement relating to
the 1999 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G(3) to Form 10-K.

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

     Incorporated by reference from the Company's Proxy Statement relating to
the 1999 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G(3) to Form 10-K.

Item 13. Certain Relationships and Related Transactions.

     Incorporated by reference from the Company's Proxy Statement relating to
the 1999 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G(3) to Form 10-K.

                                     PART IV

Item 14. 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.

Consolidated Financial Statements of the Company

          Independent Auditors' Report

          Consolidated Balance Sheets at October 31, 1998 and 1997

          Consolidated Statements of Operations for the years ended October 31,
          1998, 1997 and 1996

          Consolidated Statements of Shareholders' Equity for the years ended
          October 31, 1998, 1997 and 1996

          Consolidated Statements of Cash Flows for the years ended October 31,
          1998, 1997 and 1996

          Notes to Consolidated Financial Statements


                                       29

<PAGE>


         2. Financial Statement Schedules

               Schedule I - Condensed financial information of registrant
               (parent company only)

               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:

          2.1(1)    Agreement of Stock Exchange dated November 3, 1993 among the
                    stockholders of Bronzebase and NumereX

          2.2(6)    Agreement and Plan of Merger dated as of March 8, 1994
                    between NumereX Corp., a New York corporation, and NumereX
                    Corp., a Pennsylvania corporation

          2.3(2)    Intentionally Left Blank


          2.4(3)    Asset Purchase Agreement dated July 20, 1994 among CXR
                    Corporation, CXR Telecom Corporation and the Company related
                    to the purchase of certain assets of the Digilog division

          2.5(4)    Asset Purchase Agreement dated November 30, 1994 between
                    Versus Technology Inc. and the Company

          2.6(10)   Securities Purchase Agreement among NumereX Corp., Broadband
                    Networks, Inc. and the Shareholders of Broadband Networks,
                    Inc. dated February 21, 1997

          2.7(9)    Shareholders' Agreement among Broadband Networks, Inc.,
                    NumereX Corp. and the Shareholders of Broadband Networks,
                    Inc. dated February 21, 1997

          2.8(9)    Stock Purchase Agreement between Detection Systems, Inc. and
                    NumereX Corp., dated May 7, 1997

          2.9(9)    Stock Purchase Agreement among NumereX Corp., Uplink
                    Security, Inc. and certain shareholders of UPLINK Security,
                    Inc., dated July 16, 1997

          2.10(9)   Shareholders' Agreement among Uplink Security, Inc., NumereX
                    Corp., and certain shareholders of UPLINK Security, Inc.
                    dated July 16, 1997

          2.11(9)   Loan and Security Agreement between NumereX Corp. and UPLINK
                    Security, Inc. dated July 16, 1997.

          3.1(7)    Amended and Restated Articles of Incorporation of the
                    Company, as amended

          3.2(7)    Bylaws of the Company

          10.1(1)   Purchase Agreement between Versus Technology U.K. and
                    Bronzebase Limited dated July 13, 1992

          10.2(1)   Employment Agreement between Kenneth F. Manser and Versus
                    Technology U.K. (Management Compensation Contract)


                                       30

<PAGE>


          10.4(7)   Amendment to License Agreement between Base Ten Systems,
                    Inc. and Radionics, dated February 28, 1989

          10.5(1)   Assignment and Assumption Agreement between Versus
                    Technology, Incorporated and Bronzebase, dated August 19,
                    1993 regarding Radionics

          10.6(1)   Agreement between British Telecom, Base Ten Systems Limited,
                    Versus Technology U.K., Versus Technology, Incorporated and
                    Base Ten Systems Inc. dated December 17, 1990 regarding
                    Telecom RedCARE Network

          10.7(7)   Agreement between British Telecom and Versus Technology U.K.
                    dated September 26, 1995 relating to the supply of RedCARE
                    system products (certain confidential information contained
                    in this Agreement was omitted pursuant to Rule 24b-2 and was
                    filed separately with the Securities and Exchange
                    Commission)

          10.8(1)   Versus Technology U.K. Pension and Death Benefit Scheme
                    (Management Compensation Plan)

          10.9(7)   The Numerex Corp. Savings and Profit Sharing Plan -- Summary
                    Plan Description (Management Compensation Plan)

          10.10(8)  Amended and Restated 1994 Employee Stock Option Plan
                    (Management Compensation Plan)

          10.11(6)  Amended and Restated Stock Option Plan for Non-Employee
                    Directors (Management Compensation Plan)

          10.12(2)  Registration Agreement between the Company and Dominion
                    dated July 13, 1992


          10.14(6)  Letter Agreement between the Company and Dominion (now
                    Gwynedd) dated October 25, 1994 re: designation of director

          10.15(8)  Employment Agreement between the Company and John J. Reis,
                    as amended (Management Compensation Contract)

          10.16(7)  Agreement for the Provision of Software and Services between
                    British Telecom and Versus Technology U.K. dated September
                    7, 1995

          10.17(7)  Office Space Lease Agreement between the Company and LBA
                    Associates dated May 31, 1995.

          10.18(8)  Severance Agreement between the Company and Frederick C.
                    Shay (Management Compensation Contract)

          10.19     Employment Agreement between the Company and Charles L.
                    McNew dated July 15, 1998 (Management Compensation Contract)

          10.20     Incentive Compensation Program for fiscal 1999. (Management
                    Compensation Plan)


                                       31

<PAGE>


          10.21(8)  Letter Amendment dated September 24, 1996 to Agreement
                    between British Telecom and Versus Technology U.K. dated
                    September 26, 1995

          10.22(8)  Agreement between Dominion and the Company relating to
                    CellTel Data Services, Inc., dated October 15, 1996

          10.23(9)  Loan Agreement, dated February 12, 1997, between NumereX
                    Corp. and certain of its United States subsidiaries, and PNC
                    Bank, National Association, regarding $10,000,000
                    Convertible Line of Credit as amended on July 1, 1997

          10.24(9)  Technology License between Bronzebase Limited and Detection
                    Systems, Inc., dated May 7, 1997

          10.25(9)  Agreement between British Telecom and Versus Technology U.K.
                    dated August 7, 1997 relating to the supply of RedCARE
                    system products (certain confidential information contained
                    in this Agreement was omitted pursuant to Rule 24b-2 and was
                    filed separately with the Securities and Exchange
                    Commission)

          10.26     Consulting Agreement between the Company and John J. Reis
                    dated July 7, 1998 (Management Compensation)

          10.27(12) Formation Agreement among NumereX Corp., BellSouth Wireless,
                    Inc. and BellSouth Corporation dated February 25, 1998.

          10.28(13) Operating Agreement between NumereX Corp. and BellSouth
                    Wireless, Inc. dated May 15, 1998.

          11        Computation of Earnings per share

          13        Pursuant to Note 2 of Instruction G(2) to Form 10-K, in
                    response to Item 6. Selected Financial Data, "Selected
                    Consolidated Financial Data" set forth on page 10 of the
                    Company's 1998 Annual Report to Shareholders, 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" set forth on pages - of the Company's 1998
                    Annual Report to Shareholders are being filed in electronic
                    format. No other sections of the Company's 1998 Annual
                    Report to Shareholders shall be deemed "filed" as part of
                    this filing

          21        Subsidiaries of NumereX Corp.

          23        Consent of Deloitte & Touche LLP

          27        Financial Data Schedule (electronic filing only)


                                       32

<PAGE>


------------------

 (1)   Incorporated by reference to the Exhibits filed with the Company's Form
       10 Registration Statement and Amendments No. 1 and No. 2 thereto (File
       No. 0-22920)

 (2)   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)

 (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 July 25, 1994 (File No. 0-22920)

 (4)   Incorporated by reference to the Exhibits filed with the Company's
       Current Report on Form 8-K filed with the Securities and Exchange
       Commission on December 6, 1994 (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 for
       the year ended October 31, 1994 (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 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)

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

 (9)   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, 1997 (File No. 0-22920)


(10)   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 7, 1997 (File No. 0-22920)

(11)   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, 1998 (File No. 0-22920)

(12)   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 25, 1998 (File No. 0-22920)


                                       33

<PAGE>


(13)   Pursuant to Note 2 of Instruction (G)(2) to Form 10-K, in response to
       Item 6. Selected Financial Data, "Selected Consolidated Financial Data"
       set forth on page 10 of the Company's 1998 Annual Report to Shareholders,
       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" set forth
       on pages 5-13 of the Company's 1998 Annual Report to Shareholders are
       being filed in electronic format. No other sections of the Company's 1998
       Annual Report to Shareholders shall be deemed "filed" as part of this
       filing.

(b) Reports on Form 8-K.

     None


                                       34

<PAGE>


                                   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: January 28, 1999               By: /s/ Gordon T. Ray
                                         ------------------------------------
                                         Gordon T. Ray, Chairman, President 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/ Kenneth F. Manser          Director                        January 28, 1999
------------------------
Kenneth F. Manser


/s/ Charles L. McNew           Vice President, Chief           January 28, 1999
------------------------       Operating Officer and Chief
Charles L. McNew               Financial Officer (principal
                               financial officer and principal
                               accounting officer)


/s/ George Benson              Director                        January 28, 1999
------------------------
George Benson


/s/ Matthew J. Flanigan        Director                        January 28, 1999
------------------------
Matthew J. Flanigan


/s/ Andrew J. Ryan             Director                        January 28, 1999
------------------------
Andrew J. Ryan


/s/ Frederick C. Shay          Director                        January 28, 1999
------------------------
Frederick C. Shay


                                       35

<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


Consolidated Financial Statements of the Company:

     Independent Auditors' Report                                           F-2

     Consolidated Balance Sheets as of October 31, 1998 and 1997            F-3

     Consolidated Statements of Operations for the Years Ended
        October 31, 1998, 1997 and 1996                                     F-4

     Consolidated Statements of Shareholders' Equity for the
        Years Ended October 31, 1998, 1997 and 1996                         F-5

     Consolidated Statements of Cash Flows for the Years Ended
        October 31, 1998, 1997 and 1996                                     F-6

     Notes to Consolidated Financial Statements                             F-7


                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Numerex Corp.
and subsidiaries (the "Company") as of October 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended October 31, 1998, all
expressed in pounds sterling. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements, expressed in pounds
sterling, present fairly, in all material respects, the consolidated financial
position of Numerex Corp. and subsidiaries at October 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1998 in conformity with generally accepted
accounting principles.



/s/ Deloitte & Touche LLP
----------------------------
Deloitte & Touche LLP


Philadelphia, Pennsylvania
December 16, 1998, except for Note 16,
  as to which the date is January 8, 1999


                                      F-2

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
                                                                        U.S.$
                                                                      Equivalent
                                                                       (Note 2)                   October 31,
                                                                     October 31,       --------------------------------
ASSETS                                                                   1998                  1998              1997
<S>                                                                   <C>              <C>                <C>    
CURRENT ASSETS:
  Cash and cash equivalents                                             $18,800        (pound)11,365      (pound)15,626
  Accounts receivable (net of allowances of (pound)195 in
     1998 and (pound)34 in 1997)                                          5,237                3,166              3,690
  Inventory                                                               4,253                2,571              2,929
  Prepaid taxes                                                           1,320                  798              1,250
  Prepaid expenses                                                          662                  400                251
                                                                        -------               ------             ------
         Total current assets                                            30,272               18,300             23,746
  Property and equipment, net                                             2,873                1,737              1,092
  Goodwill, net                                                           8,807                5,324              3,599
  Intangible assets, net                                                 12,125                7,330              1,892
  Other assets                                                              406                  245              2,180
                                                                        -------               ------             ------
TOTAL ASSETS                                                            $54,483        (pound)32,936      (pound)32,509
                                                                        =======               ======             ======

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term debt                                                      $  6,000       (pound)  3,627                 --
  Accounts payable                                                        2,172                1,313     (pound)  1,518
  Income taxes                                                              673                  407                430
  Accrued taxes other than income                                           151                   91                 53
  Other accrued liabilities                                               3,545                2,143                786
                                                                        -------               ------             ------
         Total current liabilities                                       12,541                7,581              2,787
                                                                        -------               ------             ------
LONG-TERM DEBT                                                               --                   --              2,688

MINORITY INTEREST                                                         9,771                5,907                 --

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Preferred stock--no par value; authorized
     3,000,000 shares; none issued
  Class A common stock--no par value; authorized
     30,000,000 shares; issued 11,609,492 and
     11,597,492 shares                                                   30,374               18,362             18,321
  Class B common stock--no par value; authorized
     5,000,000 shares; none issued
  Additional paid-in capital                                                220                  133                 --
  Treasury stock, at cost, 1,034,900 and 684,900 shares                  (4,557)              (2,755)            (1,921)
  Cumulative translation adjustments                                       (809)                (489)              (308)
  Retained earnings                                                       6,943                4,197             10,942
                                                                        -------               ------             ------
         Total shareholders' equity                                      32,171               19,448             27,034
                                                                        -------               ------             ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $54,483        (pound)32,936      (pound)32,509
                                                                        =======               ======             ======
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       F-3

<PAGE>

                                                            
NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                           
                                                                U.S.$  
                                                             Equivalent
                                                              (Note 2)                   Year Ended October 31,
                                                            October 31,         ---------------------------------------
                                                                1998             1998             1997           1996
<S>                                                         <C>          <C>              <C>            <C>    
Net sales                                                     $25,129     (pound)15,191    (pound)17,676  (pound)18,192
Cost of sales                                                 (12,234)           (7,396)          (8,830)        (9,961)
Inventory write-downs                                          (2,192)           (1,325)              --         (1,473)
                                                              -------           -------         --------       --------
Gross profit                                                   10,703             6,470            8,846          6,758
Selling, general, administrative and other
   expenses(including fees and other expenses
   of (pound)26 in 1997 and (pound)212 in 1996
   to the principal shareholder)                              (20,378)          (12,319)          (7,496)        (7,716)
Special charges                                                (1,591)             (962)              --         (2,721)
                                                              -------           -------         --------       --------
Operating profit (loss)                                       (11,266)           (6,811)           1,350         (3,679)
Interest and other income, net                                  1,070               647            1,513          1,069
Equity in net losses of affiliate                                (420)             (254)              --             --
Minority interest                                                 733               443               --             --
                                                              -------           -------         --------       --------
Income (loss) before income taxes                              (9,883)           (5,975)           2,863         (2,610)
Income taxes                                                    1,274               770              676            995
                                                              -------           -------         --------       --------
Net income (loss)                                            ($11,157)    (pound)(6,745)    (pound)2,187  (pound)(3,605)
                                                              =======           =======         ========       ========
Basic and diluted
 earnings (loss) per share                                  $   (1.03)   (pound)  (0.62)    (pound) 0.20  (pound) (0.31)
                                                              =======           =======         ========       ========
Number of shares used in per share calculation:
   Basic                                                       10,818            10,818           11,077         11,532
                                                              =======           =======         ========       ========
   Diluted                                                     10,818            10,818           11,139         11,532
                                                              =======           =======         ========       ========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      F-4


<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                          Common Stock        Additional                 Cumulative
                                      ------------------       Paid-in      Treasury     Translation    Retained
                                      Shares      Amount       Capital        Stock      Adjustment     Earnings          Total
<S>                                  <C>     <C>            <C>           <C>           <C>            <C>            <C>

BALANCE, OCTOBER 31, 1995             11,597  (pound)18,321    (pound)--   (pound)   --    (pound)277  (pound)13,478  (pound)32,076
Purchase of treasury stock                --             --           --           (848)           --             --           (848)
Translation adjustment                    --             --           --             --          (205)            --           (205)
Cash dividends                            --             --           --             --            --         (1,118)        (1,118)
Net loss                                  --             --           --             --            --         (3,605)        (3,605)
                                      ------         ------       ------         ------        ------         ------        -------
BALANCE, OCTOBER 31, 1996             11,597  (pound)18,321    (pound)--    (pound)(848)    (pound)72   (pound)8,755  (pound)26,300
Purchase of treasury stock                --             --           --         (1,073)           --             --         (1,073)
Translation adjustment                    --             --           --             --          (380)            --           (380)
Net income                                --             --           --             --            --          2,187          2,187
                                      ------         ------       ------         ------        ------         ------        -------
BALANCE, OCTOBER 31, 1997             11,597  (pound)18,321    (pound)--   (pound)(1,921) (pound)(308) (pound)10,942  (pound)27,034
Issuance of shares in connection   
   with the exercise of stock options     12             41           --             --            --             --             41
Issuance of common stock warrants         --             --          133             --            --             --            133
Purchase of treasury stock                --             --           --           (834)           --             --           (834)
Translation adjustment                    --             --           --             --          (181)            --           (181)
Net loss                                  --             --           --             --            --         (6,745)        (6,745)
                                      ------         ------      -------         ------        ------         ------        -------
BALANCE, OCTOBER 31, 1998             11,609  (pound)18,362   (pound)133  (pound)(2,755)  (pound)(489)  (pound)4,197  (pound)19,448
U.S. $ EQUIVALENT (Note 2),
   OCTOBER 31, 1998                     N.A.        $30,374         $220        $(4,557)        $(809)        $6,943        $32,171
                                      ======        =======         ====        =======         =====         ======        =======
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      F-5

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                  U.S.$  
                                                               Equivalent
                                                                (Note 2)                   Year Ended October 31,
                                                              October 31,  -----------------------------------------------
                                                                  1998             1998             1997           1996
<S>                                                          <C>          <C>              <C>             <C>   

OPERATING ACTIVITIES:
  Net income (loss)                                            ($11,157)    (pound)(6,745)    (pound)2,187   (pound)(3,605)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
     Depreciation                                                   725               438              632             583
     Amortization                                                 2,215             1,339              654             766
     Special charges                                              1,146               693               --           1,624
     Minority interest                                             (733)             (443)              --              --
     Equity in net losses of affiliate                              420               254               --              --
     Disposition of business                                         --                --             (672)             --
     Changes in assets and liabilities which
        provided (used) cash:
        Accounts receivable                                       1,360               822             (353)            435
        Inventory                                                   682               412             (584)          2,126
        Prepaid expenses                                            501               303              (62)           (131)
        Accounts payable                                           (883)             (534)             887            (120)
        Income taxes                                                (38)              (23)          (1,063)         (2,127)
        Accrued taxes other than income                              63                38             (305)           (168)
        Other accrued liabilities                                 2,230             1,349           (1,007)            820
                                                               --------           -------         --------        --------
         Net cash provided by (used in) operating activities     (3,469)           (2,097)             314             203
                                                               --------           -------         --------        --------
INVESTING ACTIVITIES:
  Proceeds from disposition of business                              --                --            2,300              --
  Purchase of property and equipment                               (913)             (552)            (337)           (559)
  Purchase of intangible and other assets                          (675)             (408)          (1,189)         (1,006)
  Acquisitions of businesses, net of cash                        (1,461)             (883)          (3,547)             --
  Investment in business                                           (794)             (480)          (1,260)             --
                                                               --------           -------         --------        --------
         Net cash used in investing activities                   (3,843)           (2,323)          (4,033)         (1,565)
                                                               --------           -------         --------        --------
FINANCING ACTIVITIES:
  Net reduction in short-term borrowings                             --                --             (397)             --
  Proceeds from revolving credit facility                         1,500               907            2,688              --
  Proceeds from exercise of stock options                            68                41               --              --
  Cash dividends paid                                                --                --               --          (1,118)
  Purchase of treasury stock                                     (1,380)             (834)          (1,073)           (848)
                                                               --------           -------         --------        --------
         Net cash provided by (used in) financing activities        188               114            1,218          (1,966)
                                                               --------           -------         --------        --------
EFFECT OF EXCHANGE DIFFERENCES ON CASH                               75                45             (332)           (484)
                                                               --------           -------         --------        --------
NET DECREASE IN CASH
   AND CASH EQUIVALENTS                                          (7,049)           (4,261)          (2,833)         (3,812)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     25,849            15,626           18,459          22,271
                                                               --------           -------         --------        --------
CASH AND CASH EQUIVALENTS, END OF YEAR                          $18,800     (pound)11,365    (pound)15,626   (pound)18,459
                                                               ========           =======         ========        ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
  Cash Payments for:
  Interest                                                     $    367     (pound)   222    (pound)   122   (pound)    10
  Income Taxes                                                      698               422            2,584           2,859
</TABLE>



                 See Notes to Consolidated Financial Statements.


                                      F-6

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

1.    NATURE OF BUSINESS

Numerex Corp. and its subsidiaries (the "Company") is a telecommunications
company comprised of business entities providing an array of information
transport products and services. These technologies enable customers to monitor
and move information for a variety of applications ranging from home and
business security to distance learning. The Company offers products and services
in wireline (Derived Channel Systems), broadband (fiber optics and EDCOMM(TM)),
and wireless communications (Cellemetry(R)). Additionally, the Company
provides network management systems to operating telephone companies. The
Company's operating subsidiaries are located in North America and the United
Kingdom.


2.    SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES

      Currency - These consolidated financial statements are stated in British
pounds sterling, the functional currency of the country in which the majority of
the Company's sales have historically been generated.

      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. All material intercompany transactions,
balances and profits are eliminated in consolidation.

     Cash and Cash Equivalents - The Company considers all highly liquid
investments with maturities of three months or less when purchased as cash
equivalents.

     Intangible Assets - Amortization is provided on all intangible assets at
rates calculated to write off the cost of each over its expected life as
follows:

     o Patents and acquired intellectual property straight-line over 7 to 16
       years (the remaining useful life of patents acquired)

     o Developed software straight-line over 3 years 

     o Goodwill straight-line over 12 to 20 years

      Goodwill represents the excess of the cost of net assets acquired over
fair value.

      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
establishment of technical feasibility are expensed as incurred.

      Property and Equipment - Property and equipment is recorded at cost and is
depreciated or amortized over the estimated useful lives of the assets. The
rates of depreciation and amortization are as follows:

      o   Short-term leasehold improvements over the term of the lease (which is
          less than the asset life, ranging from 3 to 10 years).

      o   Plant and machinery 4 to 10 years

      o   Equipment, fixtures and fittings 3 to 10 years

     Asset Impairment - 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.

      Inventory - Inventory and work-in-progress are stated at the lower of cost
(first-in, first-out method) or market. Cost includes materials, direct labor
and production overheads appropriate to the relevant state of production.

      Income Taxes - Deferred income taxes are provided on temporary differences
arising from the different treatment of items for financial statement and
taxation purposes, which are expected to reverse in the future, calculated using
enacted tax rates.

                                      F-7

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------


     The Company provides deferred federal income taxes on the undistributed
earnings of its United Kingdom subsidiaries since such earnings are expected to
be remitted to the Company in the foreseeable future.

     Fair Value of Financial Instruments - The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, accounts receivable
and accounts payable approximate their fair value because of the immediate or
short-term maturity of these financial instruments.

     As more fully described in Note 9, under its revolving credit facility, the
Company incurs interest at variable rates based upon market conditions (i.e.,
based upon the LIBOR rate). Accordingly, the carrying amount of debt is a
reasonable estimate of its fair value.

     The Company's investment in a privately held company is stated at cost,
adjusted for any known diminution in value.

     Revenue Recognition - The Company recognizes revenue on the basis of the
utilization of its technology by its customers and on sales of its products when
title transfers to its customers. Revenue for royalty agreements is recorded as
sales when earned.

     The Company performed certain software development services under contract
for a significant customer during 1996. No such services were performed during
1997 and 1998. Revenue from the fixed-price contract was recognized on the
percentage of completion method which was measured by the percentage of costs
incurred to date to the estimated total costs for the contract. Service contract
costs consisted primarily of outside consultant and software engineering fees.
Through October 31, 1996, cumulative costs of (pound)2,110,000, revenues of
(pound)3,360,000 and billings of (pound)3,360,000 had been recorded under the
contract. 


     Foreign Currency Transactions - Some transactions of the Company and its
subsidiaries are made in U.S. dollars. (Gains) and losses from these
transactions are included in income as they occur. 

     Research and Development - Research and development expenses are charged to
operations in the period in which they are incurred. Research and development
expenses amounted to (pound)1,874,000, (pound)1,670,000 and (pound)1,128,000, in
1998, 1997 and 1996, respectively.

     Provision for Warranty Claims - Estimated warranty expense is charged at
the time of sale of the warranted products. Warranty expenses have not been
significant to the Company.

     Estimates - 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
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 may likely differ from those estimates and
assumptions, and such differences, if any, are not expected to be significant.

     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 13).

                                      F-8

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

     Earnings (Loss) Per Share - In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, Earnings Per Share. 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 income by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings 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.

     SFAS No. 128 is effective for interim and annual financial reporting
periods ending after December 15, 1997, and early adoption was not permitted.
Effective with the first quarter ended January 31, 1998, the Company adopted
SFAS No. 128. The Company has computed its earnings per share in accordance with
SFAS No. 128 for the year ended October 31, 1998 and has restated 1997 and 1996
earnings per share information on a comparable basis, with no material
differences.

     For the years ended October 31, 1998 and 1996, the Company's potential
common shares have an anti-dilutive effect on earnings 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 per share were 1,206,713, 748,
450 and 373,450 for the years ended October 31, 1998, 1997 and 1996
respectively.

     Recent Accounting Pronouncements - In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income. This statement, which establishes standards
for reporting and disclosure of comprehensive income, is effective for interim
and annual periods beginning after December 15, 1997, although earlier adoption
is permitted. Reclassification of financial information for earlier periods
presented for comparative periods is required under SFAS No 130. As this
statement only requires additional disclosures in the Company's consolidated
financial statements, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company expects to
adopt SFAS No. 130 effective November 1, 1998.

     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after December 15,
1997, although earlier application is permitted. Reclassification of segment
information for earlier periods presented for comparative periods is required
under SFAS No. 131. The Company is evaluating whether the adoption of this
statement will result in any changes to its presentation of financial
information for interim and annual periods in fiscal 1999.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts collectively referred to as derivatives,
and for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those statements at fair value. This statement is effective for fiscal
years beginning after June 15, 1999, although early adoption is encouraged. The
Company is evaluating the effect that the adoption of SFAS No. 133 will have on
its consolidated financial position or results of operation.

                                      F-9

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

     U.S. Dollar Equivalent Financial Information - The translation to U.S.
dollars as of and for the year ended October 31, 1998 is for convenience only
and was based on the noon buying rate in New York City for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York as of
October 30, 1998, the last trading day during the Company's year ended October
31, 1998. This rate was $1.6542 to (pound)1.00. This translation should not be
construed as a representation that the (pound)1.00 sterling amounts actually
represented, have been, or could be, converted into dollars at this or any other
rate. 

     Reclassification - Certain prior year amounts have been reclassified to
conform with the current year presentation.


3.   INVESTMENTS AND DIVESTITURES

On May 15, 1998, the Company, BellSouth Wireless, Inc. ("BellSouth Wireless")
and BellSouth Corporation completed a transaction whereby Cellemetry LLC
("Cellemetry") a joint venture between Numerex and BellSouth Wireless, was
formed. Cellemetry, a Delaware limited liability company, is owned 60% by
Numerex and 40% by BellSouth Wireless. The parties have entered into an
operating agreement (the "Operating Agreement") which deals with, among other
things, the conduct of the business of Cellemetry. Pursuant to the Operating
Agreement, the Company will make cash contributions of up to $15.5 million
during the first two years of Cellemetry's operations. According to the
Operating Agreement, at the end of the three years if certain revenue targets
have been met by Cellemetry no additional contribution from the Company will be
required. However, if, at the end of three years, the revenue targets are not
met, the Company is required to make an additional $3.75 million cash
contribution or contribute certain equity interests it has in Uplink. Also,
according to the Operating Agreement, Cellemetry must achieve certain specific
cumulative revenue and operating goals by the third anniversary of the formation
date. If these performance goals are not met, the Company may, at its sole
option, elect that BellSouth put its ownership interest in Cellemetry to the
Company for $15.33 million, plus interest at a 13% annual compound rate or begin
a process to dissolve Cellemetry which would include a transfer of the initially
contributed intellectual property to BellSouth. In addition, the Operating
Agreement provides certain restrictions as to distributions and the right to
transfer ownership interests in Cellemetry. Cellemetry has elected to be taxed
as a partnership for federal, state and foreign income tax purposes.
     
     The Company has recorded the assets contributed by BellSouth to Cellemetry
at fair value on the date of contribution. 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. The fair
value of the patents contributed to Cellemetry was $10,603,000 which is being
amortized over their remaining life of 16 years. In addition, BellSouth
contributed property and equipment to Cellemetry valued at $285,000. At October
31, 1998 Cellemetry's net assets, included in the accompanying 1998 consolidated
financial statements, were $13.5 million. In accordance with a schedule of
capital contribution, the Company contributed cash totaling $5,500,000 to
Cellemetry out of a total cash commitment of $15,500,000. The balance of the
Company's capital contribution is required to be funded as follows: $8.0 million
in fiscal 1999 and $2.0 million in fiscal 2000.

                                      F-10

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

     On July 17, 1997, the Company invested (pound)605,000 ($1,000,000) in
return for 19.5% of the common stock of UPLINK Security, Inc. Various options
contained in the agreements provided the Company a means of acquiring a
controlling interest in UPLINK. On May 18, 1998, the Company acquired an
additional 78,795 shares of UPLINK Security, Inc. from certain existing
shareholders for approximately (pound)873,000 ($1,444,000) including 89,763
Numerex common stock warrants with a strike price of $6.00. This stock purchase
increased the Company's ownership interest in UPLINK to 85%.

     As a result of the acquisition of a controlling interest in UPLINK, the
Company is required under generally accepted accounting principles to restate
its investment in UPLINK from the cost method to the equity method for the first
and second quarters of fiscal year ending October 31, 1998. The effect of the
restatement, which is included in the line item equity in net losses of
affiliate in the Condensed Consolidated Statement of Operations for the fiscal
year ending October 31, 1998 was (pound)236,000 ($390,000). The financial
statement effect of the change in method on periods prior to fiscal 1998 was not
significant.

     The purchase price of UPLINK was allocated to the assets purchased and the
liabilities assumed based upon their fair values at the date of acquisition. The
excess of the purchase price over the fair values of the net assets acquired was
recorded as goodwill, and is amortized on a straight-line basis over 20 years.

     In February 1997, the Company acquired 100% of the outstanding common stock
of Broadband Networks, Inc. ("BNI") for approximately (pound)3,547,000
($5,867,000). The acquisition was accounted for using the purchase method of
accounting. In addition, the Company invested (pound)1,000,000 ($1,654,000)
directly into BNI for working capital purposes. Certain employees of BNI will
continue to hold BNI incentive stock options which, upon exercise, would entitle
them to own approximately 18% of BNI's currently outstanding common shares. Such
options become exercisable in 2001 and, upon exercise, the Company has certain
rights, but is not obligated to purchase the shares.

     The purchase price of BNI was allocated to the assets purchased and the
liabilities assumed based upon their fair values at the date of acquisition. The
excess of the purchase price over the fair values of the net assets acquired was
recorded as goodwill and is amortized on a straight-line basis over 20 years.

     The following summarized unaudited pro forma information for the years
ended October 31, 1998 and 1997 has been presented as if the BNI and UPLINK
acquisitions had occurred on November 1, 1996. The unaudited pro forma
information is based on historical results of operations adjusted for
acquisition costs and has been prepared for comparative purposes only. This
un-audited pro forma information does not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
been made on the date indicated or which may result in the future.

                                          October 31,
                                       ------------------
                                       1998          1997
                                         (In thousands)
Revenues                          (pound)15,630    (pound)18,430
Operating profit (loss)                  (7,536)             906
Net income (loss)                        (7,522)           1,390
Earnings (loss) per share                 (0.70)            0.13

     In May 1997, the Company recognized a credit of (pound)672, which is
included in "interest and other income" in the accompanying consolidated
statement of operations, in connection with the sale all of the stock of its
wholly owned subsidiary, DA Systems Ltd. (DA), to Detection Systems, Inc. (DSI)
of Rochester, NY. In exchange for the stock of DA, the Company, received a
(pound)2.3 ($3.8) million note receivable, secured by shares of DSI common
stock. In September 1997, the Company received cash for the full amount of the
note receivable plus interest. In a companion transaction, a subsidiary of the
Company entered 
                     
                                      F-11

<PAGE>


NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------


into a License Agreement with DSI whereby DSI may manufacture and supply certain
products in return for royalty payments.

4.   SPECIAL CHARGES

During the year ended October 31, 1998, the Company recorded a pre-tax special
charge of (pound)962,000. Charges of (pound)693,000 relate to the write off of
intangible assets, principally developed software costs and territorial rights,
which have been rendered obsolete as a result of the Company's decision to
abandon certain specific Derived Channel sales and marketing initiatives for
which future direct revenues are no longer expected. Charges of (pound)269,000
result from severance and termination benefit costs for five employees with
principally corporate responsibilities relating to the relocation of the
Company's headquarters to Atlanta. As of October 31, 1998, no amounts for the
aforementioned severance and termination benefits were paid.
     

     During the year ended October 31, 1996, the Company recorded pre-tax
special charges of (pound)1,624,000 primarily relating to fixed and intangible
asset impairment provisions for certain obsolete and/or under performing
products and (pound)1,097,000 primarily relating to an accrual for settlement of
shareholder litigation and related legal fees (see Note 14).


5.   INVENTORY

Inventory consisted of the following:
                                          October 31,
                                      ------------------
                                      1998          1997
                                        (In thousands)
Raw materials                     (pound)962      (pound)1,129
Work-in-progress                         453               411
Finished goods                         1,156             1,389
                                      ------            ------
                                (pound)2,571      (pound)2,929
                                      ======            ======

     The inventory write-downs of (pound)1,325,000 for the year ended October
31, 1998 were the result of two non-performing contracts and the decision to
abandon specific sales initiatives for certain Derived Channel markets.

     The inventory write-downs of (pound)1,473,000 for the year ended October
1996 were the result of determining certain inventory items to be obsolete
and/or under performing due to market conditions.

6.   INTANGIBLE ASSETS

Intangible assets consisted of the following:

                                          October 31,
                                      ------------------
                                      1998          1997
                                        (In thousands)

Developed software              (pound)2,756   (pound)3,595
Patents                                7,102            617
Intangible and other assets              399            345
                                      ------         ------
Total intangible assets               10,257          4,557
Accumulated amortization              (2,927)        (2,665)
                                      ------         ------
Intangible assets, net          (pound)7,330   (pound)1,892
                                      ======         ======


7.   GOODWILL
                                          October 31,
                                      ------------------
                                      1998          1997
                                        (In thousands)

Goodwill                        (pound)5,959    (pound)3,870
Accumulated amortization                (635)           (271)
                                      ------          ------
Goodwill, net                   (pound)5,324    (pound)3,599
                                      ======          ======



8.    PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                          October 31,
                                      ------------------
                                      1998          1997
                                        (In thousands)

Leasehold improvements              (pound)300       (pound)272
Plant and machinery                      2,190            1,474
Equipment, fixtures and fittings           859              520
                                        ------           ------
Total property and equipment             3,349            2,266
Accumulated depreciation
   and amortization                     (1,612)          (1,174)
                                        ------           ------
Property and equipment, net       (pound)1,737     (pound)1,092
                                        ======           ======


                                      F-12

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

9.   REVOLVING CREDIT FACILITY 

In February 1997, the Company entered into a U.S. dollar revolving credit
facility which provides for maximum borrowings of $10.0 ((pound)6.1) million and
includes the option to convert, at maturity, the outstanding balance to an
amortizing term loan payable over a maximum period of up to three years, with a
maximum five year amortization. At the Company's option, interest is charged at
the bank's prime lending rate less .25% or LIBOR plus 1.25%. The Company had
average borrowings of (pound)3.2 and (pound)2.7 million during 1998 and 1997 at
an average interest rate of 6.72% and 6.89%, respectively. Maximum borrowings
during 1998 and 1997 were (pound)3.6 and (pound)2.7 million, respectively. The
revolving credit facility is collateralized by certain assets of the Company.

     On October 31, 1998, there were outstanding borrowings of approximately
$6.0 ((pound)3.6) million at an interest rate of 6.539%.

     During 1998, the Company was in violation of certain financial performance
loan covenants (see Note 16).


10.   INCOME TAXES

The Company's provision for income taxes is incurred primarily in the United
Kingdom.
      
     For the years noted below, the provision for income taxes consists of the
following:

                                           October 31,
                                ---------------------------------
                                1998          1997           1996
                                         (In thousands)

Currently payable         (pound)858  (pound)632    (pound)1,292
Deferred                         (88)         44            (297)
                                -----      -----          ------
                          (pound)770  (pound)676      (pound)995
                                =====      =====          ======


     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:

                                                        October 31,
                                          ------------------------------------
                                          1998            1997           1996
                                                     (In thousands)
Income tax (benefit)           
   computed at U.S. corporate
   tax rate of 34%                (pound)(2,032)     (pound)973    (pound)(888)
Adjustments attributable to:
   Valuation allowance                    2,816             (74)         1,790
   ACT refund                               (90)           (247)            --
   Nondeductible expenses                    39              22             65
   Foreign income taxed in the
     United States                           90              86             60
   Income tax rate differential
     between the United States
     and the United Kingdom                 (53)            (84)           (32)
                                          -----          ------          -----
Total                                (pound)770      (pound)676     (pound)995
                                          =====          ======          =====

                                      F-13

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

The components of the Company's net deferred tax assets and (liabilities) as of
October 31 are as follows:


                                   1998            1997
                                   ----            ----
                                     (In thousands)
Deferred tax liability:
Differences between book
   and tax basis of
   property equipment       (pound)(39)      (pound)(47)
Other                               --              (13)
                                 -----            -----
                                   (39)             (60)


Deferred tax asset:
Intangibles                        395              316
Net operating loss carry
  forwards                       1,478              527
Tax credit carry forwards        1,849              834
Other                               61               --
Inventories                        730              218
Accruals                           383               87
                                 -----            -----
                                 4,896            1,982
Valuation allowance             (4,572)          (1,725)
                                 -----            -----
Total                       (pound)285       (pound)197
                                 =====            =====


Net operating loss carry forwards for federal and state income taxes available
at October 31, 1998, expire as follows:

                                                       Years
                                        Amount     of Expiration
                                        ------     -------------
Federal operating losses         (pound)7,164,000    2004-2113
State operating losses          (pound)10,085,000    2003-2113

The financial statements reflect the deferred tax effects of the undistributed
earnings of the Company's United Kingdom subsidiaries at October 31, 1998
because the Company expects to recover the undistributed earnings in the
foreseeable future in a taxable manner. The Company did not recognize deferred
tax liabilities of (pound)171,000 for the undistributed earnings of its United
Kingdom subsidiaries at October 31, 1997 because, at that time, the Company did
not expect earnings to be remitted to the United States in the foreseeable
future. The accumulated net undistributed earnings of the Company's United
Kingdom subsidiaries included in the retained earnings were (pound)7,255,000 and
(pound)5,602,000 at October 31, 1998 and 1997, respectively.


11.   SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED PARTIES

Approximately 19%, 16% and 32% of sales in 1998, 1997 and 1996, respectively,
were to British Telecommunications PLC. The accounts receivable from British
Telecommunications PLC were (pound)323,000 and (pound)1,044,000 as of October
31, 1998 and 1997, respectively, and were collected pursuant to normal credit
terms.

     The principal shareholder provided financial advisory, investment banking
and other services for the Company under a two-year agreement through December
31, 1996. Under the Agreement, the Company paid $20,000 per month plus certain
reimbursable expenses to the shareholder for financial advisory services.

     Fees and other expenses relating to the principal shareholder are as
follows:

                                           October 31,
                                ----------------------------------
                                1998          1997            1996
                                        (In thousands)

Fees                              --     (pound)142     (pound)155
Out-of-pocket expenses            --              4             57

                                      F-14
<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

12.   COMMITMENTS AND CONTINGENCIES

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 October 31, 1998, are as
follows:

1999                                        (pound)498
2000                                               435
2001                                               347
2002                                               350
2003                                               237
Thereafter                                         238
                                                ------
Total                                     (pound)2,105
                                                ======

      Rent expense, including short-term leases, amounted to approximately
(pound)377,000, (pound)287,000 and (pound)328,000 in 1998, 1997 and 1996,
respectively.

             (See Note 3 for other commitments and contingencies.)


13.   STOCK OPTION PLANS

      Employee Plan - The Company has an Employee Stock Option Plan (the
"Employee Plan"), which provides for the granting of nonqualified and incentive
stock options to all officers and key employees 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 Employee Plan, as amended in February 1998, is 1,500,000
shares of Class A Common Stock.

      Options issued under the Employee Plan typically vest ratably over a
five-year period. Certain options issued to senior management employees under
the Employee 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 Employee Plan, all
outstanding options become fully vested and are subject to exercise. Incentive
stock options and nonqualified stock options granted under the Employee Plan
expire 10 years after the grant date unless an option holder's employment is
terminated. Under such circumstances, the options typically expire from three
months to one year from the date of employment termination.

      At October 31, 1998 and 1997, 362,000 and 290,500, respectively, ratably
vesting options under the Employee Plan have been granted to key employees of
the Company at prices ranging between $3.75 and $7.50. Of these options, 12,000
were exercised, 23,000 have expired and been cancelled, 118,300 are currently
exercisable, and the remaining options will become exercisable in 1999 through
2002. At October 31, 1998 and 1997, 765,000 and 515,000, respectively, cliff
vesting options under the Employee Plan have been granted to senior management
employees of the Company at prices ranging between $3.06 and $7.56. Of these
options, 80,000 have expired and been cancelled, and none of these options are
currently exercisable. They will become exercisable beginning in 2002 or earlier
if the accelerated vesting conditions are met.

      Director Plan - 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.

                                      F-15

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

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 October 31, 1998 and 1997, 28,700 and 16,700, respectively, options
under the Director Plan have been granted to directors of the Company at prices
ranging between $4.50 and $6.63. Of these options, 16,700 are currently
exercisable and the remaining will become exercisable in 1999. Options to
purchase 18,750 shares of Class A common stock at a price of $10.00 were granted
as a finder's fee in connection with an acquisition. All of these options are
currently exercisable.

      The following table summarizes the activity of the aforementioned stock
option plans as of and for the years ended October 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                 1998                   1997                    1996
                          -------------------     -----------------      ------------------
                                     Weighted              Weighted                Weighted
                                     Average               Average                 Average
                          Shares    Ex. Price     Shares  Ex. Price      Shares   Ex. Price
                          ------    ---------     ------  ---------      ------   ---------
<S>                      <C>       <C>           <C>     <C>            <C>      <C>

Outstanding,
  Beginning of year       748,450     $5.54       373,450    $5.51       177,250    $5.55
 Options granted          333,500      4.39       415,000     5.51       213,700     5.89
 Options exercised        (12,000)     5.44            --       --            --       --
 Options cancelled       (103,000)     5.75       (40,000)    4.97       (17,500)   10.57
                          -------                 -------                -------
Outstanding, End
  of year                 966,950      5.12       748,450     5.54       373,450     5.51
                          =======                 =======                =======
Exercisable, End
  of year                 153,750     $5.83       100,100    $5.96        44,550    $6.48
                          =======                 =======                =======
</TABLE>

      In February 1997, the Company re-priced 191,000 options with exercise
prices ranging between $9.00 and $15.00 to $4.50 which represented the closing
market price. The options, as re-priced, are reflected in all periods in the
above table.

      The fair value of each option on the date of grant for 1998, 1997 and 1996
was estimated using the Black-Scholes options pricing model with the following
weighted average assumptions: no dividend yield for all years; expected
volatility of 51% for 1998 and 59% for both 1997 and 1996; risk-free interest
rate of 4.54% for 1998 and 5.82% for both 1997 and 1996; expected option lives
of 7 years for all years; and a forfeiture rate of 2% for all years.

      The exercise price for options outstanding as of October 31, 1998 is
between $3.06 and $10.00. Such options will expire on average in 8.3 years. The
weighted average fair value of options granted during 1998, 1997 and 1996 was
$2.54, $3.52 and $3.81, respectively, on the date of grant.

      Cellemetry Plan - The Company's subsidiary, Cellemetry, adopted a Share
Option Plan on June 1, 1998, which provides for the granting of nonqualified
stock options to officers and employees of Cellemetry at a pre-determined price.
The aggregate number of shares, which may be issued upon the exercise of options
under the Share Option Plan, is 1,000,000 shares of Class III Common Stock.

      Options issued under the Share Option Plan vest ratably over a five-year
period. In the event of a "change in control" as defined in the Share Option
Plan, all outstanding options become fully vested and are subject to exercise.
The options expire 10 years after the grant date unless an option holder's
employment is terminated. Under such circumstances, the options expire from
three months to one year from the date of employment termination.

      On June 1, 1998, 612,000 options under the Share Option Plan were granted
to employees of Cellemetry at $4.00 per share. None of these options are
currently exercisable. They will become exercisable beginning in June of 2000.

                                      F-16

<PAGE>

NUMEREX CORP. AND SUBSIDIARIES

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED OCTOBER 31, 1998
--------------------------------------------------------------------------------

      The fair value of each option on the date of grant for 1998 was estimated
using the Black-Scholes options pricing model with the following weighted
average assumptions: no dividend yield; expected volatility of 51%; risk free
interest rate of 4.54%; expected option lives of 7 years; and a forfeiture rate
of 2%.
   
      Options will expire on average in 9.7 years. The weighted average fair
value of options granted during 1998 was $2.31 on the date of grant.

      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 income
(loss) and earnings (loss) per share would have been changed to the following
pro forma amounts:

<TABLE>
<CAPTION>
                                                 1998               1997             1996
                                                 ----               ----             ----
<S>                                       <C>                  <C>             <C>   
Net income (loss)--As reported             (pound)(6,745)       (pound)2,187    (pound)(3,605)
Net income (loss)--Pro Forma               (pound)(7,167)       (pound)1,828    (pound)(3,751)
Earnings (loss) per share--As reported      (pound)(0.62)         (pound).20     (pound)(0.31)
Earnings (loss) per share--Pro Forma        (pound)(0.66)         (pound).17     (pound)(0.33)
</TABLE>

      The pro forma effect on net income (loss) and earnings (loss) per share
for 1998, 1997 and 1996, by applying SFAS No. 123, may not be indicative of the
pro forma effect on net income 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.



14.   LITIGATION

A settlement, effective October 24, 1996, was reached among the parties in
connection with a securities lawsuit regarding the Company's 1995 public
offering. Certain defendants paid to a settlement fund approximately $2,100,000
((pound)1,254,000), which after certain costs and expenses was paid to a class.
The Company's contribution to the settlement fund of $1,033,000
((pound)617,000), which together with related legal costs were expensed in 1996
(see Note 4). Amounts due under the settlement were paid in December 1996.


15.   GEOGRAPHIC INFORMATION

The Company operates in a single industry segment. Information about the
Company's operations in different geographic areas for the three years ended
October 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                   United States        United Kingdom        Eliminations         Consolidated
<S>               <C>                  <C>                   <C>                  <C>  
Net sales:
1998                (pound)8,311         (pound)6,880            (pound)--        (pound)15,191
1997                       6,740               10,936                   --               17,676
1996                       2,655               15,537                   --               18,192
Operating profit (loss:)
1998                      (8,713)               1,902                   --               (6,811)
1997                      (1,904)               3,254                   --                1,350
1996                      (5,492)               1,813                   --               (3,679)
Identifiable assets:
1998                      22,427               12,094               (1,585)              32,936
1997                      22,627               11,139               (1,257)              32,509
1996                      15,529               15,376                 (923)              29,982
</TABLE>


16.   SUBSEQUENT EVENT

On January 8, 1999, the Company terminated its revolving credit facility and
repaid amounts due including interest totaling $6,008,733. In order to meet the
Company's expected 1999 funding requirements, additional financing will be
necessary. Management believes that the Company will be successful in meeting
its 1999 funding needs.

                                      F-17

<PAGE>


NUMEREX CORPORATION                                                  SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(Parent Company Only)
(In thousands, exept share amounts)

<TABLE>
<CAPTION>
                                                                             October 31,          October 31,
                                                                                1998                 1997
                                                                           ---------------      --------------
<S>                                                                          <C>                <C>   
ASSETS
  Current assets                                                             (pound)1,561       (pound)11,524
  Other assets                                                                        394               1,670
  Intercompany receivables                                                         10,493               6,070
  Investment in equity of subsidiaries                                             17,918              11,107
                                                                           ---------------      --------------
    Total Assets                                                            (pound)30,366       (pound)30,371
                                                                           ===============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Short-term debt                                                            (pound)3,627            (pound)0
  Intercompany loan and payables                                                    5,163                   0
  Other liabilities                                                                   919                 649
                                                                           ---------------      --------------
    Total Current Liabilities                                                       9,709                 649
                                                                           ---------------      --------------
  Long-term debt                                                                        0               2,688
  Intercompany loan and payables - Long-Term                                        1,209                   0
  Class A common stock - no par; authorized 30,000,000 shares;
    issues 11,609,492 and 11,597,492 shares                                        18,362              18,321
  Additional paid-in capital                                                          133                   0
  Treasury Stock, at cost, 1,034,900 and 684,900 shares                            (2,755)             (1,921)
  Retained Earnings                                                                 4,197              10,942
  Other                                                                              (489)               (308)
                                                                           ---------------      --------------
Total shereholders' equity                                                         19,448              27,034
                                                                           ---------------      --------------
Total liabilities and shareholders' equity                                  (pound)30,366       (pound)30,371
                                                                           ===============      ==============
</TABLE>

                                      S-1

<PAGE>

                                                                      SCHEDULE I

NUMEREX CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
(In thousands)

<TABLE>
<CAPTION>

                                                             Years ended October 31,
                                                         -------------------------------
                                                          1998         1997        1996
                                                         ------       ------      ------

<S>                                                      <C>           <C>        <C>    
Equity in net income (loss) of subsidiaries              (4,991)       2,166      (2,122)
Operating expenses                                       (2,283)      (1,253)     (2,795)
Interest and other income (net)                             529        1,274       1,312
                                                         ------       ------      ------
Income (loss) before provision for income taxes          (6,745)       2,187      (3,605)
Provision for income taxes                                    0            0           0
                                                         ------       ------      ------
Net income (loss)                                        (6,745)       2,187      (3,605)
                                                         ======       ======      =======
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

NUMEREX CORPORATION                                                                                  SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Only)
(In thousands)

                                                                                                Years Ended October 31,
                                                                                        --------------------------------------
                                                                                               1998       1997         1996
                                                                                             -------     -------      -------

<S>                                                                                           <C>          <C>           <C>  
Operating Activities:
  Equity in net income (loss) of subsidiary                                                   (4,991)      2,166       (2,122)
  Other adjustments, net                                                                      (2,784)        869        1,509
                                                                                             -------     -------      -------
     Net cash provided by (used in) operating activities                                      (7,775)      3,035         (613)
                                                                                             -------     -------      -------
Investing Activities - contribution to capital of subsidiaries, net                           (2,323)     (4,033)      (1,565)
                                                                                             -------     -------      -------
Financing Activities:
  Proceeds from revolving credit facility                                                        907       2,688
  Proceeds from exercise of stock options                                                         41
  Cash dividends paid                                                                                                  (1,118)
  Purchase of treasury stock                                                                    (834)     (1,073)        (848)
                                                                                             -------     -------      -------
    Net cash provided by (used in) financing activities                                          114       1,615       (1,966)
                                                                                             -------     -------      -------
Net change in cash                                                                            (9,984)        617       (4,144)
Cash, beginning of year                                                                       11,460      10,843       14,987
                                                                                             -------     -------      -------
Cash, end of year                                                                              1,476      11,460       10,843
                                                                                             =======     =======      =======
</TABLE>


<PAGE>


                             NUMEREX CORPORATION
            NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            (Parent Company Only)


1.   BASIS OF PRESENTATION

     The accompanying condensed financial statements include the accounts of
     Numerex Corporation (the Parent) and on an equity basis its subsidiaries
     and should be read in conjunction with the consolidated financial
     statements of Numerex Corporation and Subsidiaries (the "Company") and the
     notes thereto.

2.   INCOME TAXES

     The Parent and its wholly owned subsidiaries file a consolidated tax
     return. The Parent participates in a tax sharing agreement with the
     consolidated group whereby consolidated income tax expense or benefit is
     allocated to the Parent.

3.   SUBSEQUENT EVENT

     On January 8, 1999 the Company terminated its revolving credit facility and
     repaid amounts due including interest totaling $6,008,733. In order to meet
     the Company's expected 1999 funding requirements, additional financing will
     be necessary. Management believes that the Company will be successful in
     meeting its 1999 funding needs.
 
                                       S-4

<PAGE>


NUMEREX CORPORATION                                                  SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)


<TABLE>
<CAPTION>
                                                                                Additions         
                                                     Balance at        ----------------------------                      Balance at
                                                    Beginning of                         Charges to                        End of
Description                                           Period            Provision          Expense        Deductions       Period
-----------                                         ------------       ---------         ----------      ----------      ----------
<S>                                                  <C>               <C>               <C>             <C>             <C> 
Year Ended October 31, 1996:
Accounts Receivable
  Allowance for uncollectible accounts            (pound)26               37                 0                0        (pound)63
Inventory
  Allowance for Obsolescence                      (pound)81                0             1,473 (a)            0     (pound)1,554

Year Ended October 31, 1997:
Accounts Receivable     
  Allowance for uncollectible accounts            (pound)63                0                 0              (29)       (pound)34
Inventory
  Allowance for Obsolescence                   (pound)1,554               20                 0             (924)(b)   (pound)650

Year Ended October 31, 1998:
Accounts Receivable
  Allowance for uncollectible accounts            (pound)34              161             1,291 (c)       (1,291)(c)   (pound)195
Inventory
  Allowance for Obsolescence                     (pound)650              165             1,325 (d)            0     (pound)2,140
Other Liabilities
  Accrued Severance                                (pound)0                0               269 (e)            0       (pound)269
</TABLE>

(a) Amounts were the result of determining certain inventory items to be
    obsolete and/or under performing due to market conditions.
(b) Amounts were net recoveries from the sale of subsidiary.
(c) Amounts resulted from the write-off of certain uncollectible receivables 
    resulting from non-performing contractual relationships.
(d) Amounts were the result of non-performing contracts and the decision to
    abandon specific sales initiatives for certain Derived Channel markets.
(e) Amounts resulted from the severance and termination benefits for certain
    corporate employees.


                                      S-5