UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
  Washington,
D.C. 20549
  FORM
10-K/A
 (Amendment
No. 1)
  
 
  x
              Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934
 For the
fiscal year ended December 31, 2009
 
   ̈
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934
 For the
transition period from
             to
  Commission
File Number 0-22920
 NUMEREX
CORP.
 (Name
of Registrant as Specified in Its Charter)
  
  Pennsylvania
              
              11-2948749(State
      or Other Jurisdiction
                of
      Incorporation or Organization)
              
              (I.R.S.
      Employer
                Identification
      Number)1600
      Parkwood Circle, Suite 500, Atlanta, GA
              
              30339(Address
      of Principal Executive Offices)
              
              (Zip
      Code)
  (770)
693-5950
  (Registrant’s
Telephone Number, Including Area Code)
 Securities
Registered Pursuant to Section 12(b) of the Act:
 Class
      A Common Stock, no par value
                (Title
      of each class)
              
              The
      NASDAQ Stock Market LLC
                (Name
      of each exchange on which registered)
 Securities
Registered Pursuant to Section 12(g) of the Act: None
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     Yes o          No þ
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15 (d) of the
Act.     Yes o          No þ
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days.     Yes þ         No o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).    Yes o         No o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
 Large
accelerated
filer           Accelerated
filer       Non-accelerated filer þ    Smaller
Reporting Company 
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).     Yes o          No þ
  The
aggregate market value of voting and non-voting common stock held by
nonaffiliates of the registrant (9,278,229 shares) based on the closing price of
the registrant’s common stock as reported on the NASDAQ Global Market on
June 30, 2009, was $46,576,710.  For purposes of this
computation, all officers, directors, and 10% beneficial owners of the
registrant are deemed to be affiliates.  Such determination should not
be deemed to be an admission that such officers, directors, or 10% beneficial
owners are, in fact, affiliates of the registrant.
  The
number of shares outstanding of the registrant’s Class A Common Stock as of
March 26, 2010, was 15,070,501 shares.
  
 DOCUMENTS
INCORPORATED BY REFERENCE
  None.   The
registrant filed its definitive proxy statement pursuant to
Regulation 14A on April 6, 2010, which included all of the items that were
incorporated by reference to Part III of the Form 10-K filed on March 30,
2010.
  
 
 EXPLANATORY
NOTE
 
 This
Amendment on Form 10-K/A (“Amendment No. 1”) constitutes Amendment No. 1 to the
registrant’s Annual Report on Form 10-K for the fiscal year ended December 31,
2009 (the “Form 10-K”), which was originally filed with the Securities and
Exchange Commission (the “SEC”) on March 29, 2010.  Amendment No. 1 is
being filed solely to correct a typographical error in the audit report date in
Part II, Item 8 of the Form 10-K.  Accordingly, an amended audit
report is being filed with this Amendment No. 1.
 
 Except
for the matter described above, this amendment does not change any previously
reported financial results, modify or update disclosures in the Form 10-K, or
reflect events occurring after the date of the filing of the Form 10-K, and we
have not updated the disclosures in this report to speak as of a later
date.  Accordingly, this Amendment No. 1 should be read in conjunction
with the Form 10-K and our other reports filed with the SEC subsequent to the
filing of the Form 10-K.
  
  
 
 
 ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  
  
  PageConsolidated
      Balance Sheets as of December 31, 2009 and 2008
              4Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      ended December 31, 2009, 2008 and 2007
              5Consolidated
      Statements of Shareholders’ Equity for the Years ended December 31, 2009,
      2008 and 2007
              6Consolidated
      Statements of Cash Flows for the Years ended December 31, 2009, 2008 and
      2007
              7Notes
      to Consolidated Financial Statements
              9Report
      of Independent Registered Public Accounting Firm on the Consolidated
      Financial Statements
              35
 
  
   
  
  Numerex
      Corp. and SubsidiariesConsolidated
      Balance Sheets(In
      thousands, except share information)December
      31,
              
              
              December
      31,2009
              
              
              2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              5,306
              
              
              $
              8,917Accounts
      receivable, less allowance for doubtful accounts of $548 at December 31,
      2009 and $1,010 at December 31, 2008
              
              
              6,341
              
              
              
              9,159Inventory
              
              
              6,290
              
              
              
              8,506Prepaid
      expenses and other current assets
              
              
              1,569
              
              
              
              1,508TOTAL
      CURRENT ASSETS
              
              
              19,506
              
              
              
              28,090Property
      and equipment, net
              
              
              1,603
              
              
              
              1,765Goodwill,
      net
              
              
              23,787
              
              
              
              23,771Other
      intangibles, net
              
              
              4,985
              
              
              
              5,796Software,
      net
              
              
              2,747
              
              
              
              2,796Other
      assets
              
              
              119
              
              
              
              288TOTAL
      ASSETS
              
              $
              52,747
              
              
              $
              62,506LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $
              5,888
              
              
              $
              7,289Other
      current liabilities
              
              
              2,555
              
              
              
              2,943Notes
      payable, current
              
              
              493
              
              
              
              2,568Deferred
      revenues
              
              
              1,261
              
              
              
              1,134Obligations
      under capital leases, current portion
              
              
              24
              
              
              
              29TOTAL
      CURRENT LIABILITIES
              
              
              10,221
              
              
              
              13,963LONG
      TERM LIABILITIESObligations
      under capital leases and other long term liabilities
              
              
              335
              
              
              
              472Deferred
      income tax
              
              
              154
              
              
              
              48Notes
      payable
              
              
              -
              
              
              
              7,629TOTAL
      LONG TERM LIABILITIES
              
              
              489
              
              
              
              8,149COMMITMENTS
      AND CONTINGENCIES (Note M)SHAREHOLDERS’
      EQUITYPreferred
      stock - no par value; authorized 3,000,000; none issued
              
              
              -
              
              
              
              -Class
      A common stock – no par value; authorized 30,000,000; issued 16,307,963
      shares at December 31, 2009 and 15,349,327 shares at December 31, 2008;
      outstanding 15,082,154 shares at December 31, 2009 and 14,163,518 shares
      at December 31, 2008
              
              
              57,430
              
              
              
              50,801Additional
      paid-in-capital
              
              
              5,582
              
              
              
              4,587Treasury
      stock, at cost, 1,225,809 shares at December 31, 2009 and 1,185,809 shares
      December 31, 2008
              
              
              (5,213
              )
              
              
              (5,053
              )Class
      B common stock – no par value; authorized 5,000,000; none
      issued
              
              
              -
              
              
              
              -Accumulated
      other comprehensive loss
              
              
              -
              
              
              
              (8
              )Retained
      deficit
              
              
              (15,762
              )
              
              
              (9,933
              )TOTAL
      SHAREHOLDERS' EQUITY
              
              
              42,037
              
              
              
              40,394TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              52,747
              
              
              $
              62,506
 
 The
accompanying notes are an integral part of these financial
statements.
   4
  
  Numerex
      Corp. and SubsidiariesConsolidated
      Statements of Operations and Comprehensive Income (Loss)(In
      thousands, except per share data)For
      the YearsEnded
      December 31,2009
              
              
              2008
              
              
              2007Hardware
              
              $
              20,282
              
              
              $
              43,048
              
              
              $
              43,408Service
              
              
              30,554
              
              
              
              29,271
              
              
              
              24,596Total
      net sales
              
              
              50,836
              
              
              
              72,319
              
              
              
              68,004Cost
      of hardware sales, exclusive of depreciation and
    amortization
              
              
              17,319
              
              
              
              37,469
              
              
              
              38,491Cost
      of services, exclusive of depreciation and amortization
              
              
              11,169
              
              
              
              9,430
              
              
              
              6,106Gross
      profit
              
              
              22,348
              
              
              
              25,420
              
              
              
              23,407Selling,
      general, and administrative expenses
              
              
              17,649
              
              
              
              20,113
              
              
              
              16,320Engineering
      and development expenses
              
              
              2,421
              
              
              
              2,198
              
              
              
              1,459Bad
      debt expense
              
              
              536
              
              
              
              1,102
              
              
              
              635Depreciation
      and amortization
              
              
              3,398
              
              
              
              3,107
              
              
              
              2,493Goodwill
      and long-lived asset impairment
              
              
              -
              
              
              
              5,289
              
              
              
              -Operating
      earnings (loss)
              
              
              (1,656
              )
              
              
              (6,389
              )
              
              
              2,500Costs
      of early extinguishment of debt
              
              
              (2,936
              )
              
              
              -
              
              
              
              -Interest
      expense
              
              
              (1,058
              )
              
              
              (1,665
              )
              
              
              (1,940
              )Interest
      income
              
              
              63
              
              
              
              134
              
              
              
              575Net
      other income and (expense)
              
              
              43
              
              
              
              (8
              )
              
              
              33Earnings
      (loss) before income taxes
              
              
              (5,544
              )
              
              
              (7,928
              )
              
              
              1,168Provision
      for income taxes
              
              
              285
              
              
              
              3,047
              
              
              
              728Net
      earnings (loss)
              
              
              (5,829
              )
              
              
              (10,975
              )
              
              
              440Other
      comprehensive income (loss), net of income tax:Foreign
      currency translation adjustment
              
              
              8
              
              
              
              (2
              )
              
              
              (8
              )Comprehensive
      income (loss)
              
              $
              (5,821
              )
              
              $
              (10,977
              )
              
              $
              432Basic
      earnings (loss) per share
              
              $
              (0.40
              )
              
              $
              (0.78
              )
              
              $
              0.03Diluted
      earnings (loss) per share
              
              $
              (0.40
              )
              
              $
              (0.78
              )
              
              $
              0.03Weighted
      average common shares used in per share calculationBasic
              
              
              14,409
              
              
              
              14,144
              
              
              
              13,137Diluted
              
              
              14,409
              
              
              
              14,144
              
              
              
              13,700
 
  
  The
accompanying notes are an integral part of these financial
statements.
   5
  
  
  Numerex Corp. And SubsidiariesConsolidated
      Statement Of Shareholders' EquityCommon
      Shares
              
              
              
              
              
              
              
              
              Accumulated
      OtherAdditional
      paid
              
              
              Treasury
              
              
              Comprehensive
              
              
              RetainedDESCRIPTION:
              
              Number
              
              
              $
      Amount
              
              
              in
      capital
              
              
              Stock
              
              
              Income
      (loss)
              
              
              Earnings
      (Deficit)
              
              
              TOTALBalance
      @ 12/31/06
              
              
              14,145
              
              
              $
              43,133
              
              
              $
              2,486
              
              
              $
              (5,053
              )
              
              $
              2
              
              
              $
              852
              
              
              $
              41,420Adoption
      of ASC 740-10-25 (previously FIN 48)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (250
              )
              
              
              (250
              )Issuance
      of shares under Directors Stock Plan
              
              
              6
              
              
              
              62
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62Issuance
      of shares in connection with employee stock option plan
              
              
              134
              
              
              
              569
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              569Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
              
              
              100
              
              
              
              1,018
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,018Issuance
      of shares in connection with purchase of assets of Orbit One
      Communications, Inc.
              
              
              321
              
              
              
              2,673
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,673Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8
              )
              
              
              -
              
              
              
              (8
              )Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              941
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              941Net
      earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              440
              
              
              
              440Balance
      @ 12/31/07
              
              
              14,706
              
              
              
              47,455
              
              
              $
              3,427
              
              
              $
              (5,053
              )
              
              $
              (6
              )
              
              $
              1,042
              
              
              $
              46,865Issuance
      of shares under Directors Stock Plan
              
              
              12
              
              
              
              70
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              70Issuance
      of shares in connection with employee stock option plan
              
              
              27
              
              
              
              124
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              124Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
              
              
              200
              
              
              
              1,706
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,706Issuance
      of shares in connection with purchase of Ublip, Inc.
              
              
              405
              
              
              
              1,446
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              1,446Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2
              )
              
              
              -
              
              
              
              (2
              )Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              1,160
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,160Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,975
              )
              
              
              (10,975
              )Balance
      @ 12/31/08
              
              
              15,350
              
              
              $
              50,801
              
              
              $
              4,587
              
              
              $
              (5,053
              )
              
              $
              (8
              )
              
              $
              (9,933
              )
              
              $
              40,394
 
  Issuance
      of shares under Directors Stock Plan
              
              
              25
              
              
              
              103
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              103Issuance
      of shares in connection with employee stock option plan
              
              
              44
              
              
              
              41
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              41Issuance
      of shares in lieu of debt payment
              
              
              889
              
              
              
              6,485
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,485Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8
              
              
              
              -
              
              
              
              8Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              995
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              995Purchase
      of treasury shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (160
              )
              
              
              -
              
              
              
              -
              
              
              
              (160
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,829
              )
              
              
              (5,829
              )Balance
      @ 12/31/09
              
              
              16,308
              
              
              $
              57,430
              
              
              $
              5,582
              
              
              $
              (5,213
              )
              
              $
              -
              
              
              $
              (15,762
              )
              
              $
              42,037
 
  The
accompanying notes are an integral part of these financial
statements.
   6
  NUMEREX CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)For
      the years ended December 31,2009
              
              
              2008
              
              
              2007Cash
      flows from operating activities:Net
      (loss) earnings
              
              $
              (5,829
              )
              
              $
              (10,975
              )
              
              $
              440Adjustments
      to reconcile net (loss) earnings to net cash provided by (used in)
      operating activities:Depreciation
              
              
              941
              
              
              
              824
              
              
              
              699Amortization
              
              
              2,457
              
              
              
              2,283
              
              
              
              1,794Allowance
      for Doubtful Accounts
              
              
              536
              
              
              
              1,102
              
              
              
              635Inventory
      Reserves
              
              
              110
              
              
              
              266
              
              
              
              (13
              )Non-cash
      interest expense
              
              
              3,297
              
              
              
              485
              
              
              
              290Stock
      option compensation expense
              
              
              995
              
              
              
              1,160
              
              
              
              941Stock
      issued in lieu of directors fees
              
              
              104
              
              
              
              70
              
              
              
              62Impairment
      of goodwill
              
              
              -
              
              
              
              3,986
              
              
              
              -Impairment
      of long-lived assets
              
              
              -
              
              
              
              1,303
              
              
              
              -Deferred
      income taxes
              
              
              106
              
              
              
              2,776
              
              
              
              528Changes
      in assets and liabilities which provided (used) cash:Accounts
      and notes receivable
              
              
              2,168
              
              
              
              6,035
              
              
              
              (5,176
              )Inventory
              
              
              2,106
              
              
              
              1,357
              
              
              
              (6,129
              )Prepaid
      expenses
              
              
              (138
              )
              
              
              417
              
              
              
              411Other
      assets
              
              
              12
              
              
              
              42
              
              
              
              480Accounts
      payable
              
              
              (1,403
              )
              
              
              (3,133
              )
              
              
              2,586Other
      liabilities
              
              
              (501
              )
              
              
              585
              
              
              
              377Deferred
      revenues
              
              
              127
              
              
              
              (235
              )
              
              
              (492
              )Income
      taxes
              
              
              1
              
              
              
              11
              
              
              
              (738
              )Net
      cash provided by (used in) operating activities:
              
              
              5,089
              
              
              
              8,359
              
              
              
              (3,305
              )Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (779
              )
              
              
              (453
              )
              
              
              (613
              )Purchase
      of intangible assets, software and other assets
              
              
              (1,614
              )
              
              
              (1,544
              )
              
              
              (1,461
              )Purchase
      of short-term investment
              
              
              -
              
              
              
              -
              
              
              
              (8,051
              )Sale
      of short-term investment, net
              
              
              -
              
              
              
              -
              
              
              
              8,051Purchase
      of Airdesk, Inc. assets
              
              
              -
              
              
              
              -
              
              
              
              -Purchase
      of Orbit One Communications, Inc. assets
              
              
              -
              
              
              
              (1,807
              )
              
              
              (6,625
              )Purchase
      of Ublip, Inc. assets
              
              
              -
              
              
              
              (249
              )
              
              
              -Net
      cash used in investing activities
              
              
              (2,393
              )
              
              
              (4,053
              )
              
              
              (8,699
              )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
              
              
              41
              
              
              
              124
              
              
              
              569Purchase
      of treasury stock
              
              
              (160
              )
              
              
              -
              
              
              
              -Principal
      payments on capital lease obligations
              
              
              (29
              )
              
              
              (79
              )
              
              
              (87
              )Principal
      payments on notes payable and debt
              
              
              (6,167
              )
              
              
              (2,857
              )
              
              
              (1,429
              )Net
      cash used in financing activities:
              
              
              (6,315
              )
              
              
              (2,812
              )
              
              
              (947
              )Effect
      of exchange differences on cash
              
              
              8
              
              
              
              (2
              )
              
              
              (8
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              (3,611
              )
              
              
              1,492
              
              
              
              (12,959
              )Cash
      and cash equivalents at beginning of year
              
              
              8,917
              
              
              
              7,425
              
              
              
              20,384Cash
      and cash equivalents at end of year
              
              $
              5,306
              
              
              $
              8,917
              
              
              $
              7,425
  7
  
  For
      the years ended December 31,2009
              2008
              2007
 
  Supplemental Disclosures of Cash Flow
      InformationCash
      payments for:Interest
              
              $
              697
              
              
              $
              1,196
              
              
              $
              1,444Income
      taxes
              
              $
              89
              
              
              $
              233
              
              
              $
              17Disclosure
      of non-cash financing activities:Non-cash
      interest expense
              
              $
              860
              
              
              $
              485
              
              
              $
              290Non-cash
      inducement cost of extinguishment of debt
              
              $
              2,437
              
              
              $
              -
              
              
              $
              -Non-cash
      financing payments
              
              $
              4,048
              
              
              $
              -
              
              
              $
              -Non-cash
      leasehold improvement
              
              $
              -
              
              
              $
              127
              
              
              $
              140Disclosure
      of non-cash investing activities:Common
      stock issued for the purchase of assets of Airdesk, Inc.
              
              $
              -
              
              
              $
              1,706
              
              
              $
              1,018Common
      stock issued for the purchase of assets of Orbit One Communications,
      Inc.
              
              $
              -
              
              
              $
              -
              
              
              $
              2,673Common
      stock issued for the purchase of assets of Ublip, Inc.
              
              $
              -
              
              
              $
              1,446
              
              
              $
              -
 
  The
accompanying notes are an integral part of these financial
statements.
   8
  NUMEREX
CORP. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Years
ended December 31, 2009, 2008 and 2007
  
  
  NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  A summary
of the significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
   1.           Nature of
Business
  Numerex
Corp. (NASDAQ: NMRX) is the single source machine-to-machine (M2M) product and
service provider to some of the world's largest organizations delivering the
foundational components of device, network, and application, used by its
customers in the development of their M2M solutions. Customers typically
subscribe to Numerex network and application services that are delivered through
its hosted platforms. The Company's offerings and expertise enable its customers
to efficiently build reliable and secure solutions that are used to monitor and
manage assets remotely whenever and wherever needed, while simplifying and
speeding up development and deployment. Numerex DNA(TM) offerings include
hardware Devices, Networkservices, and
software Applicationsthat are delivered through its Numerex FAST(TM) (Foundation Application
Software Technology) platform. Numerex is the first M2M service provider in
North America to carry the ISO 27001 information security certification.
"Machines Trust Us®" represents the Company's focus on M2M data security,
service reliability, and round-the-clock support of its customers' M2M
solutions.
  
  2.           Principles of
Consolidation
  The
consolidated financial statements include the results of operations and
financial position of Numerex and its wholly owned
subsidiaries.  Intercompany accounts and transactions have been
eliminated in consolidation.
  
  3.Revenue
Recognition
  The
Company’s revenue is generated from three sources:
  · the supply of
hardware, under non recurring agreements,
  · the provision
of services,
  · the provision
of data transportation services, under recurring or multi-year contractually
based agreements.
  Revenue
is recognized when persuasive evidence of an agreement exists, the hardware or
service has been delivered, fees and prices are fixed and determinable, and
collectability is probable and when all other significant obligations have been
fulfilled.
  
   9
 The
Company recognizes revenue from hardware sales at the time of shipment and
passage of title. Provision for rebates, promotions, product returns and
discounts to customers is recorded as a reduction in revenue in the same period
that the revenue is recognized. The Company offers customers the right to return
hardware that does not function properly within a limited time after delivery.
The Company continuously monitors and tracks such hardware returns and records a
provision for the estimated amount of such future returns, based on historical
experience and any notification received of pending returns. While such returns
have historically been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same return
rates that it has experienced in the past. Any significant increase in hardware
failure rates and the resulting credit returns could have a material adverse
impact on operating results for the period or periods in which such returns
materialize.  Numerex recognizes revenue from the provision of
services at the time of the completion, delivery or performance of the service.
In the case of revenue derived from maintenance services the Company recognizes
revenue ratably over the contract term. In certain instances the Company may,
under an appropriate agreement, advance charge for the service to be provided.
In these instances the Company recognizes the advance charge as deferred revenue
(classified as a liability) and releases the revenue ratably over future periods
in accordance with the contract term as the service is completed, delivered or
performed.  The Company’s revenues in the consolidated statement of
operations are net of sales taxes.
  The
Company recognizes revenue from the provision of data transportation services
when it performs the services or processes transactions in accordance with
contractual performance standards. Revenue is earned monthly on the basis of the
contracted monthly fee and an excess message fee charge, should it apply, that
is volume based.  In certain instances the Company may, under an
appropriate agreement, advance charge for the data transport service to be
provided. In these instances the Company recognizes the advance charge (even if
nonrefundable) as deferred revenue (classified as a liability) and releases the
revenue over future periods in accordance with the contract term as the data
transport service is delivered or performed.
  The
Company’s arrangements do not generally include acceptance clauses. However, for
those arrangements that include multiple deliverables, we first determine
whether each service, or deliverable, meets the separation criteria of
counterparty is in accordance with ASC Subtopic 985-605 (American Institute of
Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue
Recognition),
ASC Subtopic 605-25(Emerging Issues Task
Force (“EITF”) Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables), and ASC Section 605-10-S99 (Staff Accounting Bulletin
(“SAB”) No. 104,Revenue
Recognition). Specifically, if we enter into contracts for the sale of
services and hardware, we evaluate whether the services are essential to the
functionality of the hardware and whether there is objective fair value evidence
for each deliverable in the transaction. If we conclude the services to be
provided are not essential to the functionality of the hardware and we can
determine objective fair value evidence for each deliverable of the transaction,
then we account for each deliverable in the transaction separately, based on the
relevant revenue recognition policies. Generally, all deliverables of our
multiple element arrangements meet these criteria. We may provide multiple
services under the terms of an arrangement and are required to assess whether
one or more units of accounting are present.  Service fees are
typically accounted for as one unit of accounting as fair value evidence for
individual tasks or milestones is not available.  We follow the
guidelines discussed above in determining revenues; however, certain judgments
and estimates are made and used to determine revenues recognized in any
accounting period. If estimates are revised, material differences may result in
the amount and timing of revenues recognized for a given period.
 
  
  4.           Cash and Cash
Equivalents
  Cash
equivalents consist of overnight repurchase agreements, money market deposit
accounts and amounts on deposit in a foreign bank.  Cash of $42,000
and $47,000 at December 31, 2009 and 2008, respectively was held in our foreign
bank accounts.
  
   10
  5.           Intangible
Assets
  
  Intangible
assetsconsist of
developed software, patents and acquired intellectual property, customer
relationships and goodwill.  These assets, except for goodwill, are
amortized over their expected useful lives.  Developed software is
amortized using the straight-line method over 3 to 5 years.  Patents
and acquired intellectual property are amortized using the straight-line method
over 7 to 16 years.  Customer relationships are amortized using the
straight-line method over 4 years.
  We
perform an impairment test for goodwill at least annually.  This test
involves comparing the fair value of each reporting unit as a whole to its
carrying value including goodwill.  If the reporting unit’s fair value
exceeds its carrying value, goodwill is not impaired.  If, however,
the carrying value of the reporting unit exceeds its fair value, a second step
of the impairment test is required. The second test involves comparing an
estimate of the implied fair value of goodwill to its carrying
amount.  If the carrying amount of goodwill exceeds the implied value,
the goodwill is impaired and is written down to the implied fair
value.  The implied fair value of goodwill is the excess of the fair
value of the reporting unit as a whole, over the fair values that would be
assigned to its assets and liabilities in a purchase business
combination.
  During
2008, we recorded an impairment of goodwill of $4.0 million.  See Note
G (Intangible Assets) for additional information.
  We
capitalize software development costs when project technological feasibility is
established and conclude capitalization when the hardware is ready for
release.  Software development costs incurred prior to the
establishment of technological feasibility are expensed as
incurred.
  
  6.           
Property and
Equipment
  Depreciation
is provided in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives.  Leased property under
capital leases is amortized over the lives of the respective leases or over the
service lives of the assets for those leases, whichever is
shorter.  Depreciation for property and equipment is calculated using
the straight-line method over the following estimated lives:
  ·  Short-term
leasehold improvements over the term of the
lease         3-10
years
  ·  Plant and
machinery                                                                                 4-10
years
  ·  Equipment,
fixtures and
fittings                                                              3-10
years
  
  7.             Impairment of Long-lived
Assets
  Long-lived
assets, such as property and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Assets to be disposed
of by sale would be separately presented in the consolidated balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated.  The assets and liabilities of a
disposed group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated balance
sheet.
  During
2008, we recorded an impairment of long-lived assets of $1.3
million.  See Note G (Intangible Assets) for additional
information.
   11
  8.           Income
Taxes
  
 The
Company accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using the enacted tax
rates applied to taxable income. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided for deferred tax
assets when it is more likely than not that the asset will not be
realized.
  In July
2006, the FASB issued guidance which clarifies the accounting for income taxes
by prescribing a minimum probability threshold that a tax position must meet
before a financial statement benefit is recognized. The minimum threshold is
defined as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. The Company adopted the guidance on income taxes on January
1, 2007.  The Company recognizes potential accrued interest and
penalties related to unrecognized tax benefits within operations as income tax
expense. The cumulative effect of applying this guidance on income taxes has
been reported as an adjustment to the opening balance of retained earnings as of
January 1, 2007.
  Applying
this guidance to all tax positions resulted in the Company recording a liability
for unrecognized tax benefits of $250,000 inclusive of interest and
penalties of $24,250 and $11,700, respectively. The $250,000 unrecognized
benefit also caused a corresponding decrease to retained earnings as of January
1, 2007. The Company has made an accounting policy election to treat interest
and penalties as tax expense. The Company has recorded a net decrease to
the liability for unrecognized tax benefits for the year ended December 31, 2009
of approximately $2,000. This amount is made up of an accrual of interest and
penalties related to state tax exposure in prior years of approximately $33,000,
and approximately $35,000 of tax benefit recognized on the settlement of certain
state tax exposure.  The Company's total unrecognized tax benefits as
of December 31, 2009 were approximately $476,000 inclusive of interest and
penalties of $155,000. The Company anticipates a decrease to the balance of
total unrecognized tax benefits within the next twelve months of approximately
$67,000. If the Company were to recognize these tax benefits, all of the benefit
would impact the effective tax rate.
  
  The
following table summarizes the activity related to the company's unrecognized
tax benefits, net of federal benefit, excluding interest and penalties (in
thousands):
  
  (in
      thousands)
              
              2009
              
              
              2008Balance
      at January 1
              
              $
              345
              
              
              $
              297Increases
      as a result of positions taken during prior periods
              
              
              3
              
              
              
              -Decreases
      as a result of positions taken during prior periods
              
              
              (27
              )
              
              
              (5
              )Increases
      as a result of positions taken during current periods
              
              
              -
              
              
              
              53Decreases
      as a result of positions taken during current periods
              
              
              -
              
              
              
              -Balance
      at December 31
              
              $
              321
              
              
              $
              345
 
  
  During
2009, the company repaid an aggregate of $5.7 million under our outstanding
convertible promissory notes.  Under generally accepted accounted
principles, specifically, ASC 470-20 (formerly FAS 84), an adjustment to the
conversion price of the convertible note should be accounted for as an
inducement to convert the note, even though there was no economic incentive
offered. The expense associated with the inducement is approximately $2.4
million and is not deductible for tax purposes.  The permanent impact of
the non-cash debt charge is approximately $829,000.
   12
  9.           Inventory
  Inventories,
valued at the lower of cost or market, consist of  i) M2M Modems &
Modules, ii) Security devices and iii) M2M Modems via Satellite. Cost is
generally determined on the first-in, first-out (“FIFO”) basis.  We
include raw material freight costs to manufacturers in inventory and these costs
are recognized in cost of sales when the product is sold.  Lower of
cost or market value of inventory is determined at the operating unit level and
evaluated periodically. Estimates for obsolescence or slow moving inventory are
maintained based on current economic conditions, historical sales quantities and
patterns and, in some cases, the specific risk of loss on specifically
identified inventories. Such inventories are recorded at estimated realizable
value net of the costs of disposal.
  
  10.           Accounts Receivable and
Allowance for Doubtful Accounts
  Trade
receivables are stated at gross invoiced amount less discounts, other allowances
and provision for uncollectible accounts.  Credit is extended to
customers based on an evaluation of a customer’s financial condition and,
generally, collateral is not required. Accounts receivable are generally due
within 30-90 days and are stated at amounts due from customers net of an
allowance for doubtful accounts. We maintain an allowance for estimated losses
resulting from the inability of our customers to make required
payments.  The allowance for doubtful accounts is based principally
upon specifically identified amounts where collection is deemed doubtful.
Additional non-specific allowances are recorded based on historical experience
and management’s assessment of a variety of factors related to the general
financial condition and business prospects of our customer base. Management
reviews the collectability of individual accounts and assesses the adequacy of
the allowance for doubtful accounts quarterly.  Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
  
  11.           Notes
Receivable
  Notes
receivable are included in prepaid expenses and other current assets on the
accompanying consolidated balance sheets.   The notes are payable
in installments.  The Company recognizes interest on the interest-bearing
notes only when interest payments are received.  For purposes of valuation,
the collectability of notes receivable is evaluated separately to determine if
the notes are impaired.  Notes receivable are determined to be
impaired after all means of collection have been exhausted and the potential for
recovery is considered remote.  At December 31, 2009 and 2008, all of our
notes receivable were determined to be collectible and current.
  
  12.           Debt Issuance
Costs
  Debt
issuance costs are included in other assets on the accompanying consolidated
balance sheets and are amortized to interest expense over the terms of the
related debt.
  
  13.           Warrants
  The fair
value of the warrants associated with notes payable are calculated using the
Black-Scholes fair value pricing model. The fair value is amortized on a
straight-line basis over the term of the related note.  The warrants
are included in the balance sheet as a reduction to the note
payable.
  
   13
  14.           Fair Value of Financial
Instruments
  The
hierarchy below lists three levels of fair value, which prioritizes the inputs
used in the valuation methodologies, as follows:
  Level 1—Valuations based
on quoted prices for identical assets and liabilities in active
markets.
  Level 2—Valuations based
on observable inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable
market data.
  Level 3—Valuations based
on unobservable inputs reflecting our own assumptions, consistent with
reasonably available assumptions made by other market participants. These
valuations require significant judgment.
 
  The
carrying amount of cash and cash equivalents, receivables, accounts payable and
accrued expenses approximates fair value because of their short
maturity.
  
  15.           Use of
Estimates
  In
preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.
  
  16.           Concentration of Credit
Risk
  Financial
instruments that potentially subject us to a concentration of credit risk are
primarily cash investments and accounts receivable.  We maintain our
cash and overnight investment balances in financial institutions, which at times
may exceed federally insured limits.  We had cash balances in excess
of these limits of $5.0 million and $8.7 million at December 31, 2009 and 2008,
respectively.  We have not experienced any losses in such accounts and
believe we are not exposed to any significant credit risk on cash and cash
equivalents.  Concentration of credit risk with respect to accounts
receivable from customers is limited. We perform credit evaluations of
prospective customers and we evaluate our trade receivables
periodically.  Our accounts receivable is at risk to the extent that
we may not be able to collect from some of our customers.  See Note L
for more information.
  
  17.            Foreign Currency
Translation
  The
assets and liabilities of our foreign operations are translated into U.S.
dollars at current exchange rates, and revenues and expenses are translated at
the ending exchange rate from the prior period which materially approximates the
average exchange rates for each period. Resulting translation adjustments are
reflected as other comprehensive income within shareholders’ equity. Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.  Foreign operations are not
significant to the Company.
  
   14
  18.           
Engineering and
Development
  Engineering
and development expenses are charged to operations in the period in which they
are incurred.  Engineering and development costs consist primarily of
salaries, and other personnel-related costs, bonuses, and third-party services.
For the years ended December 31, 2009, 2008 and 2007 engineering and development
costs amounted to $2.4 million, $2.2 million and $1.5 million,
respectively.
  
  19.           Share-Based
Compensation
  We
measure and recognize compensation expense for all share-based payment awards
made to employees and directors. See Note K for additional
information.
  
  20.           Earnings (Loss) Per
Share
  Basic net
earnings (loss) per common share available to common shareholders is based on
the weighted-average number of common shares outstanding excluding the dilutive
impact of common stock equivalents.  For periods in which we have net
earnings, we base diluted net earnings per share on the weighted-average number
of common shares outstanding and dilutive potential common shares, such as
dilutive employee stock options.
  
  21.          Advertising
Expenses
  Advertising
expenses are charged to operations in the period in which they are
incurred.  For the years ended December 31, 2009, 2008 and 2007,
advertising costs were approximately $600,000, $905,000 and $526,000,
respectively.
  
  22.          Recent Accounting
Pronouncements
  
  On
January 1, 2009, we adopted authoritative guidance issued by the Financial
Accounting Standards Board (“FASB”) on business combinations. The guidance
retains the fundamental requirements that the acquisition method of accounting
(previously referred to as the purchase method of accounting) be used for all
business combinations, but requires a number of changes, including changes in
the way assets and liabilities are recognized and measured as a result of
business combinations. It also requires the capitalization of in-process
research and development at fair value and requires the expensing of
acquisition-related costs as incurred. Adoption of the new guidance did not have
a material impact on our financial statements, as we did not have an acquisition
in the year ending December 31, 2009; however, we will apply this guidance to
business combinations as they are completed in the future.
 
 On
January 1, 2009, we adopted the authoritative guidance issued by the FASB that
changes the accounting and reporting for non-controlling interests.
Non-controlling interests are to be reported as a component of equity separate
from the parent’s equity, and purchases or sales of equity interests that do not
result in a change in control are to be accounted for as equity transactions. In
addition, net income attributable to a non-controlling interest is to be
included in net income and, upon a loss of control, the interest sold, as well
as any interest retained, is to be recorded at fair value with any gain or loss
recognized in net income. Adoption of the new guidance did not have a material
impact on our financial statements.
 
 On
January 1, 2009, we adopted the authoritative guidance issued by the FASB on
fair value measurement for nonfinancial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually).  Adoption of the new guidance did
not have a material impact on our financial statements.
  15
  
 On April
1, 2009, we adopted the authoritative guidance issued by the FASB on determining
fair value when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly, which
clarifies the objective and method of fair value measurement even when there has
been a significant decrease in market activity for the asset being measured.
Adoption of the new guidance did not have a material impact on our financial
statements.
 
 On April
1, 2009, we adopted the authoritative guidance issued by the FASB on disclosures
of fair values of financial instruments, which requires the fair value for
certain financial instruments to be disclosed in the interim periods, as well as
in annual financial statements.   Adoption did not have a material
impact on our financial statements.
 
 On April
1, 2009, we adopted the authoritative guidance issued by the FASB on the
recognition and presentation of other-than-temporary impairments, which is
intended to bring greater consistency to the timing of impairment recognition
and provide greater clarity about the credit and noncredit components of debt
securities whose fair value is below amortized cost and that are not expected to
be sold.  Increased disclosures regarding expected cash flows, credit
losses and an aging of securities with unrealized losses are also
required.  Adoption of the new guidance did not have a material impact
on our financial statements.
 
 On June
30, 2009, we adopted the authoritative guidance issued by the FASB related to
subsequent events, which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued.  Adoption of the new guidance did not have a material impact
on our financial statements.
 
 On
September 30, 2009, we adopted the FASB Accounting Standards Codification
(Codification).  The Codification is the source of authoritative U.S.
GAAP recognized by the FASB to be applied by nongovernmental
agencies.  Adoption of the new guidance did not have a material impact
on our financial statements.
 
 
 RECENT
ACCOUNTING GUIDANCE NOT YET ADOPTED
 
 In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for us beginning January 1, 2010. The
new guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of this new
guidance will not have a material impact on our financial
statements.
 
 In
October 2009, the FASB issued amendments to the accounting and disclosure for
revenue recognition.  These amendments, effective for fiscal years
beginning on or after June 15, 2010 (early adoption is permitted), modify the
criteria for recognizing revenue in multiple element arrangements and the scope
of what constitutes a non-software deliverable.  We believe adoption
of this new guidance will not have a material impact on our financial
statements.
 
 In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and liabilities between
Level 1 (quoted prices in active market for identical assets or liabilities) and
Level 2 (significant other observable inputs) of the fair value measurement
hierarchy, including the reasons and the timing of the transfers. Additionally,
the guidance requires a roll forward of activities on purchases, sales,
issuance, and settlements of the assets and liabilities measured using
significant unobservable inputs (Level 3 fair value measurements). The guidance
will become effective for us with the reporting period beginning January 1,
2010, except for the disclosure on the roll forward activities for Level 3 fair
value measurements, which will become effective for us with the reporting period
beginning January 1, 2011. Other than requiring additional disclosures, adoption
of this new guidance will not have a material impact on our financial
statements.
 
  16
  NOTE
B – ACQUISITIONS
  
  Ublip,
Inc. Acquistion
  On
October 9, 2008, the Company completed the acquisition of Ublip, Inc.
(“Ublip”).  The results of Ublip’s operations were included in the
consolidated financial statements from October 9, 2008.   Ublip is a
M2M software and services company based in Dallas, Texas operating in the United
States.  This acquisition generated approximately $1.6 million in
goodwill which the Company believes is appropriate as we now have the ability to
provide a full range of comprehensive M2M services to industry through
technology that includes middleware designed to simplify application development
and deployment and ‘virtual’ hosting architecture.
  The
assets acquired consist of computer equipment, software, inventory, accounts
receivable, and other intellectual property, including Ublip’s ‘Foundation’
software.
  Ublip was
merged into a wholly-owned subsidiary of Numerex and has been fully integrated
into the Company’s operations.  The aggregate purchase price of
approximately $1.7 million consists of 405,000 shares of restricted Numerex
Class A Common Stock, valued at $1.4 million, using the average selling price
three days prior and subsequent to the date of the acquisition of $3.56 per
share, which approximates the average selling price on the announcement date,
and approximately $240,000 in cash.
  The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:
  
  (in
      thousands)Assets
              
              $
              344Goodwill
              
              
              1,640Total
      assets acquired
              
              
              1,984Liabilities
      assumed
              
              
              (190
              )Net
      assets acquired
              
              $
              1,794
 
  The $1.6
million of goodwill was assigned to the M2M Services segment. The goodwill is
not deductible for income tax purposes.
  
  Orbit
One Communications Acquisition
  On August
1, 2007, with an effective date of July 31, 2007 the Company completed the
acquisition of the assets of Orbit One Communications, Inc. through its wholly
owned subsidiary, Orbit One Communications LLC (“Orbit One”).  The
results of Orbit One’s operations have been included in the consolidated
financial statements from August 1, 2007.  The assets relate to Orbit
One’s satellite-based M2M solutions it provides to government agencies and
emergency services markets primarily in the United States.  These
solutions include hardware, software, data management, installation,
maintenance, and use of its proprietary operational support
platform.  This acquisition initially generated approximately $7.5
million in goodwill which the Company believed was appropriate because it
expanded the Company’s M2M hardware and service technologies, it increased
penetration  into the governmental markets,  and improved
capabilities to enable M2M applications globally in areas underserved by
terrestrial-based and cellular communications providers.
   17
  
  The
assets acquired consist of software (including Orbit One’s proprietary mapping
and operational support platform), inventory, equipment (primarily
communications related computer hardware) accounts receivable, trademarks and
other intellectual property.
   Initial
consideration for the asset purchase was approximately $5.5 million paid in cash
plus $384,000 of transaction costs. An additional $732,000 was paid 60 days
after closing based on satisfying a net working capital test. In addition, if
certain revenue and EBITDA performance objectives and milestones were achieved,
subsequent payments could include shares of Numerex Corp’s common
stock.  If all earn-out objectives were achieved stock payments could
be up to 1,100,000 shares of the Company’s Class A common
stock.   If the performance targets were exceeded, Orbit One
could receive up to an additional 471,729 shares of the Company’s Class A common
stock and an additional cash payment of $2.5 million. In consequence,
approximately 1.6 million shares were issued to an escrow agent for the benefit
of Orbit One Communications, Inc. or Numerex as their interests may
appear. The earn-out milestones were measured over three periods: (i) from
the closing date of the transaction through December 31, 2007; (ii) calendar
year 2008; and (iii) calendar year 2009. The Company and Orbit One entered into
an escrow agreement, whereby 10% of the cash payments not subject to
performance-related milestones were placed in escrow for one year from the
closing date in order to settle any indemnification claims under the Agreement
and subject to the limitations described therein.  Any additional
payments of either cash or equity would be reflected as incremental
goodwill.
   On
December 31, 2007 certain revenue and EBITDA targets were met for the first
measurement period, ending December 31, 2007.   As a result,
320,833 shares of the Company’s Class A common stock were deemed issued to Orbit
One Communications, Inc. for purposes of computing common stock
dilution. These shares were valued using the average share price on the
measurement date for meeting the contingencies on December 31, 2007 of $8.33 per
share, thus increasing goodwill by $2.7 million and our common stock by the same
amount. An additional $1.8 million in cash was paid in January 2008 after
certain customer agreements were extended.  These shares, however,
remain in escrow and the January 2008 payment of $1.8 million is being disputed
as part of a legal action. The earn-out milestones for calendar years 2008 and
2009 were not met.
  
   18
  The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed on August 1, 2007, and updated for the additional cash
payment in conjunction with the extension of certain customer
agreements.
  Lifeof
      intangible(in
      thousands)
              
              Fair
      Value
              
              
              AssetsNet
      receivables
              
              $
              454
              
              
              
              -Prepaid
      assets
              
              
              418
              
              
              
              -Inventory
              
              
              1,162
              
              
              
              -Property,
      plant and equipment
              
              
              647
              
              
              
              -Other
      intangibles, net
              
              
              940
              
              
              7 -
      10 yearsSoftware,
      net
              
              
              1,283
              
              
              3 -
      9 yearsDeposits
              
              
              16
              
              
              
              -Goodwill
              
              
              7,488
              
              
              IndefiniteTotal
      assets acquired
              
              
              12,408Accrued
      liabilities
              
              
              (191
              )Capital
      lease obligations
              
              
              (8
              )Contract
      obligations
              
              
              (1,103
              )Total
      liabilities assumed
              
              
              (1,302
              )Net
      assets acquired
              
              $
              11,106
 
  The $1.3
million of acquired software includes $1.2 million assigned to its proprietary
satellite communications, tracking and mapping software.  The $940,000
of acquired intangible assets comprised $170,000 assigned to trademarks, and
$770,000 assigned to customer relationships.  The estimated useful
lives for these assets are 10 years for proprietary software, 1 year for
trademarks and 9 years for customer relationships.However, the valuation of
the assets of Orbit One at the time of the acquisition is the subject of
litigation. See Note P for further information.
  The $7.4
million of goodwill was assigned to the M2M Services segment.  The
Company conducted its annual goodwill and long lived asset analysis and
assessment for December 31, 2008.  As a result of our impairment
analysis, with assistance from an external appraisal firm, goodwill was impaired
by $3.1 million and thus the fair value was adjusted at December 31,
2008.
  The
goodwill and intangible assets will be deductible for income tax
purposes.
  
   19
  The
following unaudited pro-forma consolidated results of operations assume that the
acquisition of Orbit One assets was completed as of January 1 for the 12
months period shown below:
  
  For
      the YearEnded
      December 31,(In
      thousands, except per share data)
              
              2007Revenues
              
              $
              71,952Net
      Income
              
              $
              836Earnings
      Per Common Share
              
              $
              0.08Earnings
      Per Common Share - diluted
              
              $
              0.07
 
  These
pro-forma statements  have been prepared for comparative purposes only
and is not intended to be indicative of what the Company’s results would have
been had the acquisition occurred at the beginning of the periods presented or
the results which may occur in the future.
  
  Airdesk Acquisition
   On
January 5, 2006 the Company completed the acquisition of the assets of
Airdesk, Inc. through its wholly owned subsidiary, Airdesk LLC
(“Airdesk”).  The results of Airdesk’s operations have been included
in the consolidated financial statements from January 1, 2006.  The
assets relate to Airdesk’s machine-to-machine (M2M) solutions and services
business in the United States and Canada.  This acquisition generated
approximately $4.2 million in goodwill which the Company believes is appropriate
since it aligns Airdesk’s digital M2M hardware and portfolio of industry leading
radio modules with our M2M network and services platform.  The
acquisition of Airdesk also gives the Company presence in multiple vertical
segments including utilities, fleet management and point-of-sale
terminals.
  The
assets acquired consist of furniture, fixtures, equipment (consisting of
hardware and software), inventory, distribution rights agreements, accounts
receivable, trademarks and other intellectual property, including Airdesk’s
billing system and “Airsource” database library.
  Initial
consideration for the asset purchase was approximately $4.2 million payable in
the form of shares of the Company’s common stock and the assumption of certain
existing indebtedness of Airdesk, Inc.  In addition, if certain
revenue and other performance targets are achieved, the Company could issue an
additional 300,000 shares of its common stock over the three-year period from
the date of acquisition.  At April 1, 2007 a portion of these targets
were achieved and accordingly 100,000 shares were issued at a value of $1.0
million which were valued using the average stock price on date of issuance
resulting in an increase to goodwill of $1.0 million and a corresponding
increase in common stock.  Subsequent to December 31, 2007, the asset
purchase agreement was amended to remove the performance targets on the
remaining 200,000 un-issued shares with 60,000 shares to be issued on April 1,
2008, 60,000 shares issued on April 1, 2009 and the balance of 80,000 shares
issued on April 1, 2010.   Since these shares were only time
contingent, we recognized the value of these shares on the date of the amendment
of January 1, 2008.  This resulted in a $1.7 million increase in goodwill
and a corresponding increase in common stock.  The average selling price on
the date of the amendment was $8.53 per share.
  
   20
  The
Company assumed approximately $2.5 million of debt, of which $1.2 million was
paid in cash at closing of the transaction as a reduction of part of the debt,
and the balance of $1.3 million was paid on August 17, 2006.  The
Company also issued shares of common stock valued at approximately $196,000 to
Airdesk, Inc. at closing and deposited the remaining shares of common stock,
valued at closing at approximately $1.3 million, with an Escrow
Agent.  Airdesk, Inc. retains voting and dividend rights to these
shares while held in escrow. The Escrow Agent will release the shares of common
stock to Airdesk, Inc. over a two-year period in accordance with the terms of
the Escrow Agreement. In addition, we incurred approximately $266,000 of direct
acquisition expenses that are in addition to the purchase price.
  The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed on January 5, 2006 as updated for the additional issuance of
shares on April 1, 2007.
  
  (in
      thousands)Current
      assets
              
              $
              2,410Property,
      plant and equipment
              
              
              444Other
      non-current assets
              
              
              12Intangible
      assets
              
              
              934Goodwill
              
              
              4,232Total
      assets acquired
              
              
              8,032Current
      liabilities
              
              
              (3,346
              )Long-term
      debt
              
              
              (700
              )Total
      liabilities assumed
              
              
              (4,046
              )Net
      assets acquired
              
              $
              3,986
 
  The
$934,000 of acquired intangible assets was comprised of $668,000 assigned to
trademarks, $189,000 assigned to customer relationships and $77,000 assigned to
a non-compete agreement.  The estimated useful life of the customer
relationships is 4 years and the estimated useful life of the non-compete
agreement is 2 years.  The trademarks are not subject to
amortization.
  
  The $4.2
million of goodwill was assigned to the M2M Services segment. The goodwill is
not deductible for income tax purposes.
  
  NOTE
C – ACCOUNTS RECEIVABLE
  Accounts receivables and
related allowance for doubtful accounts consisted of the following:
  
  December
      31,(In
      thousands)
              
              2009
              
              
              2008Accounts
      receivable
              
              $
              6,406
              
              
              $
              9,952Unbilled
      accounts receivable
              
              
              483
              
              
              
              217Allowance
      for doubtful accounts
              
              
              (548
              )
              
              
              (1,010
              )Accounts
      receivable
              
              $
              6,341
              
              
              $
              9,159
 
  
   21
  NOTE
D – PREPAID EXPENSES AND OTHER CURRENT ASSETS
  Prepaid
expenses and other current assets consisted of the following:
  
  December
      31,
              
              
              December
      31,(In
      thousands)
              
              2009
              
              
              2008Notes
      receivable
              
              $
              1,029
              
              
              $
              916Prepaid
      expenses
              
              
              517
              
              
              
              380Debt
      issuance costs
              
              
              5
              
              
              
              196Misc.
      and employee receivables
              
              
              18
              
              
              
              16$
              1,569
              
              
              $
              1,508
 
  At
December 31, 2009 and 2008, we had one note receivable, with a 10% interest
rate, of $1.0 million and $916,000, respectively.
  
  NOTE
E – INVENTORY
  Inventory
consisted of the following:
  December
      31,(In
      thousands)
              
              2009
              
              
              2008Raw
      materials
              
              $
              1,503
              
              
              $
              2,710Work-in-progress
              
              
              14
              
              
              
              14Finished
      goods
              
              
              5,212
              
              
              
              6,388Less
      reserve for obsolescence
              
              
              (439
              )
              
              
              (606
              )Inventory,
      net
              
              $
              6,290
              
              
              $
              8,506
 
  
  NOTE
F – PROPERTY AND EQUIPMENT
  Property
and equipment consisted of the following:
  
  December
      31,(In
      thousands)
              
              2009
              
              
              2008Leasehold
      improvements
              
              $
              1,391
              
              
              $
              1,228Plant
      and machinery
              
              
              10,577
              
              
              
              10,004Equipment,
      fixtures, fittings
              
              
              831
              
              
              
              810Total
      property and equipment
              
              
              12,799
              
              
              
              12,042Accumulated
      depreciation
              
              
              (11,196
              )
              
              
              (10,277
              )Property
      and equipment, net
              
              $
              1,603
              
              
              $
              1,765
 
  
   22
  NOTE
G – INTANGIBLE ASSETS
  
  The
following table provides a summary of the components of our intangible
assets:
 
 For
      the Year ended December 31, 2009
              
              
              For
      the Year ended December 31, 2008M2M
      ServicesBalance
      at the beginning of the periodGoodwill
              
              $
              25,905
              
              
              $
              20,728Accumulated
      impairment losses
              
              
              (3,060
              )
              
              
              -22,845
              
              
              
              20,728Acquisition
      of Ublip, Inc.
              
              
              16
              
              
              
              1,640Acquisition
      of assets of Airdesk, Inc.
              
              
              -
              
              
              
              1,706Acquisition
      of assets of Orbit One, Inc.
              
              
              -
              
              
              
              1,831Impairment
      of goodwill of Orbit One, Inc.
              
              
              -
              
              
              
              (3,060
              )Balance
      at the end of the periodGoodwill
              
              
              25,921
              
              
              
              25,905Accumulated
      impairment losses
              
              
              (3,060
              )
              
              
              (3,060
              )22,861
              
              
              
              22,845Wireline
      ServicesBalance
      at the beginning of the periodGoodwill
              
              
              4,015
              
              
              
              4,015Accumulated
      impairment losses
              
              
              (3,089
              )
              
              
              (2,140
              )926
              
              
              
              1,875Impairment
      of goodwill
              
              
              -
              
              
              
              (949
              )Balance
      at the end of the periodGoodwill
              
              
              4,015
              
              
              
              4,015Accumulated
      impairment losses
              
              
              (3,089
              )
              
              
              (3,089
              )926
              
              
              
              926Total
      at end of period
              
              $
              23,787
              
              
              $
              23,771
 
  During
2009 and 2008, we prepared an analysis using standard modeling techniques to
estimate a fair market value for each of the three reporting units with
goodwill:  M2M Services, Orbit One, LLC and Wireline Services and for
2008 we had an additional reporting unit of Airdesk.  At the beginning
of 2009 it was necessary to combine the Airdesk reporting unit with the M2M
Services reporting unit as it had been so integrated with the M2M Services
reporting unit that it was no longer possible to report discrete financial
information for the Airdesk reporting unit.  This analysis included a
combination of a discounted cash flow models and, where available, the use of
public company market comparables in similar industries.  We used
historical information, our subsequent year business plan and expected future
development projects to prepare six year financial projections used in the
discounted cash flow analysis for each of the reporting units.
   During
2009, we did not record goodwill or long-lived intangible asset impairment
charges.  During 2008, we recorded a pre-tax goodwill and long-lived
intangible asset impairment, of $5.3 million, $4.3 million of which was
attributable to Orbit One as detailed in the prior note and $1.0 million related
to our Wireline Services reporting unit.
   23
 
 The
Company did not incur costs to renew or extend the term of acquired intangible
assets during the year ending December 31, 2009. Intangible assets, which
will continue to be amortized, consisted of the following (in
thousands):
 
 
 December
      31, 2009
              
              
              December
      31, 2008Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Net
      Book Value
              
              
              Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Net
      Book ValuePurchased
      and developed software
              
              $
              8,344
              
              
              $
              (5,597
              )
              
              $
              2,747
              
              
              $
              7,272
              
              
              $
              (4,476
              )
              
              $
              2,796Patents,
      trade and service marks
              
              
              13,397
              
              
              
              (9,106
              )
              
              
              4,291
              
              
              
              13,116
              
              
              
              (8,124
              )
              
              
              4,992Intangible
      and other assets
              
              
              1,523
              
              
              
              (829
              )
              
              
              694
              
              
              
              1,278
              
              
              
              (474
              )
              
              
              804Total
      Intangible and other assets
              
              $
              23,264
              
              
              $
              (15,532
              )
              
              $
              7,732
              
              
              $
              21,666
              
              
              $
              (13,074
              )
              
              $
              8,592
 
 At
December 31, 2009 and 2008, the Company had capitalized approximately $916,000
and $823,000 of internally generated software development costs, respectively.
Amortization of capitalized software development costs for the years ended
December 31, 2009 and 2008 was $910,000 and $706,000, respectively.
   The
Company expects amortization expense for the next five years and thereafter to
be as follows based on intangible assets as of December 31, 2009 (in
thousands):
  
  2010
              $
      2.6 million2011
              1.7
      million2012
              1.4
      million2013
              1.0
      million2014
              0.6
      millionThereafter
              0.4
      millionTotal
              $
      7.7 million
 
  
  NOTE
H – OTHER ASSETS
  Other
assets consisted of the following:
  
  December
      31,
              
              
              December
      31,(In
      thousands)
              
              2009
              
              
              2008Deposits
      long term
              
              $
              119
              
              
              $
              130Debt
      issuance costs
              
              
              -
              
              
              
              158$
              119
              
              
              $
              288
 
  The
long-term portion of debt issuance costs were $556,000, less accumulated
amortization of approximately $556,000, at December 31, 2009, and $556,000, less
accumulated amortization of approximately $398,000, at December 31,
2008.
  
   24
  NOTE
I – INCOME TAXES
   The
provision for income taxes consisted of the following:
  December
      31,(in
      thousands)
              
              2009
              
              
              2008
              
              
              2007Current:Federal
              
              $
              -
              
              
              $
              26
              
              
              $
              43State
              
              
              132
              
              
              
              95
              
              
              
              17Foreign
              
              
              49
              
              
              
              54
              
              
              
              -Reserve
      for Uncertain Tax Positions
              
              
              (2
              )
              
              
              106
              
              
              
              140Deferred:Federal
              
              
              98
              
              
              
              2,664
              
              
              
              529State
              
              
              8
              
              
              
              102
              
              
              
              (1
              )$
              285
              
              
              $
              3,047
              
              
              $
              728
 
  
   Income
taxes recorded by the Company differ from the amounts computed by applying the
statutory U.S. federal income tax rate to income before income taxes. The
following schedule reconciles income tax expense (benefit) at the statutory rate
and the actual income tax expense as reflected in the consolidated statements of
operations for the respective periods:
  
  (in
      thousands)
              
              December
      31,2009
              
              
              2008
              
              
              2007Income
      tax (benefit) computed atU.S.
      corporate tax rate of 34%
              
              $
              (1,885
              )
              
              $
              (2,695
              )
              
              $
              377Adjustments
      attributable to:Deferred
      Balance True Up
              
              
              (13
              )
              
              
              (173
              )
              
              
              639State
      Net Operating Losses
              
              
              -
              
              
              
              -
              
              
              
              (93
              )Valuation
      allowance
              
              
              991
              
              
              
              4,035
              
              
              
              (554
              )State
      Tax
              
              
              (11
              )
              
              
              67
              
              
              
              11Foreign
      Tax
              
              
              (25
              )
              
              
              30
              
              
              
              (7
              )Reserve
      for Uncertain Tax Positions
              
              
              (2
              )
              
              
              106
              
              
              
              140Non-deductible
      expenses
              
              
              272
              
              
              
              284
              
              
              
              215Non-cash
      debt charge
              
              
              829
              
              
              
              -
              
              
              
              -Goodwill
      impairment
              
              
              -
              
              
              
              1,263
              
              
              
              -Expiration
      of net operating loss
              
              
              -
              
              
              
              98
              
              
              
              -Stock
      Option Shortfall
              
              
              131
              
              
              
              -
              
              
              
              -Other
              
              
              (2
              )
              
              
              32
              
              
              
              -$
              285
              
              
              $
              3,047
              
              
              $
              728
  25
  The
components of the Company’s net deferred tax assets and liabilities are as
follows:
  
  (in
      thousands)
              
              December
      31,2009
              
              
              2008Current
      deferred tax assetInventories
              
              $
              349
              
              
              $
              327Accruals
              
              
              99
              
              
              
              85Net
      operating loss carry forward
              
              
              -
              
              
              
              -Other
              
              
              395
              
              
              
              395Valuation
      allowance
              
              
              (786
              )
              
              
              (807
              )57
              
              
              
              -Non-Current
      deferred tax assetIntangibles
              
              
              1,821
              
              
              
              1,321Foreign
      NOL carry forward
              
              
              -
              
              
              
              -Net
      operating loss carry forward
              
              
              7,788
              
              
              
              7,270Tax
      credit carry forward
              
              
              1,303
              
              
              
              1,303Difference
      between book and taxBasis
      of property
              
              
              (818
              )
              
              
              (580
              )Other
              
              
              402
              
              
              
              227Valuation
      allowance
              
              
              (10,553
              )
              
              
              (9,541
              )(57
              )
              
              
              -Deferred
      Tax LiabilitiesGoodwill
              
              
              (154
              )
              
              
              (48
              )Net
      Deferred Tax Liabilities
              
              $
              (154
              )
              
              $
              (48
              )
 
  
  Management
has provided a full valuation allowance on deferred tax assets. Management
intends to maintain this valuation allowance until sufficient positive evidence
exists to support reversal of the valuation allowance. Income tax expense
recorded in the future will be reduced or increased to the extent of offsetting
decreases or increases to the valuation allowance.
  The
future taxable income expected from the reversal of temporary differences
(deferred tax liabilities) is being offset by net operating loss carryforwards
(deferred tax assets) with the exception of the deferred tax liability generated
from the amortization of tax deductible goodwill which has an indefinite period
of reversal. Because the reversal of goodwill amortization cannot be assumed to
reverse during the statutory carryforward period of the Company's NOL's, this
liability is isolated and presented gross in the amount of $154,000 as a long
term liability in the Statement of Financial Position.
   Net
operating loss carry forwards available at December 31, 2009, expire as
follows:
  
  (in
      thousands)
              
              
              
              
              Year
      ofAmount
              
              
              ExpirationFederal
      operating losses
              
              $
              14,447
              
              
              
              2021-2029State
      operating losses
              
              $
              53,165
              
              
              
              2017-2029Minimum
      Tax Credit Carryforward
              
              $
              738
              
              
              
              N/AGeneral
      Business Credit Carryforward
              
              $
              565
              
              
              
              2015-2022
 
   26
  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management
considers projections of future taxable income, tax planning strategies and the
reversal of temporary differences in making this
assessment.  Cumulative losses incurred in recent years and the
potential impact of the current economic environment on future taxable income
represented sufficient negative evidence to require a full valuation allowance.
As such, at December 31, 2008 management established a full valuation allowance
against the net deferred tax assets, which remains at December 31, 2009 and
until sufficient positive evidence exists to support reversal. Deferred tax
assets generated during the current year primarily due to net operating losses
were also offset by an increase to the valuation allowance resulting in no net
benefit recorded in the current year. Future reversals or increases to the
valuation allowance could have a significant impact on our future
earnings.
   The
company files U.S., state and foreign income tax returns in jurisdictions with
varying statutes of limitation. The 2006 through 2008 tax years generally remain
subject to examination by federal and most state tax authorities. However,
certain returns from years in which net operating losses have arisen are still
open for examination by the tax authorities.
  
  NOTE
J – NOTES PAYABLE
   On
December 29, 2006, the Company completed a private placement to Laurus Master
Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal
amount of $10,000,000 (“Note C”), and (ii) a warrant to purchase up to
158,562 shares of our common stock.  Interest accrues on this note at
a rate of 9.50% annually. This note has a four year term and is secured by
substantially all of our assets.  Note C was fully repaid at December
31, 2009. The fair value of the warrant associated with Note C on December
29, 2006 was $735,000 and was calculated using the Black-Scholes fair value
pricing model.
   On
May 30, 2006, the Company completed a private placement to Laurus Master
Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal
amount of $5,000,000 (“Note A”) (ii) a non-convertible term note in the
principal amount of $5,000,000 (“Note B”), and (iii) a
warrant  to purchase up to 241,379 shares of our common
stock.  Interest accrues on each of the notes at a rate of 9.75%
annually.  Both notes have four year terms and are secured by
substantially all of our assets.  The fair value of the warrant
associated with Note A and Note B on May 30, 2006 was $846,000 and was
calculated using the Black-Scholes fair value pricing
model.
   Interest
under Note B must be paid in cash.  The principal balance on Note B is
due and payable in cash on May 30, 2010.  The Company fully repaid
Note B on January 8, 2010.
   The
Company may only use common stock to make payments on convertible Note A if the
price per share of the common stock for the required number of trading days
immediately prior to conversion is greater than $8.70.  The holder of
the convertible note may convert the entire principal amount of the convertible
note, and any accrued interest thereon, into the Company’s common stock at a
fixed conversion price equal to $7.91 per share.
  
   27
  In
consideration of the above private placements and other private placements for
term notes, the Company issued to Laurus warrants to purchase our common stock,
the terms of which are summarized as follows:
  
  Number
      of Securities
              
              
              Common
      Stock Exercise Price
              
              Expiration
      Date150,000
              
              
              $
              4.75
              
              January
      13, 2011100,000
              
              
              
              5.17
              
              January
      13, 2011116,000
              
              
              
              5.99
              
              January
      13, 201150,000
              
              
              
              5.51
              
              January
      28, 201250,000
              
              
              
              5.72
              
              January
      28, 2012241,379
              
              
              
              7.73
              
              May
      30, 2013158,562
              
              
              
              10.13
              
              December
      29, 2013
 
 During
2009, we made additional debt payments of $4.5 million in cash and converted
$4.047 million of outstanding debt associated with financings in May 2006 and
December 2006.  This conversion of outstanding debt to equity resulted
in the issuance of 888,817 shares of the Company’s Class A Common Stock at a
conversion price ranging from $4.42 - $4.65 per share, as agreed upon by the
parties.  Though no economic incentive was offered, we are required to
account for the inducement conversion under ASC 470-20 (previously SFAS No. 84
“Induced Conversions of
Convertible Debt”).  We recognized non-cash debt conversion
charges of $2.4 million, which equaled the excess of the fair value of the
common stock issued over the fair value of the common stock issuable pursuant to
the original conversion terms.  We recorded $499,000 in interest
expense as a result of expensing the deferred fees associated with the
debt.
 
 As of
December 31, 2009, the Company had $500,000 outstanding under Note B and none
outstanding under Note C.  As of December 31, 2009, the Company had a
balance of $7,300 for the unamortized warrant associated with Note B and none
for the unamortized warrant associated with Note C.  The Company fully
repaid Note B on January 8, 2010.
  Laurus is
an "accredited investor" as defined in Rule 501(d) of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act").  The
Company issued the securities to Laurus in reliance on the exemption from
registration provided by Section 4(2) under the Securities Act.
  28
 NOTE
K – SHARE-BASED COMPENSATION
   For the
years ended December 31, 2009, 2008 and 2007 share-based compensation expense
was $995,000, $1.2 million and $941,000, respectively.  Share-based
compensation consisted of expense related to employee equity
awards.  Total unrecognized compensation related to unvested
share-based awards granted to employees and members of our board of directors at
December 31, 2009, net of estimated forfeitures, is $1.0 million and is expected
to be recognized over a weighted-average period of 1.3 years.
  Share-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. Share-based compensation expense recognized in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2009, 2008
and 2007 included compensation expense for share-based payment awards granted
prior to, but not yet vested as of December 31, 2005 based on the grant
date fair value estimate and compensation expense for the share-based payment
awards granted subsequent to December 31, 2005.  The Company will
continue to use the method of attributing the value of share-based compensation
costs to expense on the straight-line method.  As stock-based
compensation expense recognized in the Consolidated Statement of Operations for
the years ended December 31, 2009, 2008 and 2007 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.
  The fair
value of share-based payment awards is estimated at the grant date using the
Black-Scholes option valuation model. The Company’s determination of fair value
of share-based payment awards on the date of grant using the option-pricing
model is affected by the Company’s stock price, as well as management’s
assumptions. These variables include, but are not limited to; the Company’s
expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors.
  The
Company has outstanding stock options granted pursuant to four stock option
plans. The 1994 Long-Term Incentive Plan (the “1994 Plan”), which was adopted in
1994, the Non-Employee Director Stock Option Plan (the “Director Plan”) which
was adopted in 1996, the Long-Term Incentive Plan (the “1999 Plan”), which was
adopted in 1999 and the 2006 Long Term Incentive Plan (the “2006 Plan”) which
was adopted in 2006.  The 1994 Plan and the Director Plan were
terminated and replaced by the 1999 Plan which was effective for options granted
from October 25, 1999.  The 1999 Plan was terminated and replaced by
the 2006 Plan. Options outstanding under the 1994 Plan, the Director Plan and
the 1999 Plan remain in effect, but no new options may be granted under those
plans.  Options issued under the 2006 Plan and the 1999 Plan typically
vest ratably over a four-year period.  All options issued under the
1994 Plan are fully vested.
  The
aggregate number of shares which may be issued under the 2006 plan is 750,000
shares of Class A Common Stock (“Shares”) plus (i) any available Shares
under the 1999 Plan as of its termination date and (ii) Shares subject to
options granted under the 1999 Plan that expire or terminate without having been
fully exercised.  A summary of the company's stock option activity and
related information for the years ended December 31, 2009, 2008 and 2007
follows:
  
  Weighted
              
              Weighted
              
              Weighted
      Avg.
              
              
              AggregateAverage
              
              Average
      Remaining
              
              Grant
      Date
              
              
              IntrinsicShares
              
              
              Ex.
      Price
              
              Contractual
      Life (Yrs)
              
              Fair
      Value
              
              
              ValueOutstanding,
      at 12/31/06
              
              
              1,784,865
              
              
              $
              5.55Options
      granted
              
              
              301,500
              
              
              
              8.47
              
              
              
              $
              4.69Options
      exercised
              
              
              (133,830
              )
              
              
              4.80
              
              
              
              
              
              
              
              $
              777,777Options
      cancelled
              
              
              (26,063
              )
              
              
              5.62Options
      expired
              
              
              (250
              )
              
              
              4.57Outstanding,
      at 12/31/07
              
              
              1,926,222
              
              
              
              6.06Options
      granted
              
              
              199,500
              
              
              
              5.39
              
              
              
              $
              3.34Options
      exercised
              
              
              (26,541
              )
              
              
              4.53
              
              
              
              
              
              
              
              $
              49,356Options
      cancelled
              
              
              (54,188
              )
              
              
              7.65Options
      expired
              
              
              (39,272
              )
              
              
              5.96Outstanding,
      at 12/31/08
              
              
              2,005,721
              
              
              
              5.97
              
              
              
              
              
              
              
              $
              383,626Options
      granted
              
              
              140,500
              
              
              
              4.38
              
              
              
              $
              2.81Options
      exercised
              
              
              (124,500
              )
              
              
              3.63
              
              
              
              
              
              
              
              $
              90,800Options
      cancelled
              
              
              (141,875
              )
              
              
              7.83Options
      expired
              
              
              (41,750
              )
              
              
              6.26Outstanding,
      at 12/31/09
              
              
              1,838,096
              
              
              
              5.86
              
              5.17
              
              
              
              
              
              $
              632,057Exercisable,
      at 12/31/09
              
              
              1,449,843
              
              
              
              5.85
              
              4.30
              
              
              
              
              
              $
              582,174
 
   29
  The
following table summarizes information related to fixed stock options
outstanding at December 31, 2009:
   Options
      outstanding
              
              
              Options
      exercisableRange
      of exercise prices
              
              
              Number
      outstanding at December 31, 2009
              
              
              Weighted
      average remaining contractual life (years)
              
              
              Weighted
      average exercise price
              
              
              Number
      exercisable at December 31, 2009
              
              
              Weighted
      average exercise price$
              1.00
      –  4.00
              
              
              
              454,664
              
              
              
              4.56
              
              
              $
              2.93
              
              
              
              398,415
              
              
              $
              2.864.01
      –  8.00
              
              
              
              923,932
              
              
              
              5.70
              
              
              $
              5.57
              
              
              
              664,118
              
              
              $
              5.628.01
      –  12.94
              
              
              
              459,500
              
              
              
              4.69
              
              
              $
              9.32
              
              
              
              387,310
              
              
              $
              9.311,838,096
              
              
              
              5.17
              
              
              $
              5.86
              
              
              
              1,449,843
              
              
              $
              5.85
 
  The fair
value of options at date of grant was estimated using the Black-Scholes option
pricing model. The fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting
period. Use of a valuation model requires management to make certain assumptions
with respect to selected model inputs. Expected stock price volatility was
calculated based on the historical volatility of our common stock over the
expected life of the option. The risk-free interest rate is based on U.S.
Treasury zero-coupon issues with a remaining term equal to the expected life
assumed at the date of grant. Forfeitures are estimated based on voluntary
termination behavior, as well as an analysis of actual option
forfeitures.  Dividend yield is zero as there are no payments of
dividends.  With regard to the estimate of the expected life, we
consider the exercise behavior of past grants and model the pattern of aggregate
exercises.
  A summary
of the status of the Company’s nonvested shares as of December 31, 2009, and
changes during the year ended December 31, 2009, is presented
below:
  
  WeightedAverageGrant-dateNonvested
      Shares
              
              Shares
              
              
              Fair
      ValueNonvested
      at January 1, 2009
              
              
              547,440
              
              
              $
              4.09Options
      granted
              
              
              140,500
              
              
              
              2.81Options
      vested
              
              
              (116,061
              )
              
              
              3.45Options
      forfeited
              
              
              (183,625
              )
              
              
              4.45Nonvested
      at December 31, 2009
              
              
              388,254
              
              
              
              3.60
 
  
  The total
fair value of shares vested during the years ended December 31, 2009, 2008 and
2007 was $1.0 million, $1.3 million and $868,000, respectively.
  
   30
  The key
assumptions used in the valuation model during the twelve months ended December
31, 2009, 2008 and 2007 are provided below:
  
  Twelve
      Months EndedDecember
      31,2009
              2008
              2007Valuation
      Assumptions:Volatility
              70.70%
              69.73%
              57.24%Expected
      term
              6.3
              6.3
              6.3Risk
      free interest rate
              2.48%
              3.15%
              4.29%Dividend
      yield
              0.00%
              0.00%
              0.00%
 
  NOTE
L – SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED
PARTIES
  
  One
customer accounted for approximately 14.7% of consolidated revenue for the year
ended December 31, 2009, principally from our M2M Services
segment.  Accounts receivable from this customer was approximately
$140,000 at December 31, 2009. Two customers accounted for 15.3% and 10.3%,
respectively, of outstanding accounts receivable at December 31,
2009.  One customer accounted for approximately 22% of consolidated
revenue for the year ended December 31, 2008, principally from our M2M Services
segment.  Accounts receivable from this customer was $1.3 million at
December 31, 2008.  One customer accounted for approximately 13% of
consolidated revenue for the year ended December 31, 2007, principally from our
M2M Services segment. Accounts receivable from this customer was $3.0 million at
December 31, 2007, which is approximately 18% of total accounts
receivable.
   We had
two suppliers from which our purchases were approximately 44.2% of our hardware
cost of sales for the year ended December 31, 2009.   Our
accounts payable to these suppliers was approximately $1.0 million at December
31, 2009.  We had two suppliers from which our purchases were
approximately 67% of our hardware cost of sales for the year ended December 31,
2008.   Our accounts payable to these suppliers was approximately
$3.6 million at December 31, 2008.  We had two suppliers from which
our purchases were approximately 57% of cost of hardware sales for the year
ended December 31, 2007.  The components included in the hardware
purchased from this supplier can be sourced from other suppliers.
  
 We
conducted business with one related party during the year ended December 31,
2009.  Mr. Ryan, a director on the Company’s Board of Directors is
also partner in the law firm of Salisbury & Ryan LLP.  Salisbury
& Ryan LLP provided legal services to the Company in 2009 and will continue
to provide such services during 2010.  During the year ended December
31, 2009, 2008, and 2007 Salisbury & Ryan LLP charged legal fees of
approximately $358,000, $762,000 and $277,000, respectively.  Our
accounts payable to Salisbury & Ryan LLP was $28,000 and $201,000 at
December 31, 2009 and 2008, respectively.
  
   31
  NOTE
M – COMMITMENTS AND CONTINGENCIES
  
  Capital
Leases
  We
conduct a portion of our operations with leased equipment. For financial
reporting purposes, minimum lease rentals relating to the equipment have been
capitalized.
   The
related assets and obligations have been recorded using our incremental
borrowing rate at the inception of the lease.  The leases expire at
various dates through 2011. The gross value of the assets financed by the lease
obligations at the inception of the leases was $157,000.  The net
carrying value of assets financed by capital lease obligations approximated
$30,000 as of December 31, 2009.  The following is a schedule by years
of future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of December 31, 2009, (in
thousands).
    2010
              
              $
              262011
              
              
              7Total
      minimum lease payments
              
              
              33Less
      amount representing interest
              
              
              (3
              )Present
      value of net minimum lease payments
              
              $
              30
 
  Subsequent
to year end the Company entered into an agreement to acquire certain equipment
for approximately $900,000.
   Operating
Leases
  We lease
certain property and equipment under non-cancelable operating leases with
initial terms in excess of one year, through 2013. Future minimum lease payments
under such non-cancelable operating leases subsequent to December 31, 2009, (in
thousands) are as follows:
  2010
              
              $
              9522011
              
              
              8872012
              
              
              5652013
              
              
              -Total
      minimum lease payments
              
              $
              2,404
 
  Rent
expense, including short-term leases, amounted to approximately $1.0 million,
$1.1 million and $938,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
  
  NOTE
N – BENEFIT PLAN
  We
sponsor a 401(k) savings and investment plan, a plan that covers all eligible
employees of Numerex Corp and its subsidiaries.  Employees are
eligible for participation on the enrollment date following six months of
service.  We contribute an amount equal to 50% of the portion of the
employee’s elective deferral contribution that do not exceed 6% of the
employee’s total compensation for each payroll period in which an elective
deferral is made.  Our contribution is made in cash on a monthly
basis.  Our matching contributions are vested over a three year period
at a rate of 33% per year.  Approximately $179,000, $182,000 and
$151,000 were expensed for the years ended December 31, 2009, 2008 and 2007,
respectively.
   32
  NOTE
O – EARNINGS (LOSS) PER SHARE
  The
numerator in calculating both basic and diluted net earnings (loss) per share
for each period is net earnings (loss).  The denominator is based on
the following number of common shares:
  
  For
      the years ended December 31,(In
      thousands, except per share data)
              
              2009
              
              
              2008
              
              
              2007Common
      Shares:Weighted
      average common shares outstanding
              
              
              14,409
              
              
              
              14,144
              
              
              
              13,137Dilutive
      effect of common stock equivalents
              
              
              -
              
              
              
              -
              
              
              
              563Total
              
              
              14,409
              
              
              
              14,144
              
              
              
              13,700Net
      earnings (loss)
              
              $
              (5,829
              )
              
              $
              (10,975
              )
              
              $
              440Net
      earnings (loss) per common share:Basic
              
              $
              (0.40
              )
              
              $
              (0.78
              )
              
              $
              0.03Diluted
              
              $
              (0.40
              )
              
              $
              (0.78
              )
              
              $
              0.03
 
  For the
year ended December 31, 2009 and 2008, the effect of our 1,838,096 and 2,005,721
stock options and warrants was not included, respectively, in the computation of
diluted earnings per share as their effect was anti-dilutive.
  For the
years ended December 31, 2007, we excluded antidilutive options of 239,692
shares of common stock and common stock equivalents from the computation of
diluted earnings per share, as the exercise prices of those shares were greater
than the average market price of the common stock during the applicable
period.
  In
connection with the acquisition of the assets of Orbit One Communications, , the
Company issued an additional 1,250,596 shares of the Company’s common
stock.  These shares are currently held in escrow for the benefit of
Orbit One or Numerex, as their interest may appear in the future, and are not
included in the basic and diluted share calculation.   The shares
could be released depending on the outcome of the litigation described in Note P
below.
   NOTE
P – LEGAL PROCEEDINGS
  On
January 7, 2008 Orbit One Communications, Inc. (“Orbit One”) and David Ronsen
(“Ronsen”) filed an action against Numerex in New York State Supreme Court,
County of New York, alleging,inter alia,breach of contract in frustrating Orbit One’s ability to
achieve earn out targets in the acquisition and employment agreements.
Plaintiffs are claiming $20 million in damages.  On January 25, 2008
Numerex removed the action to the United States District Court, Southern
District of New York.  On March 11, 2008 Numerex answered and
counterclaimed asserting, inter alia, breach of
fiduciary duty and declaratory relief.  On September 23, 2008, Orbit One,
Ronsen and related entities commenced an action in the District of Montana
seeking to declare Ronsen’s non-compete obligations void.   On
December 9, 2008, the court transferred the case to the United States District
Court for the Southern District of New York.  On January 7, 2009, the court
held a hearing on plaintiffs’ motion for a preliminary injunction.  On
January 21, 2009, the Court denied plaintiffs’ motion for a preliminary
injunction.  On January 30, 2009, Numerex filed counterclaims against
plaintiffs for fraud, theft of trade secrets and confidential information and
breach of the Asset Purchase Agreement; and from Ronsen, Naden and Rosenzweig
for breach of their fiduciary duties and duty of loyalty to Numerex, as well as
breach of their respective Severance Agreements.  On February 24, 2009, the
court consolidated the actions and ordered the parties to complete their
discovery by February 27, 2009.    Discovery has been
completed.   On April 17, 2009, the parties filed cross-motions
for summary judgment.   On March 12, 2010, the Court entered a
decision on the cross-motions for summary judgment.  The Court held that
Mr. Ronsen’s claim that he had “good reason” to resign presented material issues
of fact requiring a trial.  Similarly, the Court held that Numerex’s claims
against Orbit One and its principals for breach of contract, fraudulent
inducement, breach of fiduciary duty, and other related claims presented
material issues of fact requiring a trial.  No trial date has been
set.  Numerex believes that the plaintiffs' claims are without merit
and intends to defend against the allegations and to vigorously pursue its
counterclaims.
  
  NOTE
Q – SEGMENT INFORMATION
  The
Company has two reportable operating segments.  These segments are M2M
Services and Wireline Services.  The M2M Services segment is made up
of all our cellular and satellite machine-to-machine communications hardware and
services.  The Wireline Services segment includes our networking
hardware and services, video conferencing hardware, and our wire-line security
detection hardware.
 
 The
Company’s chief operating decision maker is the Chief Executive Officer (CEO).
While the CEO is apprised of a variety of financial metrics and information, the
Company’s business is principally managed on a segment basis, with the CEO
evaluating performance based upon segment operating profit or loss that includes
an allocation of common expenses, but excludes certain unallocated expenses. The
CEO does not view segment results below operating profit (loss) before
unallocated costs, and therefore unallocated expenses, interest income and
other, net, and the provision for income taxes are not broken out by segment.
Items below segment operating profit/(loss) are reviewed on a consolidated
basis.
 
   33
  Summarized
below are the Company’s revenues and operating earnings (loss) by
reportable segment.
  
  Certain
Corporate expenses are allocated to the segments based on segment
revenues.
  For
      the years ended December 31,(In
      thousands, except per share data)
              
              2009
              
              
              2008
              
              
              2007Revenues:M2M
      Services
              
              $
              47,381
              
              
              $
              66,149
              
              
              $
              62,825Wireline
      Services
              
              
              3,455
              
              
              
              6,170
              
              
              
              5,179$
              50,836
              
              
              $
              72,319
              
              
              $
              68,004Operating
      earnings (loss):M2M
      Services
              
              $
              3,382
              
              
              $
              (6,729
              )
              
              $
              2,374Wireline
      Services
              
              
              1,162
              
              
              
              916
              
              
              
              680Unallocated
      Corporate
              
              
              (6,200
              )
              
              
              (576
              )
              
              
              (554
              )$
              (1,656
              )
              
              $
              (6,389
              )
              
              $
              2,500Depreciation
      and amortization:M2M
      Services
              
              $
              2,754
              
              
              $
              1,589
              
              
              $
              1,801Wireline
      Services
              
              
              27
              
              
              
              965
              
              
              
              194Unallocated
      Corporate
              
              
              617
              
              
              
              553
              
              
              
              498$
              3,398
              
              
              $
              3,107
              
              
              $
              2,493Dec.
      31,
              
              
              Dec.
      31,Identifiable
      Assets:
              
              
              2009
              
              
              
              2008M2M
      Services
              
              $
              43,739
              
              
              $
              49,598Wireline
      Services
              
              
              2,181
              
              
              
              2,168Unallocated
      Corporate
              
              
              6,827
              
              
              
              10,740$
              52,747
              
              
              $
              62,506
  
  34
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL
STATEMENTS
 
 Board of
Directors and Shareholders
 Numerex
Corp. and subsidiaries
 
 We have
audited the accompanying balance sheets of Numerex Corp. (a Pennsylvania
corporation) and subsidiaries (the “Company”) as of December 31, 2009 and 2008,
and the related consolidated statements of operations and comprehensive income
(loss), shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2009.Our audits of the basic
financial statements included the financial statement schedule listed in the
index appearing under Item 15 (a)(2). These financial statements and financial
statement schedule are the responsibility of the Company’s management.Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Numerex Corp. and subsidiaries as
of December 31, 2009 and 2008, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation of the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
 
 As
discussed in Note A, the Company adopted new accounting guidance on January 1,
2007 related to the accounting for uncertainty in income tax
reporting.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Numerex Corp. and subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 29, 2010 expressed an unqualified opinion thereon.
 
  /s/
Grant Thornton, LLP
 Atlanta,
Georgia
 March 29,
2010
   35
  
  PART IV
  Item 15. Exhibits and Financial Statement
Schedules
  
 31.1
              Rule
      13a-14(a) Certification of Chief Executive Officer
  *
 
 31.2
              Rule
      13a-14(a) Certification of Chief Financial Officer
  *
 
 32.1
              Rule
      13a-14(b) Certification of Chief Executive Officer
  *
 
 32.2
              Rule
      13a-14(b) Certification of Chief Financial Officer
  *
 
 *Filed
herewith
  36
  
 
 
 SIGNATURES
 
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.  .
 
 NUMEREX CORP.
 
 By:/s/  Stratton J.
Nicolaides
 Stratton
J.
Nicolaides
 Chairman
and Chief Executive Officer
 
 Date:
April 20, 2010